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Derivative Activities | 12 Months Ended
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Dec. 31, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Activities | (9) Derivative Activities We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We do not utilize complex derivatives as we typically utilize commodity swap, calls, swaptions or collar contracts to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. Every derivative instrument is required to be recorded on our consolidated balance sheets as either an asset or a liability measured at its fair value. Their fair value, which is represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price (generally NYMEX for natural gas and crude oil or Mont Belvieu for NGLs), approximated a net derivative liability of $169.5 million at December 31, 2021. These contracts expire monthly through December 2023. The following table sets forth the derivative volumes by year as of December 31, 2021, excluding our basis, freight swaps and divestiture contingent consideration which are discussed separately below:
Period |  | Contract Type |  | Volume Hedged |  | Weighted Average Hedge Price |
|  |  |  |  |  | Swap |  |  | Sold Put |  |  | Floor |  |  | Ceiling |
Natural Gas (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2022 |  | Swaps |  | 497,479 Mmbtu/day |  | $ | 3.12 |  |  |  |  |  |  |  |  |  |
2022 |  | Collars |  | 224,301 Mmbtu/day |  |  |  |  |  |  |  | $ | 3.28 |  |  | $ | 3.73 |
2022 |  | Three-way Collars |  | 251,781 Mmbtu/day |  |  |  |  | $ | 2.37 |  |  | $ | 3.03 |  |  | $ | 3.77 |
January-March 2022 |  | Calls |  | 80,000 Mmbtu/day |  |  |  |  |  |  |  |  |  |  | $ | 6.02 |
2023 |  | Swaps |  | 197,500 Mmbtu/day |  | $ | 3.40 |  |  |  |  |  |  |  |  |  |
2023 |  | Collars |  | 110,000 Mmbtu/day |  |  |  |  |  |  |  | $ | 3.26 |  |  | $ | 4.26 |
2023 |  | Three-way Collars |  | 70,000 Mmbtu/day |  |  |  |  | $ | 2.25 |  |  | $ | 3.25 |  |  | $ | 4.28 |
Crude Oil |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2022 |  | Swaps |  | 6,437 bbls/day |  | $ | 60.73 |  |  |  |  |  |  |  |  |  |
2023 |  | Swaps |  | 623 bbls/day |  | $ | 66.40 |  |  |  |  |  |  |  |  |  |
NGLs (C5-Natural Gasoline) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
January-June 2022 |  | Swaps |  | 2,749 bbls/day |  | $1.65/gallon |  |  |  |  |  |  |  |  |  |
January-June 2022 |  | Collars |  | 1,497 bbls/day |  |  |  |  |  |  |  | $1.53/gallon |  |  | $1.67/gallon |
(1) | We also sold natural gas call swaptions of 72,500 Mmbtu/day for 2023 at a weighted average price of $3.06 per Mmbtu.
Basis Swap Contracts In addition to the swaps, collars and swaptions above, at December 31, 2021, we had natural gas basis swap contracts which lock in the differential between NYMEX and certain of our physical pricing points in Appalachia. These contracts settle monthly through December 2024 and include a total volume of 213,710,000 Mmbtu. The fair value of these contracts was a net derivative asset of $16.0 million on December 31, 2021. At December 31, 2021, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indexes. The contracts settle monthly in first quarter 2022. The fair value of these contracts was a net derivative asset of $123,000 on December 31, 2021. Freight Swap Contracts In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at December 31, 2021, we had freight swap contracts which lock in the freight rate for a specific trade route on the Baltic Exchange. These contracts settle monthly and cover 7,000 metric tons for first quarter 2022. The fair value of these contracts was a net derivative asset of $114,000 on December 31, 2021. Divestiture Contingent Consideration In addition to the derivatives described above, our right to receive contingent consideration in conjunction with the sale of our North Louisiana assets was determined to be a derivative financial instrument that is not designated as a hedging instrument. The contingent consideration of up to $45.5 million is based on future realization of natural gas and oil prices based on published indexes and realized NGLs prices of the buyer for the years 2022 and 2023. All changes in the fair value are recognized as a gain or loss in earnings in the period they occur in derivative fair value income or loss in our consolidated statements of operations. The fair value of this instrument on December 31, 2021 was a derivative asset of $26.6 million. In addition, we currently expect to receive $29.5 million for the year ended December 31, 2021 which is reflected in current assets in the accompanying consolidated balance sheet and represents the maximum contingent payment amount for 2021. Derivative Assets and Liabilities The combined fair value of derivatives included in the accompanying consolidated balance sheets as of December 31, 2021 and 2020 is summarized below (in thousands). As of December 31, 2021, we are conducting derivative activities with fifteen counterparties, of which all but five are secured lenders in our bank credit facility. We believe all of these counterparties are acceptable credit risks. At times, such risks may be concentrated with certain counterparties. The credit worthiness of our counterparties is subject to periodic review. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements.
|  |  |  | December 31, 2021 |
|  |  |  | Gross Amounts of Recognized Assets |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of Assets Presented in the Balance Sheet |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |
Natural gas |  | –swaps |  | $ | 22,491 |  |  | $ | (18,111 | ) |  | $ | 4,380 |
|  | –collars |  |  | 12,378 |  |  |  | (8,600 | ) |  |  | 3,778 |
|  | –three-way collars |  |  | 12,234 |  |  |  | (8,449 | ) |  |  | 3,785 |
|  | –basis swaps |  |  | 18,092 |  |  |  | (10,487 | ) |  |  | 7,605 |
Crude oil |  | –swaps |  |  | 368 |  |  |  | (2,153 | ) |  |  | (1,785 | )
NGLs |  | –C3 propane spread |  |  | 4,153 |  |  |  | (4,153 | ) |  |  | — |
|  | –C5 natural gasoline swaps |  |  | 266 |  |  |  | (363 | ) |  |  | (97 | )
|  | –C5 natural gasoline collars |  |  | 221 |  |  |  | (221 | ) |  |  | — |
Freight |  | –swaps |  |  | 114 |  |  |  | (81 | ) |  |  | 33 |
Divestiture contingent consideration |  |  | 26,640 |  |  |  | — |  |  |  | 26,640 |
|  |  |  | $ | 96,957 |  |  | $ | (52,618 | ) |  | $ | 44,339 |
|  |  |  | December 31, 2021 |
|  |  |  | Gross Amounts of Recognized (Liabilities) |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of (Liabilities) Presented in the Balance Sheet |
Derivative (liabilities): |  |  |  |  |  |  |  |  |  |  |
Natural gas |  | –swaps |  | $ | (121,759 | ) |  | $ | 18,111 |  |  | $ | (103,648 | )
|  | –swaptions |  |  | (11,149 | ) |  |  | — |  |  |  | (11,149 | )
|  | –collars |  |  | (16,579 | ) |  |  | 8,600 |  |  |  | (7,979 | )
|  | –three-way collars |  |  | (37,166 | ) |  |  | 8,449 |  |  |  | (28,717 | )
|  | –calls |  |  | (61 | ) |  |  | — |  |  |  | (61 | )
|  | –basis swaps |  |  | (2,064 | ) |  |  | 10,487 |  |  |  | 8,423 |
Crude oil |  | –swaps |  |  | (27,252 | ) |  |  | 2,153 |  |  |  | (25,099 | )
NGLs |  | –C3 propane spread |  |  | (4,030 | ) |  |  | 4,153 |  |  |  | 123 |
|  | –C5 natural gasoline swaps |  |  | (2,048 | ) |  |  | 363 |  |  |  | (1,685 | )
|  | –C5 natural gasoline collars |  |  | (1,493 | ) |  |  | 221 |  |  |  | (1,272 | )
Freight |  | –swaps |  |  | — |  |  |  | 81 |  |  |  | 81 |
|  |  |  | $ | (223,601 | ) |  | $ | 52,618 |  |  | $ | (170,983 | )
|  |  |  | December 31, 2020 |
|  |  |  | Gross Amounts of Recognized Assets |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of Assets Presented in the Balance Sheet |
Derivative assets: |  |  |  |  |  |  |  |  |  |  |
Natural gas |  | –swaps |  | $ | 33,559 |  |  | $ | (16,821 | ) |  | $ | 16,738 |
|  | –collars |  |  | 7,016 |  |  |  | (2,329 | ) |  |  | 4,687 |
|  | –three-way collars |  |  | 535 |  |  |  | (6,139 | ) |  |  | (5,604 | )
|  | –basis swaps |  |  | 7,894 |  |  |  | (3,502 | ) |  |  | 4,392 |
Crude oil |  | –swaps |  |  | 2,465 |  |  |  | (829 | ) |  |  | 1,636 |
NGLs |  | –C3 propane spread |  |  | 4,863 |  |  |  | (4,863 | ) |  |  | — |
|  | –C3 propane collars |  |  | — |  |  |  | (107 | ) |  |  | (107 | )
Freight |  | –swaps |  |  | 2,310 |  |  |  | — |  |  |  | 2,310 |
Divestiture contingent consideration |  |  | 15,960 |  |  |  | — |  |  |  | 15,960 |
|  |  |  | $ | 74,602 |  |  | $ | (34,590 | ) |  | $ | 40,012 |
|  |  |  | December 31, 2020 |
|  |  |  | Gross Amounts of Recognized (Liabilities) |  |  | Gross Amounts Offset in the Balance Sheet |  |  | Net Amounts of (Liabilities) Presented in the Balance Sheet |
Derivative (liabilities): |  |  |  |  |  |  |  |  |  |  |
Natural gas |  | –swaps |  | $ | (10,120 | ) |  | $ | 16,821 |  |  | $ | 6,701 |
|  | –swaptions |  |  | (9,803 | ) |  |  | — |  |  |  | (9,803 | )
|  | –collars |  |  | — |  |  |  | 2,329 |  |  |  | 2,329 |
|  | –three-way collars |  |  | (18,353 | ) |  |  | 6,139 |  |  |  | (12,214 | )
|  | –basis swaps |  |  | (4,197 | ) |  |  | 3,502 |  |  |  | (695 | )
Crude oil |  | –swaps |  |  | (5,471 | ) |  |  | 829 |  |  |  | (4,642 | )
NGLs |  | –C3 propane spread |  |  | (4,069 | ) |  |  | 4,863 |  |  |  | 794 |
|  | –C3 propane swaps |  |  | (8,243 | ) |  |  | — |  |  |  | (8,243 | )
|  | –C3 propane collars |  |  | (3,086 | ) |  |  | 107 |  |  |  | (2,979 | )
|  | –C5 natural gasoline swaps |  |  | (4,897 | ) |  |  | — |  |  |  | (4,897 | )
|  | –C5 natural gasoline calls |  |  | (546 | ) |  |  | — |  |  |  | (546 | )
|  | –NC4 butane swaps |  |  | (651 | ) |  |  | — |  |  |  | (651 | )
|  | –NC4 butane collars |  |  | (401 | ) |  |  | — |  |  |  | (401 | )
Freight |  | –swaps |  |  | (1,206 | ) |  |  | — |  |  |  | (1,206 | )
|  |  |  | $ | (71,043 | ) |  | $ | 34,590 |  |  | $ | (36,453 | )
The effects of our derivatives on our consolidated statements of operations for the last three years are summarized below (in thousands).
|  | Derivative Fair Value (Loss) Income |
|  | Year Ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Commodity swaps |  | $ | (466,203 | ) |  | $ | 158,248 |  |  | $ | 219,968 |
Swaptions |  |  | (1,346 | ) |  |  | (4,955 | ) |  |  | 333 |
Collars |  |  | (117,612 | ) |  |  | 3,304 |  |  |  | (3,903 | )
Three-way collars |  |  | (137,443 | ) |  |  | (16,346 | ) |  |  | — |
Basis swaps |  |  | 33,691 |  |  |  | 48,278 |  |  |  | 6,661 |
Calls |  |  | (836 | ) |  |  | (558 | ) |  |  | (349 | )
Freight swaps |  |  | (647 | ) |  |  | (1,230 | ) |  |  | 3,971 |
Divestiture contingent consideration |  |  | 40,180 |  |  |  | 970 |  |  |  | — |
Total |  | $ | (650,216 | ) |  | $ | 187,711 |  |  | $ | 226,681 |

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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