Derivative Financial Instruments and Hedging Activities

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments and Hedging Activities

Comstock uses commodity swaps, basis swaps, collars and swaptions to hedge oil and natural gas prices to manage price risk. Swaps are settled monthly based on differences between the prices specified in the instruments and the settlement prices of futures contracts. Generally, when the applicable settlement price is less than the price specified in the contract, Comstock receives a settlement from the counterparty based on the difference multiplied by the volume or amounts hedged. Similarly, when the applicable settlement price exceeds the price specified in the contract, Comstock pays the counterparty based on the difference. Comstock generally receives a settlement from the counterparty for floors when the applicable settlement price is less than the price specified in the contract, which is based on the difference multiplied by the volumes hedged. For collars, generally Comstock receives a settlement from the counterparty when the settlement price is below the floor and pays a settlement to the counterparty when the settlement price exceeds the cap. No settlement occurs when the settlement price falls between the floor and cap. Swaptions are a combined derivative which includes a fixed price swap and a sold option to extend the volume hedged.

All of the Company's derivative financial instruments are used for risk management purposes and, by policy, none are held for trading or speculative purposes. Comstock minimizes credit risk to counterparties of its derivative financial instruments through formal credit policies, monitoring procedures, and diversification. The Company is not required to provide any credit support to its counterparties other than cross collateralization with the assets securing its bank credit facility. None of the Company's derivative financial instruments involve payment or receipt of premiums. The Company classifies the fair value amounts of derivative financial instruments as net current or noncurrent assets or liabilities, whichever the case may be, by commodity contract. None of the Company's derivative contracts are designated as cash flow hedges. The Company recognizes cash settlements and changes in the fair value of its derivative financial instruments as a single component of other income (expenses).

All of Comstock's natural gas derivative financial instruments are tied to the Henry Hub-NYMEX price index and all of its oil derivative financial instruments are tied to the WTI-NYMEX index price. Basis swaps are tied to Henry Hub.

The Company had the following outstanding commodity-based derivative financial instruments, excluding basis swaps which are discussed separately below, at December 31, 2020:


	2021		2022		Total
Natural Gas Swap Contracts:
Volume (MMBtu)	197,383,140	(1)	10,950,000		208,333,140
Average Price per MMBtu	$2.54	(1)	$2.53		$2.54
Natural Gas Collar Contracts:
Volume (MMBtu)	115,050,000		5,400,000		120,450,000
Price per MMBtu:
Average Ceiling	$2.97		$3.48		$2.99
Average Floor	$2.46		$2.53		$2.46






Natural Gas Swaptions Contracts:
Volume (MMBtu)	16,500,000	(2)	49,200,000	(3)	65,700,000
Average Price per MMBtu	$2.50	(2)	$2.51	(3)	$2.51
Crude Oil Collar Contracts:
Volume (Bbls)	182,500		—		182,500
Price per Barrel:
Average Ceiling	$45.00		$—		$45.00
Average Floor	$40.00		$—		$40.00

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(1)2021 natural gas price swap contracts include 49,200,000 MMBtu at an average price of $2.51 that are part of certain natural gas price swaption contracts which include a call to extend the price swap by the counterparty as described in (3) below.

(2)The counterparties have the right to exercise a call option, which expires in March 2021, to enter into a price swap with the Company on 16,500,000 MMBtu in 2021 at an average price of $2.50.

(3)The counterparties have the right to exercise a call option to enter into a price swap with the Company on 49,200,000 MMBtu in 2022 at an average price of $2.51. The call option expires for 5,400,000 MMBtu at an average price of $2.50 in March 2021; for 36,500,000 MMBtu at an average price of $2.52 in October 2021 and 7,300,000 MMBtu at an average price of $2.50 in November 2021.

In addition to the swaps, collars and swaptions above, at December 31, 2020, the Company has basis swap contracts that fix the differentials between NYMEX Henry Hub and Houston Ship Channel indices. These contracts settle monthly through December 2022 on a total volume of 25,550,000 MMBtu. The fair value of these contracts was a net asset of $1.0 million at December 31, 2020.

The Company has interest rate swap agreements that fix LIBOR at 0.33% for $500.0 million of its floating rate long-term debt. These contracts settle monthly through April 2023. The fair value of these contracts was a net liability of $2.1 million at December 31, 2020.

Subsequent to December 31, 2020, the Company added natural gas collar contracts to hedge 32,880,000 MMBtu of natural gas production from July 2021 to December 2022 at an average ceiling price of $3.20 per MMBtu and an average floor price of $2.50 per MMBtu and added natural gas swap contracts to hedge 7,300,000 MMBtu of natural gas production from January 2022 to December 2022 at an average price of $2.70 per MMBtu. The Company also added oil collar contracts to hedge 349,500 Bbls of oil production from January 2021 to December 2021 at an average ceiling price of $54.96 per Bbl and an average floor price of $42.39 per Bbl.

The aggregate fair value of the Company's derivative financial instruments are presented on a gross basis in the accompanying consolidated balance sheets. The classification of derivative financial instruments between assets and liabilities, consists of the following:


		As of December 31,
Type	Consolidated Balance Sheet Location	2019		2020
		(in thousands)
Asset Derivative Financial Instruments:
Natural gas price derivatives	Derivative Financial Instruments – current	$	75,123	$	8,913
Oil price derivatives	Derivative Financial Instruments – current	181		—
		$	75,304	$	8,913

Natural gas price derivatives	Derivative Financial Instruments – long-term	$	13,888	$	661

Liability Derivative Financial Instruments:
Natural gas price derivatives	Derivative Financial Instruments – current	$	—	$	45,158
Oil price derivatives	Derivative Financial Instruments – current	222		831
Interest rate derivatives	Derivative Financial Instruments – current	—		1,016
		$	222	$	47,005

Natural gas price derivatives	Derivative Financial Instruments – long-term	$	4,220	$	1,308
Oil price derivatives	Derivative Financial Instruments – long-term	—		—
Interest rate derivatives	Derivative Financial Instruments – long-term	—		1,056
		$	4,220	$	2,364

Gains and losses related to the change in the fair value of the Company's derivative contracts recognized in the consolidated statement of operations were as follows:


	Predecessor		Successor
Gain/(Loss) Recognized in Earnings on Derivatives	For the Period from January 1, 2018 through August 13, 2018		For the Period from August 14, 2018 through December 31, 2018		Year Ended December 31, 2019		Year Ended December 31, 2020
	(In thousands)
Natural gas price derivatives	$	881	$	528	$	60,694	$	353
Oil price derivatives	—		9,937		(8,959)		12,059
Interest rate derivatives	—		—		—		(2,461)
	$	881	$	10,465	$	51,735	$	9,951