Derivative Instruments

The Company utilizes derivative financial instruments to manage risks related to changes in crude oil and natural gas prices. The Company’s crude oil contracts will settle monthly based on the average NYMEX West Texas Intermediate crude oil index price (“NYMEX WTI”), the average Intercontinental Exchange, Inc. Brent crude oil index price (“ICE Brent”), the average Argus WTI Midland crude oil index price (“Midland”) and the average Argus WTI Houston crude oil index price (“Houston”). The Company’s natural gas contracts will settle monthly based on the average NYMEX Henry Hub natural gas index price (“NYMEX HH”) and the average Inside FERC Northern Natural Gas Ventura natural gas index price (“IF NNG Ventura”).

At March 31, 2019, the Company utilized fixed price swaps, basis swaps and two-way and three-way costless collars to reduce the volatility of crude oil and natural gas prices on a significant portion of its future expected crude oil and natural gas production. The Company’s fixed price swaps are comprised of a sold call and a purchased put established at the same price (both ceiling and floor), which the Company will receive for the volumes under contract. A basis swap transaction has an established fixed basis differential corresponding to two floating index prices. Depending on the difference of the two floating index prices in relation to the fixed basis differential, the Company either receives an amount from its counterparty, or pays an amount to its counterparty, equal to the difference multiplied by the hedged contract volume. A two-way collar is a combination of options: a sold call and a purchased put. The purchased put establishes a minimum price (floor) and the sold call establishes a maximum price (ceiling) the Company will receive for the volumes under contract. A three-way collar is a combination of options: a sold call, a purchased put and a sold put. The purchased put establishes a minimum price (floor), unless the market price falls below the sold put (sub-floor), at which point the minimum price would be the index price plus the difference between the purchased put and the sold put strike price. The sold call establishes a maximum price (ceiling) the Company will receive for the volumes under contract.

All derivative instruments are recorded on the Company’s Condensed Consolidated Balance Sheets as either assets or liabilities measured at its fair value (see Note 7 — Fair Value Measurements). The Company has not designated any derivative instruments as hedges for accounting purposes and does not enter into such instruments for speculative trading purposes. If a derivative does not qualify as a hedge or is not designated as a hedge, the changes in fair value are recognized in the other income (expense) section of the Company’s Condensed Consolidated Statements of Operations as a net gain or loss on derivative instruments. The Company’s cash flow is only impacted when the actual settlements under the derivative contracts result in making a payment to or receiving a payment from the counterparty. These cash settlements represent the cumulative gains and losses on the Company’s derivative instruments and do not include a recovery of costs that were paid to acquire or modify the derivative instruments that were settled. Cash settlements are reflected as investing activities in the Company’s Condensed Consolidated Statements of Cash Flows.

At March 31, 2019, the Company had the following outstanding commodity derivative instruments:



Commodity	Settlement Period	Derivative Instrument	Index	Volumes		Weighted Average Prices											Fair Value Assets (Liabilities)
Commodity	Settlement Period	Derivative Instrument	Index	Volumes		Fixed Price Swaps		Basis Swaps			Sub-Floor		Floor		Ceiling		Fair Value Assets (Liabilities)
																	(In thousands)
Crude oil	2019	Fixed price swaps	NYMEX WTI	3,881,000	Bbl	$	54.02										$	(23,216	)
Crude oil	2019	Basis swaps	ICE Brent-NYMEX WTI	244,000	Bbl			$	9.68								549
Crude oil	2019	Basis swaps	Midland-NYMEX WTI	488,000	Bbl			$	(6.71	)							(2,971		)
Crude oil	2019	Basis swaps	Houston-NYMEX WTI	549,000	Bbl			$	4.55								(305		)
Crude oil	2019	Two-way collar	NYMEX WTI	3,542,000	Bbl								$	57.65	$	74.72	5,381
Crude oil	2019	Three-way collar	NYMEX WTI	3,300,000	Bbl						$	40.37	$	51.43	$	66.81	(2,375		)
Crude oil	2020	Fixed price swaps	NYMEX WTI	829,000	Bbl	$	56.60										(2,363		)
Crude oil	2020	Two-way collar	NYMEX WTI	372,000	Bbl								$	58.08	$	76.05	1,270
Crude oil	2020	Three-way collar	NYMEX WTI	1,712,000	Bbl						$	40.00	$	55.39	$	61.13	(2,081		)
Crude oil	2021	Three-way collar	NYMEX WTI	124,000	Bbl						$	40.00	$	56.18	$	60.43	(59		)
Natural gas	2019	Fixed price swaps	NYMEX HH	8,796,000	MMBtu	$	2.92										1,148
Natural gas	2019	Basis swaps	IF NNG Ventura-NYMEX HH	2,275,000	MMBtu			$	0.02								736
																	$	(24,286	)

Subsequent to March 31, 2019, the Company entered into additional fixed price swaps, basis swaps and two-way and three-way costless collars. As of May 8, 2019, the Company had the following outstanding commodity derivative contracts:



Commodity	Settlement Period	Derivative Instrument	Index	Volumes		Weighted Average Prices
Commodity	Settlement Period	Derivative Instrument	Index	Volumes		Fixed Price Swaps		Basis Swaps			Sub-Floor		Floor		Ceiling
Crude oil	2019	Fixed price swaps	NYMEX WTI	4,952,000	Bbl	$	56.15
Crude oil	2019	Basis swaps	ICE Brent-NYMEX WTI	244,000	Bbl			$	9.68
Crude oil	2019	Basis swaps	Midland-NYMEX WTI	488,000	Bbl			$	(6.71	)
Crude oil	2019	Basis swaps	Houston-NYMEX WTI	549,000	Bbl			$	4.55
Crude oil	2019	Two-way collar	NYMEX WTI	3,848,000	Bbl								$	57.68	$	74.04
Crude oil	2019	Three-way collar	NYMEX WTI	3,300,000	Bbl						$	40.37	$	51.43	$	66.81
Crude oil	2020	Fixed price swaps	NYMEX WTI	2,171,000	Bbl	$	59.09
Crude oil	2020	Two-way collar	NYMEX WTI	434,000	Bbl								$	58.07	$	74.64
Crude oil	2020	Three-way collar	NYMEX WTI	3,110,000	Bbl						$	40.00	$	54.79	$	63.75
Crude oil	2021	Fixed price swaps	NYMEX WTI	93,000	Bbl	$	58.85
Crude oil	2021	Three-way collar	NYMEX WTI	186,000	Bbl						$	40.00	$	54.96	$	62.31
Natural gas	2019	Fixed price swaps	NYMEX HH	8,796,000	MMBtu	$	2.92
Natural gas	2019	Basis swaps	IF NNG Ventura-NYMEX HH	2,275,000	MMBtu			$	0.02

The following table summarizes the location and amounts of gains and losses from the Company’s commodity derivative instruments recorded in the Company’s Condensed Consolidated Statements of Operations for the periods presented:



	Three Months Ended March 31,
Statements of Operations Location	2019			2018
	(In thousands)
Net loss on derivative instruments	$	(117,611	)	$	(71,116	)

In accordance with the FASB’s authoritative guidance on disclosures about offsetting assets and liabilities, the Company is required to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement. The Company’s derivative instruments are presented as assets and liabilities on a net basis by counterparty, as all counterparty contracts provide for net settlement. No margin or collateral balances are deposited with counterparties, and as such, gross amounts are offset to determine the net amounts presented in the Company’s Condensed Consolidated Balance Sheets.

The following table summarizes the location and fair value of all outstanding commodity derivative instruments recorded in the Company’s Condensed Consolidated Balance Sheets:



		March 31, 2019
Commodity	Balance Sheet Location	Gross Recognized Assets/Liabilities		Gross Amount Offset			Net Recognized Fair Value Assets/ Liabilities
		(In thousands)
Derivatives assets:
Commodity contracts	Derivative instruments — current assets	$	6,734	$	(2,267	)	$	4,467
Commodity contracts	Derivative instruments — non-current assets	2,504		(2,323		)	181
Total derivatives assets		$	9,238	$	(4,590	)	$	4,648
Derivatives liabilities:
Commodity contracts	Derivative instruments — current liabilities	$	36,599	$	(8,936	)	$	27,663
Commodity contracts	Derivative instruments — non-current liabilities	1,875		(604		)	1,271
Total derivatives liabilities		$	38,474	$	(9,540	)	$	28,934

		December 31, 2018
Commodity	Balance Sheet Location	Gross Recognized Assets/Liabilities		Gross Amount Offset			Net Recognized Fair Value Assets/Liabilities
		(In thousands)
Derivatives assets:
Commodity contracts	Derivative instruments — current assets	$	110,729	$	(10,799	)	$	99,930
Commodity contracts	Derivative instruments — non-current assets	8,251		(1,306		)	6,945
Total derivatives assets		$	118,980	$	(12,105	)	$	106,875
Derivatives liabilities:
Commodity contracts	Derivative instruments — current liabilities	$	84	$	—		$	84
Commodity contracts	Derivative instruments — non-current liabilities	20		—			20
Total derivatives liabilities		$	104	$	—		$	104