Derivative Instruments

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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”), and its natural gas contracts will settle monthly based on the average NYMEX Henry Hub natural gas index price (“NYMEX HH”).

At June 30, 2020, the Company utilized fixed price swaps and two-way and three-way costless collars to reduce the volatility of crude oil prices on a significant portion of its future expected crude oil 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 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 their fair value (see Note 6 — 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 cash settlements on matured or liquidated derivative contracts result in making a payment to or receiving a payment from a 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.

During the three months ended June 30, 2020, following a decrease in crude oil commodity prices and the related increase in the fair value of derivative assets, the Company liquidated a portion of its crude oil three-way costless collar contracts prior to the expiration of their contractual maturities, resulting in cash proceeds of $25.3 million, which are reflected as investing activities in the Company’s Condensed Consolidated Statements of Cash Flows.

At June 30, 2020, the Company had the following outstanding commodity derivative instruments:


Commodity	Settlement Period	Derivative Instrument	Volumes				Weighted Average Prices													Fair Value Assets
														Fixed Price Swaps			Sub-Floor	Floor	Ceiling
																			(In thousands)
Crude oil	2020	Fixed price swaps	2,464,000	Bbl	$	56.66									$	43,135
Crude oil	2020	Two-way collar	1,494,000	Bbl						$	51.28	$	59.50		18,194
Crude oil	2020	Three-way collar	1,278,000	Bbl				$	40.70	$	53.98	$	63.22		14,393
Crude oil	2021	Fixed price swaps	310,000	Bbl	$	56.01									5,004
Crude oil	2021	Two-way collar	248,000	Bbl						$	51.38	$	59.33		3,030
Crude oil	2021	Three-way collar	186,000	Bbl				$	40.00	$	53.29	$	62.71		1,669
															$	85,425

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 June 30,						Six Months Ended June 30,
Statements of Operations Location	2020		2019		2020		2019

	(In thousands)
Net gain (loss) on derivative instruments	$	(37,187)	$	34,749	$	248,135	$	(82,862)

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:


		June 30, 2020
Commodity	Balance Sheet Location	Gross Recognized Assets		Gross Amount Offset		Net Recognized Fair Value Assets

		(In thousands)
Derivatives assets:
Commodity contracts	Derivative instruments — current assets	$	91,361	$	(5,936)	$	85,425

Total derivatives assets				$	91,361	$	(5,936)	$	85,425


		December 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	$	633	$	(98)	$	535
Commodity contracts	Derivative instruments — non-current assets	3,295		(2,656)		639
Total derivatives assets				$	3,928	$	(2,754)	$	1,174
Derivatives liabilities:
Commodity contracts	Derivative instruments — current liabilities	$	33,812	$	(14,117)	$	19,695
Commodity contracts	Derivative instruments — non-current liabilities	686		(566)		120
Total derivatives liabilities				$	34,498	$	(14,683)	$	19,815