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Derivative Instruments | 9 Months Ended
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Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | 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 settle monthly based on the average NYMEX WTI, and its natural gas contracts settle monthly based on the average NYMEX Henry Hub natural gas index price (“NYMEX HH”). The Company primarily utilizes fixed price swaps and collars to reduce the volatility of crude oil and natural gas prices on future expected production. Swaps are designed to establish a fixed price for the volumes under contract, while collars are designed to establish a minimum price (floor) and a maximum price (ceiling) for the volumes under contract. The Company may, from time to time, restructure existing derivative contracts or enter into new transactions to effectively modify the terms of current contracts in order to improve the pricing parameters in existing contracts. All derivative instruments are recorded on the Company’s Condensed Consolidated Balance Sheets as either assets or liabilities measured at 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. Derivative settlements are reflected as investing activities on the Company’s Condensed Consolidated Statements of Cash Flows and represent net cash payments to or receipts from counterparties upon the maturity or liquidation of a derivative contract. On March 22, 2021, the Company entered into the Second Amendment to the Oasis Credit Facility (as defined in Note 11 –Long-Term Debt) to, among other things, reduce the rolling hedging requirement and add incremental flexibility to allow for restructuring of existing hedge positions (see Note 11 – Long-Term Debt). On May 17, 2021, the Company entered into a series of transactions with derivative counterparties to modify the swap price of certain commodity hedge contracts to $50.00 per barrel based on NYMEX WTI from weighted average prices of $40.72 per barrel, $43.57 per barrel and $43.68 per barrel for 2022, 2023 and 2024, respectively. The commodity contracts modified included total notional volumes of 6,346,000 barrels, 5,265,000 barrels and 434,000 barrels which settle in 2022, 2023 and 2024, respectively. The Company paid $82.4 million for the modification of these commodity derivative contracts, which is reflected as a cash outflow from investing activities in the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021. At September 30, 2021 (Successor), the Company had the following outstanding commodity derivative instruments:
Commodity |  | Settlement Period |  | Derivative Instrument |  |  |  | Volumes |  | Weighted Average Prices |  | Fair Value Assets (Liabilities)
|  |  |  |  | Fixed Price Swaps |  |  |  | Floor |  | Ceiling |
|  |  |  |  |  |  |  |  |  |  |  |  | (In thousands)
Crude oil |  | 2021 |  | Fixed price swaps |  |  |  | 2,639,000 |  | Bbl |  | $ | 42.09 |  |  |  |  |  |  |  |  | $ | (83,180) |
Crude oil |  | 2021 |  | Two-way collar |  |  |  | 728,000 |  | Bbl |  |  |  |  |  | $ | 51.25 |  |  | $ | 68.24 |  |  | (4,343) |
Crude oil |  | 2022 |  | Fixed price swaps |  |  |  | 7,245,000 |  | Bbl |  | $ | 49.02 |  |  |  |  |  |  |  |  | (155,383) |
Crude oil |  | 2022 |  | Two-way collar |  |  |  | 4,799,000 |  | Bbl |  |  |  |  |  | $ | 49.50 |  |  | $ | 66.62 |  |  | (38,493) |
Crude oil |  | 2023 |  | Fixed price swaps |  |  |  | 5,265,000 |  | Bbl |  | $ | 50.00 |  |  |  |  |  |  |  |  | (73,146) |
Crude oil |  | 2023 |  | Two-way collar |  |  |  | 4,380,000 |  | Bbl |  |  |  |  |  | $ | 45.42 |  |  | $ | 65.05 |  |  | (25,702) |
Crude oil |  | 2024 |  | Fixed price swaps |  |  |  | 434,000 |  | Bbl |  | $ | 50.00 |  |  |  |  |  |  |  |  | (4,811) |
Crude oil |  | 2024 |  | Two-way collar |  |  |  | 372,000 |  | Bbl |  |  |  |  |  | $ | 45.00 |  |  | $ | 64.88 |  |  | (1,586) |
Natural gas |  | 2021 |  | Fixed price swaps |  |  |  | 3,680,000 |  | MMBtu |  | $ | 2.84 |  |  |  |  |  |  |  |  | (11,222) |
Natural gas |  | 2022 |  | Fixed price swaps |  |  |  | 5,430,000 |  | MMBtu |  | $ | 2.82 |  |  |  |  |  |  |  |  | (10,987) |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (408,853) |
Permian Basin Sale Contingent Consideration. Pursuant to the Primary Permian Basin Sale PSA (defined in Note 10 – Divestitures), the Company is entitled to receive up to three earn-out payments of $25.0 million per year for each of 2023, 2024 and 2025 if the average daily settlement price of NYMEX WTI crude oil exceeds $60 per barrel for such year (the “Permian Basin Sale Contingent Consideration”). If the NYMEX WTI crude oil price for calendar year 2023 or 2024 is less than $45 per barrel, then each calendar year thereafter the buyer’s obligation to make any remaining earn-out payments is terminated. The Company determined that the Permian Basin Sale Contingent Consideration was an embedded derivative in accordance with the FASB Accounting Standards Codification 815, Derivatives and Hedging. The Company bifurcated the Permian Basin Sale Contingent Consideration from the host contract and accounted for it separately at fair value. The fair value of the Permian Basin Sale Contingent Consideration was estimated to be $32.9 million as of the close date on June 29, 2021. The Permian Basin Sale Contingent Consideration is marked-to-market each reporting period, with changes in fair value recognized as a net gain or loss on derivative instruments in other income (expense) on the Condensed Consolidated Statements of Operations. As of September 30, 2021, the estimated fair value of the Permian Basin Sale Contingent Consideration was $39.7 million, which was classified as a non-current derivative asset on the Condensed Consolidated Balance Sheet. See Note 6 – Fair Value Measurements and Note 10 – Divestitures for additional information. The following table summarizes the location and amounts of gains and losses from the Company’s derivative instruments recorded in the Company’s Condensed Consolidated Statements of Operations for the periods presented (in thousands):
|  |  |  | Successor |  |  | Predecessor |  | Successor |  |  | Predecessor |  |  |  |
|  |  |  | Three Months Ended September 30, 2021 |  |  | Three Months Ended September 30, 2020 |  | Nine Months Ended September 30, 2021 |  |  | Nine Months Ended September 30, 2020 |  |
Derivative Instrument |  | Statements of Operations Location |  |  |  |  |  |  |  |  |  |
Commodity derivative instruments |  | Net gain (loss) on derivative instruments |  | $ | (108,647) |  |  |  | $ | (5,071) |  |  | $ | (557,199) |  |  |  | $ | 243,064 |  |  |  |  |
Contingent consideration |  | Net gain on derivative instruments |  | 6,857 |  |  |  | — |  |  | 6,857 |  |  |  | — |  |  |  |  |
Contingent consideration |  | Gain on sale of properties |  | — |  |  |  | — |  |  | 32,860 |  |  |  | — |  |  |  |  |
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 derivative instruments recorded in the Company’s Condensed Consolidated Balance Sheets:
|  |  |  | Successor
|  |  |  | September 30, 2021
Derivative Instrument |  | Balance Sheet Location |  | Gross Amount |  | Gross Amount Offset |  | Net Amount
|  |  |  | (In thousands)
Derivatives assets: |  |  |  |  |  |  |  |
Contingent consideration |  | Derivative instruments — non-current assets |  | $ | 39,717 |  |  | $ | — |  |  | $ | 39,717 |
Derivatives liabilities: |  |  |  |  |  |  |  |
Commodity contracts |  | Derivative instruments — current liabilities |  | $ | 271,077 |  |  | $ | (4,740) |  |  | $ | 266,337 |
Commodity contracts |  | Derivative instruments — non-current liabilities |  | 164,614 |  |  | (22,098) |  |  | 142,516 |
Total derivatives liabilities |  | $ | 435,691 |  |  | $ | (26,838) |  |  | $ | 408,853 |
|  |  |  | Successor
|  |  |  | December 31, 2020
Derivative Instrument |  | Balance Sheet Location |  | Gross Amount |  | Gross Amount Offset |  | Net Amount
|  |  |  | (In thousands)
Derivatives assets: |  |  |  |  |  |  |  |
Commodity contracts |  | Derivative instruments — current assets |  | $ | 467 |  |  | $ | — |  |  | $ | 467 |
Derivatives liabilities: |  |  |  |  |  |  |  |
Commodity contracts |  | Derivative instruments — current liabilities |  | $ | 59,262 |  |  | $ | (2,318) |  |  | $ | 56,944 |
Commodity contracts |  | Derivative instruments — non-current liabilities |  | 38,426 |  |  | (812) |  |  | 37,614 |
Total derivatives liabilities |  | $ | 97,688 |  |  | $ | (3,130) |  |  | $ | 94,558 |

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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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