Derivative Instruments

3 Months Ended

Mar. 31, 2022

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 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 of a derivative contract.

At March 31, 2022, the Company had the following outstanding commodity derivative instruments:


Commodity	Settlement Period	Derivative Instrument	Volumes			Weighted Average Prices						Fair Value Liabilities
					Fixed Price Swaps			Floor			Ceiling
												(In thousands)
Crude oil	2022	Two-way collar	3,728,000	Bbl					$	49.47		$	66.56	$	(108,005)
Crude oil	2022	Fixed price swaps	5,349,000	Bbl		$	70.00							(132,397)
Crude oil	2023	Two-way collar	4,380,000	Bbl					$	45.42		$	65.05	(92,563)
Crude oil	2023	Fixed price swaps	5,265,000	Bbl		$	52.24							(159,835)
Crude oil	2024	Two-way collar	372,000	Bbl					$	45.00		$	64.88	(6,560)
Crude oil	2024	Fixed price swaps	434,000	Bbl		$	50.00							(12,053)
Natural gas	2022	Fixed price swaps	2,730,000	MMBtu		$	2.82							(7,463)



														$	(518,876)

As of March 31, 2022, the estimated fair value of the Permian Basin Sale Contingent Consideration was $61.8 million, which was classified as a non-current derivative asset on the Condensed Consolidated Balance Sheet. See Note 6 – Fair Value

Measurements 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:


		Three Months Ended March 31,
Derivative Instrument	Statements of Operations Location	2022		2021

		(In thousands)
Commodity derivatives	Net loss on derivative instruments	$	(384,872)	$	(181,515)
Contingent consideration	Net loss on derivative instruments	16,950		—

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. For additional information, see “Item 3.—Quantitative and Qualitative Disclosures about Market Risk—Counterparty and customer credit risk.”

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


		March 31, 2022
Derivative Instrument	Balance Sheet Location	Gross Amount		Gross Amount Offset		Net Amount

		(In thousands)
Derivatives assets:
Commodity derivatives	Derivative instruments — current assets	$	1,284	$	—	$	1,284


Contingent consideration	Derivative instruments — non-current assets	61,760		—		61,760
Total derivatives assets		$	63,044	$	—	$	63,044

Derivatives liabilities:
Commodity derivatives	Derivative instruments — current liabilities	$	317,349	$	(2,883)	$	314,466
Commodity derivatives	Derivative instruments — non-current liabilities	216,308		(10,614)		205,694
Total derivatives liabilities		$	533,657	$	(13,497)	$	520,160

		December 31, 2021
Derivative Instrument	Balance Sheet Location	Gross Amount		Gross Amount Offset		Net Amount

		(In thousands)
Derivatives assets:
Contingent consideration	Derivative instruments — current assets	$	44,810	$	—	$	44,810
Commodity derivatives	Derivative instruments — non-current assets	55		—		55
Total derivatives assets		$	44,865	$	—	$	44,865

Derivatives liabilities:
Commodity derivatives	Derivative instruments — current liabilities	$	96,172	$	(6,725)	$	89,447
Commodity derivatives	Derivative instruments — non-current liabilities	133,655		(18,373)		115,282
Total derivatives liabilities		$	229,827	$	(25,098)	$	204,729