Derivative Instruments

12 Months Ended

Dec. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity derivative contracts. The Company utilizes derivative financial instruments to manage risks related to changes in crude oil, NGL and natural gas prices. The Company’s crude oil contracts settle monthly based on the average NYMEX WTI. NGL contracts settle monthly based on the average Mont Belvieu propane or Conway propane index prices, as applicable. Natural gas contracts settle monthly based on the average NYMEX HH, while natural gas basis swaps settle monthly based on the average fixed differential between NYMEX HH and NNG Ventura.

The Company utilizes fixed-price swaps and collars to manage risks related to changes in crude oil, NGL and natural gas prices. 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. In addition, the Company utilizes basis swaps to manage commodity price locational risk. The Company’s basis swaps are designed to establish a fixed differential between NYMEX and the index price referenced in the 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.

2021 derivative contract modifications. During 2021, the Company entered into a series of transactions with derivative counterparties to modify the swap price of certain commodity derivative contracts. The Company modified the strike price of its 2022 crude oil swap contracts to $70.00 per barrel from a weighted average price of $40.89 per barrel and its 2023 crude oil swap contracts to $50.00 per barrel from a weighted average price of $43.68 per barrel. The commodity contracts modified included total notional volumes of 6,935 MBbl which settled in 2022 and 5,110 MBbl which settle in 2023. The Company paid $220.9 million to modify these commodity derivative contracts, which is reflected as a cash outflow from investing activities in the Consolidated Statement of Cash Flows for the year ended December 31, 2021 (Successor).

2020 liquidations. In June 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 Consolidated Statement of Cash Flows during the Predecessor period from January 1, 2020 through November 19, 2020.

On September 15, 2020, the Company entered into a Direction Letter and Specified Swap Liquidation Agreement, which, among other things, amended its Predecessor Credit Facility in which upon occurrence of an event of default under the Predecessor Credit Facility, the Company was required to use commercially reasonable efforts with respect to each of its swap agreements, to either (x) terminate such swap agreement or (y) reset such swap agreement to current market terms in existence at the time of such reset in exchange for a lump-sum cash payment substantially similar to the payment it would have received in respect of a termination of such swap agreement (each a “Specified Swap Liquidation”). During the period from September 15, 2020 through the Petition Date of the Chapter 11 Cases, which constituted an event of default under the Predecessor Credit Facility, the Company liquidated its outstanding swap agreements and received cash proceeds of $37.4 million for Specified Swap Liquidations, which are reflected as investing activities in the Company’s Consolidated Statement of Cash Flows during the Predecessor period from January 1, 2020 through November 19, 2020.

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


Commodity	Settlement Period	Derivative Instrument	Volumes			Weighted Average Prices
					Fixed-Price Swaps			Floor			Ceiling

Crude oil	2023	Two-way collar	7,823,500	Bbl					$	45.77		$	62.25
Crude oil	2023	Fixed-price swaps	6,282,000	Bbl		$	55.00
Natural gas	2023	Two-way collar	8,799,000	MMBtu					$	2.84		$	3.57
Natural gas	2023	Fixed-price swaps	1,800,000	MMBtu		$	4.25
Natural gas basis(1)	2023	Fixed-price swaps	5,920,000	MMbtu		$	0.39
NGL - Propane(2)	2023	Fixed-price swaps	7,560,000	Gallons		$	1.16

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(1) The weighted average price associated with the natural gas basis swaps shown in the tables above represents the average fixed differential to NYMEX HH as stated in the related contracts, which is compared to the NNG Ventura index price for each period. If NYMEX HH combined with the fixed differential as stated in each contract is higher than the NNG Ventura index price at any settlement date, the Company receives the difference. Conversely, if the NNG Ventura index price is higher than NYMEX HH combined with the fixed differential, the Company pays the difference.

(2) Settled based on the Conway propane price.

Transportation derivative contracts. The Company acquired two contracts in the Merger that provide for the transportation of crude oil through a buy/sell structure from North Dakota to either Cushing, Oklahoma or Guernsey, Wyoming. The contracts require the purchase and sale of fixed volumes of crude oil through July 2024 as specified in the agreements. At July 1, 2022, upon the closing of the Merger, the Company determined that these contracts qualified as derivatives and did not elect the “normal purchase normal sale” exclusion. The fair value of these transportation derivative contracts as of July 1, 2022 was estimated to be a liability of $22.0 million. As of December 31, 2022 (Successor), the estimated fair value of these contracts was $14.7 million, of which $11.9 million was classified as a current derivative liability and $2.8 million was classified as a non-current derivative liability on the Consolidated Balance Sheet (see Note 8—Fair Value Measurements). The Company records the changes in fair value of these contracts to gathering, processing and transportation expenses on the Company’s Consolidated Statements of Operations. Settlements on these contracts are reflected as operating activities on the Company’s Consolidated Statements of Cash Flows and represent cash payments to the counterparties for transportation of crude oil or the net settlement of contract liabilities if the transportation was not utilized, as applicable.

Contingent consideration. 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 of the Permian Basin Sale (defined in Note 12—Divestitures). The Permian Basin Sale Contingent Consideration is marked-to-market each reporting period, with changes in fair value recorded in the other income (expense) section of the Company’s Consolidated Statements of Operations as a net gain or loss on derivative instruments. As of December 31, 2022, the estimated fair value of the Permian Basin Sale Contingent Consideration was $60.9 million, of which $23.0 million was classified as a current derivative asset and $38.0 million was classified as a non-current derivative asset on the Consolidated Balance Sheet. See Note 8—Fair Value Measurements and Note 12—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 Consolidated Statements of Operations for the periods presented (in thousands):


		Successor						Predecessor
		Year Ended December 31,				Period from November 20, 2020 through December 31, 2020		Period from January 1, 2020 through November 19, 2020
Derivative Instrument	Statement of Operations Location	2022		2021

Commodity derivatives	Net gain (loss) on derivative instruments	$	(224,238)	$	(601,591)	$	(84,615)	$	233,565
Commodity derivatives (buy/sell transportation contracts)	Gathering, processing and transportation expenses(1)	7,331		—		—		—
Contingent consideration	Net gain (loss) on derivative instruments	16,110		11,950		—		—
Contingent consideration	Gain on sale of assets, net	—		32,860		—		—

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(1) The change in the fair value of the transportation derivative contracts was recorded as a gain in gathering, processing and transportation expenses for the year ended December 31, 2022 (Successor).

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 Consolidated Balance Sheets.

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



		December 31, 2022
Derivative Instrument	Balance Sheet Location	Gross Recognized Assets/Liabilities		Gross Amount Offset		Net Recognized Fair Value Assets/Liabilities

		(In thousands)
Derivatives assets:
Commodity derivatives(1)	Derivative instruments — current assets	$	10,194	$	(9,414)	$	780

Contingent consideration	Derivative instruments — current assets	22,955		—		22,955
Contingent consideration	Derivative instruments — non-current assets	37,965		—		37,965
Total derivatives assets		$	71,114	$	(9,414)	$	61,700

Derivatives liabilities:
Commodity derivatives(2)	Derivative instruments — current liabilities	$	339,090	$	(9,414)	$	329,676
Commodity derivatives (buy/sell transportation contracts)	Derivative instruments — current liabilities	11,865		—		11,865

Commodity derivatives (buy/sell transportation contracts)	Derivative instruments — non-current liabilities	2,829		—		2,829
Total derivatives liabilities		$	353,784	$	(9,414)	$	344,370


		December 31, 2021
Derivative Instrument	Balance Sheet Location	Gross Recognized Assets/Liabilities		Gross Amount Offset		Net Recognized Fair Value Assets/Liabilities

		(In thousands)
Derivatives assets:
Commodity derivatives	Derivative instruments — non-current assets	$	55	$	—	$	55
Contingent consideration	Derivative instruments — non-current assets	44,810		—		44,810
Total derivatives assets		$	44,865	$	—	$	44,865
Derivatives liabilities:
Commodity derivatives(3)	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

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(1)Cash deposit received in January 2023.

(2)Includes $24.5 million of commodity derivative liabilities paid in January 2023.

(3)Includes $27.5 million of commodity derivative liabilities paid in January 2022.