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Derivative Instruments

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

Derivative Instruments

Commodity derivative contracts. The Company utilizes derivative financial instruments to manage risks related to changes in commodity prices. The Company’s crude oil contracts settle monthly based on the average NYMEX WTI crude index price and its natural gas contracts settle monthly based on the average NYMEX Henry Hub natural gas index price.

The Company utilizes derivative financial instruments including fixed-price swaps and two-way and three-way collars to manage risks related to changes in commodity prices. The Company’s fixed-price swaps are designed to establish a fixed price for the volumes under contract. Two-way collars are designed to establish a minimum price (floor) and a maximum price (ceiling) for the volumes under contract. Three-way collars are designed to establish 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) 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.

At March 31, 2024, the Company had the following outstanding commodity derivative contracts:

Commodity						Settlement Period						Derivative Instrument												Volumes									Weighted Average Prices
																														Fixed-Price Swaps						Sub-Floor						Floor						Ceiling
Crude oil						2024						Two-way collars												4,395,000			Bbls																		$	65.30					$	82.62
Crude oil						2024						Three-way collars												736,000			Bbls												$	55.00					$	71.25					$	92.14
Crude oil						2024						Fixed-price swaps												639,000			Bbls						$	74.89
Crude oil						2025						Two-way collars												1,181,000			Bbls																		$	60.00					$	79.05
Crude oil						2025						Three-way collars												2,371,000			Bbls												$	52.69					$	67.69					$	82.14
Crude oil						2026						Three-way collars												270,000			Bbls												$	50.00					$	65.00					$	83.70
Natural gas						2025						Fixed-price swaps												651,600			MMBtu						$	3.93

Subsequent to March 31, 2024, the Company entered into the following commodity derivative contracts:

																														Weighted Average Prices
Commodity						Settlement Period						Derivative Instrument						Volumes												Fixed-Price Swaps						Floor						Ceiling
Crude oil						2024						Two-way collars						736,000						Bbls												$	75.00					$	88.15
Crude oil						2024						Fixed-price swaps						550,000						Bbls						$	80.01

Transportation derivative contracts. The Company has contracts that provide for the transportation of crude oil through a buy/sell structure from North Dakota to either Cushing, Oklahoma or Guernsey, Wyoming. The Company determined that these contracts qualified as derivatives and did not elect the “normal purchase normal sale” exclusion. As of December 31, 2023, the term of one of these contracts expired. The remaining contract requires the purchase and sale of fixed volumes of crude oil through July 2024 as specified in the agreement. As of March 31, 2024 and December 31, 2023, the estimated fair value of the remaining contract was a $2.6 million asset and a $5.9 million asset, respectively, which was classified as a current derivative asset on the Company’s Condensed Consolidated Balance Sheet. The Company records the changes in fair value of these contracts to gathering, processing and transportation (“GPT”) expenses on the Company’s Condensed Consolidated Statement of Operations. Settlements on these contracts are reflected as operating activities on the Company’s Condensed 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. See Note 5—Fair Value Measurements for additional information.

Contingent consideration. The Company bifurcated the Permian Basin Sale Contingent Consideration from the host contract and accounted for it separately at fair value. 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 Condensed Consolidated Statements of Operations as a net gain or loss on derivative instruments. As of March 31, 2024, the estimated fair value of the Permian Basin Sale Contingent Consideration was $46.1 million, of which $23.8 million was classified as a current derivative asset and $22.2 million was classified as a non-current derivative asset on the Condensed Consolidated Balance Sheet. As of December 31, 2023, the estimated fair value of the Permian Basin Sale Contingent Consideration was $42.7 million, of which $22.6 million was classified as a current derivative asset and $20.1 million was classified as a non-current derivative asset on the Condensed Consolidated Balance Sheet. See Note 5—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						2024						2023
												(In thousands)
Commodity derivatives						Net gain (loss) on derivative instruments						$	(30,951)					$	65,840
Commodity derivatives (buy/sell transportation contracts)						Gathering, processing and transportation expenses(1)						(3,229)						11,157
Contingent consideration						Net gain (loss) on derivative instruments						3,374						1,094

__________________ 

(1)    The change in the fair value of the transportation derivative contracts was recorded in GPT expenses as a loss for the three months ended March 31, 2024 and as a gain for the three months ended March 31, 2023.

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:

												March 31, 2024
Derivative Instrument						Balance Sheet Location						Gross Amount						Gross Amount Offset						Net Amount
												(In thousands)
Derivatives assets:
Commodity derivatives						Derivative instruments — current assets						$	9,317					$	(9,273)					$	44
Contingent consideration						Derivative instruments — current assets						23,849						—						23,849
Commodity derivatives (buy/sell transportation contracts)						Derivative instruments — current assets						2,647						—						2,647
Commodity derivatives						Derivative instruments — non-current assets						14,485						(14,485)						—
Contingent consideration						Derivative instruments — non-current assets						22,231						—						22,231
Total derivatives assets												$	72,529					$	(23,758)					$	48,771
Derivatives liabilities:
Commodity derivatives						Derivative instruments — current liabilities						$	28,796					$	(9,273)					$	19,523
Commodity derivatives						Derivative instruments — non-current liabilities						17,507						(14,485)						3,022
Total derivatives liabilities												$	46,303					$	(23,758)					$	22,545
												December 31, 2023
Derivative Instrument						Balance Sheet Location						Gross Amount						Gross Amount Offset						Net Amount
												(In thousands)
Derivatives assets:
Commodity derivatives						Derivative instruments — current assets						$	20,647					$	(11,769)					$	8,878
Contingent consideration						Derivative instruments — current assets						22,614						—						22,614
Commodity derivatives (buy/sell transportation contracts)						Derivative instruments — current assets						5,877						—						5,877
Commodity contracts						Derivative instruments — non-current assets						16,760						(14,326)						2,434
Contingent consideration						Derivative instruments — non-current assets						20,092						—						20,092
Total derivatives assets												$	85,990					$	(26,095)					$	59,895
Derivatives liabilities:
Commodity derivatives						Derivative instruments — current liabilities						$	25,978					$	(11,769)					$	14,209
Commodity derivatives						Derivative instruments — non-current liabilities						15,043						(14,326)						717
Total derivatives liabilities												$	41,021					$	(26,095)					$	14,926

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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://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 40
-Name Accounting Standards Codification
-Section 50
-Paragraph 5
-Subparagraph (f)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480237/815-40-50-5

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Topic 815
-SubTopic 10
-Name Accounting Standards Codification
-Section 50
-Paragraph 5C
-Subparagraph (b)
-Publisher FASB
-URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C

Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef
-Topic 815
-Name Accounting Standards Codification
-Publisher FASB
-URI https://asc.fasb.org//815/tableOfContent

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