Derivative Instruments

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS:

CNX enters into interest rate swap agreements to manage its exposure to interest rate volatility. These swaps change the variable-rate cash flow exposure on the debt obligations to fixed cash flows. The change in fair value of the interest rate swap agreements is accounted for on a mark-to-market basis with the changes in fair value recorded in current period earnings.

In March 2020, CNX entered into interest rate swaps related to $175,000 of borrowings under the Cardinal States Facility and CSG Holdings Facility. In order to manage exposure to interest rate volatility, each respective entity entered into an interest rate swap for the full outstanding principal amounts inclusive of a put option at 25 basis points. The underlying notional for each swap and put option reduced over time based upon the expected amortization profile for each respective credit facility. In addition, CSG Holdings entered into a call option commencing March 31, 2023. In August 2021, these swaps were terminated in conjunction with the repayment and termination of both the Cardinal States Facility and the CSG Holdings Facility.

In March 2020, CNX entered into an interest rate swap agreement, inclusive of a put option at zero basis points, related to $160,000 of borrowings under the CNX Credit Facility which has the economic effect of modifying the variable-interest obligation into a fixed-interest obligation over a four-year period.

In March 2020, CNX entered into a four-year interest rate swap related to an additional $250,000 of borrowings under the CNX Credit Facility, inclusive of a put option at zero basis points, effective April 3, 2020. In December 2020, CNX executed an offsetting $250,000 interest rate swap, effective immediately, which expires in April 2024. Consistent with the previous interest rate swap agreements, the $250,000 interest rate swaps were entered into to manage CNX's exposure to interest rate volatility.

CNX enters into financial derivative instruments (over-the-counter swaps) to manage its exposure to natural gas price fluctuations. Typically, CNX "sells" swaps under which it receives a fixed price from counterparties and pays a floating market price. In order to lock in certain margins while balancing its basis hedges, during the first quarter of 2022, CNX purchased, rather than sold, financial swaps for the period April through October of 2022. In order to enhance production flexibility, during the first quarter of 2021, CNX purchased, rather than sold, financial swaps for the period April through October of 2021. Under these purchased financial swaps, CNX pays a fixed price to, and receives a floating price from, its hedge counterparties. Purchased swaps have the effect of reducing total hedged volumes for the period of the swap. Natural gas commodity hedges are accounted for on a mark-to-market basis with changes in fair value recorded in current period earnings.

CNX is exposed to credit risk in the event of non-performance by counterparties. The creditworthiness of counterparties is subject to continuing review. The Company has not experienced any issues of non-performance by derivative counterparties.

None of the Company's counterparty master agreements currently require CNX to post collateral for any of its positions. However, as stated in the applicable counterparty master agreements, if CNX's obligations with one of its counterparties cease to be secured on the same basis as similar obligations with the other lenders under the credit facility, CNX would have to post collateral for instruments in a liability position in excess of defined thresholds. All of the Company's derivative instruments are subject to master netting arrangements with our counterparties. CNX recognizes all financial derivative instruments as either assets or liabilities at fair value in the Consolidated Balance Sheets on a gross basis.

Each of the Company's counterparty master agreements allows, in the event of default, the ability to elect early termination of outstanding contracts. If early termination is elected, CNX and the applicable counterparty would net settle all open hedge positions.

The total notional amounts of CNX's derivative instruments were as follows:


	September 30,			December 31,		Forecasted to
	2022			2021		Settle Through
Natural Gas Commodity Swaps (Bcf)	1,662.8			1,686.1		2027
Natural Gas Basis Swaps (Bcf)	1,052.7		*	1,233.3		2027
Interest Rate Swaps	$	410,000		$	410,000	2024

*Net of purchased natural gas basis swaps of 2.3 Bcf.

The gross fair value of CNX's derivative instruments was as follows:


	September 30,		December 31,
	2022		2021
Current Assets:
Commodity Derivative Instruments:
Commodity Swaps	$	3,465	$	92
Basis Only Swaps	184,556		94,682
Interest Rate Swaps	12,577		228
Total Current Assets	$	200,598	$	95,002

Other Non-Current Assets:
Commodity Derivative Instruments:
Commodity Swaps	$	26,051	$	12,419
Basis Only Swaps	225,138		119,077
Interest Rate Swaps	7,350		498
Total Other Non-Current Assets	$	258,539	$	131,994

Current Liabilities:
Commodity Derivative Instruments:
Commodity Swaps	$	1,356,538	$	505,460
Basis Only Swaps	41,293		13,206
Interest Rate Swaps	10,061		2,932
Total Current Liabilities	$	1,407,892	$	521,598

Non-Current Liabilities:
Commodity Derivative Instruments:
Commodity Swaps	$	1,959,805	$	642,442
Basis Only Swaps	46,916		41,332
Interest Rate Swaps	5,605		3,580
Total Non-Current Liabilities	$	2,012,326	$	687,354

The effect of commodity derivative instruments on the Company's Consolidated Statements of Income was as follows:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Realized (Loss) Gain on Commodity Derivative Instruments:
Natural Gas:
Commodity Swaps	$	(690,685)	$	(161,887)	$	(1,520,879)	$	(171,829)

Basis Swaps	39,486		30,796		68,447		32,784
Total Realized Loss on Commodity Derivative Instruments	(651,199)		(131,091)		(1,452,432)		(139,045)

Unrealized (Loss) Gain on Commodity Derivative Instruments:
Natural Gas:
Commodity Swaps	(300,013)		(1,339,362)		(2,151,435)		(2,066,509)

Basis Swaps	(111,141)		(36,817)		162,478		192,840
Total Unrealized Loss on Commodity Derivative Instruments	(411,154)		(1,376,179)		(1,988,957)		(1,873,669)

(Loss) Gain on Commodity Derivative Instruments:
Natural Gas:
Commodity Swaps	(990,698)		(1,501,249)		(3,672,314)		(2,238,338)

Basis Swaps	(71,655)		(6,021)		230,925		225,624
Total Loss on Commodity Derivative Instruments	$	(1,062,353)	$	(1,507,270)	$	(3,441,389)	$	(2,012,714)

The effect of interest rate swaps on Interest Expense in the Company's Consolidated Statements of Income was as follows:


	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Cash Paid in Settlement of Interest Rate Swaps	$	(234)	$	(2,154)	$	(1,934)	$	(4,621)
Unrealized Gain on Interest Rate Swaps	2,694		1,416		10,047		6,075
Gain (Loss) on Interest Rate Swaps	$	2,460	$	(738)	$	8,113	$	1,454

The Company also enters into fixed price natural gas sales agreements that are satisfied by physical delivery. These physical commodity contracts qualify for the normal purchases and normal sales exception and are not subject to derivative instrument accounting.