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Derivative Financial Instruments
 3 Months Ended
Mar. 31, 2017
Derivative Instruments Not Designated as Hedging Instruments [Abstract]  
Derivative Financial Instruments
Note 10 - Derivative Financial Instruments

Summary of Oil, Gas, and NGL Derivative Contracts in Place
    
The Company has entered into various commodity derivative contracts to mitigate a portion of its exposure to potentially adverse market changes in commodity prices and the associated impact on cash flows. As of March 31, 2017, all derivative counterparties were members of the Company’s credit facility lender group and all contracts were entered into for other-than-trading purposes. The Company’s derivative contracts consist of swap and collar arrangements for oil, gas, and NGLs. In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index price and the agreed upon swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference.  For collar arrangements, the Company receives the difference between an agreed upon index and the floor price if the index price is below the floor price. The Company pays the difference between the agreed upon ceiling price and the index price if the index price is above the ceiling price. No amounts are paid or received if the index price is between the floor and ceiling prices.
    
As of March 31, 2017, the Company had commodity derivative contracts outstanding as summarized in the tables below.

Oil Swaps


Contract Period
 
NYMEX WTI Volumes
 
Weighted-Average
 Contract Price
 
 
(MBbls)
 
(per Bbl)
Second quarter 2017
 
1,444

 
$
46.44

Third quarter 2017
 
1,340

 
$
46.66

Fourth quarter 2017
 
1,254

 
$
46.35

Total
 
4,038

 
 

Oil Collars
Contract Period
 
NYMEX WTI
 Volumes
 
Weighted-
Average Floor
 Price
 
Weighted-
Average Ceiling
 Price
 
 
(MBbls)
 
(per Bbl)
 
(per Bbl)
Second quarter 2017
 
636

 
$
45.00

 
$
54.10

Third quarter 2017
 
583

 
$
45.00

 
$
54.05

Fourth quarter 2017
 
540

 
$
45.00

 
$
54.01

2018
 
3,343

 
$
50.00

 
$
58.55

2019
 
2,660

 
$
50.00

 
$
59.31

Total
 
7,762

 
 
 
 

Oil Basis Swaps


Contract Period
 
Midland-Cushing Volumes
 
Weighted-Average
 Contract Price (1)
 
 
(MBbls)
 
(per Bbl)
2018
 
2,080

 
$
(1.27
)
2019
 
1,588

 
$
(1.45
)
Total
 
3,668

 
 
____________________________________________
(1)  
Represents the price differential between WTI prices at Midland, Texas and WTI prices at Cushing, Oklahoma.

Natural Gas Swaps
Contract Period
 
Sold
Volumes
 
Weighted-Average
 Contract Price
 
Purchased Volumes (1)
 
Weighted- Average Contract Price
 
Net
Volumes
 
 
(BBtu)
 
(per MMBtu)
 
(BBtu)
 
(per MMBtu)
 
(BBtu)
Second quarter 2017
 
26,205

 
$
3.98

 
—

 
$
—

 
26,205

Third quarter 2017
 
23,657

 
$
4.01

 
—

 
$
—

 
23,657

Fourth quarter 2017
 
22,001

 
$
3.98

 
—

 
$
—

 
22,001

2018
 
75,778

 
$
3.54

 
(30,606
)
 
$
4.27

 
45,172

2019
 
32,016

 
$
4.02

 
(24,415
)
 
$
4.34

 
7,601

Total (2)
 
179,657

 
 
 
(55,021
)
 
 
 
124,636

____________________________________________
(1) 
During 2016, the Company restructured certain of its gas derivative contracts by buying fixed price volumes to offset existing 2018 and 2019 fixed price swap contracts totaling 55.0 million MMBtu. The Company then entered into new 2017 fixed price swap contracts totaling 38.6 million MMBtu with a contract price of $4.43 per MMBtu. No other cash or other consideration was included as part of the restructuring.
(2) 
Total net volumes of natural gas swaps are comprised of IF El Paso Permian (2%), IF HSC (95%), and IF NNG Ventura (3%).

NGL Swaps
 
 
OPIS Purity Ethane Mont Belvieu
 
OPIS Propane Mont Belvieu Non-TET
 
OPIS Normal Butane Mont Belvieu Non-TET
 
OPIS Isobutane Mont Belvieu Non-TET
 
OPIS Natural Gasoline Mont Belvieu Non-TET
Contract Period
 
Volumes
Weighted-Average
 Contract Price
 
Volumes
Weighted-Average
Contract Price
 
Volumes
Weighted-Average
Contract Price
 
Volumes
Weighted-Average
Contract Price
 
Volumes
Weighted-Average
Contract Price
 
 
(MBbls)
(per Bbl)
 
(MBbls)
(per Bbl)
 
(MBbls)
(per Bbl)
 
(MBbls)
(per Bbl)
 
(MBbls)
(per Bbl)
Second quarter 2017
 
787

$
8.86

 
634

$
21.90

 
182

$
32.53

 
157

$
33.38

 
249

$
48.47

Third quarter 2017
 
736

$
9.14

 
588

$
21.91

 
163

$
32.42

 
140

$
33.28

 
222

$
48.43

Fourth quarter 2017
 
692

$
9.10

 
550

$
21.91

 
149

$
32.34

 
128

$
33.23

 
203

$
48.41

2018
 
2,434

$
10.18

 
1,442

$
22.86

 
138

$
35.41

 
119

$
35.44

 
189

$
49.40

2019
 
2,176

$
11.95

 
—

$
—

 
—

$
—

 
—

$
—

 
—

$
—

2020
 
539

$
11.13

 
—

$
—

 
—

$
—

 
—

$
—

 
—

$
—

Total
 
7,364

 
 
3,214

 
 
632

 
 
544

 
 
863

 

Summary of Oil, Gas, and NGL Derivative Contracts Entered Into Subsequent to March 31, 2017

Subsequent to March 31, 2017, and through April 26, 2017, the Company entered into various derivative commodity contracts as summarized in the tables below.

Oil Collars
Contract Period
 
NYMEX WTI
 Volumes
 
Weighted-
Average Floor
 Price
 
Weighted-
Average Ceiling
 Price
 
 
(MBbls)
 
(per Bbl)
 
(per Bbl)
Fourth quarter 2017
 
546

 
$
50.00

 
$
58.08

2018
 
1,687

 
$
50.00

 
$
57.12

2019
 
468

 
$
50.00

 
$
56.20

Total
 
2,701

 
 
 
 

Oil Basis Swaps


Contract Period
 
Midland-Cushing Volumes
 
Weighted-Average
 Contract Price (1)
 
 
(MBbls)
 
(per Bbl)
Third quarter 2017
 
566

 
$
(1.62
)
Fourth quarter 2017
 
1,403

 
$
(1.55
)
2018
 
3,584

 
$
(1.50
)
2019
 
2,375

 
$
(1.45
)
Total
 
7,928

 
 
____________________________________________
(1)  
Represents the price differential between WTI prices at Midland, Texas and WTI prices at Cushing, Oklahoma.

Natural Gas Swaps
Contract Period
 
IF HSC
Volumes
 
Weighted-Average
 Contract Price
 
 
(BBtu)
 
(per MMBtu)
2018
 
17,236

 
$
2.87

2019
 
9,378

 
$
2.88

Total
 
26,614

 
 

NGL Swaps
 
 
OPIS Purity Ethane Mont Belvieu
 
OPIS Propane Mont Belvieu Non-TET
 
OPIS Normal Butane Mont Belvieu Non-TET
 
OPIS Isobutane Mont Belvieu Non-TET
 
OPIS Natural Gasoline Mont Belvieu Non-TET
Contract Period
 
Volumes
Weighted-Average
 Contract Price
 
Volumes
Weighted-Average
Contract Price
 
Volumes
Weighted-Average
Contract Price
 
Volumes
Weighted-Average
Contract Price
 
Volumes
Weighted-Average
Contract Price
 
 
(MBbls)
(per Bbl)
 
(MBbls)
(per Bbl)
 
(MBbls)
(per Bbl)
 
(MBbls)
(per Bbl)
 
(MBbls)
(per Bbl)
Second quarter 2017
 
105

$
10.97

 
—

$
—

 
—

$
—

 
—

$
—

 
—

$
—

Third quarter 2017
 
170

$
10.98

 
—

$
—

 
—

$
—

 
—

$
—

 
—

$
—

Fourth quarter 2017
 
274

$
11.04

 
—

$
—

 
—

$
—

 
—

$
—

 
—

$
—

2018
 
1,157

$
12.23

 
345

$
26.04

 
87

$
31.71

 
69

$
30.35

 
116

$
47.36

Total
 
1,706

 
 
345

 
 
87

 
 
69

 
 
116

 


Derivative Assets and Liabilities Fair Value

The Company’s commodity derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities. The fair value of the commodity derivative contracts was a net asset of $23.1 million as of March 31, 2017, and a net liability of $91.7 million as of December 31, 2016.

The following tables detail the fair value of derivatives recorded in the accompanying balance sheets, by category:
 
As of March 31, 2017
 
Derivative Assets
 
Derivative Liabilities
 
Balance Sheet
 Classification
 
Fair Value
 
Balance Sheet
 Classification
 
Fair Value
 
(in thousands)
Commodity contracts
Current assets
 
$
73,978

 
Current liabilities
 
$
53,809

Commodity contracts
Noncurrent assets
 
84,195

 
Noncurrent liabilities
 
81,306

Derivatives not designated as hedging instruments
 
 
$
158,173

 
 
 
$
135,115


 
As of December 31, 2016
 
Derivative Assets
 
Derivative Liabilities
 
Balance Sheet
 Classification
 
Fair Value
 
Balance Sheet
 Classification
 
Fair Value
 
(in thousands)
Commodity contracts
Current assets
 
$
54,521

 
Current liabilities
 
$
115,464

Commodity contracts
Noncurrent assets
 
67,575

 
Noncurrent liabilities
 
98,340

Derivatives not designated as hedging instruments
 
 
$
122,096

 
 
 
$
213,804



Offsetting of Derivative Assets and Liabilities

As of March 31, 2017, and December 31, 2016, all derivative instruments held by the Company were subject to master netting arrangements with various financial institutions. In general, the terms of the Company’s agreements provide for offsetting of amounts payable or receivable between it and the counterparty, at the election of both parties, for transactions that settle on the same date and in the same currency. The Company’s agreements also provide that in the event of an early termination, the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. The Company’s accounting policy is to not offset these positions in its accompanying balance sheets.  

The following table provides a reconciliation between the gross assets and liabilities reflected on the accompanying balance sheets and the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts:
 
Derivative Assets
 
Derivative Liabilities
 
As of
 
As of
Offsetting of Derivative Assets and Liabilities
March 31, 2017
 
December 31, 2016
 
March 31, 2017
 
December 31, 2016
 
(in thousands)
Gross amounts presented in the accompanying balance sheets
$
158,173

 
$
122,096

 
$
(135,115
)
 
$
(213,804
)
Amounts not offset in the accompanying balance sheets
(88,952
)
 
(118,080
)
 
88,952

 
118,080

Net amounts
$
69,221

 
$
4,016

 
$
(46,163
)
 
$
(95,724
)

    
The following table summarizes the components of the net derivative gain presented in the accompanying statements of operations:
 
For the Three Months Ended March 31,
 
2017
 
2016
 
(in thousands)
Derivative settlement (gain) loss:
 
 
 
Oil contracts
$
9,084

 
$
(99,992
)
Gas contracts
(17,506
)
 
(41,053
)
NGL contracts
8,415

 
(5,983
)
Total derivative settlement gain
$
(7
)

$
(147,028
)
 
 
 
 
Total net derivative (gain) loss:
 
 
 
Oil contracts
$
(49,590
)
 
$
(10,432
)
Gas contracts
(44,468
)
 
(24,023
)
NGL contracts
(20,716
)
 
20,227

Total net derivative gain
$
(114,774
)

$
(14,228
)


Credit Related Contingent Features

As of March 31, 2017, and through the filing of this report, all of the Company’s derivative counterparties were members of the Company’s credit facility lender group. Under the Credit Agreement and derivative contracts, the Company is required to secure mortgages on assets having a value equal to at least 90 percent of the total PV-9 of the Company’s proved oil and gas properties evaluated in the most recent reserve report.