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Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2020
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, 2020, all derivative counterparties were members of the Company’s Credit Agreement lender group and all contracts were entered into for other-than-trading purposes. The Company’s commodity derivative contracts consist of swap and collar arrangements for oil production, and swap arrangements for gas and NGL production. 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 price 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. The Company has also entered into fixed price oil basis swaps in order to mitigate exposure to adverse pricing differentials between certain industry benchmark prices and the actual physical pricing points where the Company’s production volumes are sold. Currently, the Company has basis swap contracts with fixed price differentials between New York Mercantile Exchange (“NYMEX”) WTI and WTI Midland for a portion of its Midland Basin production with sales contracts that settle at WTI Midland prices. The Company also has basis swaps with fixed price differentials between NYMEX WTI and Intercontinental Exchange Brent Crude (“ICE Brent”) for a portion of its Midland Basin oil production with sales contracts that settle at ICE Brent prices. As of March 31, 2020, the Company had commodity derivative contracts outstanding through the fourth quarter of 2022 as summarized in the tables below. Oil Swaps
Contract Period |  | NYMEX WTI Volumes |  | Weighted-Average Contract Price
|  | (MBbl) |  | (per Bbl)
Second quarter 2020 |  | 2,838 |  |  | $ | 58.81 |
Third quarter 2020 |  | 3,361 |  |  | $ | 56.43 |
Fourth quarter 2020 |  | 4,397 |  |  | $ | 57.03 |
2021 |  | 2,085 |  |  | $ | 45.70 |
Total |  | 12,681 |  |  |
Oil Collars
Contract Period |  | NYMEX WTI Volumes |  | Weighted-Average Floor Price |  | Weighted-Average Ceiling Price
|  | (MBbl) |  | (per Bbl) |  | (per Bbl)
Second quarter 2020 |  | 1,881 |  |  | $ | 55.00 |  |  | $ | 62.17 |
Third quarter 2020 |  | 1,252 |  |  | $ | 55.00 |  |  | $ | 62.90 |
Fourth quarter 2020 |  | 610 |  |  | $ | 55.00 |  |  | $ | 61.90 |
2021 |  | 329 |  |  | $ | 55.00 |  |  | $ | 56.70 |
Total |  | 4,072 |  |  |  |  |
Oil Basis Swaps
Contract Period |  | WTI Midland-NYMEX WTI Volumes |  | Weighted-Average Contract Price (1) |  | NYMEX WTI-ICE Brent Volumes |  | Weighted-Average Contract Price (2)
|  | (MBbl) |  | (per Bbl) |  | (MBbl) |  | (per Bbl)
Second quarter 2020 |  | 3,637 |  |  | $ | (0.62 | ) |  | 910 |  |  | $ | (8.06 | )
Third quarter 2020 |  | 3,607 |  |  | $ | (0.62 | ) |  | 920 |  |  | $ | (8.01 | )
Fourth quarter 2020 |  | 4,087 |  |  | $ | (0.38 | ) |  | 920 |  |  | $ | (8.01 | )
2021 |  | 11,527 |  |  | $ | 0.87 |  |  | 3,650 |  |  | $ | (7.86 | )
2022 |  | 9,500 |  |  | $ | 1.15 |  |  | 3,650 |  |  | $ | (7.78 | )
Total |  | 32,358 |  |  |  |  | 10,050 |  |  |
____________________________________________
(1) | Represents the price differential between WTI Midland (Midland, Texas) and NYMEX WTI (Cushing, Oklahoma).
(2) | Represents the price differential between NYMEX WTI (Cushing, Oklahoma) and ICE Brent (North Sea).
Gas Swaps
Contract Period |  | IF HSC Volumes |  | Weighted-Average Contract Price |  | WAHA Volumes |  | Weighted-Average Contract Price
|  | (BBtu) |  | (per MMBtu) |  | (BBtu) |  | (per MMBtu)
Second quarter 2020 |  | 4,160 |  |  | $ | 2.20 |  |  | 3,592 |  |  | $ | 0.63 |
Third quarter 2020 |  | 4,493 |  |  | $ | 2.41 |  |  | 4,294 |  |  | $ | 1.07 |
Fourth quarter 2020 |  | 6,994 |  |  | $ | 2.32 |  |  | 4,516 |  |  | $ | 1.20 |
2021 |  | 28,621 |  |  | $ | 2.29 |  |  | 17,533 |  |  | $ | 1.45 |
2022 |  | 6,104 |  |  | $ | 2.23 |  |  | — |  |  | $ | — |
Total (1) |  | 50,372 |  |  |  |  | 29,935 |  |  |
____________________________________________
(1) | The Company has natural gas swaps in place that settle against Inside FERC Houston Ship Channel (“IF HSC”), Inside FERC West Texas (“IF WAHA”), and Platt’s Gas Daily West Texas (“GD WAHA”). As of March 31, 2020, WAHA volumes were comprised of 81 percent IF WAHA and 19 percent GD WAHA.
NGL Swaps
|  | OPIS Ethane Purity Mont Belvieu |  | OPIS Propane Mont Belvieu Non-TET
Contract Period |  | Volumes |  | Weighted-Average Contract Price |  | Volumes |  | Weighted-Average Contract Price
|  | (MBbl) |  | (per Bbl) |  | (MBbl) |  | (per Bbl)
Second quarter 2020 |  | 264 |  |  | $ | 11.13 |  |  | 382 |  |  | $ | 22.34 |
Third quarter 2020 |  | — |  |  | $ | — |  |  | 409 |  |  | $ | 22.33 |
Fourth quarter 2020 |  | — |  |  | $ | — |  |  | 466 |  |  | $ | 22.29 |
Total |  | 264 |  |  |  |  | 1,257 |  |  |
Commodity Derivative Contracts Entered Into Subsequent to March 31, 2020 Subsequent to March 31, 2020, the Company entered into the following commodity derivative contracts:
• | fixed price NYMEX WTI oil swap contracts for 2021 for a total of 5.5 MMBbl of oil production at a weighted-average contract price of $37.57 per Bbl;
• | fixed price IF HSC gas swap contracts for 2021 for a total of 6,197 BBtu of gas production at a weighted-average contract price of $2.42 per MMBtu;
• | fixed price IF WAHA gas swap contracts through the fourth quarter of 2021 for a total of 2,437 BBtu of gas production at a weighted-average contract price of $1.57 per MMBtu; and
• | crude oil swap contracts to fix the differential in pricing between the NYMEX calendar month average and the physical crude oil delivery month (“Roll Differential”) for the second quarter of 2020 through the fourth quarter of 2021 for a total of 6.8 MMBbl of oil production, in which the Company pays the periodic variable Roll Differential and receives a weighted-average fixed price of $(1.24) per Bbl; the weighted average price differential represents the amount of net addition (reduction) to delivery month prices for the notional volumes covered by the swap contracts.
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, with the exception of derivative instruments that meet the “normal purchase normal sale” exclusion. The Company does not designate its derivative commodity contracts as hedging instruments. The fair value of the commodity derivative contracts was a net asset of $493.4 million and $21.5 million as of March 31, 2020, and December 31, 2019, respectively. The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:
| As of March 31, 2020 |  | As of December 31, 2019
| (in thousands)
Derivative assets: |  |  |
Current assets | $ | 463,992 |  |  | $ | 55,184 |
Noncurrent assets | 44,909 |  |  | 20,624 |
Total derivative assets | $ | 508,901 |  |  | $ | 75,808 |
Derivative liabilities: |  |  |
Current liabilities | $ | 8,277 |  |  | $ | 50,846 |
Noncurrent liabilities | 7,202 |  |  | 3,444 |
Total derivative liabilities | $ | 15,479 |  |  | $ | 54,290 |
Offsetting of Derivative Assets and Liabilities As of March 31, 2020, and December 31, 2019, 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 commodity derivative contracts:
| Derivative Assets as of |  | Derivative Liabilities as of
| March 31, 2020 |  | December 31, 2019 |  | March 31, 2020 |  | December 31, 2019
| (in thousands)
Gross amounts presented in the accompanying balance sheets | $ | 508,901 |  |  | $ | 75,808 |  |  | $ | (15,479 | ) |  | $ | (54,290 | )
Amounts not offset in the accompanying balance sheets | (15,479 | ) |  | (35,075 | ) |  | 15,479 |  |  | 35,075 |
Net amounts | $ | 493,422 |  |  | $ | 40,733 |  |  | $ | — |  |  | $ | (19,215 | )
The following table summarizes the commodity components of the derivative settlement (gain) loss, as well as the components of the net derivative (gain) loss line item presented in the accompanying statements of operations:
| For the Three Months Ended March 31,
| 2020 |  | 2019
| (in thousands)
Derivative settlement (gain) loss: |  |  |
Oil contracts | $ | (53,582 | ) |  | $ | 1,369 |
Gas contracts | (14,625 | ) |  | 4,134 |
NGL contracts | (5,230 | ) |  | (534 | )
Total derivative settlement (gain) loss | $ | (73,437 | ) |  | $ | 4,969 |
Net derivative (gain) loss: |  |  |
Oil contracts | $ | (542,540 | ) |  | $ | 185,797 |
Gas contracts | 6,728 |  |  | (6,113 | )
NGL contracts | (9,528 | ) |  | (2,603 | )
Total net derivative (gain) loss | $ | (545,340 | ) |  | $ | 177,081 |
Credit Related Contingent Features As of March 31, 2020, and through the filing of this report, all of the Company’s derivative counterparties were members of the Company’s Credit Agreement lender group. Under the Credit Agreement, the Company is required to provide mortgage liens on assets having a value equal to at least 85 percent of the total PV-9, as defined in the Credit Agreement, of the Company’s proved oil and gas properties evaluated in the most recent reserve report. Collateral securing indebtedness under the Credit Agreement also secures the Company’s derivative agreement obligations.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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