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Derivative Financial Instruments
 12 Months Ended
Dec. 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 regularly enters into 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 December 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 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 NYMEX WTI and WTI Midland for a portion of its Midland Basin production with sales contracts that settle at WTI Midland prices, 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, and between NYMEX WTI and Argus WTI Houston Magellan East Houston Terminal ("MEH”) for a portion of its South Texas production with sales contracts that settle at Argus WTI Houston MEH prices. The Company has also entered into 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”) in which the Company pays the periodic variable Roll Differential and receives a weighted-average fixed price differential. The weighted-average fixed price differential represents the amount of net addition (reduction) to delivery month prices for the notional volumes covered by the swap contracts.
As of December 31, 2020, the Company had commodity derivative contracts outstanding through the fourth quarter of 2023 as summarized in the tables below.
Oil Swaps
Contract PeriodNYMEX WTI VolumesWeighted-Average
Contract Price
(MBbl)(per Bbl)
First quarter 20213,613 $42.91 
Second quarter 20215,072 $39.90 
Third quarter 20214,862 $40.10 
Fourth quarter 20214,744 $39.85 
20226,601 $43.99 
20231,190 $45.20 
Total26,082 
Oil Collars
Contract PeriodNYMEX WTI Volumes
Weighted-Average
Floor Price
Weighted-Average
Ceiling Price
(MBbl)(per Bbl)(per Bbl)
First quarter 2021551 $48.97 $51.96 
Total551 
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)
WTI Houston MEH-NYMEX WTI Volumes
Weighted-Average Contract
Price (3)
(MBbl)(per Bbl)(MBbl)(per Bbl)(MBbl)(per Bbl)
First quarter 20213,223 $0.79 900 $(7.86)173 $0.60 
Second quarter 20213,385 $0.78 910 $(7.86)493 $0.60 
Third quarter 20213,574 $0.74 920 $(7.86)356 $0.60 
Fourth quarter 20213,824 $0.71 920 $(7.86)466 $0.60 
20229,500 $1.15 3,650 $(7.78)— $— 
Total23,506 7,300 1,488 
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(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).
(3)    Represents the price differential between Argus WTI Houston MEH (Houston, Texas) and NYMEX WTI (Cushing, Oklahoma).
Oil Roll Differential Swaps
Contract Period
NYMEX WTI Volumes
Weighted-Average Contract Price
(MBbl)(per Bbl)
First quarter 20213,367 $(0.30)
Second quarter 20214,065 $(0.24)
Third quarter 20213,708 $(0.25)
Fourth quarter 20213,283 $(0.24)
20226,002 $(0.04)
Total20,425 
Gas Swaps
Contract PeriodIF HSC VolumesWeighted-Average Contract PriceWAHA VolumesWeighted-Average Contract Price
(BBtu)(per MMBtu)(BBtu)(per MMBtu)
First quarter 202111,592 $2.48 6,544 $1.76 
Second quarter 202113,672 $2.45 7,230 $1.76 
Third quarter 202112,575 $2.40 8,086 $1.88 
Fourth quarter 202112,412 $2.41 7,627 $1.82 
202221,119 $2.48 10,066 $2.30 
Total (1)
71,370 39,553 
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(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 December 31, 2020, WAHA volumes were comprised of 59 percent IF WAHA and 41 percent GD WAHA.
NGL Swaps
OPIS Propane Mont Belvieu Non-TET
Contract PeriodVolumesWeighted-Average Contract Price
(MBbl)(per Bbl)
First quarter 2021614 $21.58 
Second quarter 2021707 $21.26 
Third quarter 2021735 $21.26 
Fourth quarter 2021714 $21.30 
2022116 $21.21 
Total2,886 
Commodity Derivative Contracts Entered Into Subsequent to December 31, 2020
Subsequent to December 31, 2020, the Company entered into the following fixed price commodity derivative contracts:
Oil Swaps
IndexStart DateThrough DateVolumes
(MBbl)		Weighted-Average Contract Price
(per Bbl)
NYMEX WTIFirst quarter 2021Third quarter 20211,048 $51.91 
NYMEX WTIFirst quarter 2022Fourth quarter 20221,222 $48.50 
Oil Collars
IndexStart DateThrough DateVolumes
(MBbl)		Weighted-Average Floor Price
(per Bbl)		Weighted-Average Ceiling Price
(per Bbl)
NYMEX WTIFirst quarter 2022Fourth quarter 20221,095 $50.00 $53.28 
Oil Basis Swaps
IndexStart DateThrough DateVolumes
(MBbl)		Weighted-Average Contract Price
(per Bbl)
WTI Midland-NYMEX WTIFirst quarter 2021Third quarter 20211,095 $0.95 
WTI Houston MEH-NYMEX WTIFirst quarter 2022Fourth quarter 20221,329 $1.25 
Oil Roll Differential Swaps
IndexStart DateThrough DateVolumes
(MBbl)		Weighted-Average Contract Price
(per Bbl)
NYMEX WTIFirst quarter 2021Fourth quarter 20212,213 $0.30 
NYMEX WTIFirst quarter 2022Fourth quarter 20225,276 $0.27 
Gas Swaps
IndexStart DateThrough DateVolumes
(BBtu)		Weighted-Average Contract Price
(per MMBtu)
IF HSCFirst quarter 2022Fourth quarter 20227,813 $2.64 
IF WAHAFirst quarter 2022Fourth quarter 20223,650 $2.30 
NGL Swaps
IndexStart DateThrough DateVolumes
(MBbl)		Weighted-Average Contract Price
(per Bbl)
OPIS Propane Mont Belvieu Non-TETFirst quarter 2021Fourth quarter 2021440 $27.72 
OPIS Propane Mont Belvieu Non-TETFirst quarter 2022First quarter 2022115 $24.78 
OPIS Normal Butane Mont Belvieu Non-TETFirst quarter 2021Fourth quarter 2021143 $30.87 
NGL Collars
IndexStart DateThrough DateVolumes
(MBbl)		Weighted-Average Floor Price
(per Bbl)		Weighted-Average Ceiling Price
(per Bbl)
OPIS Propane Mont Belvieu Non-TETFirst quarter 2022Fourth quarter 2022234 $22.05 $27.30 
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 commodity derivative contracts as hedging instruments. The fair value of the commodity derivative contracts at December 31, 2020, and 2019, was a net liability of $168.2 million and a net asset of $21.5 million, respectively.
The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:
As of December 31, 2020As of December 31, 2019
(in thousands)
Derivative assets:
Current assets$31,203 $55,184 
Noncurrent assets23,150 20,624 
Total derivative assets$54,353 $75,808 
Derivative liabilities:
Current liabilities$200,189 $50,846 
Noncurrent liabilities22,331 3,444 
Total derivative liabilities$222,520 $54,290 
Offsetting of Derivative Assets and Liabilities
As of December 31, 2020, and 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 AssetsDerivative Liabilities
As of December 31,As of December 31,
2020201920202019
(in thousands)
Gross amounts presented in the accompanying balance sheets$54,353 $75,808 $(222,520)$(54,290)
Amounts not offset in the accompanying balance sheets(53,598)(35,075)53,598 35,075 
Net amounts$755 $40,733 $(168,922)$(19,215)
The Company recognizes all gains and losses from changes in commodity derivative fair values immediately in earnings rather than deferring such amounts in accumulated other comprehensive income (loss). The Company had no commodity derivative contracts designated as hedging instruments for the years ended December 31, 2020, 2019, and 2018. Please refer to Note 11 – Fair Value Measurements for more information regarding the Company’s derivative instruments, including its valuation techniques.
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 Years Ended December 31,
202020192018
(in thousands)
Derivative settlement (gain) loss:
Oil contracts$(331,559)$19,685 $68,860 
Gas contracts(11,898)(23,008)13,029 
NGL contracts(7,804)(35,899)53,914 
Total derivative settlement (gain) loss:$(351,261)$(39,222)$135,803 
Net derivative (gain) loss:
Oil contracts$(205,180)$172,055 $(192,002)
Gas contracts30,038 (41,205)35,411 
NGL contracts13,566 (33,311)(5,241)
Total net derivative (gain) loss:$(161,576)$97,539 $(161,832)
Credit Related Contingent Features
As of December 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.