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Derivative Financial Instruments | 3 Months Ended
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Mar. 31, 2022
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 oil, gas, and NGL price volatility and location differentials, and the associated impact on cash flows. As of March 31, 2022, all contracts were entered into for other-than-trading purposes. The Company’s commodity derivative contracts consist of swap and collar arrangements for oil, 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 and gas 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 is sold. As of the filing of this report, the Company has basis swap contracts with fixed price differentials between: •NYMEX WTI and WTI Midland for a portion of its Midland Basin oil 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; •NYMEX WTI and Argus WTI Houston Magellan East Houston Terminal (“MEH”) for a portion of its South Texas oil production with sales contracts that settle at Argus WTI Houston MEH (“WTI Houston MEH”) prices; •NYMEX Henry Hub (“HH”) and Inside FERC Tennessee Texas, Zone 0 (“IF Tenn TX Z0”) for a portion of its South Texas gas production with sales contracts that settle at IF Tenn TX Z0 prices; •NYMEX HH and Inside FERC Houston Ship Channel (“IF HSC”) for a portion of its South Texas gas production with sales contracts that settle at IF HSC prices; and •NYMEX HH and Inside FERC West Texas (“IF WAHA”) for a portion of its South Texas gas production with sales contracts that settle at IF WAHA 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 March 31, 2022, the Company had commodity derivative contracts outstanding through the fourth quarter of 2025 as summarized in the table below:
|  |  |  | Contract Period |  |  |  |  |  |
|  | Second Quarter 2022 |  | Third Quarter 2022 |  | Fourth Quarter 2022 |  | 2023 |  | 2024 |  | 2025 |  |  |  |
Oil Derivatives (volumes in MBbl and prices in $ per Bbl): |  |  |  |
Swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NYMEX WTI Volumes |  | 2,451 |  |  | 1,938 |  |  | 1,923 |  |  | 1,190 |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | 52.71 |  |  | $ | 44.63 |  |  | $ | 44.58 |  |  | $ | 45.20 |  |  | $ | — |  |  | $ | — |  |  |  |  |
ICE Brent Volumes |  | — |  |  | — |  |  | — |  |  | 3,650 |  |  | 614 |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 86.50 |  |  | $ | 85.26 |  |  | $ | — |  |  |  |  |
Collars |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NYMEX WTI Volumes |  | 894 |  |  | 1,114 |  |  | 1,128 |  |  | 858 |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Floor Price |  | $ | 56.94 |  |  | $ | 64.77 |  |  | $ | 63.74 |  |  | $ | 60.00 |  |  | $ | — |  |  | $ | — |  |  |  |  |
Weighted-Average Ceiling Price |  | $ | 64.93 |  |  | $ | 71.89 |  |  | $ | 75.48 |  |  | $ | 73.09 |  |  | $ | — |  |  | $ | — |  |  |  |  |
Basis Swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
WTI Midland-NYMEX WTI Volumes |  | 2,374 |  |  | 2,442 |  |  | 2,462 |  |  | 885 |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | 1.15 |  |  | $ | 1.15 |  |  | $ | 1.15 |  |  | $ | 0.60 |  |  | $ | — |  |  | $ | — |  |  |  |  |
NYMEX WTI-ICE Brent Volumes |  | 910 |  |  | 920 |  |  | 920 |  |  | — |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | (7.78) |  |  | $ | (7.78) |  |  | $ | (7.78) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  |
WTI Houston MEH-NYMEX WTI Volumes |  | 349 |  |  | 335 |  |  | 374 |  |  | 646 |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | 1.25 |  |  | $ | 1.25 |  |  | $ | 1.25 |  |  | $ | 1.24 |  |  | $ | — |  |  | $ | — |  |  |  |  |
Roll Differential Swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NYMEX WTI Volumes |  | 3,359 |  |  | 3,288 |  |  | 3,248 |  |  | 4,968 |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | 0.21 |  |  | $ | 0.22 |  |  | $ | 0.21 |  |  | $ | 0.62 |  |  | $ | — |  |  | $ | — |  |  |  |  |
Gas Derivatives (volumes in BBtu and prices in $ per MMBtu): |  |  |  |
Swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NYMEX HH volumes |  | 1,977 |  |  | 1,677 |  |  | 1,903 |  |  | — |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | 3.95 |  |  | $ | 4.02 |  |  | $ | 4.25 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  |
IF HSC Volumes |  | 6,808 |  |  | 6,934 |  |  | 6,982 |  |  | — |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | 2.34 |  |  | $ | 2.37 |  |  | $ | 2.47 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  |
IF WAHA Volumes |  | 3,079 |  |  | 3,085 |  |  | 3,067 |  |  | 900 |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | 2.09 |  |  | $ | 2.19 |  |  | $ | 2.22 |  |  | $ | 3.98 |  |  | $ | — |  |  | $ | — |  |  |  |  |
Collars |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
NYMEX HH Volumes |  | 1,270 |  |  | 760 |  |  | 1,908 |  |  | 17,098 |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Floor Price |  | $ | 3.00 |  |  | $ | 3.25 |  |  | $ | 3.50 |  |  | $ | 3.31 |  |  | $ | — |  |  | $ | — |  |  |  |  |
Weighted-Average Ceiling Price |  | $ | 4.48 |  |  | $ | 5.45 |  |  | $ | 4.44 |  |  | $ | 5.59 |  |  | $ | — |  |  | $ | — |  |  |  |  |
IF HSC Volumes |  | — |  |  | — |  |  | — |  |  | 900 |  |  | $ | — |  |  | $ | — |  |  |  |  |
Weighted-Average Floor Price |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 3.38 |  |  | $ | — |  |  | $ | — |  |  |  |  |
Weighted-Average Ceiling Price |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 7.75 |  |  | $ | — |  |  | $ | — |  |  |  |  |
Basis Swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
IF Tenn TX Z0-NYMEX HH Volumes |  | 1,270 |  |  | 760 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | (0.14) |  |  | $ | (0.14) |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  |
IF WAHA-NYMEX HH Volumes |  | — |  |  | — |  |  | — |  |  | 7,247 |  |  | 20,958 |  |  | 15,727 |  |  |  |  |
Weighted-Average Contract Price |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1.02) |  |  | $ | (0.86) |  |  | $ | (0.66) |  |  |  |  |
|  |  |  | Contract Period (continued) |  |  |  |  |  |
|  | Second Quarter 2022 |  | Third Quarter 2022 |  | Fourth Quarter 2022 |  | 2023 |  | 2024 |  | 2025 |  |  |  |
NGL Derivatives (volumes in MBbl and prices in $ per Bbl): |  |  |  |
Swaps |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OPIS Propane Mont Belvieu Non-TET Volumes |  | 269 |  |  | 106 |  |  | 113 |  |  | — |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Contract Price |  | $ | 41.69 |  |  | $ | 35.70 |  |  | $ | 35.91 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  |
Collars |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
OPIS Propane Mont Belvieu Non-TET Volumes |  | 253 |  |  | 164 |  |  | 173 |  |  | — |  |  | — |  |  | — |  |  |  |  |
Weighted-Average Floor Price |  | $ | 25.94 |  |  | $ | 24.09 |  |  | $ | 24.11 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  |
Weighted-Average Ceiling Price |  | $ | 31.69 |  |  | $ | 27.84 |  |  | $ | 28.13 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  |
Commodity Derivative Contracts Entered Into Subsequent to March 31, 2022 Subsequent to March 31, 2022, the Company entered into the following commodity derivative contracts: •fixed price ICE Brent oil swap contract for the first quarter of 2024 for a total of 0.3 MMBbl of oil production at a contract price of $86.00 per Bbl; •NYMEX WTI oil collar contract for the fourth quarter of 2024 for a total of 0.1 MMBbl of oil production at a floor price of $75.00 per Bbl and a ceiling price of $78.20 per Bbl; •IF HSC-NYMEX HH basis swap contract for the first quarter of 2023 for a total of 1,337 BBtu at a contract price of $0.005 per MMBtu; and •IF WAHA-NYMEX HH basis swap contracts for 2025 for a total of 4,774 BBtu at a weighted-average contract price of $(0.64) per MMBtu. 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 was a net liability of $571.2 million and $320.9 million as of March 31, 2022, and December 31, 2021, respectively. The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:
| As of March 31, 2022 |  | As of December 31, 2021
| (in thousands)
Derivative assets: |  |  |
Current assets | $ | 9,649 |  |  | $ | 24,095 |
Noncurrent assets | 8,903 |  |  | 239 |
Total derivative assets | $ | 18,552 |  |  | $ | 24,334 |
Derivative liabilities: |  |  |
Current liabilities | $ | 538,127 |  |  | $ | 319,506 |
Noncurrent liabilities | 51,631 |  |  | 25,696 |
Total derivative liabilities | $ | 589,758 |  |  | $ | 345,202 |
Offsetting of Derivative Assets and Liabilities As of March 31, 2022, and December 31, 2021, 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, 2022 |  | December 31, 2021 |  | March 31, 2022 |  | December 31, 2021
| (in thousands)
Gross amounts presented in the accompanying balance sheets | $ | 18,552 |  |  | $ | 24,334 |  |  | $ | (589,758) |  |  | $ | (345,202) |
Amounts not offset in the accompanying balance sheets | (18,262) |  |  | (22,862) |  |  | 18,262 |  |  | 22,862 |
Net amounts | $ | 290 |  |  | $ | 1,472 |  |  | $ | (571,496) |  |  | $ | (322,340) |
The following table summarizes the commodity components of the derivative settlement loss, and the net derivative loss line items presented within the accompanying unaudited condensed consolidated statements of cash flows (“accompanying statements of cash flows”) and the accompanying statements of operations, respectively:
|  |  | For the Three Months Ended March 31,
|  |  |  |  | 2022 |  | 2021
|  |  |  |  | (in thousands)
Derivative settlement loss: |  |  |  |  |  |  |
Oil contracts |  |  |  |  | $ | 129,168 |  |  | $ | 56,329 |
Gas contracts |  |  |  |  | 27,051 |  |  | 40,448 |
NGL contracts |  |  |  |  | 11,964 |  |  | 11,108 |
Total derivative settlement loss |  |  |  |  | $ | 168,183 |  |  | $ | 107,885 |
Net derivative loss: |  |  |  |  |  |  |
Oil contracts |  |  |  |  | $ | 315,050 |  |  | $ | 265,815 |
Gas contracts |  |  |  |  | 86,175 |  |  | 48,922 |
NGL contracts |  |  |  |  | 17,296 |  |  | 29,952 |
Total net derivative loss |  |  |  |  | $ | 418,521 |  |  | $ | 344,689 |
Credit Related Contingent Features As of March 31, 2022, 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 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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