Derivatives

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Derivatives

The Company is exposed to commodity price risk, which impacts the predictability of its cash flows from the sale of oil and natural gas. On occasion, the Company has attempted to manage this risk on a portion of its forecasted oil or natural gas production sales through the use of commodity derivative contracts. None of the Company’s commodity derivative contracts may be terminated prior to contractual maturity solely as a result of a downgrade in the credit rating of a party to the contract. Commodity derivative contracts are settled on a monthly basis. On a quarterly basis, the commodity derivative contract valuations are adjusted to the mark-to-market valuation. At December 31, 2018, the Company’s commodity derivative contracts consisted of natural gas fixed price swaps. The Company receives a fixed price for these contracts and pays a floating market price to the counterparty over a specified period for a contracted volume.

The Company recorded loss (gain) on commodity derivative contracts of $17.2 million and $(24.1) million for the years ended December 31, 2018 and 2017, respectively, as reflected in the accompanying consolidated statements of operations, which includes net cash payments (receipts) upon settlement of $35.3 million and $(7.3) million, respectively. Approximately $0.8 million of the payments made in 2018 relate to early settlements due to unwinding all oil derivative contracts in December 2018.

The Company recorded loss on commodity derivative contracts of $25.7 million and $4.8 million for the Successor 2016 Period and the Predecessor 2016 Period, respectively, as reflected in the accompanying consolidated statements of operations, which includes net cash receipts upon settlement of $7.7 million and $72.6 million, respectively. The net receipts for the Predecessor 2016 Period include $17.9 million of cash receipts due to early settlements of certain derivative contracts after the Chapter 11 filings occurred.

In December 2018, we entered into early settlements of all open crude oil swaps covering nine thousand bbls/day of production in December 2018 at an average strike price of $56.12, and five thousand bbls/day of production during 2019 at an average strike price of $54.29. Simultaneously, the Company entered into natural gas swaps for the first quarter of 2019. The Board and management of the Company are continuing to evaluate the futures market for oil and natural gas in an attempt to protect short-term cash flow and to mitigate exposure to adverse oil and natural gas price changes.

Master Netting Agreements and the Right of Offset. The Company has master netting agreements with all of its commodity derivative counterparties and has presented its derivative assets and liabilities with the same counterparty on a net basis by commodity type in the consolidated balance sheets. As a result of the netting provisions, the Company's maximum amount of loss under commodity derivative transactions due to credit risk is limited to the net amounts due from its counterparties. As of December 31, 2018, the counterparties to the Company’s open commodity derivative contracts consisted of four financial institutions, all of which are also lenders under the Company’s credit facility. The Company is not required to post additional collateral under its commodity derivative contracts as all of the counterparties to the Company’s commodity derivative contracts share in the collateral supporting the Company’s credit facility.

The following tables summarize (i) the Company's commodity derivative contracts on a gross basis, (ii) the effects of netting assets and liabilities for which the right of offset exists based on master netting arrangements and (iii) for the Company’s net derivative liability positions, the applicable portion of shared collateral under the credit facility as of December 31, 2018 and 2017 (in thousands):

December 31, 2018


	Gross Amounts		Gross Amounts Offset		Amounts Net of Offset		Financial Collateral		Net Amount
Assets
Derivative contracts - current	$	5,286	$	—	$	5,286	$	—	$	5,286

Total	$	5,286	$	—	$	5,286	$	—	$	5,286

December 31, 2017


	Gross Amounts		Gross Amounts Offset		Amounts Net of Offset		Financial Collateral		Net Amount
Assets
Derivative contracts - current	$	5,582	$	(4,272)	$	1,310	$	—	$	1,310

Total	$	5,582	$	(4,272)	$	1,310	$	—	$	1,310


Liabilities
Derivative contracts - current	$	14,899	$	(4,272)	$	10,627	$	(10,627)	$	—
Derivative contracts - noncurrent	3,568		—		3,568		(3,568)		—
Total	$	18,467	$	(4,272)	$	14,195	$	(14,195)	$	—

At December 31, 2018, the Company’s open commodity derivative contracts consisted of the following:

Natural Gas Price Swaps


	Notional (MMcf)	Weighted Average Fixed Price
January 2019 - March 2019	4,500	$	4.28

Fair Value of Derivatives

The following table presents the fair value of the Company’s derivative contracts on a gross basis without regard to same-counterparty netting (in thousands):


		December 31,		December 31,
Type of Contract	Balance Sheet Classification	2018		2017
Derivative assets

Natural gas price swaps	Derivative contracts - current	$	5,286	$	5,582


Derivative liabilities
Oil price swaps	Derivative contracts - current	—		(14,899)

Oil price swaps	Derivative contracts - noncurrent	—		(3,568)

Total net derivative contracts				$	5,286	$	(12,885)

See Note 5 for additional discussion of the fair value measurement of the Company’s derivative contracts.