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Risk Management and Derivative Instruments | 9 Months Ended
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Sep. 30, 2022
Risk Management and Derivative Instruments |
Risk Management and Derivative Instruments | Note 5. Risk Management and Derivative Instruments Derivative instruments are utilized to manage exposure to commodity price and interest rate fluctuations and to achieve a more predictable cash flow in connection with natural gas and oil sales and borrowing related activities. These instruments limit exposure to declines in prices but also limit the benefits that would be realized if prices increase. Certain inherent business risks are associated with commodity derivative contracts, including market risk and credit risk. Market risk is the risk that the price of natural gas or oil will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by the counterparty to a contract. It is the Company’s policy to enter into derivative contracts only with creditworthy counterparties, which generally are financial institutions, deemed by management as competent and competitive market makers. Some of the lenders, or certain of their affiliates, under the Company’s current credit agreements are counterparties to its derivative contracts. While collateral is generally not required to be posted by counterparties, credit risk associated with derivative instruments is minimized by limiting exposure to any single counterparty and entering into derivative instruments only with creditworthy counterparties that are generally large financial institutions. Additionally, master netting agreements are used to mitigate risk of loss due to default with counterparties on derivative instruments. The Company has also entered into International Swaps and Derivatives Association Master Agreements (“ISDA Agreements”) with each of its counterparties. The terms of the ISDA Agreements provide the Company and each of its counterparties with rights of set-off upon the occurrence of defined acts of default by either the Company or its counterparty to a derivative, whereby the party not in default may set-off all liabilities owed to the defaulting party against all net derivative asset receivables from the defaulting party. See Note 7 for additional information regarding the Company’s Revolving Credit Facility (as defined below). Commodity Derivatives The Company may use a combination of commodity derivatives (e.g., floating-for-fixed swaps, put options, costless collars and three-way collars) to manage exposure to commodity price volatility. The Company recognizes all derivative instruments at fair value. The Company enters into natural gas derivative contracts that are indexed to NYMEX-Henry Hub. The Company also enters into oil derivative contracts indexed to NYMEX-WTI. The Company’s NGL derivative contracts are primarily indexed to OPIS Mont Belvieu. At September 30, 2022, the Company had the following open commodity positions: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | 2022 |  | 2023
Natural Gas Derivative Contracts: | ​ | ​ |  |  | ​ |
Fixed price swap contracts: | ​ | ​ |  |  | ​ |
Average monthly volume (MMBtu) | ​ | ​ | 695,000 |  | ​ | —
Weighted-average fixed price | ​ | $ | 2.56 | ​ | $ | —
​ | ​ | ​ | ​ | ​ | ​ | ​
Collar contracts: | ​ |  | ​ | ​ |  | ​
Two-way collars | ​ |  | ​ | ​ |  | ​
Average monthly volume (MMBtu) | ​ |  | 775,000 | ​ |  | 1,160,000
Weighted-average floor price | ​ | $ | 2.56 | ​ | $ | 3.49
Weighted-average ceiling price | ​ | $ | 3.44 | ​ | $ | 5.92
​ | ​ | ​ | ​ | ​ | ​ | ​
Crude Oil Derivative Contracts: | ​ |  | ​ | ​ |  | ​
Fixed price swap contracts: | ​ |  | ​ | ​ |  | ​
Average monthly volume (Bbls) | ​ |  | 57,000 | ​ |  | 55,000
Weighted-average fixed price | ​ | $ | 48.27 | ​ | $ | 57.30
​ | ​ | ​ | ​ | ​ | ​ | ​
Collar contracts: | ​ |  |  | ​ |  |
Two-way collars | ​ | ​ | ​ | ​ | ​ | ​
Average monthly volume (Bbls) | ​ | ​ | 15,000 | ​ | ​ | —
Weighted-average floor price | ​ | $ | 60.00 | ​ | $ | —
Weighted-average ceiling price | ​ | $ | 71.00 | ​ | $ | —
​ | ​ | ​ | ​ | ​ | ​ | ​
Three-way collars | ​ |  | ​ | ​ |  | ​
Average monthly volume (Bbls) | ​ |  | 89,000 | ​ |  | 30,000
Weighted-average ceiling price | ​ | $ | 55.55 | ​ | $ | 67.15
Weighted-average floor price | ​ | $ | 42.92 | ​ | $ | 55.00
Weighted-average sub-floor price | ​ | $ | 32.58 | ​ | $ | 40.00
​ Interest Rate Swaps Periodically, the Company enters into interest rate swaps to mitigate exposure to market rate fluctuations by converting variable interest rates such as those in its Revolving Credit Facility to fixed interest rates. At September 30, 2022, the Company had the following interest rate swap open positions: ​
​ | ​ | ​ | ​ | ​
​ |  | Remaining | ​
​ | ​ | 2022 |
Average Monthly Notional (in thousands) | ​ | $ | 75,000 | ​
Weighted-average fixed rate | ​ |  | 1.281 | %
Floating rate | ​ |  | 1 Month LIBOR | ​
​ Balance Sheet Presentation The following table summarizes both: (i) the gross fair value of derivative instruments by the appropriate balance sheet classification even when the derivative instruments are subject to netting arrangements and qualify for net presentation in the balance sheet and (ii) the net recorded fair value as reflected on the balance sheet at September 30, 2022 and December 31, 2021. There was no cash collateral received or pledged associated with the Company’s derivative instruments since most of its counterparties, or certain of its affiliates, to its derivative contracts are lenders under its Revolving Credit Facility. ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ |  | Asset |  | Liability |  | Asset |  | Liability
​ | ​ | ​ | ​ | Derivatives | ​ | Derivatives | ​ | Derivatives | ​ | Derivatives
​ | ​ | ​ | ​ | September 30, | ​ | September 30, | ​ | December 31, | ​ | December 31,
Type |  | Balance Sheet Location |  | 2022 |  | 2022 |  | 2021 |  | 2021
​ | ​ | ​ | ​ | (In thousands)
Commodity contracts |  | Short-term derivative instruments | ​ | $ | 5,604 | ​ | $ | 50,471 | ​ | $ | 4,804 | ​ | $ | 57,325
Interest rate swaps |  | Short-term derivative instruments | ​ |  | 442 | ​ |  | — | ​ |  | — | ​ |  | 623
Gross fair value |  | ​ | ​ |  | 6,046 | ​ |  | 50,471 | ​ |  | 4,804 | ​ |  | 57,948
Netting arrangements |  | ​ | ​ |  | (5,604) | ​ |  | (5,604) | ​ |  | (4,804) | ​ |  | (4,804)
Net recorded fair value |  | Short-term derivative instruments | ​ | $ | 442 | ​ | $ | 44,867 | ​ | $ | — | ​ | $ | 53,144
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Commodity contracts |  | Long-term derivative instruments | ​ | $ | 2,030 | ​ | $ | 7,714 | ​ | $ | 3,163 | ​ | $ | 12,827
Interest rate swaps |  | Long-term derivative instruments | ​ |  | — | ​ |  | — | ​ |  | — | ​ |  | —
Gross fair value |  | ​ | ​ |  | 2,030 | ​ |  | 7,714 | ​ |  | 3,163 | ​ |  | 12,827
Netting arrangements |  | ​ | ​ |  | (2,030) | ​ |  | (2,030) | ​ |  | (3,163) | ​ |  | (3,163)
Net recorded fair value |  | Long-term derivative instruments | ​ | $ | — | ​ | $ | 5,684 | ​ | $ | — | ​ | $ | 9,664
​ Loss (Gain) on Derivative Instruments The Company does not designate derivative instruments as hedging instruments for accounting and financial reporting purposes. Accordingly, all gains and losses, including changes in the derivative instruments’ fair values, have been recorded in the accompanying Unaudited Condensed Consolidated Statements of Operations. The following table details the gains and losses related to derivative instruments for the periods indicated (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ |  | ​ |  | For the Three Months Ended | ​ | For the Nine Months Ended | ​
​ | ​ | Statements of |  | September 30, |  | September 30, | ​
​ |  | Operations Location | ​ | 2022 |  | 2021 | ​ | 2022 |  | 2021 | ​
Commodity derivative contracts |  | Loss (gain) on commodity derivatives | ​ | $ | (3,300) | ​ | $ | 46,653 | ​ | $ | 108,675 | ​ | $ | 145,139 | ​
(Gain) loss on interest rate derivatives |  | Interest expense, net | ​ |  | (87) | ​ |  | 47 | ​ |  | (930) | ​ |  | 3 | ​
​

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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 https://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 https://asc.fasb.org/extlink&oid=126731327&loc=d3e90205-114008 + Details
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