8. DERIVATIVE AND HEDGING ACTIVITIES

The Company is exposed to certain risks relating to its ongoing business operations, including commodity price risk and interest rate risk. Derivative contracts are utilized to hedge the Company's exposure to price fluctuations and reduce the variability in the Company's cash flows associated with anticipated sales of future oil and natural gas production. When derivative contracts are available at terms (or prices) acceptable to the Company, it generally hedges a substantial, but varying, portion of anticipated oil and natural gas production for future periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The Company's hedge policies and objectives may change significantly as its operational profile changes and/or commodities prices change. The Company does not enter into derivative contracts for speculative trading purposes.

It is the Company's policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions determined by management as competent and competitive market makers. The Company did not post collateral under any of its derivative contracts as they are secured under the Company's Senior Credit Agreement or are uncollateralized trades.

At June 30, 2017 (Successor), the Company's crude oil and natural gas derivative positions consisted of basis swaps and costless put/call "collars." At December 31, 2016 (Successor), the Company's derivative positions consisted of collars only. Swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for crude oil and natural gas. Basis swaps effectively lock in a price differential between regional prices (i.e. Midland) and the relevant price index at which the oil production is sold (i.e. Cushing). A costless collar consists of a sold call, which establishes a maximum price the Company will receive for the volumes under contract and a purchased put that establishes a minimum price. The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of these derivative contracts, as well as payments and receipts on settled derivative contracts, in "Net gain (loss) on derivative contracts" on the unaudited condensed consolidated statements of operations.

At June 30, 2017 (Successor), the Company had 44 open commodity derivative contracts summarized in the following tables: eight natural gas collar arrangements, two natural gas basis swaps, eight crude oil basis swaps and 26 crude oil collar arrangements.

At December 31, 2016 (Successor), the Company had 22 open commodity derivative contracts summarized in the following tables: two natural gas collar arrangements and 20 crude oil collar arrangements.

All derivative contracts are recorded at fair market value in accordance with ASC 815 and ASC 820 and included in the unaudited condensed consolidated balance sheets as assets or liabilities. The following table summarizes the location and fair value amounts of all derivative contracts in the unaudited condensed consolidated balance sheets (in thousands):

		Asset derivative contracts					Liability derivative contracts
		Successor					Successor
Derivatives not designated as hedging contracts under ASC 815	Balance sheet	June 30, 2017		December 31, 2016		Balance sheet	June 30, 2017			December 31, 2016
Commodity contracts	Current assets—receivables from derivative contracts	$	26,389	$	5,923	Current liabilities—liabilities from derivative contracts	$	(280	)	$	(16,434	)
Commodity contracts	Other noncurrent assets—receivables from derivative contracts		5,477		—	Other noncurrent liabilities—liabilities from derivative contracts		(363	)		(486	)

Total derivatives not designated as hedging contracts under ASC 815		$	31,866	$	5,923		$	(643	)	$	(16,920	)

The following table summarizes the location and amounts of the Company's realized and unrealized gains and losses on derivative contracts in the Company's unaudited condensed consolidated statements of operations (in thousands):

		Amount of gain or (loss) recognized in income on derivative contracts for the					Amount of gain or (loss) recognized in income on derivative contracts for the
		Successor		Predecessor			Successor		Predecessor
Derivatives not designated as hedging contracts under ASC 815	Location of gain or (loss) recognized in income on derivative contracts	Three Months Ended June 30, 2017		Three Months Ended June 30, 2016			Six Months Ended June 30, 2017		Six Months Ended June 30, 2016


Commodity contracts:
Unrealized gain (loss) on commodity contracts	Other income (expenses)—net gain (loss) on derivative contracts	$	18,005	$	(135,303	)	$	42,219	$	(224,281	)
Realized gain (loss) on commodity contracts	Other income (expenses)—net gain (loss) on derivative contracts		6,151		80,780			8,335		188,500

Total net gain (loss) on derivative contracts		$	24,156	$	(54,523	)	$	50,554	$	(35,781	)

At June 30, 2017 (Successor) and December 31, 2016 (Successor), the Company had the following open crude oil and natural gas derivative contracts:

			Successor
			June 30, 2017
					Floors			Ceilings			Basis Differential
Period	Instrument	Commodity	Volume in Mmbtu's/ Bbl's		Price / Price Range	Weighted Average Price		Price / Price Range	Weighted Average Price		Price / Price Range	Weighted Average Price
July 2017 - December 2017	Basis Swap	Natural Gas		920,000	$—	$	—	$—	$	—	$(0.40) - $(0.41)	$	(0.40	)
July 2017 - December 2017	Collars	Natural Gas		3,680,000	3.00 - 3.26		3.13	3.38 - 3.76		3.53
July 2017 - December 2017	Collars	Crude Oil		3,910,000	47.00 - 60.00		51.30	52.00 - 76.84		58.40
January 2018 - December 2018	Basis Swap	Crude Oil		2,555,000	—		—	—		—	(1.05) - (1.50)		(1.29	)
January 2018 - December 2018	Basis Swap	Natural Gas		1,825,000	—		—	—		—	(0.40) - (0.41)		(0.40	)
January 2018 - December 2018	Collars	Natural Gas		3,650,000	3.00 - 3.03		3.01	3.22 - 3.39		3.32
January 2018 - December 2018	Collars	Crude Oil		2,190,000	45.00 - 53.00		50.17	55.25 - 60.00		58.54
July 2018 - December 2018	Basis Swap	Crude Oil		828,000	—		—	—		—	(1.12) - (1.18)		(1.15	)
January 2019 - December 2019	Basis Swap	Crude Oil		2,372,500	—		—	—		—	(1.12) - (1.33)		(1.20	)

			Successor
			December 31, 2016
					Floors			Ceilings
Period	Instrument	Commodity	Volume in Mmbtu's/ Bbl's		Price / Price Range	Weighted Average Price		Price / Price Range	Weighted Average Price
January 2017 - December 2017	Collars	Natural Gas		3,650,000	$3.15 - $3.26	$	3.20	$3.50 - $3.76	$	3.63
January 2017 - December 2017	Collars	Crude Oil		6,843,750	47.00 - 60.00		51.39	52.00 - 76.84		58.75
January 2018 - December 2018	Collars	Crude Oil		730,000	53.00		53.00	58.00		58.00

The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the Company's derivative contracts (in thousands):

	Derivative Assets						Derivative Liabilities
	Successor						Successor
Offsetting of Derivative Assets and Liabilities	June 30, 2017			December 31, 2016			June 30, 2017			December 31, 2016
Gross Amounts Presented in the Consolidated Balance Sheet	$	31,866		$	5,923		$	(643	)	$	(16,920	)
Amounts Not Offset in the Consolidated Balance Sheet		(669	)		(5,283	)		642			5,075

Net Amount	$	31,197		$	640		$	(1	)	$	(11,845	)

The Company enters into an International Swap Dealers Association Master Agreement (ISDA) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.