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DERIVATIVE AND HEDGING ACTIVITIES | 6 Months Ended
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Jun. 30, 2018
DERIVATIVE AND HEDGING ACTIVITIES |
DERIVATIVE AND HEDGING ACTIVITIES | 7. DERIVATIVE AND HEDGING ACTIVITIES The Company is exposed to certain risks relating to its ongoing business operations, such as 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, natural gas and natural gas liquids 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, natural gas and natural gas liquids 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. The Company's crude oil, natural gas and natural gas liquids derivative positions at any point in time may consist of swaps, basis swaps and costless put/call "collars." 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, 2018, the Company had 66 open commodity derivative contracts summarized in the following tables: seven natural gas collar arrangements, seven natural gas basis swaps, three natural gas liquids basis swaps, 18 crude oil basis swaps and 31 crude oil collar arrangements. At December 31, 2017, the Company had 34 open commodity derivative contracts summarized in the following tables: three natural gas collar arrangements, 12 crude oil basis swaps and 19 crude oil collar arrangements. All derivative contracts are recorded at fair market value in accordance with ASC 815, Derivatives and Hedging (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 |
Derivatives not designated as hedging contracts under ASC 815 |  | Balance sheet location |  | June 30, 2018 |  | December 31, 2017 |  | Balance sheet location |  | June 30, 2018 |  | December 31, 2017 |
Commodity contracts |  | Current assets—receivables from derivative contracts |  | $ | 19,391 |  | $ | 677 |  | Current liabilities—liabilities from derivative contracts |  | $ | (53,513 | ) | $ | (19,248 | )
Commodity contracts |  | Other noncurrent assets—receivables from derivative contracts |  |  | 1,446 |  |  | — |  | Other noncurrent liabilities—liabilities from derivative contracts |  |  | (20,973 | ) |  | (7,751 | )
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Total derivatives not designated as hedging contracts under ASC 815 |  | $ | 20,837 |  | $ | 677 |  |  |  | $ | (74,486 | ) | $ | (26,999 | )
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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 |
|  |  |  | Three Months Ended June 30, |  | Six Months Ended June 30, |
|  | Location of gain or (loss) recognized in income on derivative contracts |
Derivatives not designated as hedging contracts under ASC 815 |  | 2018 |  | 2017 |  | 2018 |  | 2017 |
Commodity contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain (loss) on commodity contracts |  | Other income (expenses)—net gain (loss) on derivative contracts |  | $ | (37,874 | ) | $ | 18,005 |  | $ | (26,761 | ) | $ | 42,219 |
Realized gain (loss) on commodity contracts |  | Other income (expenses)—net gain (loss) on derivative contracts |  |  | 25,774 |  |  | 6,151 |  |  | 20,564 |  |  | 8,335 |
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Total net gain (loss) on derivative contracts |  | $ | (12,100 | ) | $ | 24,156 |  | $ | (6,197 | ) | $ | 50,554 |
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At June 30, 2018 and December 31, 2017, the Company had the following open crude oil and natural gas derivative contracts:
|  |  |  |  |  | June 30, 2018 |
|  |  |  |  |  |  |  | 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 2018 - December 2018 |  | Basis Swap |  | Natural Gas |  |  | 2,760,000 |  | $— |  | $ | — |  | $— |  | $ | — |  | $(1.05) - $(1.19) |  | $ | (1.10 | )
July 2018 - December 2018 |  | Basis Swap |  | Crude Oil |  |  | 1,472,000 |  |  |  |  |  |  |  |  |  |  |  | (10.75) - (12.50) |  |  | (11.69 | )
July 2018 - December 2018 |  | Collars |  | Crude Oil |  |  | 1,840,000 |  | 45.00 - 53.00 |  |  | 48.96 |  | 50.00 - 60.00 |  |  | 55.98 |  |  |  |  |  |
July 2018 - December 2018 |  | Collars |  | Natural Gas |  |  | 1,380,000 |  | 3.00 - 3.03 |  |  | 3.01 |  | 3.22 - 3.38 |  |  | 3.30 |  |  |  |  |  |
October 2018 - December 2018 |  | Collars |  | Crude Oil |  |  | 276,000 |  | 50.65 - 55.80 |  |  | 53.82 |  | 55.65 - 63.00 |  |  | 59.82 |  |  |  |  |  |
January 2019 - March 2019 |  | Collars |  | Crude Oil |  |  | 90,000 |  | 46.75 |  |  | 46.75 |  | 51.75 |  |  | 51.75 |  |  |  |  |  |
January 2019 - June 2019 |  | Basis Swap |  | Crude Oil |  |  | 2,172,000 |  |  |  |  |  |  |  |  |  |  |  | (0.98) - (6.50) |  |  | (3.02 | )
January 2019 - December 2019 |  | Basis Swap |  | Natural Gas |  |  | 9,307,500 |  |  |  |  |  |  |  |  |  |  |  | (1.05) - (1.40) |  |  | (1.18 | )
January 2019 - December 2019 |  | Collars |  | Natural Gas |  |  | 7,300,000 |  | 2.52 - 2.62 |  |  | 2.59 |  | 3.00 - 3.02 |  |  | 3.00 |  |  |  |  |  |
January 2019 - December 2019 |  | Collars |  | Crude Oil |  |  | 5,110,000 |  | 50.00 - 58.00 |  |  | 53.12 |  | 55.00 - 63.00 |  |  | 58.98 |  |  |  |  |  |
January 2019 - December 2019 |  | Swap |  | Natural Gas Liquids |  |  | 912,500 |  | 29.08 - 29.10 |  |  | 29.09 |  |  |  |  |  |  |  |  |  |  |
April 2019 - December 2019 |  | Collars |  | Crude Oil |  |  | 275,000 |  | 55.00 |  |  | 55.00 |  | 62.85 |  |  | 62.85 |  |  |  |  |  |
July 2019 - December 2019 |  | Basis Swap |  | Crude Oil |  |  | 736,000 |  |  |  |  |  |  |  |  |  |  |  | (0.98) - (6.50) |  |  | (3.95 | )
July 2019 - December 2019 |  | Collars |  | Crude Oil |  |  | 184,000 |  | 55.00 |  |  | 55.00 |  | 69.00 |  |  | 69.00 |  |  |  |  |  |
January 2020 - December 2020 |  | Collars |  | Crude Oil |  |  | 549,000 |  | 50.00 |  |  | 50.00 |  | 70.00 |  |  | 70.00 |  |  |  |  |  |
January 2020 - December 2020 |  | Basis Swap |  | Crude Oil |  |  | 2,196,000 |  |  |  |  |  |  |  |  |  |  |  | 2.00 - 3.60 |  |  | 2.56 |
|  |  |  |  |  | December 31, 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 |
January 2018 - December 2018 |  | Basis Swap |  | Crude Oil |  |  | 2,555,000 |  | $— |  | $ | — |  | $— |  | $ | — |  | $(1.05) - $(1.50) |  | $ | (1.29 | )
January 2018 - December 2018 |  | Collars |  | Crude Oil |  |  | 2,920,000 |  | 45.00 - 53.00 |  |  | 49.29 |  | 50.00 - 60.00 |  |  | 56.82 |  |  |  |  |  |
January 2018 - December 2018 |  | Collars |  | Natural Gas |  |  | 2,737,500 |  | 3.00 - 3.03 |  |  | 3.01 |  | 3.22 - 3.38 |  |  | 3.30 |  |  |  |  |  |
April 2018 - December 2018 |  | Basis Swap |  | Crude Oil |  |  | 275,000 |  |  |  |  |  |  |  |  |  |  |  | (1.15) |  |  | (1.15 | )
April 2018 - December 2018 |  | Collars |  | Crude Oil |  |  | 275,000 |  | 46.75 |  |  | 46.75 |  | 51.75 |  |  | 51.75 |  |  |  |  |  |
July 2018 - December 2018 |  | Basis Swap |  | Crude Oil |  |  | 1,012,000 |  |  |  |  |  |  |  |  |  |  |  | (0.98) - (1.18) |  |  | (1.12 | )
July 2018 - December 2018 |  | Collars |  | Crude Oil |  |  | 184,000 |  | 48.50 |  |  | 48.50 |  | 53.50 |  |  | 53.50 |  |  |  |  |  |
October 2018 - December 2018 |  | Collars |  | Crude Oil |  |  | 92,000 |  | 50.65 |  |  | 50.65 |  | 55.65 |  |  | 55.65 |  |  |  |  |  |
January 2019 - March 2019 |  | Collars |  | Crude Oil |  |  | 90,000 |  | 46.75 |  |  | 46.75 |  | 51.75 |  |  | 51.75 |  |  |  |  |  |
January 2019 - December 2019 |  | Basis Swap |  | Crude Oil |  |  | 4,380,000 |  |  |  |  |  |  |  |  |  |  |  | (0.50) - (1.33) |  |  | (1.02 | )
January 2019 - December 2019 |  | Collars |  | Crude Oil |  |  | 1,825,000 |  | 50.00 - 51.00 |  |  | 50.24 |  | 55.00 - 57.30 |  |  | 55.70 |  |  |  |  |  |
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 |
Offsetting of Derivative Assets and Liabilities |  | June 30, 2018 |  | December 31, 2017 |  | June 30, 2018 |  | December 31, 2017 |
Gross Amounts Presented in the Consolidated Balance Sheet |  | $ | 20,837 |  | $ | 677 |  | $ | (74,486 | ) | $ | (26,999 | )
Amounts Not Offset in the Consolidated Balance Sheet |  |  | (14,982 | ) |  | (231 | ) |  | 14,982 |  |  | 231 |
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Net Amount |  | $ | 5,855 |  | $ | 446 |  | $ | (59,504 | ) | $ | (26,768 | )
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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.

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- References No definition available. + Details
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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://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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