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DERIVATIVE AND HEDGING ACTIVITIES | 6 Months Ended
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Jun. 30, 2020
DERIVATIVE AND HEDGING ACTIVITIES |
DERIVATIVE AND HEDGING ACTIVITIES | 10. 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. In accordance with the Company’s policy, 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. 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 or commodity hedging institutions deemed by management as competent and competitive market makers. As of June 30, 2020 (Successor), the Company did not post collateral under any of its derivative contracts as they are secured under the Company’s Senior Credit Agreement. The Company’s crude oil, natural gas and natural gas liquids derivative positions at any point in time may consist of fixed-price swaps, costless put/call collars, basis swaps and WTI NYMEX rolls. Fixed-price 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. 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. Basis swaps effectively lock in a price differential between regional prices (i.e. Midland) where the product is sold and the relevant pricing index under which the oil production is hedged (i.e. Cushing). WTI NYMEX roll agreements account for pricing adjustments to the trade month versus the delivery month for contract pricing. 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 all payments and receipts on settled derivative contracts, in “Net gain (loss) on derivative contracts” on the unaudited condensed consolidated statements of operations. 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 as of June 30, 2020 and December 31, 2019 (Successor) (in thousands):
|  |  |  | Successor |  |  |  | Successor
Derivatives not designated as |  |  |  | Asset derivative contracts |  |  |  | Liability derivative contracts
hedging contracts under ASC 815 |  | Balance sheet location |  | June 30, 2020 |  | December 31 2019 |  | Balance sheet location |  | June 30, 2020 |  | December 31, 2019
Commodity contracts |  | Current assets - assets from derivative contracts |  | $ | 27,229 |  | $ | 4,995 |  | Current liabilities - liabilities from derivative contracts |  | $ | (8,466) |  | $ | (8,069)
Commodity contracts |  | Other noncurrent assets - assets from derivative contracts |  |  | 24,322 |  |  | 224 |  | Other noncurrent liabilities - liabilities from derivative contracts |  |  | (5,631) |  |  | (4,854)
Total derivatives not designated as hedging contracts under ASC 815 |  |  |  | $ | 51,551 |  | $ | 5,219 |  |  |  | $ | (14,097) |  | $ | (12,923)
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 |  | Location of gain or (loss) |  | Three Months |  |  | Three Months |  | Six Months |  |  | Six Months
as hedging contracts |  | recognized in income on |  | Ended |  |  | Ended |  | Ended |  |  | Ended
under ASC 815 |  | derivative contracts |  | June 30, 2020 |  |  | June 30, 2019 |  | June 30, 2020 |  |  | June 30, 2019
Commodity contracts: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Unrealized gain (loss) on commodity contracts |  | Other income (expenses) - net gain (loss) on derivative contracts |  | $ | (67,221) |  |  | $ | 10,764 |  | $ | 45,157 |  |  | $ | (57,405)
Realized gain (loss) on commodity contracts |  | Other income (expenses) - net gain (loss) on derivative contracts |  |  | 32,460 |  |  |  | 6,246 |  |  | 38,381 |  |  |  | 9,616
Total net gain (loss) on derivative contracts |  |  |  | $ | (34,761) |  |  | $ | 17,010 |  | $ | 83,538 |  |  | $ | (47,789)
At June 30, 2020 and December 31, 2019 (Successor), the Company had the following open crude oil and natural gas derivative contracts:
|  |  |  |  |  | Successor
|  |  |  |  |  | June 30, 2020
|  |  |  |  |  |  |  | Floors |  | Ceilings |  | Basis Differential
|  |  |  |  |  | Volume in |  |  |  |  | Weighted |  |  |  |  | Weighted |  |  |  |  | Weighted
|  |  |  |  |  | Mmbtu's/ |  | Price / |  | Average |  | Price / |  | Average |  | Price / |  | Average
Period |  | Instrument |  | Commodity |  | Bbl's |  | Price Range |  | Price |  | Price Range |  | Price |  | Price Range |  | Price
July 2020 - September 2020 |  | Fixed-Price Swap |  | Crude Oil |  | 414,000 |  | $ | 37.70 |  | $ | 37.70 |  | $ | — |  | $ | — |  | $ | — |  | $ | —
July 2020 - September 2020 |  | Fixed-Price Swap |  | Natural Gas |  | 276,000 |  |  | 2.61 |  |  | 2.61 |  |  |  |  |  |  |  |  |  |  |  |
July 2020 - September 2020 |  | Call |  | Crude Oil |  | 138,000 |  |  |  |  |  |  |  |  | 70.00 |  |  | 70.00 |  |  |  |  |  |
July 2020 - September 2020 |  | Put |  | Crude Oil |  | 368,000 |  |  | 37.70 |  |  | 37.70 |  |  |  |  |  |  |  |  |  |  |  |
July 2020 - September 2020 |  | Basis Swap |  | Crude Oil |  | 92,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.90 |  |  | 0.90
July 2020 - December 2020 |  | Fixed-Price Swap |  | Crude Oil |  | 92,000 |  |  | 32.50 |  |  | 32.50 |  |  |  |  |  |  |  |  |  |  |  |
July 2020 - December 2020 |  | Fixed-Price Swap |  | Natural Gas |  | 1,472,000 |  |  | 2.55 - 2.57 |  |  | 2.56 |  |  |  |  |  |  |  |  |  |  |  |
July 2020 - December 2020 |  | Call |  | Crude Oil |  | 1,177,600 |  |  |  |  |  |  |  |  | 70.00 |  |  | 70.00 |  |  |  |  |  |
July 2020 - December 2020 |  | Basis Swap |  | Crude Oil |  | 1,472,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (2.20) - 0.95 |  |  | 0.02
August 2020 - September 2020 |  | WTI NYMEX Roll |  | Crude Oil |  | 61,000 |  |  | 0.63 |  |  | 0.63 |  |  |  |  |  |  |  |  |  |  |  |
August 2020 - December 2020 |  | WTI NYMEX Roll |  | Crude Oil |  | 1,208,500 |  |  | (1.56) - 0.64 |  |  | 0.05 |  |  |  |  |  |  |  |  |  |  |  |
October 2020 - December 2020 |  | Fixed-Price Swap |  | Crude Oil |  | 414,000 |  |  | 31.02 - 60.00 |  |  | 49.02 |  |  |  |  |  |  |  |  |  |  |  |
October 2020 - December 2020 |  | Collar |  | Crude Oil |  | 138,000 |  |  | 50.00 |  |  | 50.00 |  |  | 70.00 |  |  | 70.00 |  |  |  |  |  |
October 2020 - December 2020 |  | Put |  | Crude Oil |  | 230,000 |  |  | 55.00 |  |  | 55.00 |  |  |  |  |  |  |  |  |  |  |  |
October 2020 - December 2020 |  | Basis Swap |  | Crude Oil |  | 92,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.95 |  |  | 0.95
October 2020 - December 2020 |  | WTI NYMEX Roll |  | Crude Oil |  | 92,000 |  |  | 0.51 |  |  | 0.51 |  |  |  |  |  |  |  |  |  |  |  |
January 2021 - March 2021 |  | Fixed-Price Swap |  | Crude Oil |  | 180,000 |  |  | 55.55 - 56.08 |  |  | 55.82 |  |  |  |  |  |  |  |  |  |  |  |
January 2021 - March 2021 |  | Basis Swap |  | Crude Oil |  | 180,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1.00 - 1.05 |  |  | 1.03
January 2021 - March 2021 |  | WTI NYMEX Roll |  | Crude Oil |  | 180,000 |  |  | 0.42 - 0.48 |  |  | 0.45 |  |  |  |  |  |  |  |  |  |  |  |
January 2021 - June 2021 |  | Fixed-Price Swap |  | Crude Oil |  | 271,500 |  |  | 31.02 - 32.60 |  |  | 32.07 |  |  |  |  |  |  |  |  |  |  |  |
January 2021 - June 2021 |  | Basis Swap |  | Crude Oil |  | 271,500 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (2.20) - (2.15) |  |  | (2.18)
January 2021 - June 2021 |  | WTI NYMEX Roll |  | Crude Oil |  | 271,500 |  |  | (1.56) - (1.10) |  |  | (1.25) |  |  |  |  |  |  |  |  |  |  |  |
April 2021 - June 2021 |  | Fixed-Price Swap |  | Crude Oil |  | 91,000 |  |  | 54.60 |  |  | 54.60 |  |  |  |  |  |  |  |  |  |  |  |
April 2021 - June 2021 |  | Basis Swap |  | Crude Oil |  | 91,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1.05 |  |  | 1.05
April 2021 - June 2021 |  | WTI NYMEX Roll |  | Crude Oil |  | 91,000 |  |  | 0.32 |  |  | 0.32 |  |  |  |  |  |  |  |  |  |  |  |
April 2021 - December 2021 |  | Fixed-Price Swap |  | Crude Oil |  | 551,500 |  |  | 32.50 |  |  | 32.50 |  |  |  |  |  |  |  |  |  |  |  |
April 2021 - December 2021 |  | Basis Swap |  | Crude Oil |  | 551,500 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (2.20) |  |  | (2.20)
April 2021 - December 2021 |  | WTI NYMEX Roll |  | Crude Oil |  | 551,500 |  |  | (1.28) |  |  | (1.28) |  |  |  |  |  |  |  |  |  |  |  |
January 2021 - December 2021 |  | Fixed-Price Swap |  | Crude Oil |  | 1,460,000 |  |  | 50.70 - 52.80 |  |  | 51.91 |  |  |  |  |  |  |  |  |  |  |  |
January 2021 - December 2021 |  | Fixed-Price Swap |  | Natural Gas |  | 2,190,000 |  |  | 2.47 - 2.48 |  |  | 2.47 |  |  |  |  |  |  |  |  |  |  |  |
January 2021 - December 2021 |  | Basis Swap |  | Crude Oil |  | 1,460,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.82 - 0.95 |  |  | 0.85
January 2021 - December 2021 |  | WTI NYMEX Roll |  | Crude Oil |  | 1,460,000 |  |  | 0.13 - 0.14 |  |  | 0.14 |  |  |  |  |  |  |  |  |  |  |  |
January 2022 - December 2022 |  | Fixed-Price Swap |  | Crude Oil |  | 1,460,000 |  |  | 51.50 |  |  | 51.50 |  |  |  |  |  |  |  |  |  |  |  |
January 2022 - December 2022 |  | Basis Swap |  | Crude Oil |  | 1,460,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.85 -0.95 |  |  | 0.88
January 2022 - December 2022 |  | WTI NYMEX Roll |  | Crude Oil |  | 1,460,000 |  |  | — |  |  | — |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  | Successor
|  |  |  |  |  | December 31, 2019
|  |  |  |  |  |  |  | Floors |  | Ceilings |  | Basis Differential
|  |  |  |  |  | Volume in |  |  |  |  | Weighted |  |  |  |  | Weighted |  |  |  |  | Weighted
|  |  |  |  |  | Mmbtu's/ |  | Price / |  | Average |  | Price / |  | Average |  | Price / |  | Average
Period |  | Instrument |  | Commodity |  | Bbl's |  | Price Range |  | Price |  | Price Range |  | Price |  | Price Range |  | Price
January 2020 - June 2020 |  | Fixed-Price Swap |  | Crude Oil |  | 182,000 |  | $ | 55.74 |  | $ | 55.74 |  | $ | — |  | $ | — |  | $ | — |  | $ | —
January 2020 - September 2020 |  | Fixed-Price Swap |  | Natural Gas |  | 1,186,000 |  |  | 2.61 |  |  | 2.61 |  |  |  |  |  |  |  |  |  |  |  |
January 2020 - December 2020 |  | Fixed-Price Swap |  | Crude Oil |  | 732,000 |  |  | 55.68 - 60.00 |  |  | 57.84 |  |  |  |  |  |  |  |  |  |  |  |
January 2020 - December 2020 |  | Fixed-Price Swap |  | Natural Gas |  | 2,928,000 |  |  | 2.55 - 2.57 |  |  | 2.56 |  |  |  |  |  |  |  |  |  |  |  |
January 2020 - December 2020 |  | Collar |  | Crude Oil |  | 549,000 |  |  | 50.00 |  |  | 50.00 |  |  | 70.00 |  |  | 70.00 |  |  |  |  |  |
January 2020 - December 2020 |  | Call |  | Crude Oil |  | 2,342,400 |  |  |  |  |  |  |  |  | 70.00 |  |  | 70.00 |  |  |  |  |  |
January 2020 - December 2020 |  | Put |  | Crude Oil |  | 915,000 |  |  | 55.00 |  |  | 55.00 |  |  |  |  |  |  |  |  |  |  |  |
January 2020 - December 2020 |  | Basis Swap |  | Crude Oil |  | 1,464,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.67 - 0.85 |  |  | 0.72
January 2020 - December 2020 |  | WTI NYMEX Roll |  | Crude Oil |  | 366,000 |  |  | 0.37 |  |  | 0.37 |  |  |  |  |  |  |  |  |  |  |  |
February 2020 - December 2020 |  | WTI NYMEX Roll |  | Crude Oil |  | 1,340,000 |  |  | 0.41 - 0.54 |  |  | 0.44 |  |  |  |  |  |  |  |  |  |  |  |
April 2020 - December 2020 |  | Basis Swap |  | Crude Oil |  | 275,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.75 |  |  | 0.75
January 2021 - December 2021 |  | Fixed-Price Swap |  | Crude Oil |  | 1,460,000 |  |  | 50.70 - 52.80 |  |  | 51.91 |  |  |  |  |  |  |  |  |  |  |  |
January 2021 - December 2021 |  | Fixed-Price Swap |  | Natural Gas |  | 2,190,000 |  |  | 2.47 - 2.48 |  |  | 2.47 |  |  |  |  |  |  |  |  |  |  |  |
January 2021 - December 2021 |  | Basis Swap |  | Crude Oil |  | 1,460,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.82 - 0.95 |  |  | 0.85
January 2021 - December 2021 |  | WTI NYMEX Roll |  | Crude Oil |  | 1,460,000 |  |  | 0.13 - 0.14 |  |  | 0.14 |  |  |  |  |  |  |  |  |  |  |  |
January 2022 - December 2022 |  | Fixed-Price Swap |  | Crude Oil |  | 1,460,000 |  |  | 51.50 |  |  | 51.50 |  |  |  |  |  |  |  |  |  |  |  |
January 2022 - December 2022 |  | Basis Swap |  | Crude Oil |  | 1,460,000 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.85 - 0.95 |  |  | 0.88
January 2022 - December 2022 |  | WTI NYMEX Roll |  | Crude Oil |  | 2,555,000 |  |  | (0.02) - 0.00 |  |  | (0.01) |  |  |  |  |  |  |  |  |  |  |  |
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 at June 30, 2020 and December 31, 2019 (Successor) (in thousands):
|  | Successor |  | Successor
|  | Derivative Assets |  | Derivative Liabilities
Offsetting of Derivative Assets and Liabilities |  | June 30, 2020 |  | December 31 2019 |  | June 30, 2020 |  | December 31, 2019
Gross Amounts Presented in the Consolidated Balance Sheet |  | $ | 51,551 |  | $ | 5,219 |  | $ | (14,097) |  | $ | (12,923)
Amounts Not Offset in the Consolidated Balance Sheet |  |  | (9,672) |  |  | (4,557) |  |  | 9,672 |  |  | 4,557
Net Amount |  | $ | 41,879 |  | $ | 662 |  | $ | (4,425) |  | $ | (8,366)
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. During the six months ended June 30, 2020 (Successor), the Company terminated certain derivative contracts in advance of their natural expiration dates and received net proceeds of approximately $16.3 million which were recorded in “Net gain (loss) on derivative contracts” on the unaudited condensed consolidated statements of operations. Additionally, in July 2020 (Successor), the Company terminated 782,000 Bbls of its crude oil fixed price swap and put positions for the three months ended December 31, 2020 (Successor) and received $3.2 million for these early terminations. Concurrently, the Company entered into new positions covering 782,000 barrels of oil, comprised of put positions at $42.10 per barrel and collars with a floor price of $42.10 per barrel and ceiling price of $49.02 per barrel.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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