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DERIVATIVE AND HEDGING ACTIVITIES | 9 Months Ended
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Sep. 30, 2021
DERIVATIVE AND HEDGING ACTIVITIES |
DERIVATIVE AND HEDGING ACTIVITIES | 8. 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 September 30, 2021, 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 and are generally utilized less frequently by the Company than fixed-price swaps. 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 September 30, 2021 and December 31, 2020 (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Derivatives not designated as | ​ | ​ | ​ | Asset derivative contracts | ​ | ​ | ​ | Liability derivative contracts
hedging contracts under ASC 815 |  | Balance sheet location |  | September 30, 2021 |  | December 31, 2020 |  | Balance sheet location |  | September 30, 2021 |  | December 31, 2020
Commodity contracts | ​ | Current assets - assets from derivative contracts | ​ | $ | 813 | ​ | $ | 8,559 | ​ | Current liabilities - liabilities from derivative contracts | ​ | $ | (74,287) | ​ | $ | (22,125)
Commodity contracts | ​ | Other noncurrent assets - assets from derivative contracts | ​ | ​ | 110 | ​ | ​ | 4,009 | ​ | Other noncurrent liabilities - liabilities from derivative contracts | ​ | ​ | (9,536) | ​ | ​ | (4,291)
Total derivatives not designated as hedging contracts under ASC 815 | ​ | ​ | ​ | $ | 923 | ​ | $ | 12,568 | ​ | ​ | ​ | $ | (83,823) | ​ | $ | (26,416)
​ 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) | ​ | Amount of gain or (loss)
​ | ​ | ​ | ​ | recognized in income on | ​ | recognized in income on
​ | ​ | ​ | ​ | derivative contracts for the | ​ | derivative contracts for the
Derivatives not designated | ​ | Location of gain or | ​ | Three Months Ended | ​ | Nine Months Ended
as hedging contracts | ​ | (loss) recognized in income | ​ | September 30, | ​ | September 30,
under ASC 815 |  | on derivative contracts | ​ | 2021 | ​ | 2020 | ​ | 2021 | ​ | 2020
Commodity contracts: | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Unrealized gain (loss) on commodity contracts | ​ | Other income (expenses) - net gain (loss) on derivative contracts | ​ | $ | 1,816 | ​ | $ | (21,128) | ​ | $ | (69,053) | ​ | $ | 24,029
Realized gain (loss) on commodity contracts | ​ | Other income (expenses) - net gain (loss) on derivative contracts | ​ | ​ | (22,387) | ​ | ​ | 5,285 | ​ | ​ | (50,318) | ​ | ​ | 43,666
Total net gain (loss) on derivative contracts | ​ | ​ | ​ | $ | (20,571) | ​ | $ | (15,843) | ​ | $ | (119,371) | ​ | $ | 67,695
​ During the three and nine months ended September 30, 2020, the Company terminated certain derivative contracts in advance of their natural expiration dates and received net proceeds of approximately $6.6 million and $22.9 million, respectively, which were recorded in “Net gain (loss) on derivative contracts” on the unaudited condensed consolidated statements of operations. At September 30, 2021, the Company had the following open crude oil and natural gas derivative contracts:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | Volume in | ​ | Weighted
​ | ​ | ​ | ​ | ​ | ​ | Mmbtu's/ | ​ | Average
Period |  | Instrument |  | Commodity |  | Bbl's |  | Price
2021 | ​ | Fixed-Price Swap | ​ | Crude Oil | ​ | 721,000 | ​ | $ | 43.96
2021 | ​ | Fixed-Price Swap | ​ | Natural Gas | ​ | 1,048,007 | ​ | ​ | 2.71
2021 | ​ | Basis Swap | ​ | Crude Oil | ​ | 721,000 | ​ | ​ | (0.25)
2021 | ​ | Basis Swap | ​ | Natural Gas | ​ | 1,048,007 | ​ | ​ | (0.24)
2021 | ​ | WTI NYMEX Roll | ​ | Crude Oil | ​ | 488,500 | ​ | ​ | (0.39)
2022 | ​ | Fixed-Price Swap | ​ | Crude Oil | ​ | 2,368,434 | ​ | ​ | 48.81
2022 | ​ | Fixed-Price Swap | ​ | Natural Gas | ​ | 1,297,420 | ​ | ​ | 3.01
2022 | ​ | Producer Collar (Ceiling) | ​ | Natural Gas | ​ | 2,388,624 | ​ | ​ | 2.65
2022 | ​ | Producer Collar (Floor) | ​ | Natural Gas | ​ | 2,388,624 | ​ | ​ | 2.50
2022 | ​ | Basis Swap | ​ | Crude Oil | ​ | 2,368,434 | ​ | ​ | 0.47
2022 | ​ | Basis Swap | ​ | Natural Gas | ​ | 3,686,044 | ​ | ​ | (0.30)
2022 | ​ | WTI NYMEX Roll | ​ | Crude Oil | ​ | 2,399,434 | ​ | ​ | (0.03)
​ ​ Subsequent to September 30, 2021, the Company entered into the following crude oil and natural gas derivative contracts:
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | Volume in | ​ | Weighted
​ | ​ | ​ | ​ | ​ | ​ | Mmbtu's/ | ​ | Average
Period |  | Instrument |  | Commodity |  | Bbl's |  | Price
2022 | ​ | Fixed-Price Swap | ​ | Natural Gas | ​ | 535,000 | ​ | $ | 3.90
2022 | ​ | Producer Collar (Ceiling) | ​ | Natural Gas | ​ | 152,500 | ​ | ​ | 5.00
2022 | ​ | Producer Collar (Floor) | ​ | Natural Gas | ​ | 152,500 | ​ | ​ | 3.75
2023 | ​ | Fixed-Price Swap | ​ | Crude Oil | ​ | 1,391,000 | ​ | ​ | 66.55
2023 | ​ | Fixed-Price Swap | ​ | Natural Gas | ​ | 2,365,000 | ​ | ​ | 3.30
2023 | ​ | Producer Collar (Ceiling) | ​ | Natural Gas | ​ | 1,132,500 | ​ | ​ | 5.10
2023 | ​ | Producer Collar (Floor) | ​ | Natural Gas | ​ | 1,132,500 | ​ | ​ | 3.45
2023 | ​ | Basis Swap | ​ | Crude Oil | ​ | 1,368,000 | ​ | ​ | 0.25
2023 | ​ | Basis Swap | ​ | Natural Gas | ​ | 912,500 | ​ | ​ | (0.52)
2023 | ​ | WTI NYMEX Roll | ​ | Crude Oil | ​ | 1,368,000 | ​ | ​ | 0.60
2024 | ​ | Fixed-Price Swap | ​ | Crude Oil | ​ | 914,500 | ​ | ​ | 61.35
2024 | ​ | Fixed-Price Swap | ​ | Natural Gas | ​ | 1,757,500 | ​ | ​ | 3.03
2024 | ​ | Producer Collar (Ceiling) | ​ | Natural Gas | ​ | 835,000 | ​ | ​ | 4.63
2024 | ​ | Producer Collar (Floor) | ​ | Natural Gas | ​ | 835,000 | ​ | ​ | 3.00
2024 | ​ | Basis Swap | ​ | Crude Oil | ​ | 914,500 | ​ | ​ | 0.25
2024 | ​ | Basis Swap | ​ | Natural Gas | ​ | 915,000 | ​ | ​ | (0.55)
2024 | ​ | WTI NYMEX Roll | ​ | Crude Oil | ​ | 914,500 | ​ | ​ | 0.36
2025 | ​ | Fixed-Price Swap | ​ | Crude Oil | ​ | 408,750 | ​ | ​ | 60.24
2025 | ​ | Fixed-Price Swap | ​ | Natural Gas | ​ | 760,000 | ​ | ​ | 2.95
2025 | ​ | Producer Collar (Ceiling) | ​ | Natural Gas | ​ | 225,000 | ​ | ​ | 3.85
2025 | ​ | Producer Collar (Floor) | ​ | Natural Gas | ​ | 225,000 | ​ | ​ | 3.00
2025 | ​ | Basis Swap | ​ | Crude Oil | ​ | 135,750 | ​ | ​ | 0.25
2025 | ​ | Basis Swap | ​ | Natural Gas | ​ | 760,000 | ​ | ​ | (0.54)
2025 | ​ | WTI NYMEX Roll | ​ | Crude Oil | ​ | 135,750 | ​ | ​ | 0.22
​ 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 September 30, 2021 and December 31, 2020 (in thousands): ​
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Derivative Assets | ​ | Derivative Liabilities
Offsetting of Derivative Assets and Liabilities |  | September 30, 2021 |  | December 31, 2020 |  | September 30, 2021 |  | December 31, 2020
​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​
Gross Amounts Presented in the Consolidated Balance Sheet | ​ | $ | 923 | ​ | $ | 12,568 | ​ | $ | (83,823) | ​ | $ | (26,416)
Amounts Not Offset in the Consolidated Balance Sheet | ​ | ​ | (923) | ​ | ​ | (8,968) | ​ | ​ | 923 | ​ | ​ | 8,968
Net Amount | ​ | $ | — | ​ | $ | 3,600 | ​ | $ | (82,900) | ​ | $ | (17,448)
​ 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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- 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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