Derivative Financial Instruments

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Derivative Instruments

The Company’s hedging activities consist of derivative instruments entered into in order to hedge against changes in oil and natural gas prices through the use of fixed price swaps, basis swaps and costless collars. Swaps exchange floating price risk in the future for a fixed price at the time of the hedge. Costless collars set both a maximum (sold ceiling) and a minimum (bought floor) future price. Consistent with its hedging policy, the Company has entered into a series of derivative instruments to hedge a significant portion of its expected oil and natural gas production through December 31, 2021. Typically, these derivative instruments require payments to (receipts from) counterparties based on specific indices as required by the derivative agreements. Although not risk free, the Company believes these instruments reduce its exposure to oil and natural gas price fluctuations and, thereby, allow the Company to achieve a more predictable cash flow.

The Company’s derivative instruments are cash flow hedge transactions in which it is hedging the variability of cash flow related to a forecasted transaction. The Company does not enter into derivative instruments for trading or other speculative purposes. These transactions are recorded in the Consolidated Financial Statements in accordance with FASB ASC Topic 815. The Company has accounted for these transactions using the mark-to-market accounting method. Generally, the Company

incurs accounting losses on derivatives during periods where prices are rising and gains during periods where prices are falling which may cause significant fluctuations in the Consolidated Balance Sheets and Consolidated Statements of Operations.

The Company nets its derivative instrument fair value amounts executed with each counterparty pursuant to an International Swap Dealers Association Master Agreement (“ISDA”), which provides for net settlement over the term of the contract. 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.

The following table sets forth the Company’s outstanding derivative contracts at December 31, 2021. When aggregating multiple contracts, the weighted average contract price is disclosed.


Period	Commodity	Volume (Bbls / MMBtu)	Price ($/Bbl / $/MMBtu)
2022	Crude Oil Swap	2,768,250	$57.69
2022	Crude Oil Basis Swap(1)	3,832,500	$0.51
2022	Natural Gas Swap	5,900,000	$3.20
2022	Natural Gas Basis Swap(2)	9,100,000	$(0.26)
2023	Natural Gas Swap	1,375,000	$3.27

(1)The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.

(2)The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.


	Costless Collars
Period	Commodity	Volume (Bbls / MMBtu)	Bought Floor ($/Bbl / $/MMBtu)	Sold Ceiling ($/Bbl / $/MMBtu)
2022	Crude Oil Costless Collar	730,000	$60.00	$73.73
2023	Crude Oil Costless Collar	365,000	$55.00	$71.75
2022	Natural Gas Costless Collar	4,037,500	$3.43	$5.10
2023	Natural Gas Costless Collar	888,000	$3.25	$5.13

Interest Rate Swaps

At times, the Company’s hedging activities include the use of interest rate swaps entered into in order to manage cash flow variability resulting from changes in interest rates. These derivative instruments are not accounted for under hedge accounting.

In December 2021, the Company unwound its interest rate swap contracts, receiving a one-time settlement payment of $1.1 million. The Company had no interest rate swaps in place as of December 31, 2021.

The following table summarizes the location and fair value amounts of all derivative instruments in the Consolidated Balance Sheets as well as the gross recognized derivative assets, liabilities, and amounts offset in the Consolidated Balance Sheets (in thousands):


		December 31, 2021						December 31, 2020
Derivatives not designated as hedging contracts under ASC Topic 815	Balance Sheet Location	Gross Recognized Assets / Liabilities		Gross Amounts Offset		Net Recognized Assets / Liabilities		Gross Recognized Assets / Liabilities		Gross Amounts Offset		Net Recognized Assets / Liabilities
Commodity contracts	Derivative asset - current	$	3,191	$	(1,843)	$	1,348	$	11,071	$	(3,562)	$	7,509
Commodity contracts	Derivative liability - current	$	47,153	$	(1,843)	$	45,310	$	4,492	$	(3,562)	$	930

Interest rate swaps	Derivative liability - current	$	—	$	—	$	—	$	205	$	—	$	205
Commodity contracts	Derivative asset - noncurrent	$	2,721	$	(2,564)	$	157	$	396	$	—	$	396
Commodity contracts	Derivative liability - noncurrent	$	3,135	$	(2,564)	$	571	$	—	$	—	$	—
Interest rate swaps	Derivative liability - noncurrent	$	—	$	—	$	—	$	173	$	—	$	173

The follow table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivatives instruments in the Company’s Consolidated Statements of Operations and Consolidated Statements of Cash Flows (in thousands):


Derivatives not designated as hedging contracts under ASC Topic 815			Years Ended December 31,
	Statement of Cash Flows Location	Statement of Operations Location	2021		2020		2019
Unrealized (loss) gain	Not presented separately	Not presented separately	$	(40,795)	$	3,855	$	(59,849)
Realized (loss) gain	Operating portion of net cash received in settlement of derivative contracts	Not presented separately	(75,966)		56,044		15,866
	Total loss (gain) on derivative contracts, net	(Loss) gain on derivative contracts, net	$	(116,761)	$	59,899	$	(43,983)