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 consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the 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 December 31, 2019 (Successor), 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 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 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 consolidated balance sheets as assets or liabilities. The following table summarizes the location and fair value amounts of all derivative contracts in the consolidated balance sheets as of December 31, 2019 (Successor) and 2018 (Predecessor) (in thousands):


Derivatives not designated			Asset derivative contracts					Liability derivative contracts
as hedging contracts under			Successor		Predecessor			Successor		Predecessor
ASC 815	Balance sheet location		December 31, 2019		December 31, 2018	Balance sheet location		December 31, 2019		December 31, 2018

Commodity contracts	Current assets - assets from derivative contracts	$	4,995	$	57,280	Current liabilities - liabilities from derivative contracts	$	(8,069)	$	(3,768)
Commodity contracts	Other noncurrent assets - assets from derivative contracts		224		12,437	Other noncurrent liabilities - liabilities from derivative contracts		(4,854)		(9,139)
Total derivatives not designated as hedging contracts under ASC 815		$	5,219	$	69,717		$	(12,923)	$	(12,907)

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 consolidated statements of operations (in thousands):


			Amount of gain or (loss) recognized in income on derivative contracts for the
			Successor		Predecessor
			Period from		Period from
			October 2, 2019		January 1, 2019
Derivatives not designated as hedging	Location of gain or (loss) recognized in		through		through		Years Ended December 31,
contracts under ASC 815	income on derivative contracts		December 31, 2019		October 1, 2019		2018	2017
Commodity contracts:
Unrealized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts	$	(18,681)	$	(45,834)	$	84,274	$	(16,468)
Realized gain (loss) on commodity contracts	Other income (expenses) - net gain (loss) on derivative contracts		1,989		11,502		8,351		17,759
Total net gain (loss) on derivative contracts		$	(16,692)	$	(34,332)	$	92,625	$	1,291

At December 31, 2019 (Successor) and 2018 (Predecessor), the Company had the following open crude oil and natural gas derivative contracts:


			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)


			Predecessor
			December 31, 2018
				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 2019 - March 2019	Calls	Crude Oil	1,350,000	$	—	$	—	$	62.64	$	62.64	$	—	$	—
January 2019 - March 2019	Calls	Crude Oil	(1,350,000)						58.64		58.64
January 2019 - March 2019	Collars	Crude Oil	90,000		46.75		46.75		51.75		51.75
January 2019 - June 2019	Collars	Crude Oil	181,000		51.00		51.00		56.00		56.00
January 2019 - September 2019	Basis Swap	Crude Oil	546,000										(6.20) - (7.60)		(6.90)
January 2019 - December 2019	Fixed-Price Swap	Natural Gas Liquids	1,460,000		29.08 - 30.15		29.33
January 2019 - December 2019	Collars	Crude Oil	3,650,000		50.00 - 58.00		53.87		55.20 - 63.00		60.07
January 2019 - December 2019	Collars	Natural Gas	8,760,000		2.52 - 2.70		2.60		3.00 - 3.10		3.01
January 2019 - December 2019	Basis Swap	Crude Oil	2,448,000										(0.98) - (6.50)		(2.80)
January 2019 - December 2019	Basis Swap	Natural Gas	9,307,500										(1.05) - (1.40)		(1.18)
January 2019 - December 2019	WTI NYMEX Roll	Crude Oil	1,825,000		0.35		0.35
April 2019 - June 2019	Collars	Crude Oil	91,000		50.00		50.00		55.00		55.00
April 2019 - December 2019	Collars	Crude Oil	275,000		55.00		55.00		62.85		62.85
July 2019 - December 2019	Collars	Crude Oil	552,000		50.00 - 55.00		53.00		55.00 - 69.00		61.00
July 2019 - December 2019	Basis Swap	Crude Oil	460,000										(2.40) - (6.50)		(5.68)
October 2019 - December 2019	Fixed-Price Swap	Natural Gas Liquids	92,000		32.50		32.50
October 2019 - December 2019	Collars	Crude Oil	92,000		51.00		51.00		56.00		56.00
October 2019 - December 2019	Basis Swap	Crude Oil	460,000										3.45 - 4.00		3.72
January 2020 - December 2020	Collars	Crude Oil	549,000		50.00		50.00		70.00		70.00
January 2020 - December 2020	Calls	Crude Oil	2,342,400						70.00		70.00
January 2020 - December 2020	Puts	Crude Oil	915,000		55.00		55.00
January 2020 - December 2020	Basis Swap	Crude Oil	3,294,000										2.00 - 4.00		2.95

The Company presents the fair value of its derivative contracts at the gross amounts in the 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 December 31, 2019 (Successor) and 2018 (Predecessor) (in thousands):


	Derivative Assets				Derivative Liabilities
	Successor		Predecessor		Successor		Predecessor
Offsetting of Derivative Assets and Liabilities	December 31, 2019		December 31, 2018		December 31, 2019		December 31, 2018
Gross amounts presented in the consolidated balance sheet	$	5,219	$	69,717	$	(12,923)	$	(12,907)
Amounts not offset in the consolidated balance sheet		(4,557)		(10,263)		4,557		10,263
Net amount	$	662	$	59,454	$	(8,366)	$	(2,644)

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.

The filing of the voluntary petitions for relief under chapter 11 of the Bankruptcy Code described in Note 2, "Reorganization," constituted an event of default under the Company's derivatives contracts that gave the counterparties the option to terminate such contracts. Certain parties elected to terminate their contracts in August 2019 (Predecessor) and the Company received approximately $0.1 million to settle a portion of the outstanding positions while other positions were novated for fees totaling $0.5 million. The remaining derivative contracts, including the novated positions, were secured on a super-priority pari passu basis with the Company's Predecessor Credit Agreement during the bankruptcy process and remain in place following the Company's chapter 11 bankruptcy.