Note 7: Derivative instruments

Overview

Our results of operations, financial condition and capital resources are highly dependent upon the prevailing market prices of, and demand for, oil, natural gas and natural gas liquids. These commodity prices are subject to wide fluctuations and market uncertainties. To mitigate a portion of this exposure, we enter into various types of derivative instruments, including commodity price swaps, collars, put options, enhanced swaps and basis protection swaps. See “Note 7—Derivative Instruments” in Item 8. Financial Statement and Supplementary Data of our Annual Report on Form 10-K for the year ended December 31, 2016, for a description of the various kinds of derivatives we may enter into.

The following table summarizes our crude oil derivatives outstanding as of September 30, 2017:

			Weighted average fixed price per Bbl
Period and type of contract	Volume MBbls		Swaps		Purchased puts		Sold calls
2017
Swaps		883	$	54.97	$	—	$	—
2018
Swaps		2,116	$	54.92	$	—	$	—
Collars		183	$	—	$	50.00	$	60.50
2019
Swaps		1,312	$	54.26	$	—	$	—
2020
Swaps		120	$	50.50	$	—	$	—

The following table summarizes our natural gas derivatives outstanding as of September 30, 2017:

Period and type of contract	Volume BBtu		Weighted average fixed price per MMBtu
2017
Swaps		2,250	$	3.33
2018
Swaps		5,861	$	3.03
2019
Swaps		3,322	$	2.86

Effect of derivative instruments on the consolidated balance sheets

All derivative financial instruments are recorded on the balance sheet at fair value. See “Note 8—Fair value measurements” for additional information regarding fair value measurements. The estimated fair values of derivative instruments are provided below. The carrying amounts of these instruments are equal to the estimated fair values.

	Successor							Predecessor
	September 30, 2017							December 31, 2016
	Assets		Liabilities			Net value		Assets		Liabilities			Net value
Natural gas derivative contracts	$	789	$	(358	)	$	431	$	184	$	(3,658	)	$	(3,474	)
Crude oil derivative contracts		13,694		(5	)		13,689		—		(9,895	)		(9,895	)
Total derivative instruments		14,483		(363	)		14,120		184		(13,553	)		(13,369	)
Less:
Netting adjustments (1)		363		(363	)		—		184		(184	)		—
Derivative instruments - current		8,130		—			8,130		—		(7,525	)		(7,525	)
Derivative instruments - long-term	$	5,990	$	—		$	5,990	$	—	$	(5,844	)	$	(5,844	)

(1)

Amounts represent the impact of master netting agreements that allow us to net settle positive and negative positions with the same counterparty. Positive and negative positions with counterparties are netted only to the extent that they relate to the same current versus noncurrent classification on the balance sheet.

Effect of derivative instruments on the consolidated statements of operations

We do not apply hedge accounting to any of our derivative instruments. As a result, all gains and losses associated with our derivative contracts are recognized immediately as “Derivative (losses) gains” in the consolidated statements of operations.

“Derivative (losses) gains” in the consolidated statements of operations are comprised of the following:

	Successor			Predecessor
	Three months			Three months
	ended			ended
	September 30, 2017			September 30, 2016
Change in fair value of commodity price derivatives	$	(22,236	)	$	—
Settlement gains on commodity price derivatives		6,788			—
Total derivative (losses) gains	$	(15,448	)	$	—

	Successor			Predecessor
	Period from			Period from
	March 22, 2017			January 1, 2017		Nine months
	through			through		ended
	September 30, 2017			March 21, 2017		September 30, 2016
Change in fair value of commodity price derivatives	$	(19,232	)	$	46,721	$	(163,238	)
Settlement gains on commodity price derivatives		15,143			1,285		62,626
Settlement gains on early terminations of commodity price derivatives		—			—		91,144
Total derivative (losses) gains	$	(4,089	)	$	48,006	$	(9,468	)

Derivative terminations

In May 2016 all of our outstanding derivative positions were terminated due to defaults under the master agreements governing our derivative contracts as a result of our bankruptcy. Proceeds from the early terminations, inclusive of amounts receivable at the time of termination for previous settlements, totaled $119,303. Of this amount, in the third quarter of 2016, $103,560 was utilized to offset outstanding borrowings under our Prior Credit Facility and the remainder was remitted to the Company.