Derivatives

3 Months Ended

Mar. 31, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

(11) Derivatives

Interest Rate Swap

In January 2023, we entered into a $400.0 million interest rate swap to manage the interest rate risk associated with our floating-rate, SOFR-based borrowings, including borrowings on the Revolving Credit Facility and the AR Facility. We designated our interest rate swap as a cash flow hedge in accordance with ASC 815, Derivatives and Hedging. There is no ineffectiveness related to our hedge.

The components of the unrealized gain (loss) on designated cash flow hedge related to changes in the fair value of our interest rate swap are as follows (in millions):


	Three Months Ended March 31,
	2024		2023
Change in fair value of interest rate swap	$	3.9	$	(1.6)
Tax benefit (expense)	(0.9)		0.4
Unrealized gain (loss) on designated cash flow hedge	$	3.0	$	(1.2)

The fair value of derivative assets and liabilities related to the interest rate swap are as follows (in millions):


	March 31, 2024		December 31, 2023
Fair value of derivative assets—current	$	4.3	$	3.3
Fair value of derivative assets—long-term	0.5		—

Fair value of derivative liabilities—long-term	—		(2.4)
Net fair value of interest rate swap	$	4.8	$	0.9

Interest income is recognized from accumulated other comprehensive income from the monthly settlement of our interest rate swap and was included in our consolidated statements of operations as follows (in millions):


	Three Months Ended March 31,
	2024		2023
Interest income	$	1.5	$	0.5

We expect to recognize an additional $4.3 million of interest income out of accumulated other comprehensive income (loss) over the next twelve months.

Commodity Derivatives

The components of gain (loss) on derivative activity in the consolidated statements of operations related to commodity derivatives are as follows (in millions):


	Three Months Ended March 31,
	2024		2023
Change in fair value of derivatives	$	(26.1)	$	(1.4)
Realized gain (loss) on derivatives	(2.9)		13.3
Gain (loss) on derivative activity	$	(29.0)	$	11.9

The fair value of derivative assets and liabilities related to commodity derivatives are as follows (in millions):


	March 31, 2024		December 31, 2023
Fair value of derivative assets—current	$	86.3	$	73.6
Fair value of derivative assets—long-term	21.0		27.0
Fair value of derivative liabilities—current	(98.0)		(62.7)
Fair value of derivative liabilities—long-term	(21.8)		(24.3)
Net fair value of commodity derivatives	$	(12.5)	$	13.6

Set forth below are the summarized notional volumes and fair values of all instruments related to commodity derivatives that we held for price risk management purposes and the related physical offsets at March 31, 2024 (in millions, except volumes). The remaining term of the contracts extend no later than January 2028.

Commodity

Instruments

Unit

Volume

Net Fair Value

NGL (short contracts)

Swaps

MMgals

(136.1)

(16.3)

NGL (long contracts)

Swaps

MMgals

72.5

(2.1)

Natural gas (short contracts)

Swaps and futures

Bbtu

(143.1)

87.4

Natural gas (long contracts)

Swaps and futures

Bbtu

119.0

(81.4)

Crude and condensate (short contracts)

Swaps and futures

MMbbls

(7.2)

(7.8)

Crude and condensate (long contracts)

Swaps and futures

MMbbls

0.9

7.7

Total fair value of commodity derivatives

(12.5)

On all transactions where we are exposed to counterparty risk, we analyze the counterparty’s financial condition prior to entering into an agreement, establish limits, and monitor the appropriateness of these limits on an ongoing basis. We primarily deal with financial institutions when entering into financial derivatives on commodities. We have entered into Master ISDAs that allow for netting of swap contract receivables and payables in the event of default by either party. Additionally, we have entered into FCDTCs that allow for netting of futures contract receivables and payables in the event of default by either party. If our counterparties failed to perform under existing commodity swap and futures contracts, the maximum loss on our gross receivable position of $107.3 million as of March 31, 2024 would be reduced to $4.2 million due to the offsetting of gross fair value payables against gross fair value receivables as allowed by the ISDAs and the FCDTCs.