Derivative Instruments

9 Months Ended

Sep. 30, 2020

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Derivative Instruments

Note 6—Derivative Instruments

All of the Company’s derivative instruments are used for risk management purposes and none is held for trading or speculative purposes.  By using derivative instruments to hedge exposures to changes in commodity prices and interest rates, the Company is exposed to the credit risk of its counterparties. Credit risk is the potential failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty is expected to owe the Company, which creates credit risk. To minimize the credit risk in derivative instruments, it is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers. The creditworthiness of counterparties is subject to periodic review. As of September 30, 2020, the Company’s derivative instruments were with Bank of Montreal, BP Energy Company, Capital One N.A., Citibank, Citizens Bank N.A., East West Bank, J Aron, KeyBank N.A., Morgan Stanley, Royal Bank of Canada, and Wells Fargo. The Company has not experienced any issues of non-performance by derivative counterparties.

Commodity Derivatives

The Company is exposed to market risk from changes in energy commodity prices within its operations. The Company utilizes derivatives to manage exposure to the variability in expected future cash flows from forecasted sales of natural gas and oil. The Company currently uses a mix of over-the-counter fixed price swaps, basis swaps, options and collars to manage its exposure to commodity price fluctuations.

Below is a summary of the Company’s derivative instrument positions, as of September 30, 2020, for future production periods:

Natural Gas Derivatives:

Description	Volume (MMBtu/d)		Production Period	Weighted Average Price ($/MMBtu)
Natural Gas Swaps:
		130,000	October 2020 – December 2020	$	2.42
		145,000	October 2020 – March 2021	$	2.58
		50,000	January 2021 – March 2022	$	2.51
		25,000	April 2021 – March 2022	$	2.47
Natural Gas Collars:
Floor purchase price (put)		25,000	January 2021 – December 2021	$	2.15
Ceiling sold price (call)		25,000	January 2021 – December 2021	$	3.03
Floor purchase price (put)		30,000	April 2021 – March 2022	$	2.40
Ceiling sold price (call)		30,000	April 2021 – March 2022	$	3.05
Floor purchase price (put)		15,000	August 2021 – December 2021	$	2.55
Ceiling sold price (call)		15,000	August 2021 – December 2021	$	3.13
Floor purchase price (put)		15,000	September 2021 – November 2021	$	2.52
Ceiling sold price (call)		15,000	September 2021 – November 2021	$	3.12
Floor purchase price (put)		5,000	August 2021	$	2.50
Ceiling sold price (call)		5,000	August 2021	$	3.05
Floor purchase price (put)		10,000	September 2021	$	2.50
Ceiling sold price (call)		10,000	September 2021	$	3.03
Natural Gas Three-way Collars:
Floor purchase price (put)		80,000	October 2020 – December 2020	$	2.60
Floor sold price (put)		80,000	October 2020 – December 2020	$	1.90
Ceiling sold price (call)		80,000	October 2020 – December 2020	$	2.94
Floor purchase price (put)		45,000	January 2021 – December 2021	$	2.55
Floor sold price (put)		45,000	January 2021 – December 2021	$	2.25
Ceiling sold price (call)		45,000	January 2021 – December 2021	$	2.81
Floor purchase price (put)		20,000	April 2021 – March 2022	$	2.62
Floor sold price (put)		20,000	April 2021 – March 2022	$	2.20
Ceiling sold price (call)		20,000	April 2021 – March 2022	$	3.10
Natural Gas Call/Put Options:
Floor sold price (put)		50,000	October 2020 – December 2020	$	2.30
Swaption sold price (call)		50,000	January 2021 – December 2021	$	2.75
Swaption sold price (call)		50,000	January 2022 – December 2022	$	3.00
Ceiling sold price (call)		50,000	January 2022 – December 2022	$	3.00
Floor sold price (put)		50,000	January 2021 – March 2022	$	2.00
Ceiling sold price (call)		80,000	January 2023 – December 2023	$	3.00
Basis Swaps:
Appalachia - Dominion		42,500	October 2020	$	(0.51	)
Appalachia - Dominion		20,000	October 2020 – December 2020	$	(0.59	)

Oil Derivatives:

Description	Volume (Bbls/d)		Production Period	Weighted Average Price ($/Bbl)
Oil Swaps:
		2,500	October 2020 – December 2020	$	57.41
		250	October 2020 – March 2021	$	53.20
		250	January 2021 – March 2021	$	53.00
		100	January 2021	$	43.60
Oil Collars:
Floor purchase price (put)		1,000	October 2020 – December 2020	$	51.00
Ceiling sold price (call)		1,000	October 2020 – December 2020	$	62.00
Floor purchase price (put)		500	January 2021 – December 2021	$	37.50
Ceiling sold price (call)		500	January 2021 – December 2021	$	45.50
Floor purchase price (put)		300	April 2021	$	40.00
Ceiling sold price (call)		300	April 2021	$	47.25
Floor purchase price (put)		200	May 2021	$	40.00
Ceiling sold price (call)		200	May 2021	$	47.55
Floor purchase price (put)		100	June 2021	$	40.00
Ceiling sold price (call)		100	June 2021	$	47.75
Oil Three-way Collars:
Floor purchase price (put)		500	January 2021 – December 2021	$	31.25
Floor sold price (put)		500	January 2021 – December 2021	$	22.50
Ceiling sold price (call)		500	January 2021 – December 2021	$	45.00
Oil Call/Put Options:
Floor sold price (put)		500	October 2020 – December 2020	$	45.00
Swaption sold price (call)		500	January 2021 – December 2021	$	42.50

NGL Derivatives:

Description	Volume (Bbls/d)		Production Period	Weighted Average Price ($/Bbl)
Propane Swaps:
		2,000	October 2020 – December 2020	$	20.94
		1,000	January 2021 – December 2021	$	18.87

Interest Rate Swap

In April 2020, the Company entered into an interest-rate swap with a notional amount of $100 million to manage its exposure to interest rate volatility.  The interest-rate swap has a 1-month LIBOR floating rate index at a 0.255% fixed interest rate.  The change in fair value of the interest rate swap agreement is accounted for on a mark-to-market basis with the changes in fair value recorded in current period earnings.  The swap will mature on February 28, 2022, at which date the counterparty may elect to further extend the contract through February 28, 2024.

Fair Values and Gains (Losses)

The following table summarizes the fair value of the Company’s derivative instruments on a gross basis and on a net basis as presented in the Condensed Consolidated Balance Sheets (in thousands). None of the derivative instruments is designated as a hedge for accounting purposes.

As of September 30, 2020	Gross Amount			Netting Adjustments(a)			Net Amount Presented in Balance Sheets			Balance Sheet Location
Assets
Commodity derivatives - current	$	7,423		$	(4,213	)		3,210		Other current assets
Total assets	$	7,423		$	(4,213	)	$	3,210
Liabilities
Commodity derivatives - current	$	(27,338	)	$	4,213		$	(23,125	)	Accrued liabilities
Interest-rate swap - current		(103	)		—			(103	)	Accrued liabilities
Commodity derivatives - noncurrent		(27,269	)		—			(27,269	)	Other liabilities
Interest-rate swap - noncurrent		(404	)		—			(404	)	Other liabilities
Total liabilities	$	(55,114	)	$	4,213		$	(50,901	)

As of December 31, 2019	Gross Amount			Netting Adjustments(a)			Net Amount Presented in Balance Sheets			Balance Sheet Location
Assets
Commodity derivatives - current	$	33,762		$	(3,719	)	$	30,043		Other current assets
Commodity derivatives - noncurrent		833			(45	)		788		Other assets
Total assets	$	34,595		$	(3,764	)	$	30,831
Liabilities
Commodity derivatives - current	$	(5,081	)	$	3,719		$	(1,362	)	Accrued liabilities
Commodity derivatives - noncurrent		(2,397	)		45			(2,352	)	Other liabilities
Total liabilities	$	(7,478	)	$	3,764		$	(3,714	)

(a) The Company has agreements in place that allow for the financial right to offset for derivative assets and derivative liabilities at settlement or in the event of a default under the agreements.

The following table presents the Company’s reported gains and losses on derivative instruments and where such values are recorded in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the periods presented (in thousands):

		Amount of Gain (Loss) Recognized in Income
Derivatives not designated as hedging instruments under ASC 815	Location of Gain (Loss) Recognized in Income	Three Months Ended September 30,					Nine Months Ended September 30,
		2020			2019		2020			2019
Commodity derivatives	Gain (loss) on derivative instruments	$	(40,603	)	$	15,812	$	(10,861	)	$	40,620
Interest-rate swap	Gain (loss) on derivative instruments		68			—		(468	)		—
Total		$	(40,535	)	$	15,812	$	(11,329	)	$	40,620