Derivative Instruments

12 Months Ended

Dec. 31, 2016

Entity Information [Line Items]

Derivative Instruments

Note 9—Derivative Instruments

The Company periodically uses derivative instruments to mitigate its exposure to a decline in commodity prices and the corresponding negative impact on cash flow available for reinvestment. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. Depending on changes in oil and natural gas futures markets and the Company’s view of underlying supply and demand trends, it may increase or decrease its hedging positions.

The following table summarizes the approximate volumes and average contract prices of swap contracts the Company had in place as of December 31, 2016:

	2017			2018
Crude Oil Swaps:
Notional volume (Bbl)	675,250			36,500
Weighted average fixed price ($/Bbl)	$	50.41		$	55.95
Crude Oil Basis Swaps:
Notional volume (Bbl)	127,750			—
Weighted average fixed price ($/Bbl)	$	(0.20	)	$	—
Natural Gas Swaps:
Notional volume (MMBtu)	1,460,000			—
Weighted average fixed price ($/MMBtu)	$	2.94		$	—

In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index price and the agreed upon swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference. In addition, the Company has entered into basis swap contracts in order to hedge the difference between the NYMEX index price and a local index price. The oil basis derivative contracts are settled based on the difference between the arithmetic average of WTI MIDLAND ARGUS and WTI ARGUS during the relevant calculation period. When the actual differential exceeds the fixed price provided by the basis swap contract, the Company receives the difference from the counterparty; when the differential is less than the fixed price provided by the basis swap contract, the Company pays the difference to the counterparty.

The Company’s commodity derivatives are measured at fair value and are included in the accompanying consolidated balance sheets as derivative assets and liabilities. The fair value of the commodity contracts was a net liability of $5.0 million and a net asset of $21.1 million as of December 31, 2016 and December 31, 2015, respectively.

The following tables below summarize the gross fair value of derivative assets and liabilities and the effect of netting on the consolidated balance sheets (in thousands):

	Successor
	December 31, 2016
	Balance Sheet Classification	Gross Amounts		Netting Adjustments			Net Amounts Presented on the Consolidated Balance Sheets
Assets
Derivative instruments	Current assets	$	739	$	(308	)	$	431
Derivative instruments	Noncurrent assets	—		—			—
Total assets		$	739	$	(308	)	$	431
Liabilities
Derivative instruments	Current liabilities	$	5,669	$	(308	)	$	5,361
Derivative instruments	Noncurrent Liabilities	20		—			20
Total liabilities		$	5,689	$	(308	)	$	5,381

	Predecessor
	December 31, 2015
	Balance Sheet Classification	Gross Amounts		Netting Adjustments			Net Amounts Presented on the Consolidated Balance Sheets
Assets
Derivative instruments	Current assets	$	19,469	$	(426	)	19,043
Derivative instruments	Noncurrent assets	2,071		(1		)	2,070
Total assets		$	21,540	$	(427	)	$	21,113

The Company’s oil and natural gas derivative instruments have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in the Company’s consolidated and combined statements of operations. The derivative instruments are recorded at fair value on the consolidated balance sheets and any gains and losses are recognized in current period earnings.

The following table presents gains and losses for derivative instruments not designated as hedges for accounting purposes for the periods presented:

	Successor			Predecessor
	October 11, 2016 through December 31, 2016			January 1, 2016 through October 10, 2016			Year Ended December 31,
							2015		2014
(Loss) gain on derivative instruments	$	(1,548	)	$	(6,838	)	$	20,756	$	41,943

The Company is exposed to financial risks associated with its derivative contracts from non-performance by its counterparties. The Company mitigates its exposure to any single counterparty by contracting with a number of financial institutions, each of which have a high credit rating and is a member of its bank credit facility. The Company’s member banks do not require it to post collateral for its hedge liability positions. Because some of the member banks have discontinued hedging activities, in the future the Company may hedge with counterparties outside its bank group to obtain competitive terms and to spread counterparty risk.