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Derivative Activities
 6 Months Ended
Jun. 30, 2021
Derivative Instruments And Hedging Activities Disclosure [Abstract]  
Derivative Activities

(11) DERIVATIVE ACTIVITIES

We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We utilize commodity swaps, collars, three-way collars or swaptions to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. The fair value of our derivative contracts, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally the New York Mercantile Exchange (NYMEX) for natural gas and crude oil or Mont Belvieu for NGLs, approximated a net loss of $287.7 million at June 30, 2021. These contracts expire monthly through December 2022. The following table sets forth our commodity-based derivative

volumes by year as of June 30, 2021, excluding our basis and freight swaps and divestiture contingent consideration which are discussed separately below:

 

Period

 

Contract Type

 

Volume Hedged

 

Weighted Average Hedge Price

 

 

 

 

 

 

Swap

 

Sold Put

 

Floor

 

Ceiling

Natural Gas (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

Swaps

 

575,000 Mmbtu/day

 

$

2.78

 

 

 

 

 

 

 

 

2021

 

Collars

 

293,696 Mmbtu/day

 

 

 

 

 

 

$

2.65

 

$

3.16

2021

 

Three-way Collars

 

309,728 Mmbtu/day

 

 

 

$

2.14

 

$

2.47

 

$

2.84

2022

 

Swaps

 

190,000 Mmbtu/day

 

$

2.82

 

 

 

 

 

 

 

 

2022

 

Collars

 

40,000 Mmbtu/day

 

 

 

 

 

 

$

2.90

 

$

3.29

2022

 

Three-way Collars

 

200,000 Mmbtu/day

 

 

 

$

2.20

 

$

2.72

 

$

3.35

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Crude Oil (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

Swaps

 

7,166 bbls/day

 

$

56.28

 

 

 

 

 

 

 

 

2022

 

Swaps

 

4,560 bbls/day

 

$

60.39

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NGLs (C3-Propane)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

Swaps

 

6,000 bbls/day

 

$

0.90/gallon

 

 

 

 

 

 

 

 

July – September 2021

 

Collars

 

5,000 bbls/day

 

 

 

 

 

 

$

0.95/gallon

 

$

1.05/gallon

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NGLs (NC4-Normal Butane)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

Swaps

 

2,000 bbls/day

 

$

1.05/gallon

 

 

 

 

 

 

 

 

2021

 

Collars

 

2,500 bbls/day

 

 

 

 

 

 

$

0.94/gallon

 

$

1.08/gallon

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NGLs (C5-Natural Gasoline)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2021

 

Swaps

 

3,000 bbls/day

 

$

1.28/gallon

 

 

 

 

 

 

 

 

2021

 

Collars

 

2,000 bbls/day

 

 

 

 

 

 

$

1.34/gallon

 

$

1.55/gallon

2022

 

Swaps

 

1,000 bbls/day

 

$

1.50/gallon

 

 

 

 

 

 

 

 

2022

 

Collars

 

1,000 bbls/day

 

 

 

 

 

 

$

1.40/gallon

 

$

1.60/gallon

(1) We also sold natural gas call swaptions of 180,000 Mmbtu/day for 2022 at a weighted average price of $2.86. In addition, we sold oil call swaptions of 1,000 bbls per day for 2022 at a weighted average price of $54.00.

Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. We recognize all changes in fair value of these derivatives as earnings in derivative fair value income or loss in the periods in which they occur.

Basis Swap Contracts

In addition to the swaps, collars and swaptions described above, at June 30, 2021, we had natural gas basis swap contracts which lock in the differential between NYMEX Henry Hub and certain of our physical pricing indices. These contracts settle monthly through December 2024 and include a total volume of 229,880,000 Mmbtu. The fair value of these contracts was a gain of $25.7 million at June 30, 2021.

At June 30, 2021, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indices. The contracts settle monthly through 2022. The fair value of these contracts was a gain of $376,000 at June 30, 2021.

Freight Swap Contracts

In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at June 30, 2021, we had freight swap contracts on the Baltic Exchange which lock in the freight rate for a specific trade route. These contracts settle monthly and cover 10,000 metric tons per month in third quarter 2021 and 12,000 metric tons for the remainder of 2021. The fair value of these contracts equal to a gain of $37,000 at June 30, 2021.

Divestiture Contingent Consideration

In addition to the derivatives described above, our right to receive contingent consideration in conjunction with the sale of our North Louisiana assets was determined to be a derivative financial instrument that is not designated as a hedging instrument. The remaining contingent consideration of up to $75.0 million is based on future achievement of natural gas and oil prices based on published indexes and realized NGLs prices of the buyer for the years 2021, 2022 and 2023. All changes in the

fair value are recognized as a gain or loss in earnings in the period they occur in derivative fair value income or loss in our consolidated statements of operations. For first six months 2021, this fair value has increased $21.4 million.

Derivative Assets and Liabilities

The combined fair value of derivatives included in the accompanying consolidated balance sheets as of June 30, 2021 and December 31, 2020 is summarized below. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements. The tables below provide additional information relating to our master netting arrangements with our derivative counterparties (in thousands):

 

 

 

 

June 30, 2021

 

 

 

 

Gross
Amounts of
Recognized
Assets

 

 

Gross
Amounts
Offset in the
Balance Sheet

 

 

Net Amounts
of Assets Presented
in the
Balance Sheet

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

Natural gas

–swaps

 

$

7,453

 

 

$

(7,856

)

 

$

(403

)

 

–collars

 

 

114

 

 

 

(114

)

 

 

—

 

 

–three-way collars

 

 

12

 

 

 

(12

)

 

 

—

 

 

–basis swaps

 

 

28,810

 

 

 

(15,453

)

 

 

13,357

 

Crude oil

–swaps

 

 

33

 

 

 

(472

)

 

 

(439

)

NGLs

–C3 propane spread swaps

 

 

6,807

 

 

 

(6,807

)

 

 

—

 

 

–C3 propane collars

 

 

—

 

 

 

(219

)

 

 

(219

)

 

–NC4 butane collars

 

 

—

 

 

 

(944

)

 

 

(944

)

 

−C5 natural gasoline swaps

 

 

—

 

 

 

(439

)

 

 

(439

)

 

−C5 natural gasoline collars

 

 

—

 

 

 

(962

)

 

 

(962

)

Freight

−swaps

 

 

57

 

 

 

(10

)

 

 

47

 

Divestiture contingent consideration

 

 

37,350

 

 

 

—

 

 

 

37,350

 

 

 

 

$

80,636

 

 

$

(33,288

)

 

$

47,348

 

 

 

 

 

 

June 30, 2021

 

 

 

 

Gross
Amounts of
Recognized
(Liabilities)

 

 

Gross
Amounts
Offset in the
Balance Sheet

 

 

Net Amounts
of (Liabilities) Presented
in the
Balance Sheet

 

Derivative (liabilities):

 

 

 

 

 

 

 

 

 

 

Natural gas

–swaps

 

$

(122,709

)

 

$

7,856

 

 

$

(114,853

)

 

–swaptions

 

 

(22,135

)

 

 

—

 

 

 

(22,135

)

 

–collars

 

 

(31,242

)

 

 

114

 

 

 

(31,128

)

 

–three-way collars

 

 

(62,594

)

 

 

12

 

 

 

(62,582

)

 

–basis swaps

 

 

(3,123

)

 

 

15,453

 

 

 

12,330

 

Crude oil

–swaps

 

 

(28,323

)

 

 

472

 

 

 

(27,851

)

 

–swaptions

 

 

(4,279

)

 

 

—

 

 

 

(4,279

)

NGLs

–C3 propane spread swaps

 

 

(6,431

)

 

 

6,807

 

 

 

376

 

 

–C3 propane swaps

 

 

(8,490

)

 

 

—

 

 

 

(8,490

)

 

–C3 collars

 

 

(1,092

)

 

 

219

 

 

 

(873

)

 

–NC4 butane swaps

 

 

(2,744

)

 

 

—

 

 

 

(2,744

)

 

–NC4 butane collars

 

 

(3,413

)

 

 

944

 

 

 

(2,469

)

 

–C5 natural gasoline swaps

 

 

(7,028

)

 

 

439

 

 

 

(6,589

)

 

–C5 natural gasoline collars

 

 

(1,309

)

 

 

962

 

 

 

(347

)

Freight

–swaps

 

 

(20

)

 

 

10

 

 

 

(10

)

 

 

 

$

(304,932

)

 

$

33,288

 

 

$

(271,644

)

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

Gross
Amounts of
Recognized
Assets

 

 

Gross Amounts
Offset in the
Balance Sheet

 

 

Net Amounts of
Assets Presented in the
Balance Sheet

 

Derivative assets:

 

 

 

 

 

 

 

 

 

 

Natural gas

–swaps

 

$

33,559

 

 

$

(16,821

)

 

$

16,738

 

 

–collars

 

 

7,016

 

 

 

(2,329

)

 

 

4,687

 

 

–three-way collars

 

 

535

 

 

 

(6,139

)

 

 

(5,604

)

 

–basis swaps

 

 

7,894

 

 

 

(3,502

)

 

 

4,392

 

Crude oil

–swaps

 

 

2,465

 

 

 

(829

)

 

 

1,636

 

NGLs

–C3 propane spread swaps

 

 

4,863

 

 

 

(4,863

)

 

 

—

 

 

–C3 propane collars

 

 

—

 

 

 

(107

)

 

 

(107

)

Freight

–swaps

 

 

2,310

 

 

 

—

 

 

 

2,310

 

Divestiture contingent consideration

 

 

15,960

 

 

 

—

 

 

 

15,960

 

 

 

 

$

74,602

 

 

$

(34,590

)

 

$

40,012

 

 

 

 

 

 

December 31, 2020

 

 

 

 

Gross
Amounts of
Recognized
(Liabilities)

 

 

Gross Amounts
Offset in the
Balance Sheet

 

 

Net Amounts of
(Liabilities)
Presented in the
Balance Sheet

 

Derivative (liabilities):

 

 

 

 

 

 

 

 

 

 

Natural gas

–swaps

 

$

(10,120

)

 

$

16,821

 

 

$

6,701

 

 

–swaptions

 

 

(9,803

)

 

 

—

 

 

 

(9,803

)

 

–collars

 

 

—

 

 

 

2,329

 

 

 

2,329

 

 

–three-way collars

 

 

(18,353

)

 

 

6,139

 

 

 

(12,214

)

 

–basis swaps

 

 

(4,197

)

 

 

3,502

 

 

 

(695

)

Crude oil

–swaps

 

 

(5,471

)

 

 

829

 

 

 

(4,642

)

NGLs

–C3 propane spread swaps

 

 

(4,069

)

 

 

4,863

 

 

 

794

 

 

–C3 propane swaps

 

 

(8,243

)

 

 

—

 

 

 

(8,243

)

 

–C3 propane collars

 

 

(3,086

)

 

 

107

 

 

 

(2,979

)

 

–C5 natural gasoline swaps

 

 

(4,897

)

 

 

—

 

 

 

(4,897

)

 

–C5 natural gasoline calls

 

 

(546

)

 

 

—

 

 

 

(546

)

 

–NC4 butane swaps

 

 

(651

)

 

 

—

 

 

 

(651

)

 

–NC4 butane collars

 

 

(401

)

 

 

—

 

 

 

(401

)

Freight

–swaps

 

 

(1,206

)

 

 

—

 

 

 

(1,206

)

 

 

 

$

(71,043

)

 

$

34,590

 

 

$

(36,453

)

 

 

The effects of our derivatives on our consolidated statements of operations are summarized below (in thousands):

 

 

 

Derivative Fair Value (Loss) Income

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Commodity swaps

 

$

(172,566

)

 

$

5,484

 

 

$

(225,330

)

 

$

233,838

 

Swaptions

 

 

(19,268

)

 

 

(2,019

)

 

 

(16,612

)

 

 

(1,353

)

Three-way collars

 

 

(53,705

)

 

 

(6,200

)

 

 

(52,832

)

 

 

(17,562

)

Collars

 

 

(38,934

)

 

 

2,557

 

 

 

(52,222

)

 

 

2,557

 

Calls

 

 

—

 

 

 

(33

)

 

 

(775

)

 

 

242

 

Basis swaps

 

 

17,368

 

 

 

(5,180

)

 

 

19,523

 

 

 

16,163

 

Freight swaps

 

 

(38

)

 

 

(912

)

 

 

(704

)

 

 

(7,013

)

Divestiture contingent consideration

 

 

17,460

 

 

 

—

 

 

 

21,390

 

 

 

—

 

Total

 

$

(249,683

)

 

$

(6,303

)

 

$

(307,562

)

 

$

226,872