Derivative Instruments

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company's primary market risk exposure is the volatility of future prices for natural gas and NGLs, which can affect the Company's operating results. The Company uses derivative commodity instruments to hedge its cash flows from sales of produced natural gas and NGLs. The Company's overall objective in its hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices.

Derivative commodity instruments used by the Company are primarily swap, collar and option agreements. These agreements may require payments to, or receipt of payments from, counterparties based on the differential between two prices for the commodity. The Company uses these agreements to hedge its NYMEX and basis exposure. The Company may also use other contractual agreements when implementing its commodity hedging strategy. The Company typically enters into over the counter (OTC) derivative commodity instruments with financial institutions, and the creditworthiness of all counterparties is regularly monitored.

The Company does not designate any of its derivative instruments as cash flow hedges; therefore, all changes in fair value of the Company's derivative instruments are recognized in operating revenues in the Statements of Consolidated Operations. The Company recognizes all derivative instruments as either assets or liabilities at fair value on a gross basis. These derivative instruments are reported as either current assets or current liabilities due to their highly liquid nature. The Company can net settle its derivative instruments at any time.

Contracts that result in physical delivery of a commodity expected to be sold by the Company in the normal course of business are generally designated as normal sales and are exempt from derivative accounting. Contracts that result in the physical receipt or delivery of a commodity but are not designated or do not meet all the criteria to qualify for the normal purchase and normal sale scope exception are subject to derivative accounting.

The Company's OTC derivative instruments generally require settlement in cash. The Company also enters into exchange traded derivative commodity instruments, which are generally settled with offsetting positions. Settlements of derivative commodity instruments are reported as a component of cash flows from operations in the Statements of Consolidated Cash Flows.

With respect to the derivative commodity instruments held by the Company, the Company hedged portions of expected sales of production and portions of its basis exposure covering approximately 1,644 billion cubic feet (Bcf) of natural gas as of December 31, 2019 and 3,128 Bcf of natural gas and 1,505 thousand barrels (Mbbl) of NGLs as of December 31, 2018. The open positions at both December 31, 2019 and 2018 had maturities extending through December 2024.

When the net fair value of any of the Company's swap agreements represents a liability to the Company that is in excess of the agreed-upon threshold between the Company and the counterparty, the counterparty has the right to require the Company to remit funds as a margin deposit in an amount equal to the portion of the derivative liability that is in excess of the threshold amount. The Company records these deposits as a current asset. When the net fair value of any of the Company's swap agreements represents an asset to the Company that is in excess of the agreed-upon threshold between the Company and the counterparty, the Company has the right to require the counterparty to remit funds as a margin deposit in an amount equal to the portion of the derivative asset that is in excess of the threshold amount. The Company records a current liability for such amounts received. The Company had no such deposits in its Consolidated Balance Sheets at both December 31, 2019 and 2018.

When the Company enters into exchange traded natural gas contracts, exchanges may require the Company to remit funds to the corresponding broker as good faith deposits to guard against the risks associated with changing market conditions. The Company must make such deposits based on an established initial margin requirement and the net liability position, if any, of the fair value of the associated contracts. The Company records these deposits as a current asset. When the fair value of such contracts is in a net asset position, the broker may remit funds to the Company. The Company records a current liability for any such amounts received. The initial margin requirements are established by the exchanges based on the price, volatility and the time to expiration of the contract. The margin requirements are subject to change at the exchanges' discretion. The Company recorded current assets of $12.6 million and $40.3 million in its Consolidated Balance Sheets as of December 31, 2019 and 2018, respectively, for such deposits.

The Company has netting agreements with financial institutions and its brokers that permit net settlement of gross commodity derivative assets against gross commodity derivative liabilities. The table below reflects the impact of netting agreements and margin deposits on gross derivative assets and liabilities.



	Gross derivative instruments recorded in the Consolidated Balance Sheet		Derivative instruments subject to master netting agreements			Margin deposits remitted to counterparties			Net derivative instruments
December 31, 2019	(Thousands)
Asset derivative instruments at fair value	$	812,664	$	(226,116	)	$	—		$	586,548
Liability derivative instruments at fair value	312,696		(226,116		)	(12,606		)	73,974

December 31, 2018
Asset derivative instruments at fair value	$	481,654	$	(256,087	)	$	—		$	225,567
Liability derivative instruments at fair value	336,051		(256,087		)	(40,283		)	39,681

Certain of the Company's OTC derivative instrument contracts provide that, if the Company's credit ratings assigned by Moody's Investors Service, Inc. (Moody's) or S&P Global Ratings (S&P) is below investment grade, additional collateral must be deposited with the counterparty if the associated derivative liability exceeds certain thresholds. The additional collateral can be up to 100% of the derivative liability. Investment grade refers to the quality of a company's credit as assessed by one or more credit rating agencies. To be considered investment grade, a company must be rated "Baa3" or higher by Moody's, "BBB–" or higher by S&P and "BBB–" or higher by Fitch Rating Service (Fitch). Anything below these ratings is considered non-investment grade. As of December 31, 2019, the Company's senior notes were rated "Baa3" by Moody's and "BBB–" by S&P. Margin deposits on the Company's derivative instruments are also subject to factors other than credit rating, such as natural gas prices and credit thresholds set forth in the agreements between hedging counterparties and the Company. As of December 31, 2019, the aggregate fair value of all OTC derivative instruments with credit risk-related contingent features that were in a net liability position was $76.7 million, for which the Company had no collateral posted. If the Company's credit rating assigned by Moody's or S&P had been downgraded

as of December 31, 2019, the Company would not have been required to post any additional collateral under its OTC derivative instrument contracts.

In January 2020, Moody's downgraded the Company's senior notes credit rating to "Ba1," and, in February 2020, S&P downgraded the Company's senior notes credit rating to "BB+"; however, as of February 26, 2020, the changes in Moody's and S&P's credit rating of the Company's senior notes had no effect on margin deposits on the Company's derivative instruments. See Note 10 for a discussion of the effects of the Moody's and S&P downgrades on the Company's collateral requirements under its midstream service contracts.

The Company has not executed any interest rate swaps since 2011. Amounts related to historical interest rate swaps were recorded to accumulated OCI and have been fully reclassified into interest expense as of December 31, 2019. See Note 12.