Derivative Instruments

Natural gas derivatives

From time to time the Company has entered into natural gas swap and collar derivative contracts to economically hedge against the variability in cash flows associated with future sales of natural gas production. While the use of these derivative instruments limits the downside risk of adverse price movements, their use also limits future revenues from upward price movements.

The Company recognizes its natural gas derivative instruments on the balance sheet as either assets or liabilities measured at fair value. The Company has not designated its natural gas derivatives as hedges for accounting purposes and, as a result, marks such derivative instruments to fair value and recognizes the changes in fair value in the unaudited condensed consolidated statements of comprehensive income (loss) under the caption “Gain (loss) on natural gas derivatives, net”.

The Company's natural gas derivative contracts are settled based upon reported NYMEX Henry Hub settlement prices. The estimated fair value of derivatives is based upon various factors, including commodity exchange prices, over-the-counter quotations and, in the case of collars, volatility, the risk-free interest rate, and the time to expiration. The calculation of the fair value of collars requires the use of an option-pricing model. See Note 6. Fair Value Measurements.

With respect to a natural gas fixed price swap contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is less than the swap price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price. For a natural gas collar contract, the counterparty is required to make a payment to the Company if the settlement price for any settlement period is below the floor price, and the Company is required to make a payment to the counterparty if the settlement price for any settlement period is above the ceiling price. Neither party is required to make a payment to the other party if the settlement price for any settlement period is between the floor price and the ceiling price.

At September 30, 2018 the Company had outstanding natural gas derivative contracts as set forth in the table below. The volumes reflected below represent an aggregation of multiple derivative contracts having similar remaining durations expected to be realized ratably over the respective 2018 and 2019 periods. At September 30, 2018 the Company had no outstanding crude oil derivative contracts.



		Swaps Weighted Average Price
Period and Type of Contract	MMBtus	Swaps Weighted Average Price
October 2018 - December 2018
Swaps - Henry Hub	57,960,000	$	2.88
April 2019 - December 2019
Swaps - Henry Hub	14,850,000	$	2.68

Natural gas derivative gains and losses

Cash receipts and payments in the following table reflect the gain or loss on derivative contracts which matured during the period, calculated as the difference between the contract price and the market settlement price of matured contracts. Non-cash gains and losses below represent the change in fair value of derivative instruments which continue to be held at period end and the reversal of previously recognized non-cash gains or losses on derivative contracts that matured during the period.



	Three months ended September 30,						Nine months ended September 30,
In thousands	2018			2017			2018			2017
Cash received (paid) on derivatives:
Natural gas fixed price swaps	$	(1,477	)	$	12,893		$	7,477		$	25,080
Natural gas collars	—			(612		)	—			(10,068		)
Cash received (paid) on derivatives, net	(1,477		)	12,281			7,477			15,012
Non-cash gain (loss) on derivatives:
Natural gas fixed price swaps	(548		)	(8,026		)	(12,013		)	27,390
Natural gas collars	—			4,347			—			41,080
Non-cash gain (loss) on derivatives, net	(548		)	(3,679		)	(12,013		)	68,470
Gain (loss) on natural gas derivatives, net	$	(2,025	)	$	8,602		$	(4,536	)	$	83,482

Diesel fuel derivatives

The Company previously entered into diesel fuel swap derivative contracts, all of which matured on or before December 31, 2017, to economically hedge against the variability in cash flows associated with purchases of diesel fuel for use in drilling activities. With respect to the diesel fuel swap contracts, the counterparty was required to make a payment to the Company if the settlement price for any settlement period was greater than the swap price, and the Company was required to make a payment to the counterparty if the settlement price for any settlement period was less than the swap price. The diesel fuel swap contracts were settled based upon reported NYMEX settlement prices for New York Harbor ultra-low sulfur diesel fuel.

The Company recognized its diesel fuel derivatives on the balance sheet as either assets or liabilities measured at fair value. The estimated fair value was based upon various factors, including commodity exchange prices, over-the-counter quotations, the risk-free interest rate, and time to expiration. The Company did not designate its diesel fuel derivatives as hedges for accounting purposes and, as a result, marked the derivative instruments to fair value and recognized the changes in fair value in the unaudited condensed consolidated statements of comprehensive income (loss) under the caption “Operating costs and expenses—Net (gain) loss on sale of assets and other.”

Cash receipts in the following table reflect gains on diesel fuel derivatives which matured during the 2017 period, calculated as the difference between the contract price and the market settlement price of matured contracts. Non-cash gains and losses below represent the change in fair value of diesel fuel derivatives held at September 30, 2017 and the reversal of previously recognized non-cash gains or losses on derivative contracts that matured during the three and nine months ended September 30, 2017.



	Three months ended September 30,				Nine months ended September 30,
In thousands	2018		2017		2018		2017
Cash received on diesel fuel derivatives	$	—	$	603	$	—	$	1,522
Non-cash gain (loss) on diesel fuel derivatives	—		740		—		(2,989		)
Gain (loss) on diesel fuel derivatives, net	$	—	$	1,343	$	—	$	(1,467	)

Balance sheet offsetting of derivative assets and liabilities

The Company’s derivative contracts are recorded at fair value in the condensed consolidated balance sheets under the captions “Derivative assets”, “Noncurrent derivative assets”, “Derivative liabilities”, and “Noncurrent derivative liabilities”, as applicable. Derivative assets and liabilities with the same counterparty that are subject to contractual terms which provide for net settlement are reported on a net basis in the condensed consolidated balance sheets.

The following table presents the gross amounts of recognized natural gas and diesel fuel derivative assets and liabilities, as applicable, the amounts offset under netting arrangements with counterparties, and the resulting net amounts presented in the condensed consolidated balance sheets for the periods presented, all at fair value.



In thousands	September 30, 2018			December 31, 2017
Commodity derivative assets:
Gross amounts of recognized assets	$	276		$	2,603
Gross amounts offset on balance sheet	(276		)	—
Net amounts of assets on balance sheet	—			2,603
Commodity derivative liabilities:
Gross amounts of recognized liabilities	(9,686		)	—
Gross amounts offset on balance sheet	276			—
Net amounts of liabilities on balance sheet	$	(9,410	)	$	—

The following table reconciles the net amounts disclosed above to the individual financial statement line items in the condensed consolidated balance sheets.



In thousands	September 30, 2018			December 31, 2017
Derivative assets	$	—		$	2,603
Noncurrent derivative assets	—			—
Net amounts of assets on balance sheet	—			2,603
Derivative liabilities	(9,056		)	—
Noncurrent derivative liabilities	(354		)	—
Net amounts of liabilities on balance sheet	(9,410		)	—
Total derivative assets (liabilities), net	$	(9,410	)	$	2,603