Derivatives and Risk Management

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES AND RISK MANAGEMENT

The Company is exposed to volatility in market prices and basis differentials for natural gas, oil and NGLs, which impacts the predictability of its cash flows related to the sale of those commodities. These risks are managed by the Company’s use of certain derivative financial instruments. As of December 31, 2019, the Company’s derivative financial instruments consisted of fixed price swaps, two-way costless collars, three-way costless collars, basis swaps, call options and interest rate swaps. A description of the Company’s derivative financial instruments is provided below:


Fixed price swaps			If the Company sells a fixed price swap, the Company receives a fixed price for the contract and pays a floating market to the counterparty. If the Company purchases a fixed price swap, the Company receives a floating market price for the contract and pays a fixed price to the counterparty.
Two-way costless collars			Arrangements that contain a fixed floor price (purchased put option) and a fixed ceiling price (sold call option) based on an index price which, in aggregate, have no net cost. At the contract settlement date, (1) if the index price is higher than the ceiling price, the Company pays the counterparty the difference between the index price and ceiling price, (2) if the index price is between the floor and ceiling prices, no payments are due from either party, and (3) if the index price is below the floor price, the Company will receive the difference between the floor price and the index price.
Three-way costless collars			Arrangements that contain a purchased put option, a sold call option and a sold put option based on an index price which, in aggregate, have no net cost. At the contract settlement date, (1) if the index price is higher than the sold call strike price, the Company pays the counterparty the difference between the index price and sold call strike price, (2) if the index price is between the purchased put strike price and the sold call strike price, no payments are due from either party, (3) if the index price is between the sold put strike price and the purchased put strike price, the Company will receive the difference between the purchased put strike price and the index price, and (4) if the index price is below the sold put strike price, the Company will receive the difference between the purchased put strike price and the sold put strike price.
Basis swaps			Arrangements that guarantee a price differential for natural gas from a specified delivery point. If the Company sells a basis swap, the Company receives a payment from the counterparty if the price differential is greater than the stated terms of the contract and pays the counterparty if the price differential is less than the stated terms of the contract. If the Company purchases a basis swap, the Company pays the counterparty if the price differential is greater than the state terms of the contract and receives a payment from the counterparty if the price differential is less than the stated terms of the contract.
Call options			The Company purchases and sells call options in exchange for a premium. If the Company purchases a call option, the Company receives from the counterparty the excess (if any) of the market price over the strike price of the call option at the time of settlement, but if the market price is below the call’s strike price, no payment is due from either party. If the Company sells a call option, the Company pays the counterparty the excess (if any) of the market price over the strike price at the time of settlement, but if the market price is below the call’s strike price, no payment is due from either party.
Interest rate swaps			Interest rate swaps are used to fix or float interest rates on existing or anticipated indebtedness. The purpose of these instruments is to manage the Company’s existing or anticipated exposure to unfavorable interest rate changes.

The Company chooses counterparties for its derivative instruments that it believes are creditworthy at the time the transactions are entered into, and the Company actively monitors the credit ratings and credit default swap rates of these counterparties where applicable. However, there can be no assurance that a counterparty will be able to meet its obligations to the Company. The Company presents its derivative positions on a gross basis and does not net the asset and liability positions.

As part of the Fayetteville Shale sale agreement, the Company entered into certain natural gas derivative positions that were subsequently novated to the buyer in conjunction with finalization of the sale. The derivatives that were novated to the buyer are not included in the tables below.

The following tables provide information about the Company’s financial instruments that are sensitive to changes in commodity prices and that are used to protect the Company’s exposure. None of the financial instruments below are designated for hedge accounting treatment. The tables present the notional amount, the weighted average contract prices and the fair value by expected maturity dates as of December 31, 2019:

Financial Protection on Production


		Weighted Average Price per MMBtu													Fair value at December 31, 2019 ($ in millions)
	Volume (Bcf)	Swaps		Sold Puts		Purchased Puts		Sold Calls		Basis Differential
Natural Gas
2020
Fixed price swaps	280	$	2.51	$	—	$	—	$	—	$	—	$	76	⁽¹⁾
Two-way costless collars	31	—		—		2.56		2.85		—		6
Three-way costless collars	185	—		2.28		2.65		3.00		—		42
Total	496											$	124
2021
Fixed price swaps	30	$	2.54	$	—	$	—	$	—	$	—	$	7
Two-way costless collars	17	—		—		2.50		2.83		—		—
Three-way costless collars	213	—		2.23		2.53		2.90		—		—
Total	260											$	7
2022
Three-way costless collars	31	$	—	$	2.30	$	2.69	$	3.15	$	—	$	2

Basis swaps
2020	198	$	—	$	—	$	—	$	—	$	(0.31)	$	—
2021	86	—		—		—		—		0.04		7
2022	45	—		—		—		—		(0.50)		(1)
Total	329											$	6

(1)Includes $9 million in premiums paid related to certain natural gas fixed price swaps recognized as a component of derivative assets within current assets on the consolidated balance sheet at December 31, 2019. As certain natural gas fixed price swaps settle, the premium will be amortized and recognized as a component of gain (loss) on derivatives on the consolidated statement of operations.


		Weighted Average Price per Bbl										Fair value at December 31, 2019 ($ in millions)
	Volume (MBbls)	Swaps		Sold Puts		Purchased Puts		Sold Calls
Oil
2020
Fixed price swaps	3,465	$	57.83	$	—	$	—	$	—	$	(2)
Two-way costless collars	966	—		—		56.89		59.81		—
Three-way costless collars	971	—		45.12		55.12		59.68		(1)
Total	5,402									$	(3)
2021
Fixed price swaps	1,584	$	53.20	$	—	$	—	$	—	$	(1)
Three-way costless collars	1,445	—		43.52		53.25		58.14		(1)
Total	3,029									$	(2)
2022
Fixed price swaps	438	$	51.74	$	—	$	—	$	—	$	—

Propane
2020
Fixed price swaps	4,746	$	23.90	$	—	$	—	$	—	$	21
Two-way costless collars	366	—		—		25.20		29.40		2
Total	5,112									$	23
2021
Fixed price swaps	2,460	$	21.77	$	—	$	—	—		$	3

Ethane
2020
Fixed price swaps	7,520	$	8.84	$	—	$	—	$	—	$	11
2021
Fixed price swaps	2,410	$	7.53	$	—	$	—	$	—	$	—


Other Derivative Contracts
	Volume (Bcf)	Weighted Average Strike Price per MMBtu		Fair value at December 31, 2019 ($ in millions)
Purchased Call Options – Natural Gas
2020	104	$	3.46	$	1
2021	57	3.52		2
Total	161			$	3

Sold Call Options – Natural Gas
2020	173	$	3.24	$	(3)
2021	115	3.33		(6)
2022	58	3.00		(5)
2023	6	3.00		(1)
2024	9	3.00		(3)
Total	361			$	(18)


	Volume (MBbls)	Weighted Average Strike Price per Bbl		Fair value at December 31, 2019 ($ in millions)
Sold Call Options – Oil
2021	—	$	60.00	$	(1)


		Weighted Average Strike Price per MMBtu						Fair value at December 31, 2019 ($ in millions)
Natural Gas Storage ⁽¹⁾	Volume (Bcf)	Swaps		Basis Differential
2020
Purchased fixed price swap	—	$	2.37	$	—	$	—
Purchased basis swap	—	—		(0.32)		—
Sold fixed price swap	1	3.06		—		1
Sold basis swap	—	—		(0.32)		—
Total	1					$	1

(1)The Company has entered into certain derivatives to protect the value of volumes of natural gas injected into a storage facility that will be withdrawn at a later date.


	Volume (Bcf)	Weighted Average Strike Price per MMBtu		Fair value at December 31, 2019 ($ in millions)
Purchased Fixed Price Swaps – Marketing (Natural Gas) ⁽¹⁾
2020	7	$	2.44	$	(1)
2021	6	2.44		—
Total	13			$	(1)

(1)The Company has entered into a limited number of derivatives to protect the value of certain long-term sales contracts.

At December 31, 2019, the net fair value of the Company’s financial instruments related to commodities was a $155 million asset.

As of December 31, 2019, the Company had no positions designated for hedge accounting treatment. Gains and losses on derivatives that are not designated for hedge accounting treatment, or that do not meet hedge accounting requirements, are recorded as a component of gain (loss) on derivatives on the consolidated statements of operations. Accordingly, the gain (loss) on derivatives component of the statement of operations reflects the gains and losses on both settled and unsettled derivatives. The Company calculates gains and losses on settled derivatives as the summation of gains and losses on positions which have settled within the reporting period. Only the settled gains and losses are included in the Company’s realized commodity price calculations.

The Company is a party to interest rate swaps that were entered into to mitigate the Company’s exposure to volatility in interest rates. The interest rate swaps have a notional amount of $170 million and expire in June 2020. Changes in the fair value of the interest rate swaps are included in gain (loss) on derivatives on the consolidated statements of operations.

The balance sheet classification of the assets and liabilities related to derivative financial instruments are summarized below as of December 31, 2019 and 2018:


Derivative Assets
	Balance Sheet Classification	Fair Value
(in millions)				December 31, 2019			December 31, 2018
Derivatives not designated as hedging instruments:
Fixed price swap – natural gas	Derivative assets	$	77	⁽¹⁾	$	32
Fixed price swap – oil	Derivative assets	4			13
Fixed price swap – propane	Derivative assets	21			11
Fixed price swap – ethane	Derivative assets	11			7
Two-way costless collar – natural gas	Derivative assets	10			11
Two-way costless collar – oil	Derivative assets	5			6
Two-way costless collar – propane	Derivative assets	2			—
Three-way costless collar – natural gas	Derivative assets	126			41
Three-way costless collar – oil	Derivative assets	3			—
Basis swap – natural gas	Derivative assets	17			8
Purchased call option – natural gas	Derivative assets	1			—
Fixed price swap – natural gas storage	Derivative assets	1			—
Interest rate swap	Derivative assets	—			1
Fixed price swap – natural gas	Other long-term assets	7			6
Fixed price swap – oil	Other long-term assets	1			6
Fixed price swap – propane	Other long-term assets	3			—
Fixed price swap – ethane	Other long-term assets	—			1
Two-way costless collar – natural gas	Other long-term assets	4			—
Two-way costless collar – oil	Other long-term assets	—			5
Three-way costless collar – natural gas	Other long-term assets	74			34
Three-way costless collar – oil	Other long-term assets	7			—
Basis swap – natural gas	Other long-term assets	15			3
Purchased call options – natural gas	Other long-term assets	2			6
Total derivative assets		$	391		$	191


Derivative Liabilities
	Balance Sheet Classification	Fair Value
(in millions)				December 31, 2019			December 31, 2018
Derivatives not designated as hedging instruments:
Purchased fixed price swap – natural gas	Derivative liabilities	$	1		$	—
Purchased fixed price swap – oil	Derivative liabilities	—			6
Fixed price swap – natural gas	Derivative liabilities	1			9
Fixed price swap – oil	Derivative liabilities	6			—
Fixed price swap – ethane	Derivative liabilities	—			3
Two-way costless collar – natural gas	Derivative liabilities	4			7
Two-way costless collar – oil	Derivative liabilities	5			—
Three-way costless collar – natural gas	Derivative liabilities	84			33
Three-way costless collar – oil	Derivative liabilities	4			—
Basis swap – natural gas	Derivative liabilities	17			18
Sold call option – natural gas	Derivative liabilities	3			3


Fixed price swap – natural gas	Other long-term liabilities	—			1
Fixed price swap – oil	Other long-term liabilities	2			—
Two-way costless collar – natural gas	Other long-term liabilities	4			—
Two-way costless collar – oil	Other long-term liabilities	—			1
Three-way costless collar – natural gas	Other long-term liabilities	72			35
Three-way costless collar – oil	Other long-term liabilities	8			—
Basis swap – natural gas	Other long-term liabilities	9			4
Sold call option – natural gas	Other long-term liabilities	15			19
Sold call option – oil	Other long-term liabilities	1			—
Total derivative liabilities		$	236		$	139

The following tables summarize the before-tax effect of the Company’s derivative instruments on the consolidated statements of operations for the years ended December 31, 2019 and 2018:


Unsettled Gain (Loss) on Derivatives Recognized in Earnings
	Consolidated Statement of Operations Classification of Gain (Loss) on Derivatives, Unsettled	For the years ended December 31,
Derivative Instrument				2019			2018
		(in millions)
Purchased fixed price swap – natural gas	Gain (Loss) on Derivatives	$	(1)		$	—
Purchased fixed price swap – oil	Gain (Loss) on Derivatives	6			(6)
Fixed price swap – natural gas	Gain (Loss) on Derivatives	46			(27)
Fixed price swap – oil	Gain (Loss) on Derivatives	(22)			19
Fixed price swap – propane	Gain (Loss) on Derivatives	13			11
Fixed price swap – ethane	Gain (Loss) on Derivatives	6			5
Two-way costless collar – natural gas	Gain (Loss) on Derivatives	2			—
Two-way costless collar – oil	Gain (Loss) on Derivatives	(10)			10
Two-way costless collar – propane	Gain (Loss) on Derivatives	2			—
Three-way costless collar – natural gas	Gain (Loss) on Derivatives	37			(48)
Three-way costless collar – oil	Gain (Loss) on Derivatives	(2)			—
Basis swap – natural gas	Gain (Loss) on Derivatives	17			10
Purchased call option – natural gas	Gain (Loss) on Derivatives	(3)			4
Sold call option – natural gas	Gain (Loss) on Derivatives	4			(4)
Sold call option – oil	Gain (Loss) on Derivatives	(1)			—
Fixed price swap – natural gas storage	Gain (Loss) on Derivatives	1			—
Interest rate swap	Gain (Loss) on Derivatives	(1)			2
Total gain (loss) on unsettled derivatives		$	94		$	(24)

Settled Gain (Loss) on Derivatives Recognized in Earnings ⁽¹⁾
	Consolidated Statement of Operations Classification of Gain (Loss) on Derivatives, Settled	For the years ended December 31,
Derivative Instrument				2019			2018
		(in millions)
Purchased fixed price swap – oil	Gain (Loss) on Derivatives	$	(3)		$	—
Fixed price swap – natural gas	Gain (Loss) on Derivatives	78			(32)
Fixed price swap – oil	Gain (Loss) on Derivatives	10			—
Fixed price swap – propane	Gain (Loss) on Derivatives	29			(6)
Fixed price swap – ethane	Gain (Loss) on Derivatives	17			(8)
Two-way costless collar – natural gas	Gain (Loss) on Derivatives	16			(1)
Two-way costless collar – oil	Gain (Loss) on Derivatives	6			—
Two-way costless collar – propane	Gain (Loss) on Derivatives	2			—
Three-way costless collar – natural gas	Gain (Loss) on Derivatives	31			(9)
Basis swap – natural gas	Gain (Loss) on Derivatives	(3)			(31)
Purchased call option – natural gas	Gain (Loss) on Derivatives	(1)		⁽²⁾	2		⁽²⁾
Sold call option – natural gas	Gain (Loss) on Derivatives	(1)			(7)
Sold call option – oil	Gain (Loss) on Derivatives	—			(2)
Purchased fixed price swap – natural gas storage	Gain (Loss) on Derivatives	(1)			—
Total gain (loss) on settled derivatives		$	180		$	(94)

Total gain (loss) on derivatives		$	274		$	(118)

(1)The Company calculates gain (loss) on derivatives, settled, as the summation of gains and losses on positions that have settled within the period.

(2)Includes $1 million amortization of premiums paid related to certain natural gas purchased call options for each of the years ended December 31, 2019 and 2018, which is included in gain (loss) on derivatives on the consolidated statement of operations.