Derivatives and Risk Management

12 Months Ended

Dec. 31, 2020

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, 2020, 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.
Swaptions			Instruments that refer to an option to enter into a fixed price swap. In exchange for an option premium, the purchaser gains the right but not the obligation to enter a specified swap agreement with the issuer for specified future dates. If the Company sells a swaption, the counterparty has the right to enter into a fixed price swap wherein the Company receives a fixed price for the contract and pays a floating market price to the counterparty. If the Company purchases a swaption, the Company has the right to enter into a fixed price swap wherein the Company receives a floating market price for the contract and pays a fixed price to the counterparty.
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.

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, 2020:

Financial Protection on Production


		Weighted Average Price per MMBtu										Fair value at December 31, 2020 ($ in millions)
	Volume (Bcf)	Swaps		Sold Puts		Purchased Puts		Sold Calls		Basis Differential
Natural Gas
2021
Fixed price swaps	201	$	2.80	$	—	$	—	$	—	$	—	$	29
Two-way costless collars	237	—		—		2.57		2.95		—		11
Three-way costless collars	313	—		2.16		2.49		2.85		—		(24)
Total	751											$	16
2022
Fixed price swaps	112	$	2.68	$	—	$	—	$	—	$	—	$	4
Two-way costless collars	63	—		—		2.52		3.03		—		(1)
Three-way costless collars	203	—		2.06		2.46		2.89		—		(15)
Total	378											$	(12)
2023
Three-way costless collars	87	$	—	$	2.06	$	2.47	$	2.98	$	—	$	—

Basis swaps
2021	219	$	—	$	—	$	—	$	—	$	(0.21)	$	57
2022	139	—		—		—		—		(0.33)		8
2023	47	—		—		—		—		(0.45)		—
2024	11	—		—		—		—		(0.60)		—
2025	4	—		—		—		—		(0.59)		—
Total	420											$	65


		Weighted Average Price per Bbl								Fair value at December 31, 2020 ($ in millions)
	Volume (MBbls)	Swaps		Sold Puts		Purchased Puts		Sold Calls
Oil
2021
Fixed price swaps	4,887	$	48.59	$	—	$	—	$	—	$	1
Two-way costless collars	201	—		—		37.73		45.68		(1)
Three-way costless collars	1,543	—		37.42		47.22		52.86		—
Total	6,631									$	—
2022
Fixed price swaps	1,282	$	46.37	$	—	$	—	$	—	$	—
Three-way costless collars	873	—		40.25		50.78		56.54		1
Total	2,155									$	1
2023
Three-way costless collars	878	$	—	$	33.52	$	43.52	$	53.41	$	(1)

Ethane
2021
Fixed price swaps	5,889	$	7.12	$	—	$	—	$	—	$	(10)
Two-way costless collars	584	—		—		7.14		10.40		—
Total	6,473									$	(10)
2022
Fixed price swaps	1,575	$	8.69	$	—	$	—	$	—	$	—
Two-way costless collars	135	—		—		7.56		9.66		—
Total	1,710									$	—

Propane
2021
Fixed price swaps	6,974	$	20.43	$	—	$	—	$	—	$	(36)
2022
Fixed price swaps	2,120	$	20.23	$	—	$	—	—		$	(2)

Normal Butane
2021
Fixed price swaps	2,004	$	24.97	$	—	$	—	$	—	$	(8)
2022
Fixed price swaps	667	$	22.77	$	—	$	—	$	—	$	(1)

Natural Gasoline
2021
Fixed price swaps	1,936	$	37.35	$	—	$	—	$	—	$	(13)
2022
Fixed price swaps	643	$	37.77	$	—	$	—	$	—	$	(2)


Other Derivative Contracts
	Volume (Bcf)	Weighted Average Strike Price per MMBtu		Fair value at December 31, 2020 ($ in millions)
Call Options – Natural Gas (Net)
2021	75	$	3.19	$	(8)
2022	77	3.00		(17)
2023	46	2.94		(8)
2024	9	3.00		(3)
Total	207			$	(36)

Put Options – Natural Gas
2021	18	$	2.00	$	(1)
2022	5	2.00		—
Total	23			$	(1)


	Volume (MBbls)	Weighted Average Strike Price per Bbl		Fair value at December 31, 2020 ($ in millions)
Sold Call Options – Oil
2021	226	$	60.00	$	—


	Volume (Bcf)	Weighted Average Strike Price per MMBtu		Fair value at December 31, 2020 ($ in millions)
Swaptions – Natural Gas
2021	0.1	$	3.00	$	(2)


		Weighted Average Strike Price per MMBtu				Fair value at December 31, 2020 ($ in millions)
Storage (1)	Volume (Bcf)	Swaps		Basis Differential
2021
Purchased fixed price swap	1	$	2.04	$	—	$	—
Fixed price swaps	2	2.49		—		—
Basis swaps	1	—		(0.38)		—

Total	4					$	—

(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, 2020 ($ in millions)
Purchased Fixed Price Swaps – Marketing (Natural Gas) (1)
2021	6	$	2.44	$	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, 2020, the net fair value of the Company’s financial instruments related to commodities was a $41 million liability and included a net reduction of the liability of $1 million due to non-performance risk. See Note 8 for additional details regarding the Company's fair value measurements of its derivative positions.

As of December 31, 2020, the Company had no positions designated for hedge accounting treatment. Gains and losses on derivatives that are not designated for hedge accounting treatment, or 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. Only the settled gains and losses are included in the Company’s realized commodity price calculations.

The balance sheet classification of the assets and liabilities related to derivative financial instruments are summarized below as of December 31, 2020 and 2019:


Derivative Assets
	Balance Sheet Classification	Fair Value
(in millions)		December 31, 2020		December 31, 2019
Derivatives not designated as hedging instruments:
Purchased fixed price swaps – natural gas	Derivative assets	$	1	$	—
Fixed price swaps – natural gas	Derivative assets	37		77		(1)
Fixed price swaps – oil	Derivative assets	13		4
Fixed price swaps – ethane	Derivative assets	—		11
Fixed price swaps – propane	Derivative assets	—		21
Two-way costless collars – natural gas	Derivative assets	54		10
Two-way costless collars – oil	Derivative assets	—		5
Two-way costless collars – propane	Derivative assets	—		2
Three-way costless collars – natural gas	Derivative assets	57		126
Three-way costless collars – oil	Derivative assets	15		3
Basis swaps – natural gas	Derivative assets	60		17
Call options – natural gas	Derivative assets	4		1
Fixed price swaps – natural gas storage	Derivative assets	—		1

Fixed price swaps – natural gas	Other long-term assets	7		7
Fixed price swaps – oil	Other long-term assets	2		1

Fixed price swaps – propane	Other long-term assets	—		3
Two-way costless collars – natural gas	Other long-term assets	20		4

Three-way costless collars – natural gas	Other long-term assets	87		74
Three-way costless collars – oil	Other long-term assets	15		7
Basis swaps – natural gas	Other long-term assets	15		15
Call options – natural gas	Other long-term assets	—		2

Total derivative assets		$	387	$	391

(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 statements of operations.


Derivative Liabilities
	Balance Sheet Classification	Fair Value
(in millions)		December 31, 2020		December 31, 2019
Derivatives not designated as hedging instruments:
Purchased fixed price swaps – natural gas	Derivative liabilities	$	—	$	1

Fixed price swaps – natural gas	Derivative liabilities	7		1
Fixed price swaps – oil	Derivative liabilities	12		6
Fixed price swaps – ethane	Derivative liabilities	10		—
Fixed price swaps – propane	Derivative liabilities	36		—
Fixed price swaps – normal butane	Derivative liabilities	8		—
Fixed price swaps – natural gasoline	Derivative liabilities	13		—
Two-way costless collars – natural gas	Derivative liabilities	43		4
Two-way costless collars – oil	Derivative liabilities	1		5
Three-way costless collars – natural gas	Derivative liabilities	82		84
Three-way costless collars – oil	Derivative liabilities	15		4
Basis swaps – natural gas	Derivative liabilities	3		17
Call options – natural gas	Derivative liabilities	12		3
Put options – natural gas	Derivative liabilities	1		—
Swaptions – natural gas	Derivative liabilities	2		—


Fixed price swaps – natural gas	Other long-term liabilities	3		—
Fixed price swaps – oil	Other long-term liabilities	2		2
Fixed price swaps – propane	Other long-term liabilities	2		—
Fixed price swaps – normal butane	Other long-term liabilities	1		—
Fixed price swaps – natural gasoline	Other long-term liabilities	2		—
Two-way costless collars – natural gas	Other long-term liabilities	21		4

Three-way costless collars – natural gas	Other long-term liabilities	102		72
Three-way costless collars – oil	Other long-term liabilities	15		8
Basis swaps – natural gas	Other long-term liabilities	7		9
Call options – natural gas	Other long-term liabilities	28		15
Call options – oil	Other long-term liabilities	—		1

Total derivative liabilities		$	428	$	236

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, 2020 and 2019:


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		2020			2019
		(in millions)
Purchased fixed price swaps – natural gas	Gain (Loss) on Derivatives	$	2		$	(1)
Purchased fixed price swaps – oil	Gain (Loss) on Derivatives	—			6
Fixed price swaps – natural gas	Gain (Loss) on Derivatives	(25)			46
Fixed price swaps – oil	Gain (Loss) on Derivatives	—			(22)
Fixed price swaps – ethane	Gain (Loss) on Derivatives	(21)			6
Fixed price swaps – propane	Gain (Loss) on Derivatives	(60)			13
Fixed price swaps – normal butane	Gain (Loss) on Derivatives	(9)			—
Fixed price swaps – natural gasoline	Gain (Loss) on Derivatives	(15)			—
Two-way costless collars – natural gas	Gain (Loss) on Derivatives	10			2
Two-way costless collars – oil	Gain (Loss) on Derivatives	(1)			(10)
Two-way costless collars – propane	Gain (Loss) on Derivatives	(1)			2
Three-way costless collars – natural gas	Gain (Loss) on Derivatives	(77)			37
Three-way costless collars – oil	Gain (Loss) on Derivatives	3			(2)
Basis swaps – natural gas	Gain (Loss) on Derivatives	59			17
Call options – natural gas	Gain (Loss) on Derivatives	(10)			1
Call options – oil	Gain (Loss) on Derivatives	1			(1)
Swaptions – natural gas	Gain (Loss) on Derivatives	7			—
Fixed price swaps – natural gas storage	Gain (Loss) on Derivatives	(1)			1
Interest rate swaps	Gain (Loss) on Derivatives	—			(1)
Total gain (loss) on unsettled derivatives		$	(138)		$	94

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		2020			2019
		(in millions)
Purchased fixed price swaps – natural gas	Gain (Loss) on Derivatives	$	(3)		$	—
Purchased fixed price swaps – oil	Gain (Loss) on Derivatives	—			(3)
Fixed price swaps – natural gas	Gain (Loss) on Derivatives	142		(2)	78
Fixed price swaps – oil	Gain (Loss) on Derivatives	65			10
Fixed price swaps – ethane	Gain (Loss) on Derivatives	6			17
Fixed price swaps – propane	Gain (Loss) on Derivatives	18			29
Fixed price swaps – normal butane	Gain (Loss) on Derivatives	(2)			—
Fixed price swaps – natural gasoline	Gain (Loss) on Derivatives	(1)			—
Two-way costless collars – natural gas	Gain (Loss) on Derivatives	(5)			16
Two-way costless collars – oil	Gain (Loss) on Derivatives	17			6
Two-way costless collars – propane	Gain (Loss) on Derivatives	2			2
Three-way costless collars – natural gas	Gain (Loss) on Derivatives	38		(3)	31
Three-way costless collars – oil	Gain (Loss) on Derivatives	9			—
Basis swaps – natural gas	Gain (Loss) on Derivatives	76			(3)
Call options – natural gas	Gain (Loss) on Derivatives	—			(2)		(4)

Purchased fixed price swaps – natural gas storage	Gain (Loss) on Derivatives	(1)			—
Fixed price swaps – natural gas storage	Gain (Loss) on Derivatives	2			(1)
Interest rate swaps	Gain (Loss) on Derivatives	(1)			—
Total gain on settled derivatives		$	362		$	180

Total gain on derivatives		$	224		$	274

(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 $9 million amortization of premiums paid related to certain natural gas fixed price options for the year ended December 31, 2020, which is included in gain (loss) on derivatives on the consolidated statements of operations.

(3)Includes $2 million amortization of premiums paid related to certain natural gas three-way costless collars for the year ended December 31, 2020, which is included in gain (loss) on derivatives on the consolidated statements of operations.

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