DERIVATIVES AND RISK MANAGEMENT

3 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 March 31, 2021, the Company’s derivative financial instruments consisted of fixed price swaps, two-way costless collars, three-way costless collars, basis swaps, call options, swaptions 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 price 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 that, 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 stated terms of the contract and receives a payment from the counterparty if the price differential is less than the stated terms of the contract.


Options (Calls and Puts)			The Company purchases and sells options in exchange for premiums. 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 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 purchases a put option, the Company receives from the counterparty the excess (if any) of the strike price over the market price of the put option at the time of settlement, but if the market price is above the put’s strike price, no payment is due from either party. If the Company sells a put option, the Company pays the counterparty the excess (if any) of the strike price over the market price of the put option at the time of settlement, but if the market price is above the put’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 contracts with 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 fair value of the Company’s derivative assets and liabilities includes a non-performance risk factor. See Note 10 for additional details regarding the Company’s fair value measurements of its derivative positions. 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 March 31, 2021:


Financial Protection on Production
		Weighted Average Price per MMBtu
	Volume (Bcf)	Swaps		Sold Puts		Purchased Puts		Sold Calls		Basis Differential		Fair Value at March 31, 2021 (in millions)
Natural Gas
2021
Fixed price swaps	176	$	2.79	$	—	$	—	$	—	$	—	$	14
Two-way costless collars	195	—		—		2.57		2.93		—		1
Three-way costless collars	218	—		2.17		2.50		2.84		—		(23)
Total	589											$	(8)
2022
Fixed price swaps	112	$	2.68	$	—	$	—	$	—	$	—	$	(2)
Two-way costless collars	63	—		—		2.52		3.03		—		(3)
Three-way costless collars	278	—		2.06		2.50		2.97		—		(13)
Total	453											$	(18)
2023


Three-way costless collars	103	$	—	$	2.05	$	2.46	$	3.01	$	—	$	(4)





Basis Swaps
2021	233	$	—	$	—	$	—	$	—	$	(0.49)	$	39
2022	220	—		—		—		—		(0.44)		24
2023	119	—		—		—		—		(0.56)		4
2024	24	—		—		—		—		(0.64)		1
2025	9	—		—		—		—		(0.64)		—
Total	605											$	68


	Volume (MBbls)	Weighted Average Strike Price per Bbl								Fair Value at March 31, 2021 (in millions)
		Swaps		Sold Puts		Purchased Puts		Sold Calls
Oil
2021
Fixed price swaps	3,272	$	49.27	$	—	$	—	$	—	$	(29)
Two-way costless collars	156	—		—		37.79		45.73		(2)
Three-way costless collars	1,498	—		37.86		47.70		53.10		(10)
Total	4,926									$	(41)
2022
Fixed price swaps	1,719	$	48.54	$	—	$	—	$	—	$	(10)
Three-way costless collars	1,380	—		39.89		50.23		57.05		(4)
Total	3,099									$	(14)
2023

Three-way costless collars	1,268	$	—	$	33.97	$	45.51	$	56.12	$	(4)




Ethane
2021
Fixed price swaps	4,429	$	7.17	$	—	$	—	$	—	$	(11)
Two-way costless collars	440	—		—		7.14		10.40		—
Total	4,869									$	(11)
2022
Fixed price swaps	1,758	$	8.68	$	—	$	—	$	—	$	(1)
Two-way costless collars	135	—		—		7.56		9.66		—
Total	1,893									$	(1)





Propane
2021
Fixed price swaps	5,443	$	20.84	$	—	$	—	$	—	$	(69)


2022
Fixed price swaps	2,723	$	21.83	$	—	$	—	$	—	$	(14)
Three-way costless collars	305	—		16.80		21.00		31.92		(1)
Total	3,028									(15)



Normal Butane
2021
Fixed price swaps	1,568	$	25.30	$	—	$	—	$	—	$	(19)
2022
Fixed price swaps	888	$	24.47	$	—	$	—	$	—	$	(5)

Natural Gasoline
2021
Fixed price swaps	1,513	$	37.91	$	—	$	—	$	—	$	(27)
2022
Fixed price swaps	857	$	40.48	$	—	$	—	$	—	$	(8)


Other Derivative Contracts
	Volume (Bcf)	Weighted Average Strike Price per MMBtu		Fair Value at March 31, 2021 (in millions)





Call Options – Natural Gas (Net)
2021	57	$	3.19	$	(4)
2022	77	3.00		(16)
2023	46	2.94		(10)
2024	9	3.00		(3)

Total	189			$	(33)
Put Options – Natural Gas
2021	14	$	2.00	$	—
2022	5	2.00		(1)
Total	19			$	(1)


	Volume (MBbls)	Weighted Average Strike Price per Bbl		Fair Value at March 31, 2021 (in millions)
Call Options – Oil
2021	171	$	60.00	$	(1)


	Volume (Bcf)	Weighted Average Strike Price per MMBtu		Fair Value at March 31, 2021 (in millions)
Swaptions – Natural Gas
2021 (1)	18	$	3.00	$	(1)

(1)The Company has sold swaptions with an underlying tenor of January 2022 to December 2022, with an exercise date of December 23, 2021.


	Volume (Bcf)	Weighted Average Strike Price per MMBtu				Fair Value at March 31, 2021 (in millions)
		Swaps		Basis Differential
Storage (1)
2021
Purchased fixed price swaps	2	$	2.34	$	—	$	—
Purchased basis swaps	1	—		(0.88)		—
Fixed price swaps	—	2.23		—		—
Basis swaps	—	—		(0.57)		—
Total	3					$	—
2022
Purchased fixed price swaps	—	$	2.14	$	—	$	—
Fixed price swaps	2	2.82		—		—
Basis swaps	1	—		(0.57)		—
Total	3					$	—

(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 and sold at a later date.


Purchased Fixed Price Swaps – Marketing (Natural Gas) (1)	Volume (Bcf)	Weighted Average Strike Price per MMBtu	Fair Value at March 31, 2021 (in millions)
2021	4	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 March 31, 2021, the net fair value of the Company’s financial instruments related to commodities was a $211 million liability and included a net reduction of the liability of less than $1 million related to non-performance risk. See Note 10 for additional details regarding the Company’s fair value measurements of its derivative positions.

As of March 31, 2021, 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 gain 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 (none of which are designated for hedge accounting treatment) is summarized below as of March 31, 2021 and December 31, 2020:


Derivative Assets
		Fair Value
(in millions)	Balance Sheet Classification	March 31, 2021		December 31, 2020
Derivatives not designated as hedging instruments:

Purchased fixed price swaps – natural gas	Derivative assets	$	1	$	1

Fixed price swaps – natural gas	Derivative assets	25		37
Fixed price swaps – oil	Derivative assets	—		13


Two-way costless collars – natural gas	Derivative assets	39		54


Three-way costless collars – natural gas	Derivative assets	39		57
Three-way costless collars – oil	Derivative assets	6		15
Basis swaps – natural gas	Derivative assets	46		60
Call options – natural gas	Derivative assets	1		4


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

Fixed price swaps – propane	Other long-term assets	1		—
Two-way costless collars – natural gas	Other long-term assets	2		20


Three-way costless collars – natural gas	Other long-term assets	82		87
Three-way costless collars – oil	Other long-term assets	14		15
Basis swaps – natural gas	Other long-term assets	39		15

Interest rate swaps	Other long-term assets	1		—
Total derivative assets		$	296	$	387


Derivative Liabilities
		Fair Value
(in millions)	Balance Sheet Classification	March 31, 2021		December 31, 2020
Derivatives not designated as hedging instruments:


Fixed price swaps – natural gas	Derivative liabilities	$	12	$	7
Fixed price swaps – oil	Derivative liabilities	32		12
Fixed price swaps – ethane	Derivative liabilities	11		10
Fixed price swaps – propane	Derivative liabilities	76		36
Fixed price swaps – normal butane	Derivative liabilities	21		8
Fixed price swaps – natural gasoline	Derivative liabilities	30		13
Two-way costless collars – natural gas	Derivative liabilities	39		43
Two-way costless collars – oil	Derivative liabilities	2		1
Three-way costless collars – natural gas	Derivative liabilities	73		82
Three-way costless collars – oil	Derivative liabilities	17		15
Basis swaps – natural gas	Derivative liabilities	9		3
Call options – natural gas	Derivative liabilities	13		12
Call options – oil	Derivative liabilities	1		—
Put options – natural gas	Derivative liabilities	1		1
Swaptions – natural gas	Derivative liabilities	1		2


Fixed price swaps – natural gas	Long-term derivative liabilities	1		3
Fixed price swaps – oil	Long-term derivative liabilities	7		2
Fixed price swaps – ethane	Long-term derivative liabilities	1		—
Fixed price swaps – propane	Long-term derivative liabilities	8		2
Fixed price swaps – normal butane	Long-term derivative liabilities	3		1
Fixed price swaps – natural gasoline	Long-term derivative liabilities	5		2
Two-way costless collars – natural gas	Long-term derivative liabilities	4		21

Three-way costless collars – natural gas	Long-term derivative liabilities	88		102
Three-way costless collars – oil	Long-term derivative liabilities	21		15
Three-way costless collars – propane	Long-term derivative liabilities	1		—
Basis swap – natural gas	Long-term derivative liabilities	8		7
Call options – natural gas	Long-term derivative liabilities	21		28

Total derivative liabilities		$	506	$	428

The following tables summarize the before-tax effect of the Company’s derivative instruments on the consolidated statements of operations for the three months ended March 31, 2021 and 2020:


Unsettled Gain (Loss) on Derivatives Recognized in Earnings
	Consolidated statement of Operations Classification of Gain (Loss) on Derivatives, Unsettled	For the three months ended March 31,
Derivative Instrument			2021			2020

			(in millions)
Purchased fixed price swaps – natural gas	Gain (Loss) on Derivatives		$	—		$	(1)
Purchased fixed price swaps – oil	Gain (Loss) on Derivatives		—			(5)
Fixed price swaps – natural gas	Gain (Loss) on Derivatives		(22)			103
Fixed price swaps – oil	Gain (Loss) on Derivatives		(40)			118
Fixed price swaps – ethane	Gain (Loss) on Derivatives		(2)			12
Fixed price swaps – propane	Gain (Loss) on Derivatives		(45)			36
Fixed price swaps – normal butane	Gain (Loss) on Derivatives		(15)			—
Fixed price swaps – natural gasoline	Gain (Loss) on Derivatives		(20)			—
Two-way costless collars – natural gas	Gain (Loss) on Derivatives		(12)			(4)
Two-way costless collars – oil	Gain (Loss) on Derivatives		(1)			19
Two-way costless collars – propane	Gain (Loss) on Derivatives		—			2
Three-way costless collars – natural gas	Gain (Loss) on Derivatives		—			(51)
Three-way costless collars – oil	Gain (Loss) on Derivatives		(18)			25
Three-way costless collars – propane	Gain (Loss) on Derivatives		(1)			—
Basis swaps – natural gas	Gain (Loss) on Derivatives		3			(1)
Call options – natural gas	Gain (Loss) on Derivatives		3			(5)
Call options – oil	Gain (Loss) on Derivatives		(1)			1
Swaptions – natural gas	Gain (Loss) on Derivatives		1			—
Purchased fixed price swap – natural gas storage	Gain (Loss) on Derivatives		—			(1)
Fixed price swap – natural gas storage	Gain (Loss) on Derivatives		—			(1)
Interest rate swaps	Gain (Loss) on Derivatives		1			(1)
Total gain (loss) on unsettled derivatives			$	(169)		$	246

Settled Gain (Loss) on Derivatives Recognized in Earnings (1)
	Consolidated statement of Operations Classification of Gain (Loss) on Derivatives, Settled	For the three months ended March 31,
Derivative Instrument			2021			2020

			(in millions)
Purchased fixed price swaps – natural gas	Gain (Loss) on Derivatives		$	—		$	(1)


Fixed price swaps – natural gas	Gain (Loss) on Derivatives		5			5
Fixed price swaps – oil	Gain (Loss) on Derivatives		(17)			9
Fixed price swaps – ethane	Gain (Loss) on Derivatives		(4)			6
Fixed price swaps – propane	Gain (Loss) on Derivatives		(30)			10
Fixed price swaps – normal butane	Gain (Loss) on Derivatives		(7)			—
Fixed price swaps – natural gasoline	Gain (Loss) on Derivatives		(9)			—
Two-way costless collars – natural gas	Gain (Loss) on Derivatives		2			6
Two-way costless collars – oil	Gain (Loss) on Derivatives		(1)			3
Two-way costless collars – propane	Gain (Loss) on Derivatives		—			1
Three-way costless collars – natural gas	Gain (Loss) on Derivatives		1			36
Three-way costless collars – oil	Gain (Loss) on Derivatives		(1)			1
Basis swaps – natural gas	Gain (Loss) on Derivatives		41			16


Put options – natural gas	Gain (Loss) on Derivatives		(2)		(2)	—

Fixed price swaps – natural gas storage	Gain (Loss) on Derivatives		—			1

Total gain (loss) on settled derivatives			$	(22)		$	93

Total gain (loss) on derivatives			$	(191)		$	339

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

(2)Includes $2 million amortization of premiums paid related to certain natural gas put options for the three months ended March 31, 2021 which is included in gain (loss) on derivatives on the consolidated statements of operations.