Derivative Financial Instruments

6 Months Ended

Jun. 30, 2020

Derivative Instruments Not Designated as Hedging Instruments [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS

Our results of operations and operating cash flows are affected by changes in market prices for crude oil, natural gas and NGLs. To manage a portion of our exposure to price volatility from producing crude oil and natural gas we enter into commodity derivative contracts to protect against price declines in future periods. While we structure these commodity derivatives to reduce our exposure to decreases in commodity prices, they also limit the benefit we might otherwise receive from price increases.

We believe our commodity derivative instruments continue to be effective in achieving the risk management objectives for which they were intended. As of June 30, 2020, we had derivative instruments, which were comprised of collars, fixed-price swaps and basis protection swaps, in place for a portion of our anticipated 2020, 2021 and 2022 production. Our commodity derivative contracts have been entered into at no upfront cost to us as we hedge our anticipated production at the then-prevailing commodity market prices, without adjustment for premium or discount.

As of June 30, 2020, we had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted-average contract price is shown.

	Collars					Fixed-Price Swaps
Commodity/ Index/ Maturity Period	Quantity (Crude oil - MBls Natural Gas - BBtu)	Weighted-Average Contract Price				Quantity (Crude Oil - MBbls Gas and Basis- BBtu )	Weighted- Average Contract Price			Fair Value June 30, 2020 (1) (in thousands)
		Floors		Ceilings
Crude Oil
NYMEX
2020	1,800	$	55.00	$	71.68	6,349	$	58.90		$	150,963
2021	—	—		—		9,180	46.90			60,169
2022	—	—		—		1,980	34.88			(11,705		)
Total Crude Oil	1,800					17,509				$	199,427
Natural Gas
NYMEX
2020	32,442	$	2.02	$	2.31	2,000	$	2.30		$	4,045
2021	30,000	2.28		2.61		31,800	2.40			(11,248		)
Total Natural Gas	62,442					33,800				$	(7,203	)
Basis Protection - Natural Gas
CIG
2020	—	$	—	$	—	32,525	$	(0.49	)	$	(8,341	)
2021	—	—		—		65,700	(0.49		)	(5,727		)
Waha
2020	—	—		—		2,000	(1.40		)	(1,938		)
Total Basis Protection - Natural Gas	—					100,225				$	(16,006	)
Commodity Derivatives Fair Value										$	176,218

_____________

(1) Approximately 14.7 percent of the fair value of our commodity derivative assets and 13.0 percent of the fair value of our commodity derivative liabilities were measured using significant unobservable inputs (Level 3).

Subsequent to June 30, 2020, we entered into commodity derivative positions covering approximately 996 MBls of crude oil production at an average New York Mercantile Exchange ("NYMEX") contract price of $40.61 for 2021 and 8,700

BBtu of NYMEX natural gas production, at an average contract price of $2.73 for 2021.

We have not elected to designate any of our derivative instruments as cash flow hedges; therefore, these instruments do not qualify for hedge accounting. Accordingly, changes in the fair value of our derivative instruments are recorded in the condensed consolidated statements of operations.

The following table presents the condensed consolidated balance sheet line item and fair value amounts of our derivative instruments as of June 30, 2020 and December 31, 2019:

			Fair Value
Derivative Instruments:		Condensed Consolidated Balance Sheet Line Item	June 30, 2020		December 31, 2019
			(in thousands)
Derivative assets:	Current
	Commodity derivative contracts	Fair value of derivatives	$	222,289	$	27,766
	Basis protection derivative contracts	Fair value of derivatives	30		312
			222,319		28,078
	Non-current
	Commodity derivative contracts	Fair value of derivatives	14,719		3,746
Total derivative assets			$	237,038	$	31,824
Derivative liabilities:	Current
	Commodity derivative contracts	Fair value of derivatives	$	13,092	$	529
	Basis protection derivative contracts	Fair value of derivatives	12,901		2,392
			25,993		2,921
	Non-current
	Commodity derivative contracts	Fair value of derivatives	31,692		692
	Basis protection derivative contracts	Fair value of derivatives	3,135		—
			34,827		692
Total derivative liabilities			$	60,820	$	3,613

The following table presents the impact of our derivative instruments on our condensed consolidated statements of operations:

	Three Months Ended June 30,						Six Months Ended June 30,
Condensed Consolidated Statement of Operations Line Item	2020			2019			2020		2019
	(in thousands)
Commodity price risk management gain (loss), net
Net settlements	$	114,795		$	(13,193	)	$	160,618	$	(21,645	)
Net change in fair value of unsettled derivatives	(235,581		)	60,542			153,294		(121,080		)
Total commodity price risk management gain (loss), net	$	(120,786	)	$	47,349		$	313,912	$	(142,725	)

Our financial derivative agreements contain master netting provisions that provide for the net settlement of contracts through a single payment in the event of early termination. We have elected not to offset the fair value positions recorded on our condensed consolidated balance sheets.

The following table reflects the impact of netting agreements on gross derivative assets and liabilities:

As of June 30, 2020	Derivative Instruments, Gross		Effect of Master Netting Agreements			Derivative Instruments, Net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	237,038	$	(46,969	)	$	190,069
Liability derivatives:
Derivative instruments, at fair value	$	60,820	$	(46,969	)	$	13,851

As of December 31, 2019	Derivative Instruments, Gross		Effect of Master Netting Agreements			Derivative Instruments, Net
	(in thousands)
Asset derivatives:
Derivative instruments, at fair value	$	31,824	$	(2,619	)	$	29,205
Liability derivatives:
Derivative instruments, at fair value	$	3,613	$	(2,619	)	$	994