Derivative Financial Instruments

6 Months Ended

Jun. 30, 2022

Derivative Instruments Not Designated as Hedging Instruments [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 5 - COMMODITY DERIVATIVE FINANCIAL INSTRUMENTS

Objective and Strategy. 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 such as collars, fixed-price exchanges and basis protection exchanges, to protect against price declines in future periods. We do not enter into derivative contracts for speculative or trading purposes.

We believe our commodity derivative instruments continue to be effective in achieving the risk management objectives for which they were intended. Depending on changes in crude oil and natural gas futures markets and management’s view of underlying supply and demand trends, we may increase or decrease our derivative positions from current levels. As of June 30, 2022, we had derivative instruments in place for a portion of our anticipated production in 2022 through 2025. 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.

Effect of Derivative Instruments on the Condensed Consolidated Statements of Operations. The following table presents the impact of our derivative instruments on our condensed consolidated statements of operations for the periods presented:

	Three Months Ended June 30,				Six Months Ended June 30,
Condensed Consolidated Statement of Operations Line Item	2022		2021		2022		2021
	(in thousands)
Commodity price risk management gain (loss), net
Net settlements	$	(298,661)	$	(55,135)	$	(460,254)	$	(85,786)
Net change in fair value of unsettled derivatives	196,685		(253,118)		(209,777)		(403,723)
Total commodity price risk management gain (loss), net	$	(101,976)	$	(308,253)	$	(670,031)	$	(489,509)

Commodity Derivative Contracts. As of June 30, 2022, we had the following outstanding derivative contracts. When aggregating multiple contracts, the weighted average contract price is presented:

	Collars					Fixed-Price Swaps
Commodity/ Index/ Maturity Period	Quantity (Crude oil - MBbls Natural Gas - BBtu)	Weighted Average Contract Price				Quantity (Crude Oil - MBbls Gas and Basis- BBtu)	Weighted Average Contract Price		Fair Value June 30, 2022 (in thousands)
		Floors		Ceilings
Crude Oil
NYMEX
2022	2,736	$	53.18	$	67.33	6,852	$	58.35	$	(362,341)
2023	5,937	61.27		83.11		9,804	66.42		(258,320)
2024	825	65.91		89.58		6,126	70.59		(46,487)
2025	—	—		—		2,640	75.10		3,851
Total Crude Oil	9,498					25,422			(663,297)
Natural Gas
NYMEX
2022	21,063	3.13		4.65		29,642	2.95		(112,700)
2023	17,227	3.17		4.86		41,825	3.05		(82,080)
2024	—	—		—		26,160	3.54		(20,566)
2025	—	—		—		4,980	4.84		2,420
	38,290					102,607			(212,926)
CIG
2023	—	—		—		8,760	3.39		(9,279)
2025	—	—		—		4,800	3.10		(3,756)
	—					13,560			(13,035)
Total Natural Gas	38,290					116,167			(225,961)
Basis Protection - Natural Gas
CIG
2022						50,430	(0.27)		2,137
2023						57,782	(0.29)		(6,844)
2024						26,160	(0.39)		(2,113)
2025						4,980	(0.37)		(271)
Total Basis Protection - Natural Gas						139,352			(7,091)
Commodity Derivatives Fair Value									$	(896,349)

Effect of Derivative Instruments on the Condensed Consolidated Balance Sheet. The balance sheet line items and fair value amounts of our derivative instruments are disclosed in Note 4 - Fair Value Measurements.

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, 2022:

	Total Gross Amount Presented on the Balance Sheet		Effect of Master Netting Agreements		Total Net Amount
	(in thousands)
Derivative assets:
Derivative instruments, at fair value	$	41,610	$	(41,610)	$	—
Derivative liabilities:
Derivative instruments, at fair value	$	937,959	$	(41,610)	$	896,349

Derivative Counterparties. Our commodity derivative instruments expose us to the risk of non-performance by our counterparties. We use financial institutions who are also lenders under our revolving credit facility as counterparties to our commodity derivative contracts. To date, we have had no derivative counterparty default losses. We have evaluated the credit risk of our derivative assets from our counterparties using relevant credit market default rates, giving consideration to amounts outstanding for each counterparty and the duration of each outstanding derivative position. Based on our evaluation, we have determined that the potential impact of nonperformance of our current counterparties on the fair value of our derivative instruments is not significant at June 30, 2022; however, this determination may change.