Derivatives

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

DERIVATIVES

Commodity Derivatives

We have entered into various types of derivative transactions covering some of our projected natural gas and oil production during both the predecessor and successor periods. These transactions are intended to reduce our exposure to market price volatility by setting the price(s) we will receive for that production. Our decisions on the price(s), type, and quantity of our production subject to a derivative contract are based, in part, on our view of current and future market conditions. As of September 30, 2020, these hedges made up our derivative transactions:

•Basis/Differential Swaps. We receive or pay the NYMEX settlement value plus or minus a fixed delivery point price for the commodity and pay or receive the published index price at the specified delivery point. We use basis/differential swaps to hedge the price risk between NYMEX and its physical delivery points.

•Swaps. We receive or pay a fixed price for the commodity and pay or receive a floating market price to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the counterparty.

•Collars. A collar contains a fixed floor price (put) and a ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the call and the put strike price, no payments are due from either party.

We have documented policies and procedures to monitor and control the use of derivative transactions. We do not engage in derivative transactions not otherwise tied to our projected production. Any changes in the fair value of our derivative transactions before maturity (i.e., temporary fluctuations in value) are reported in gain (loss) on derivatives in our Unaudited Condensed Consolidated Statements of Operations.

As of September 30, 2020, these derivatives were outstanding:

Term	Commodity	Contracted Volume	Weighted Average  Fixed Price	Contracted Market
Oct'20 - Dec'20	Natural gas - basis swap	30,000 MMBtu/day	$(0.275)	NGPL TEXOK
Oct'20 - Dec'20	Natural gas - basis swap	20,000 MMBtu/day	$(0.455)	PEPL
Jan'21 - Dec'21	Natural gas - basis swap	30,000 MMBtu/day	$(0.215)	NGPL TEXOK
Oct'20 - Dec'20	Natural gas - swap	30,000 MMBtu/day	$2.753	IF - NYMEX (HH)
Jan'21 - Oct'21	Natural gas - swap	50,000 MMBtu/day	$2.818	IF - NYMEX (HH)
Nov'21 - Dec'21	Natural gas - swap	75,000 MMBtu/day	$2.880	IF - NYMEX (HH)
Jan'22 - Dec'22	Natural gas - swap	5,000 MMBtu/day	$2.605	IF - NYMEX (HH)
Jan'23 - Dec'23	Natural gas - swap	22,000 MMBtu/day	$2.456	IF - NYMEX (HH)
Oct'20 - Dec'20	Natural gas - collar	30,000 MMBtu/day	$2.50 - $2.80	IF - NYMEX (HH)
Jan'22 - Dec'22	Natural gas - collar	35,000 MMBtu/day	$2.50 - $2.68	IF - NYMEX (HH)
Oct'20 - Dec'20	Crude oil - swap	4,000 Bbl/day	$43.35	WTI - NYMEX
Jan'21 - Dec'21	Crude oil - swap	3,000 Bbl/day	$44.65	WTI - NYMEX
Jan'22 - Dec'22	Crude oil - swap	2,300 Bbl/day	$42.25	WTI - NYMEX
Jan'23 - Dec'23	Crude oil - swap	1,300 Bbl/day	$43.60	WTI - NYMEX

The following tables present the fair values and locations of the derivative transactions recorded in our Unaudited Condensed Consolidated Balance Sheets:

		Derivative Assets
		Fair Value
		Successor		Predecessor
	Balance Sheet Location	September 30, 2020		December 31, 2019
		(In thousands)
Commodity derivatives:
Current	Current derivative asset	$	2,367	$	633
Long-term	Non-current derivative asset	—		—
Total derivative assets		$	2,367	$	633

		Derivative Liabilities
		Fair Value
		Successor		Predecessor
	Balance Sheet Location	September 30, 2020		December 31, 2019
		(In thousands)
Commodity derivatives:
Current	Current derivative liability	$	1,114	$	—
Long-term	Non-current derivative liability	1,749		27
Total derivative liabilities		$	2,863	$	27

All our counterparties are subject to master netting arrangements. If we have a legal right of set-off, we net the value of the derivative transactions we have with the same counterparty in our Unaudited Condensed Consolidated Balance Sheets.

Following is the effect of derivative instruments on the Unaudited Condensed Consolidated Statements of Operations for the periods indicated:

	Successor		Predecessor
	One Month Ended		Two Months Ended		Three Months Ended
	September 30, 2020		August 31, 2020		September 30, 2019
	(In thousands)
Gain (loss) on derivatives:
Gain (loss) on derivatives, included are amounts settled during the period of ($1,418), ($3,552), and $6,515, respectively	$	3,939	$	(4,250)	$	4,237
	$	3,939	$	(4,250)	$	4,237

	Successor		Predecessor
	One Month Ended		Eight Months Ended		Nine Months Ended
	September 30, 2020		August 31, 2020		September 30, 2019
	(In thousands)
Gain (loss) on derivatives:
Gain (loss) on derivatives, included are amounts settled during the period of ($1,418), ($4,244), and $11,829, respectively	$	3,939	$	(10,704)	$	5,232
	$	3,939	$	(10,704)	$	5,232