Commodity Derivatives

3 Months Ended

Mar. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Derivatives

Note 13 – Commodity Derivatives

We historically use commodity-based derivative contracts to manage exposures to commodity price on a portion of our oil and natural gas production. We do not hold or issue derivative financial instruments for speculative or trading purposes. We also have entered into, on occasion, oil and natural gas physical delivery contracts to effectively provide commodity price hedges. Because these contracts are not expected to be net cash settled, they are considered to be normal sales contracts and not derivatives. These contracts are not recorded at fair value in the unaudited condensed consolidated financial statements.

Pursuant to the terms of our credit facilities with LegacyTexas Bank and Prudential, we have entered into swap and costless collar derivative agreements to hedge a portion of our oil and natural gas production through 2021. As of March 31, 2019, these derivative agreements consisted of the following:

	Natural Gas Swaps				Natural Gas Collars
			Weighted Average				Weighted Average Price
Year	MMBtu		Price (a)		MMBtu		Range (a)
2019		11,762,000,	$	2.82		374,000	$	2.60 – $3.03
2020		12,433,000	$	2.73		1,018,000	$	2.50 – $2.70
2021		6,448,000	$	2.58		-	$	-

	Oil Swaps								Oil Collars
Year	WTI Bbl		Weighted Average  Price (b)		Brent Bbl		Weighted Average Price (c)		WTI Bbl		Weighted  Average Price (b)		Brent Bbl		Weighted  Average Price (c)
2019		180,775	$	53.46		121,079	$	66.93		-		-		29,800	$	47.00 - $75.00
2020		121,147	$	55.37		151,982	$	66.03		18,000	$	47.00 - $60.15		37,400	$	47.00 - $75.00
2021		-	$	-		86,341	$	67.12		30,000	$	47.00 - $60.15		98,000	$	47.00 - $75.00

*	Includes 100% of Carbon California’s outstanding derivative hedges at March 31, 2019, and not our proportionate share.
(a)	NYMEX Henry Hub Natural Gas futures contract for the respective period.
(b)	NYMEX Light Sweet Crude West Texas Intermediate futures contract for the respective period.
(c)	Brent future contracts for the respective period.

For our swap instruments, we receive a fixed price for the hedged commodity and pay a floating 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. Costless collars are designed to establish floor and ceiling prices on anticipated future oil and gas production. The ceiling establishes a maximum price that the Company will receive for the volumes under contract, while the floor establishes a minimum price.

The following table summarizes the fair value of the derivatives recorded in the unaudited consolidated balance sheets.

These derivative instruments are not designated as cash flow hedging instruments for accounting purposes:

(in thousands)	March 31, 2019		December 31, 2018
Commodity derivative contracts:
Commodity derivative asset	$	-	$	3,517
Commodity derivative asset – non-current	$	147	$	3,505
Commodity derivative liability	$	1,657	$	-
Commodity derivative liability – non-current	$	318	$	-

The table below summarizes the commodity settlements and unrealized gains and losses related to the Company’s derivative instruments for the three months ended March 31, 2019 and 2018. These commodity derivative settlements and unrealized gains and losses are recorded and included in commodity derivative income or loss in the accompanying unaudited consolidated statements of operations. 

	Three Months Ended March 31,
(in thousands)	2019			2018
Commodity derivative contracts:
Settlement losses	$	(456	)	$	(377	)
Unrealized losses		(8,850	)		(249	)
Total settlement and unrealized losses, net	$	(9,306	)	$	(626	)

Commodity derivative settlement gains and losses are included in cash flows from operating activities in our unaudited consolidated statements of cash flows.

The counterparty in all of our derivative instruments is BP Energy Company. We have entered into ISDA Master Agreements with BP Energy Company that establishes standard terms for the derivative contracts and inter-creditor agreements with LegacyTexas Bank, Prudential and BP Energy Company whereby any credit exposure related to the derivative contracts entered into by us and BP Energy Company is secured by the collateral and backed by the guarantees supporting the credit facilities.

We net our derivative instrument fair value amounts executed with BP Energy Company pursuant to ISDA master agreements, which provides for the net settlement over the term of the contracts and in the event of default or termination of the contracts. The following table summarizes the location and fair value amounts of all derivative instruments in the unaudited consolidated balance sheet, as well as the gross recognized derivative assets, liabilities and amounts offset in the unaudited consolidated balance sheet as of March 31, 2019.

						Net
	Gross					Recognized
	Recognized		Gross			Fair Value
	Assets/		Amounts			Assets/
Balance Sheet Classification (in thousands)	Liabilities		Offset			Liabilities
Commodity derivative assets:
Commodity derivative asset	$	1,063	$	(1,063	)	$	-
Commodity derivative asset – non-current		2,049		(1,902	)		147
Total derivative assets	$	3,112	$	(2,965	)	$	147
Commodity derivative liabilities:
Commodity derivative liability	$	2,720	$	(1,063	)	$	(1,657	)
Commodity derivative liability – non-current		2,220		(1,902	)		(318	)
Total derivative liabilities	$	4,940	$	(2,965	)	$	(1,975	)

Due to the volatility of oil and natural gas prices, the estimated fair value of our derivatives are subject to fluctuations from period to period.