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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2021
Derivative Instruments Not Designated as Hedging Instruments [Abstract]  
Derivative Financial Instruments
Note 10 - Derivative Financial Instruments
Summary of Oil, Gas, and NGL Derivative Contracts in Place
The Company regularly enters into commodity derivative contracts to mitigate a portion of its exposure to potentially adverse market changes in commodity prices and the associated impact on cash flows. As of September 30, 2021, all derivative counterparties were members of the Company’s Credit Agreement lender group and all contracts were entered into for other-than-trading purposes. The Company’s commodity derivative contracts consist of swap and collar arrangements for oil, natural gas, and NGL production. In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index price and the agreed upon swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference. For collar arrangements, the Company receives the difference between an agreed upon index price and the floor price if the index price is below the floor price. The Company pays the difference between the agreed upon ceiling price and the index price if the index price is above the ceiling price. No amounts are paid or received if the index price is between the floor and ceiling prices.
The Company has entered into fixed price oil and natural gas basis swaps in order to mitigate exposure to adverse pricing differentials between certain industry benchmark prices and the actual physical pricing points where the Company’s production volumes are sold. Currently, the Company has basis swap contracts with fixed price differentials between:
•NYMEX WTI and WTI Midland for a portion of its Midland Basin oil production with sales contracts that settle at WTI Midland prices,
•NYMEX WTI and Intercontinental Exchange Brent Crude (“ICE Brent”) for a portion of its Midland Basin oil production with sales contracts that settle at ICE Brent prices,
•NYMEX WTI and Argus WTI Houston Magellan East Houston Terminal (“MEH”) for a portion of its South Texas oil production with sales contracts that settle at Argus WTI Houston MEH prices, and
•NYMEX Henry Hub (“HH”) and Inside FERC Tennessee Texas, Zone 0 (“IF Tenn TX Z0”) for a portion of its South Texas gas production with sales contracts that settle at IF Tenn TX Z0 prices.
The Company has also entered into crude oil swap contracts to fix the differential in pricing between the NYMEX calendar month average and the physical crude oil delivery month (“Roll Differential”) in which the Company pays the periodic variable Roll Differential and receives a weighted-average fixed price differential. The weighted-average fixed price differential represents the amount of net addition (reduction) to delivery month prices for the notional volumes covered by the swap contracts.
As of September 30, 2021, the Company had commodity derivative contracts outstanding through the fourth quarter of 2023 as summarized in the table below.
Contract Period
Fourth Quarter 202120222023
Oil Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
NYMEX WTI Volumes5,052 7,823 1,190 
Weighted-Average Contract Price$41.70 $44.69 $45.20 
Collars
NYMEX WTI Volumes— 2,342 — 
Weighted-Average Floor Price$— $54.00 $— 
Weighted-Average Ceiling Price$— $61.39 $— 
Basis Swaps
WTI Midland-NYMEX WTI Volumes3,824 9,500 — 
Weighted-Average Contract Price (1)
$0.71 $1.15 $— 
NYMEX WTI-ICE Brent Volumes920 3,650 — 
Weighted-Average Contract Price (2)
$(7.86)$(7.78)$— 
WTI Houston MEH-NYMEX WTI Volumes466 1,329 — 
Weighted-Average Contract Price (3)
$0.60 $1.25 $— 
Roll Differential Swaps
NYMEX WTI Volumes3,831 11,278 1,832 
Weighted-Average Contract Price$(0.16)$0.11 $0.39 
Gas Derivatives (volumes in BBtu and prices in $ per MMBtu):
Swaps (4)
IF HSC Volumes12,412 28,932 — 
Weighted-Average Contract Price$2.41 $2.52 $— 
WAHA Volumes7,627 14,087 — 
Weighted-Average Contract Price$1.82 $2.32 $— 
IF Tenn TX Z0— 513 — 
Weighted-Average Contract Price$— $3.22 $— 
Collars
NYMEX HH Volumes— 2,129 — 
Weighted-Average Floor Price$— $3.40 $— 
Weighted-Average Ceiling Price$— $5.91 $— 
Basis Swaps
IF Tenn TX Z0-NYMEX HH Volumes— 1,254 — 
Weighted-Average Contract Price (5)
$— $0.04 $— 
NGL Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
OPIS Propane Mont Belvieu Non-TET Volumes917 580 — 
Weighted-Average Contract Price$24.58 $29.71 $— 
OPIS Normal Butane Mont Belvieu Non-TET Volumes36 — — 
Weighted-Average Contract Price$30.87 $— $— 
Collars
OPIS Propane Mont Belvieu Non-TET Volumes— 770 — 
Weighted-Average Floor Price$— $25.78 $— 
Weighted-Average Ceiling Price$— $31.60 $— 
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(1)    Represents the price differential between WTI Midland (Midland, Texas) and NYMEX WTI (Cushing, Oklahoma).
(2)    Represents the price differential between NYMEX WTI (Cushing, Oklahoma) and ICE Brent (North Sea).
(3)    Represents the price differential between Argus WTI Houston MEH (Houston, Texas) and NYMEX WTI (Cushing, Oklahoma).
(4)    The Company has natural gas swaps in place that settle against Inside FERC Houston Ship Channel (“IF HSC”), Inside FERC West Texas, and Platt’s Gas Daily West Texas (“IF WAHA” and “GD WAHA”, respectively, and together “WAHA”), and IF Tenn TX Z0. As of September 30, 2021, WAHA volumes were comprised of 81 percent IF WAHA and 19 percent GD WAHA.
(5)    Represents the price differential between IF Tenn TX Z0 (Corpus Christi, Texas) and NYMEX HH (Erath, Louisiana).
Commodity Derivative Contracts Entered Into Subsequent to September 30, 2021
Subsequent to September 30, 2021, the Company entered into the following commodity derivative contracts:
•NYMEX WTI oil collar contracts for the third quarter of 2022 for a total of 0.3 MMBbl of oil production at a floor price of $70.00 per Bbl and a weighted-average ceiling price of $73.52 per Bbl, and for the first quarter of 2023 for a total of 0.3 MMBbl of oil production at a floor price of $60.00 per Bbl and a ceiling price of $75.20 per Bbl; and
•an IF HSC gas collar contract for the first quarter of 2023 for a total of 900 BBtu of gas production at a floor price of $3.38 per MMBtu and a ceiling price of $7.75 per MMBtu.
Derivative Assets and Liabilities Fair Value
The Company’s commodity derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities, with the exception of derivative instruments that meet the “normal purchase normal sale” exclusion. The Company does not designate its commodity derivative contracts as hedging instruments. The fair value of the commodity derivative contracts was a net liability of $612.1 million and $168.2 million as of September 30, 2021, and December 31, 2020, respectively.
The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:
As of September 30, 2021As of December 31, 2020
(in thousands)
Derivative assets:
Current assets$24,514 $31,203 
Noncurrent assets6,096 23,150 
Total derivative assets$30,610 $54,353 
Derivative liabilities:
Current liabilities$552,044 $200,189 
Noncurrent liabilities90,655 22,331 
Total derivative liabilities$642,699 $222,520 
Offsetting of Derivative Assets and Liabilities
As of September 30, 2021, and December 31, 2020, all derivative instruments held by the Company were subject to master netting arrangements with various financial institutions. In general, the terms of the Company’s agreements provide for offsetting of amounts payable or receivable between it and the counterparty, at the election of both parties, for transactions that settle on the same date and in the same currency. The Company’s agreements also provide that in the event of an early termination, the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. The Company’s accounting policy is to not offset these positions in its accompanying balance sheets.
The following table provides a reconciliation between the gross assets and liabilities reflected on the accompanying balance sheets and the potential effects of master netting arrangements on the fair value of the Company’s commodity derivative contracts:
Derivative Assets as ofDerivative Liabilities as of
September 30, 2021December 31, 2020September 30, 2021December 31, 2020
(in thousands)
Gross amounts presented in the accompanying balance sheets$30,610 $54,353 $(642,699)$(222,520)
Amounts not offset in the accompanying balance sheets(30,610)(53,598)30,610 53,598 
Net amounts$— $755 $(612,089)$(168,922)
The following table summarizes the commodity components of the derivative settlement (gain) loss, and the net derivative (gain) loss line items presented within the accompanying unaudited condensed consolidated statements of cash flows (“accompanying statements of cash flows”) and within the accompanying statements of operations, respectively:
For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
2021202020212020
(in thousands)
Derivative settlement (gain) loss:
Oil contracts$154,113 $(68,907)$344,740 $(261,095)
Gas contracts35,757 (896)88,437 (16,575)
NGL contracts23,685 (502)47,085 (8,600)
Total net derivative settlement (gain) loss$213,555 $(70,305)$480,262 $(286,270)
Net derivative (gain) loss:
Oil contracts$68,194 $30,641 $611,224 $(360,649)
Gas contracts109,802 31,548 220,088 46,537 
NGL contracts31,150 1,682 92,871 (157)
Total net derivative (gain) loss$209,146 $63,871 $924,183 $(314,269)
Credit Related Contingent Features
As of September 30, 2021, and through the filing of this report, all of the Company’s derivative counterparties were members of the Company’s Credit Agreement lender group. Under the Credit Agreement, the Company is required to provide mortgage liens on assets having a value equal to at least 85 percent of the total PV-9, as defined in the Credit Agreement, of the Company’s proved oil and gas properties evaluated in the most recent reserve report. Collateral securing indebtedness under the Credit Agreement also secures the Company’s derivative agreement obligations.