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Derivative Financial Instruments
 9 Months Ended
Sep. 30, 2023
Derivative Instruments Not Designated as Hedging Instruments [Abstract]  
Derivative Financial Instruments
Note 7 - 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 oil, gas, and NGL price volatility and location differentials, and the associated effect on cash flows. All commodity derivative contracts that the Company enters into are for other-than-trading purposes. The Company’s commodity derivative contracts consist of price swap and collar arrangements for oil and gas production, and price swap arrangements for NGL production. In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap price, the Company receives the difference between the index price and the agreed upon swap price. If the index price is higher than the swap 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 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 is sold. As of September 30, 2023, the Company had basis swap contracts with fixed price differentials between:
•NYMEX WTI and Argus WTI Midland (“WTI Midland”) for a portion of its Midland Basin oil production with sales contracts that settle at WTI Midland prices;
•NYMEX WTI and Argus WTI Houston Magellan East Houston Terminal (“WTI Houston MEH”) for a portion of its South Texas oil production with sales contracts that settle at WTI Houston MEH prices;
•NYMEX Henry Hub (“HH”) and Inside FERC Houston Ship Channel (“IF HSC”) for a portion of its South Texas gas production with sales contracts that settle at IF HSC prices; and
•NYMEX HH and Inside FERC West Texas (“IF Waha”) for a portion of its Midland Basin gas production with sales contracts that settle at IF Waha prices.
The Company has also entered into 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, 2023, the Company had commodity derivative contracts outstanding through the fourth quarter of 2025 as summarized in the table below:
Contract Period
Fourth Quarter 202320242025
Oil Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
NYMEX WTI Volumes837 — — 
Weighted-Average Contract Price$65.91 $— $— 
ICE Brent Volumes
920 910 — 
Weighted-Average Contract Price$86.50 $85.50 $— 
Collars
NYMEX WTI Volumes— 3,993 — 
Weighted-Average Floor Price$— $70.01 $— 
Weighted-Average Ceiling Price$— $84.69 $— 
Basis Swaps
WTI Midland-NYMEX WTI Volumes
1,294 4,857 — 
Weighted-Average Contract Price$0.88 $1.21 $— 
WTI Houston MEH-NYMEX WTI Volumes
296 1,190 — 
Weighted-Average Contract Price$1.53 $1.82 $— 
Roll Differential Swaps
NYMEX WTI Volumes1,446 7,048 — 
Weighted-Average Contract Price$0.62 $0.57 $— 
Gas Derivatives (volumes in BBtu and prices in $ per MMBtu):
Swaps
NYMEX HH Volumes
— 4,185 5,891 
Weighted-Average Contract Price$— $3.20 $4.20 
Collars
NYMEX HH Volumes
8,362 22,342 11,723 
Weighted-Average Floor Price$3.90 $3.61 $3.50 
Weighted-Average Ceiling Price$5.70 $5.76 $5.04 
IF HSC Volumes
1,451 — — 
Weighted-Average Floor Price$4.25 $— $— 
Weighted-Average Ceiling Price$5.55 $— $— 
Basis Swaps
IF Waha-NYMEX HH Volumes
2,337 20,958 20,501 
Weighted-Average Contract Price$(1.01)$(0.86)$(0.66)
IF HSC-NYMEX HH Volumes
2,008 15,898 — 
Weighted-Average Contract Price$(0.25)$(0.27)$— 
NGL Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
OPIS Propane Mont Belvieu Non-TET Volumes187 — — 
Weighted-Average Contract Price$36.66 $— $— 
Commodity Derivative Contracts Entered Into Subsequent to September 30, 2023
Subsequent to September 30, 2023, the Company entered into a NYMEX WTI Roll Differential swap contract for the fourth quarter of 2023 for a total of 0.6 MMBbl of oil production at a contract price of $1.59 per Bbl.
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 commodity derivative contracts was a net liability of $16.9 million as of September 30, 2023, and a net asset of $15.8 million as of December 31, 2022.
The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:
As of September 30, 2023As of December 31, 2022
(in thousands)
Derivative assets:
Current assets$25,524 $48,677 
Noncurrent assets5,294 24,465 
Total derivative assets$30,818 $73,142 
Derivative liabilities:
Current liabilities$43,152 $56,181 
Noncurrent liabilities4,595 1,142 
Total derivative liabilities$47,747 $57,323 
Offsetting of Derivative Assets and Liabilities
As of September 30, 2023, and December 31, 2022, 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,
2023		December 31, 2022September 30,
2023		December 31, 2022
(in thousands)
Gross amounts presented in the accompanying balance sheets$30,818 $73,142 $(47,747)$(57,323)
Amounts not offset in the accompanying balance sheets(26,940)(26,136)26,940 26,136 
Net amounts$3,878 $47,006 $(20,807)$(31,187)
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 the accompanying statements of operations, respectively:
For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
2023202220232022
(in thousands)
Derivative settlement (gain) loss:
Oil contracts$13,446 $120,430 $20,144 $428,811 
Gas contracts(11,643)61,981 (37,495)142,369 
NGL contracts(1,489)3,888 (3,047)23,900 
Total derivative settlement (gain) loss$314 $186,299 $(20,398)$595,080 
Net derivative (gain) loss:
Oil contracts$77,857 $(180,300)$31,172 $235,023 
Gas contracts(4,437)47,973 (14,655)142,695 
NGL contracts1,935 (5,250)(4,165)7,462 
Total net derivative (gain) loss$75,355 $(137,577)$12,352 $385,180 
Credit Related Contingent Features
As of September 30, 2023, all of the Company’s derivative counterparties were members of the Credit Agreement lender group. The Company does not enter into derivative contracts with counterparties that are not part of the 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.