We use derivative instruments to reduce our exposure to fluctuations in future commodity prices and to protect our expected operating cash flow against significant market movements or volatility. All of our oil and natural gas derivative instruments are net settled based on the difference between the fixed-price payment and the floating-price payment, resulting in a net amount due to or from the counterparty. None of our open oil and natural gas derivative instruments were designated for hedge accounting as of December 31, 2021 and 2020.

•Swaps: We receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. In exchange for higher fixed prices on certain of our swap trades, we may sell call options and swap options.

•Options: We sell, and occasionally buy, call options in exchange for a premium. At the time of settlement, if the market price exceeds the fixed price of the call option, we pay the counterparty the excess on sold call options and we receive the excess on bought call options. If the market price settles below the fixed price of the call option, no payment is due from either party.

•Collars: These instruments contain a fixed floor price (put) and 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 put and the call strike prices, no payments are due from either party. Three-way collars include the sale by us of an additional put option in exchange for a more favorable strike price on the call option. This eliminates the counterparty’s downside exposure below the second put option strike price.

•Basis Protection Swaps: These instruments are arrangements that guarantee a fixed price differential to NYMEX from a specified delivery point. We receive the fixed price differential and pay the floating market price differential to the counterparty for the hedged commodity.


	Successor			Predecessor
	December 31, 2021			December 31, 2020
	Notional Volume	Fair Value		Notional Volume	Fair Value
Oil (mmbbl):
Fixed-price swaps	13	$	(356)	27	$	(136)

Basis protection swaps	9	(2)		7	(1)
Total oil	22	(358)		34	(137)
Natural gas (bcf):
Fixed-price swaps	637	(675)		728	10
Collars	205	(82)		53	8
Call options	18	(17)		—	—
Basis protection swaps	252	(11)		66	1
Total natural gas	1,112	(785)		847	19
Total estimated fair value		$	(1,143)		$	(118)

We have terminated certain commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months are yet to occur. See further discussion below under Effect of Derivative Instruments – Accumulated Other Comprehensive Income (Loss).

The following table presents the fair value and location of each classification of derivative instrument included in the consolidated balance sheets as of December 31, 2021 and 2020 on a gross basis and after same-counterparty netting:


	Gross Fair Value		Amounts Netted in the Consolidated Balance Sheets		Net Fair Value Presented in the Consolidated Balance Sheets
Successor
As of December 31, 2021
Commodity Contracts:
Short-term derivative asset	$	56	$	(51)	$	5

Short-term derivative liability	(950)		51		(899)
Long-term derivative liability	(249)		—		(249)
Total derivatives	$	(1,143)	$	—	$	(1,143)

Predecessor
As of December 31, 2020
Commodity Contracts:
Short-term derivative asset	$	84	$	(65)	$	19
Long-term derivative asset	5		(5)		—
Short-term derivative liability	(158)		65		(93)
Long-term derivative liability	(49)		5		(44)
Total derivatives	$	(118)	$	—	$	(118)


	Successor		Predecessor
	Period from February 10, 2021 through December 31, 2021		Period from January 1, 2021 through February 9, 2021		Year Ended December 31, 2020		Year Ended December 31, 2019
Gains (losses) on undesignated oil and natural gas derivatives	$	(1,127)	$	(379)	$	629	$	40
Losses on terminated cash flow hedges	—		(3)		(33)		(35)
Total oil and natural gas derivatives	$	(1,127)	$	(382)	$	596	$	5

A reconciliation of the changes in accumulated other comprehensive income (loss) in our consolidated statements of stockholders’ equity related to our cash flow hedges is presented below:


	Successor				Predecessor
	Period from February 10, 2021 through December 31, 2021				Period from January 1, 2021 through February 9, 2021				Year Ended December 31, 2020				Year Ended December 31, 2019
	Before Tax		After Tax		Before Tax		After Tax		Before Tax		After Tax		Before Tax		After Tax
Balance, beginning of period	$	—	$	—	$	(12)	$	45	$	(45)	$	12	$	(80)	$	(23)
Losses reclassified to income	—		—		3		3		33		33		35		35
Fresh start adjustments	—		—		9		9		—		—		—		—
Elimination of tax effects	—		—		—		(57)		—		—		—		—
Balance, end of period	$	—	$	—	$	—	$	—	$	(12)	$	45	$	(45)	$	12

Our accumulated other comprehensive loss represented the net deferred loss associated with commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months are yet to occur. The remaining deferred gain or loss amounts were to be recognized in earnings in the month for which the original contract months were to occur. In connection with our adoption of fresh start accounting, we recorded a fair value adjustment to eliminate the accumulated other comprehensive income related to hedging settlements including the elimination of tax effects. See Note 3 for a discussion of fresh start accounting adjustments.

Our derivative instruments expose us to our counterparties’ credit risk. To mitigate this risk, we enter into derivative contracts only with counterparties that are highly rated or deemed by us to have acceptable credit strength and deemed by management to be competent and competitive market-makers, and we attempt to limit our exposure to non-performance by any single counterparty. As of December 31, 2021, our oil and natural gas derivative instruments were spread among ten counterparties.

Certain of our hedging arrangements are with counterparties that were also lenders (or affiliates of lenders) under our DIP Credit Facility. The contracts entered into with these counterparties are secured by the same collateral that secures the pre-petition revolving credit facility. The counterparties’ obligations must be secured by

cash or letters of credit to the extent that any mark-to-market amounts owed to us exceed defined thresholds. As of December 31, 2021, we did not have any cash or letters of credit posted as collateral for our commodity derivatives.

The fair value of our derivatives is based on third-party pricing models which utilize inputs that are either readily available in the public market, such as oil, natural gas and NGL forward curves and discount rates, or can be corroborated from active markets or broker quotes. These values are compared to the values given by our counterparties for reasonableness. As our oil, natural gas and NGL derivatives do not include optionality and therefore generally have no unobservable inputs, they are classified as Level 2. Derivatives are also subject to the risk that either party to a contract will be unable to meet its obligations. We factor non-performance risk into the valuation of our derivatives using current published credit default swap rates. To date, this has not had a material impact on the values of our derivatives.


	Successor		Predecessor
Significant Other Observable Inputs (Level 2)	December 31, 2021		December 31, 2020
Derivative Assets (Liabilities):
Commodity assets	$	56	$	88
Commodity liabilities	(1,199)		(206)
Total derivatives	$	(1,143)	$	(118)