Derivative and Hedging Activities

9 Months Ended

Sep. 30, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative and Hedging Activities

13. Derivative and Hedging Activities

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. These commodity derivative financial instruments include financial price swaps, basis protection swaps, collars, three-way collars, options and swaptions. All of our natural gas and oil 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. We do not intend to hold or issue derivative financial instruments for speculative trading purposes and have elected not to designate any of our derivative instruments for hedge accounting treatment.

The estimated fair values of our natural gas and oil derivative instrument assets (liabilities) as of September 30, 2022 and December 31, 2021 are provided below: 

	Successor
	September 30, 2022			December 31, 2021
	Notional Volume	Fair Value		Notional Volume	Fair Value
Natural gas (Bcf):
Fixed-price swaps	449	$	(1,413)	637	$	(675)
Collars	547	(664)		205	(82)
Three-way collars	10	(29)		—	—
Call options	18	(63)		18	(17)
Swaptions	7	(19)		—	—
Basis protection swaps	398	16		252	(11)
Total natural gas	1,429	(2,172)		1,112	(785)
Oil (MMBbls):
Fixed-price swaps	4	(136)		13	(356)
Collars	6	23		—	—
Basis protection swaps	10	(5)		9	(2)
Total oil	20	(118)		22	(358)
Total estimated fair value		$	(2,290)		$	(1,143)

Effect of Derivative Instruments – Condensed Consolidated Balance Sheets

The following table presents the fair value and location of each classification of derivative instrument included in the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 on a gross basis and after same-counterparty netting:

	Gross Fair Value(a)		Amounts Netted in the Consolidated Balance Sheets		Net Fair Value Presented in the Consolidated Balance Sheets
Successor
As of September 30, 2022
Commodity Contracts:
Short-term derivative asset	$	118	$	(114)	$	4
Long-term derivative asset	28		(28)		—
Short-term derivative liability	(1,989)		114		(1,875)
Long-term derivative liability	(447)		28		(419)
Total derivatives	$	(2,290)	$	—	$	(2,290)
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)

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(a)These financial assets (liabilities) are measured at fair value on a recurring basis utilizing significant other observable inputs; see further discussion on fair value measurements below.

Fair Value

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 natural gas, oil and NGL forward curves and discount rates, or can be corroborated from active markets or broker quotes, and, as such, are classified as Level 2. These values are compared to the values given by our counterparties for reasonableness. 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.

Credit Risk Considerations

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 September 30, 2022, our natural gas and oil derivative instruments were spread among 13 counterparties.

Hedging Arrangements

Certain of our hedging arrangements are with counterparties that are also lenders (or affiliates of lenders) under our Exit Credit Facility. The contracts entered into with these counterparties are secured by the same collateral that secures the Exit 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 September 30, 2022, we did not have any cash or letters of credit posted as collateral for our commodity derivatives.

Effect of Derivative Instruments – Accumulated Other Comprehensive Income

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

	Predecessor
	Period from January 1, 2021 through February 9, 2021
	Before Tax		After Tax
Balance, beginning of period	$	(12)	$	45
Losses reclassified to income(a)	3		3
Fresh start adjustments	9		9
Elimination of tax effects	—		(57)
Balance, end of period	$	—	$	—

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(a)These losses were included as a component of total natural gas and oil derivatives.

Our accumulated other comprehensive loss balance represented the net deferred loss associated with commodity derivative contracts that were previously designated as cash flow hedges for which the original contract months were 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. We did not have any changes or items impacting other comprehensive income for the 2022 Successor Quarter, the 2022 Successor Period, the 2021 Successor Quarter or the 2021 Successor Period.