Derivative and Hedging Activities

6 Months Ended

Jun. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative and Hedging Activities

11. 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 and options. 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.

As of December 31, 2022, approximately $65 million of derivative liabilities (notional volume of 9.6 Bcf of natural gas and notional volume of 4.8 MMBbls of oil) were classified as liabilities held for sale. These derivative instruments were novated to WildFire Energy I LLC upon completion of the sale of a portion of our Eagle Ford assets on March 20, 2023. See Note 2 for more details.

The estimated fair values of our natural gas and oil derivative instrument assets (liabilities) as of June 30, 2023 and December 31, 2022 are provided below: 

	June 30, 2023			December 31, 2022
	Notional Volume	Fair Value		Notional Volume	Fair Value
Natural gas (Bcf):
Fixed-price swaps	357	$	(20)	382	$	(494)
Collars	637	414		721	49
Three-way collars	2	1		4	(2)
Call options	—	—		18	(22)
Basis protection swaps	536	45		652	(32)
Total natural gas	1,532	440		1,777	(501)
Oil (MMBbls):
Fixed-price swaps	—	—		1	(32)
Collars	—	—		2	7
Basis protection swaps	—	—		6	1
Total oil	—	—		9	(24)
Total estimated fair value		$	440		$	(525)

The following table presents the fair value and location of each classification of derivative instrument included in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022 on a gross basis and after same-counterparty netting:

	Gross Fair Value(a)		Amounts Netted in the Condensed Consolidated Balance Sheets		Net Fair Value Presented in the Condensed Consolidated Balance Sheets
As of June 30, 2023
Commodity Contracts:
Short-term derivative asset	$	487	$	(70)	$	417
Long-term derivative asset	120		(42)		78
Short-term derivative liability	(96)		70		(26)
Long-term derivative liability	(71)		42		(29)
Total derivatives	$	440	$	—	$	440
As of December 31, 2022
Commodity Contracts:
Short-term derivative asset	$	200	$	(166)	$	34
Long-term derivative asset	87		(40)		47
Short-term derivative liability	(598)		166		(432)
Long-term derivative liability	(214)		40		(174)
Total derivatives	$	(525)	$	—	$	(525)

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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 June 30, 2023, our derivative instruments were spread among 13 counterparties.

Hedging Arrangements

Certain of our hedging arrangements are with counterparties that were also lenders (or affiliates of lenders) under our New Credit Facility. The contracts entered into with these counterparties are secured by the same collateral that secures the New 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 June 30, 2023, we did not have any cash or letters of credit posted as collateral for our commodity derivatives.