Derivative and Hedging Activities

12 Months Ended

Dec. 31, 2024

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. All of our natural gas, oil and NGL 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 natural gas, oil and NGL derivative instruments were designated for hedge accounting as of December 31, 2024 and 2023.

Natural Gas, Oil and NGL Derivatives

As of December 31, 2024 and 2023, our natural gas, oil and NGL derivative instruments consisted of the following types of instruments:

•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 have bought and sold call options in exchange for a premium. At the time of settlement, if the market price exceeded the fixed price of the call option, we paid the counterparty the excess on sold call options and received the excess on bought call options. If the market price settled below the fixed price of the call option, no payment was 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 included the sale by us of an additional put option in exchange for a more favorable strike price on the call option. This eliminated 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.

Contingent Consideration Arrangement

In November 2023, we sold the final portion of our Eagle Ford assets to SilverBow. As part of the divestiture agreement, SilverBow agreed to pay the Company an additional contingent payment of $25 million should WTI NYMEX prices average between $75 and $80 per barrel or $50 million should WTI NYMEX prices average above $80 per barrel during the year following the close of the transaction. On July 30, 2024, Crescent acquired SilverBow. The changes in fair value, and the realized gains were recognized as a gain or loss in earnings in the period they occurred within natural gas, oil and NGL derivatives in our consolidated statements of operations. During 2024, we received the contingent payment of $25 million from Crescent based upon the average NYMEX prices during the year following the close of the transaction.

The estimated fair values of our natural gas, oil and NGL derivative instrument assets (liabilities) as of December 31, 2024 and 2023 are provided below: 

	December 31, 2024			December 31, 2023
	Notional Volume	Fair Value		Notional Volume	Fair Value
Natural gas (Bcf):
Fixed-price swaps	369	$	(28)	343	$	188
Collars	1,098	(27)		558	497
Three-way collars	161	60		—	—
Call options (purchased)	73	1		—	—
Call options (sold)	219	(16)		—	—
Basis protection swaps	279	(39)		578	2
Total natural gas	2,199	(49)		1,479	687
Oil (MMBbls):
Three-way collars	2	$	4	—	$	—
Total oil	2	4		—	—
NGLs (MMBbls):
Fixed-price swaps	7	$	(9)	—	$	—
Total NGL	7	(9)		—	—
Contingent Consideration:
Eagle Ford divestiture		—			12
Total estimated fair value		$	(54)		$	699

Effect of Derivative Instruments – Consolidated Balance Sheets

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, 2024 and 2023 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
As of December 31, 2024
Commodity Contracts:
Short-term derivative asset	$	191	$	(107)	$	84
Long-term derivative asset	6		(5)		1
Short-term derivative liability	(178)		107		(71)
Long-term derivative liability	(73)		5		(68)
Contingent Consideration:
Short-term derivative asset	—		—		—
Total derivatives	$	(54)	$	—	$	(54)
As of December 31, 2023
Commodity Contracts:
Short-term derivative asset	$	661	$	(36)	$	625
Long-term derivative asset	101		(27)		74
Short-term derivative liability	(39)		36		(3)
Long-term derivative liability	(36)		27		(9)
Contingent Consideration:
Short-term derivative asset	12		—		12
Total derivatives	$	699	$	—	$	699

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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 commodity 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. The valuation of the contingent consideration is based on an option pricing model using significant Level 2 inputs that include quoted future commodity prices based on active markets.

Credit Risk Considerations

Our derivative instruments expose us to our counterparties’ credit risk. To mitigate this risk, we only enter into commodity contracts derivatives 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, 2024, our commodity contracts derivative instruments were spread among 20 counterparties.

Hedging Arrangements

Certain of our hedging arrangements are with counterparties that are also Lenders (or affiliates of Lenders) under our Credit Facility. The contracts entered into with these counterparties were previously secured by the same collateral that secured the Pre-IG Credit Facility, but such collateral was released on October 28, 2024 in connection with the Investment Grade Credit Agreement Amendment. We do not expect to post cash or letters of credit to secure our obligations under such contracts while we have the investment grade ratings described in Note 4. The obligations under these contracts must be secured by cash or letters of credit to the extent that any mark-to-market amounts exceed defined thresholds. As of December 31, 2024, we did not have any cash or letters of credit posted as collateral for our commodity derivatives.