Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments

v3.21.2
Derivative Instruments
9 Months Ended
Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments and Hedging Activities Disclosure Derivative Instruments
We utilize derivative instruments, typically swaps, put options and call options which are placed with financial institutions that we believe are acceptable credit risks, to mitigate our financial exposure to commodity price volatility associated with anticipated sales of our future production and volatility in interest rates attributable to our variable rate debt instruments. For our commodity derivatives, we typically combine swaps, purchased put options, purchased call options, sold put options and sold call options in order to achieve various hedging objectives. Certain of these objectives result in combinations that operate as collars which include purchased put options and sold call options, three-way collars, which include purchased put options, sold put options and sold call options, and enhanced swaps, which include either sold put options or sold call options with the associated premiums rolled into an enhanced fixed price swap, among others.
Our derivative instruments are not formally designated as hedges for accounting purposes. While the use of derivative instruments limits the risk of adverse commodity price and interest rate movements, such use may also limit the beneficial impact of future product revenues and interest expense from favorable commodity price and interest rate movements. From time to time, we may enter into incremental derivative contracts in order to increase the notional volume of production we are hedging, restructure existing derivative contracts or enter into other derivative contracts resulting in modification to the terms of existing contracts. In accordance with our internal policies, we do not utilize derivative instruments for speculative purposes.
Commodity Derivatives 1
The following table sets forth our commodity derivative positions, presented on a net basis by period of maturity, as of September 30, 2021:
4Q2021 1Q2022 2Q2022 3Q2022 4Q2022 1Q2023 2Q2023 3Q2023 4Q2023 1Q2024 2Q2024
NYMEX WTI Crude Swaps
Average Volume Per Day (bbl) 815  457  457 462 308
Weighted Average Swap Price ($/bbl) $ 45.54  $ 58.75  $58.75 $58.75 $58.75
NYMEX WTI Crude Collars
Average Volume Per Day (bbl) 16,304  13,750  7,830  6,114  4,484  2,917  2,885 
Weighted Average Purchased Put Price ($/bbl) $ 51.40  $ 53.94  $ 47.37  $ 44.00  $ 40.00  $ 40.00  $ 40.00 
Weighted Average Sold Call Price ($/bbl) $ 62.23  $ 66.25  $ 60.87  $ 58.36  $ 52.47  $ 50.00  $ 50.00 
NYMEX WTI Purchased Puts
Average Volume Per Day (bbl) 3,261 
Weighted Average Purchased Put Price ($/bbl) $ 55.00 
NYMEX WTI Crude CMA Roll Basis Swaps
Average Volume Per Day (bbl) 17,935  6,667  6,593 
Weighted Average Swap Price ($/bbl) $ 0.168  $ 0.625  $ 0.625 
NYMEX HH Swaps
Average Volume Per Day (MMBtu) 6,739 
Weighted Average Swap Price ($/MMbtu) $ 3.540 
NYMEX HH Collars
Average Volume Per Day (MMBtu) 9,783  3,333  13,187  13,043  13,043  11,538  11,413  11,413  11,538  11,538 
Weighted Average Purchased Put Price ($/MMBtu) $ 2.607  $ 4.150  $ 2.500  $ 2.500  $ 2.500  $ 2.500  $ 2.500  $ 2.500  $ 2.500  $ 2.328 
Weighted Average Sold Call Price($/MMBtu) $ 3.117  $ 5.750  $ 3.220  $ 3.220  $ 3.220  $ 2.682  $ 2.682  $ 2.682  $ 3.650  $ 3.000 
NYMEX HH Sold Puts
Average Volume Per Day (MMBtu) 6,522 
Weighted Average Sold Put Price ($/MMBtu) $ 2.000 
OPIS Mt Belv Ethane Swaps
Average Volume per Day (gal) 28,022  27,717  27,717  98,901  34,239  34,239  34,615 
Weighted Average Fixed Price ($/gal) $ 0.2500  $ 0.2500  $ 0.2500  $ 0.2288  $ 0.2275  $ 0.2275  $ 0.2275 
__________________________________________________________________________________
1    NYMEX WTI refers to New York Mercantile Exchange West Texas Intermediate that serves as the benchmark for crude oil. NYMEX HH refers to NYMEX Henry Hub that serves as the benchmark for natural gas. OPIS Mt Belv refers to Oil Price Information Service Mt. Belvieu that serves as the benchmark for ethane which represents a commodity proxy for NGLs.
Interest Rate Derivatives
As of September 30, 2021, we had a series of interest rate swap contracts (the “Interest Rate Swaps”) establishing fixed interest rates on a portion of our variable interest rate indebtedness. The notional amount of the Interest Rate Swaps totals $300 million, with us paying a weighted average fixed rate of 1.36% on the notional amount, and the counterparties paying a variable rate equal to LIBOR through May 2022.
Financial Statement Impact of Derivatives
The impact of our derivative activities on income is included within Derivatives on our condensed consolidated statements of operations. Derivative contracts that have expired at the end of a period, but for which cash had not been received or paid as of the balance sheet date, have been recognized as components of Accounts receivable (see Note 4) and Accounts payable and accrued liabilities (see Note 9) on the condensed consolidated balance sheets. The effects of derivative gains and (losses) and cash settlements are reported as adjustments to reconcile net income (loss) to net cash provided by operating activities. These items are recorded within the Derivative contracts section of our condensed consolidated statements of cash flows under Net (gains) losses and Cash settlements and premiums received (paid), net.
The following table summarizes the effects of our derivative activities for the periods presented:
Three Months Ended September 30, Nine Months Ended September 30,
  2021 2020 2021 2020
Interest Rate Swap gains (losses) recognized in the condensed consolidated statements of operations $ (84) $ 32  $ (48) $ (7,527)
Commodity gains (losses) recognized in the condensed consolidated statements of operations (21,000) (6,923) (119,631) 117,406 
$ (21,084) $ (6,891) $ (119,679) $ 109,879 
Interest rate cash settlements recognized in the condensed consolidated statements of cash flows $ (973) $ (919) $ (2,851) $ (1,287)
Commodity cash settlements and premiums received (paid) recognized in the condensed consolidated statements of cash flows (21,265) 7,337  (43,190) 66,582 
$ (22,238) $ 6,418  $ (46,041) $ 65,295 
The following table summarizes the fair values of our derivative instruments, which we elect to present on a gross basis, as well as the locations of these instruments on our condensed consolidated balance sheets as of the dates presented:
    September 30, 2021 December 31, 2020
    Derivative Derivative Derivative Derivative
Type Balance Sheet Location Assets Liabilities Assets Liabilities
Interest rate contracts Derivative assets/liabilities – current $ —  $ 2,496  $ —  $ 3,655 
Commodity contracts Derivative assets/liabilities – current 4,909  60,593  75,506  81,451 
Interest rate contracts Derivative assets/liabilities – non-current —  —  —  1,645 
Commodity contracts Derivative assets/liabilities – non-current 2,152  21,416  25,449  26,789 
    $ 7,061  $ 84,505  $ 100,955  $ 113,540 
As of September 30, 2021, we reported net commodity derivative liabilities of $74.9 million and net Interest Rate Swap liabilities of $2.5 million. The contracts associated with these positions are with nine counterparties for commodity derivatives and four counterparties for Interest Rate Swaps, all of which are investment grade financial institutions and are participants in our revolving credit facility (the “Credit Facility”). This concentration may impact our overall credit risk in that these counterparties may be similarly affected by changes in economic or other conditions. Non-performance risk is incorporated by utilizing discount rates adjusted for the credit risk of our counterparties if the derivative is in an asset position, and our own credit risk if the derivative is in a liability position.
The agreements underlying our derivative instruments include provisions for the netting of settlements with the counterparties for contracts of similar type. We have neither paid to, nor received from, our counterparties any cash collateral in connection with our derivative positions. Furthermore, our derivative contracts are not subject to margin calls or similar accelerations. No significant uncertainties exist related to the collectability of amounts that may be owed to us by these counterparties.
See Note 10 for information regarding the fair value of our derivative instruments.