Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments

v3.7.0.1
Derivative Instruments
 3 Months Ended
Mar. 31, 2017
Derivative Instruments.  
Derivative Instruments

(9)Derivative Instruments

 

(a)Commodity Derivatives

 

The Company periodically enters into natural gas, NGLs, and oil derivative contracts with counterparties to hedge the price risk associated with its production.  These derivatives are not held for trading purposes.  To the extent that changes occur in the market prices of natural gas, NGLs, and oil, the Company is exposed to market risk on these open contracts.  This market risk exposure is generally offset by the change in market prices of natural gas, NGLs, and oil recognized upon the ultimate sale of the Company’s production.

 

The Company was party to various fixed price commodity swap contracts that settled during the three months ended March 31, 2016 and 2017.  The Company enters into these swap contracts when management believes that favorable future sales prices for the Company’s production can be secured.  Under these swap agreements, when actual commodity prices upon settlement exceed the fixed price provided by the swap contracts, the Company pays the difference to the counterparty.  When actual commodity prices upon settlement are below the contractually provided fixed price, the Company receives the difference from the counterparty.  In addition to fixed price swap contracts, the Company has entered into basis swap contracts in order to hedge the difference between the New York Mercantile Exchange (“NYMEX”) index price and a local index price at which the Company sells a portion of its natural gas production.

 

The Company’s derivative swap contracts have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in the Company’s statements of operations.

 

As of March 31, 2017, the Company’s fixed price natural gas and NGLs swap positions from April 1, 2017 through December 31, 2023 were as follows (abbreviations in the table refer to the index to which the swap position is tied, as follows: NYMEX=Henry Hub; CGTLA=Columbia Gas Louisiana Onshore; CCG=Chicago City Gate; Mont Belvieu-Ethane=Mont Belvieu Purity Ethane; Mont Belvieu-Propane=Mont Belvieu Propane; NYMEX-WTI=West Texas Intermediate):

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural gas
MMbtu/day

 

Oil
Bbls/day

 

Natural Gas
Liquids
Bbls/day

 

Weighted
average index
price

 

Three months ending June 30, 2017:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

1,370,000

 

 —

 

 —

 

$

3.26

 

CGTLA ($/MMBtu)

 

420,000

 

 —

 

 —

 

$

4.13

 

CCG ($/MMBtu)

 

70,000

 

 —

 

 —

 

$

4.38

 

NYMEX-WTI ($/Bbl)

 

 —

 

3,000

 

 —

 

$

54.75

 

Mont Belvieu-Ethane ($/Gallon)

 

 —

 

 —

 

20,000

 

$

0.25

 

Mont Belvieu-Propane ($/Gallon)

 

 —

 

 —

 

27,500

 

$

0.38

 

Total

 

1,860,000

 

3,000

 

47,500

 

 

 

 

Three months ending September 30, 2017:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

1,370,000

 

 —

 

 —

 

$

3.33

 

CGTLA ($/MMBtu)

 

420,000

 

 —

 

 —

 

$

4.20

 

CCG ($/MMBtu)

 

70,000

 

 —

 

 —

 

$

4.45

 

NYMEX-WTI ($/Bbl)

 

 —

 

3,000

 

 —

 

$

54.75

 

Mont Belvieu-Ethane ($/Gallon)

 

 —

 

 —

 

20,000

 

$

0.25

 

Mont Belvieu-Propane ($/Gallon)

 

 —

 

 —

 

27,500

 

$

0.39

 

Total

 

1,860,000

 

3,000

 

47,500

 

 

 

 

Three months ending December 31, 2017:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

1,370,000

 

 —

 

 —

 

$

3.46

 

CGTLA ($/MMBtu)

 

420,000

 

 —

 

 —

 

$

4.37

 

CCG ($/MMBtu)

 

70,000

 

 —

 

 —

 

$

4.68

 

NYMEX-WTI ($/Bbl)

 

 —

 

3,000

 

 —

 

$

54.75

 

Mont Belvieu-Ethane ($/Gallon)

 

 —

 

 —

 

20,000

 

$

0.25

 

Mont Belvieu-Propane ($/Gallon)

 

 —

 

 —

 

27,500

 

$

0.40

 

Total

 

1,860,000

 

3,000

 

47,500

 

 

 

 

Year ending December 31, 2018:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

2,002,500

 

 

 

 —

 

$

3.91

 

Mont Belvieu-Propane ($/Gallon)

 

 —

 

 

 

2,000

 

$

0.65

 

Total

 

2,002,500

 

 

 

2,000

 

 

 

 

Year ending December 31, 2019:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

2,330,000

 

 

 

 

 

$

3.70

 

Year ending December 31, 2020:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

1,417,500

 

 

 

 

 

$

3.63

 

Year ending December 31, 2021:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

710,000

 

 

 

 

 

$

3.31

 

Year ending December 31, 2022:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

810,000

 

 

 

 

 

$

3.18

 

Year ending December 31, 2023:

 

 

 

 

 

 

 

 

 

 

NYMEX ($/MMBtu)

 

50,000

 

 

 

 

 

$

2.83

 

 

As of March 31, 2017, the Company’s natural gas basis swap positions, which settle on the pricing index to basis differential of TCO to the NYMEX Henry Hub natural gas price, were as follows:

 

 

 

 

 

 

 

 

 

Natural gas
MMbtu/day

 

Hedged Differential

($/MMBtu)

 

 

 

 

 

 

 

 

Nine months ending December 31, 2017:

 

125,000

 

$

(0.49)

 

 

As of March 31, 2017, the Company’s natural gas basis swap positions, which settle on the pricing index to basis differential of NYMEX Henry Hub to the TCO natural gas price, were as follows:

 

 

 

 

 

 

 

 

 

Natural gas
MMbtu/day

 

Hedged Differential

($/MMBtu)

 

 

 

 

 

 

 

 

Nine months ending December 31, 2017:

 

125,000

 

$

0.32

 

 

(b)Summary

 

The following table presents a summary of the fair values of the Company’s derivative instruments and where such values are recorded in the consolidated balance sheets as of December 31, 2016 and March 31, 2017.  None of the Company’s derivative instruments are designated as hedges for accounting purposes.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

March 31, 2017

 

 

 

Balance sheet
location

    

Fair value

 

Balance sheet
location

 

Fair value

 

 

 

 

 

(In thousands)

 

 

 

(In thousands)

 

Asset derivatives not designated as hedges for accounting purposes:

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current assets

 

$

73,022

 

Current assets

 

 

237,086

 

Commodity contracts

 

Long-term assets

 

 

1,731,063

 

Long-term assets

 

 

1,811,435

 

 

 

 

 

 

 

 

 

 

 

 

 

Total asset derivatives

 

 

 

 

1,804,085

 

 

 

 

2,048,521

 

 

 

 

 

 

 

 

 

 

 

 

 

Liability derivatives not designated as hedges for accounting purposes:

 

 

 

 

 

 

 

 

 

 

 

Commodity contracts

 

Current liabilities

 

 

203,635

 

Current liabilities

 

 

54,277

 

Commodity contracts

 

Long-term liabilities

 

 

234

 

Long-term liabilities

 

 

102

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liability derivatives

 

 

 

 

203,869

 

 

 

 

54,379

 

 

 

 

 

 

 

 

 

 

 

 

 

Net derivatives

 

 

 

$

1,600,216

 

 

 

 

1,994,142

 

 

The following table presents the gross amounts of recognized derivative assets and liabilities, the amounts offset under master netting arrangements with counterparties, and the resulting net amounts presented in the consolidated balance sheets as of the dates presented, all at fair value (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2016

 

March 31, 2017

 

 

 

Gross
amounts on
balance sheet

 

Gross amounts
offset on
balance sheet

 

Net amounts

of assets on

balance sheet

 

Gross
amounts on
balance sheet

 

Gross amounts
offset on
balance sheet

 

Net amounts

of assets (liabilities) on

balance sheet

 

Commodity derivative assets

 

$

1,914,245

 

 

(110,160)

 

 

1,804,085

 

$

2,136,955

 

 

(88,434)

 

 

2,048,521

 

Commodity derivative liabilities

 

$

(324,667)

 

 

120,798

 

 

(203,869)

 

$

(113,718)

 

 

59,339

 

 

(54,379)

 

 

The following is a summary of derivative fair value gains and where such values are recorded in the condensed consolidated statements of operations for the three months ended March 31, 2016 and 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Statement of
operations

 

Three months ended March 31,

 

 

 

location

 

2016

 

2017

 

Commodity derivative fair value gains

 

Revenue

 

$

279,924

 

 

438,775

 

 

The fair value of commodity derivative instruments was determined using Level 2 inputs.