Quarterly report pursuant to Section 13 or 15(d)

Derivative Instruments

v3.10.0.1
Derivative Instruments
9 Months Ended
Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Derivative Instruments
 
Commodity derivatives. The Company enters into various derivative instruments primarily to mitigate a portion of the exposure to potentially adverse market changes in oil and natural gas commodity prices and the associated impact on cash flows. All contracts are entered into for other-than-trading purposes. Oil and natural gas commodity derivative instruments are recorded on the condensed consolidated balance sheet at fair value as either an asset or a liability with changes in fair value recognized currently in earnings. While commodity derivative instruments are utilized to manage the price risk attributable to expected oil and natural gas production, the Company’s commodity derivative instruments are not designated as accounting hedges under the accounting guidance. The related cash flow impact of the commodity derivative activities is reflected as cash flows from operating activities unless they are determined to have a significant financing element at inception, in which case they are classified within financing activities.

Series B Preferred Stock bifurcated derivative - In the event of a change of control, the Company shall redeem in cash all of the outstanding shares of Series B Preferred Stock, excluding Series B PIK Shares, each as defined in Note 11 - 10% Series B Redeemable Preferred Stock, for a price per share equal to the Base Return Amount as defined in Note 11 - 10% Series B Redeemable Preferred Stock. The Company assessed the change of control feature and determined that the redemption of the outstanding shares of Series B Preferred Stock, excluding Series B PIK Shares, for a price per share equal to the Base Return Amount was a bifurcated derivative. See Note 11 - 10% Series B Redeemable Preferred Stock for defined terms and more detail.

The following tables summarize the location and fair value amounts of all the Company’s derivative instruments in the condensed consolidated balance sheets, as well as the gross recognized derivative assets, liabilities and amounts offset in the condensed consolidated balance sheets:

 
 
September 30, 2018
 
 
Gross Fair Value
 
Gross Amounts Offset (1)
 
Net Recognized Fair Value
 
 
(In thousands)
Assets
 
 
 
 
 
 
     Commodity derivatives - current
 
$
14,090

 
$
(14,090
)
 
$

     Commodity derivatives - non-current
 
16,679

 
(16,679
)
 

Total assets
 
$
30,769

 
$
(30,769
)
 
$

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
     Commodity derivatives - current
 
$
(67,353
)
 
$
14,090

 
$
(53,263
)
     Commodity derivatives - non-current
 
(72,932
)
 
16,679

 
(56,253
)
Series B Preferred Stock bifurcated derivative - non-current
 
(572
)
 

 
(572
)
Total liabilities
 
$
(140,857
)
 
$
30,769

 
$
(110,088
)

(1)
The Company has agreements in place with all of its counterparties that allow for the financial right of offset for derivative assets and liabilities.

 
 
December 31, 2017
 
 
Gross Fair Value
 
Gross Amounts Offset (1)
 
Net Recognized Fair Value
 
 
(In thousands)
Assets
 
 
 
 
 
 
     Commodity derivatives - current
 
$
1,079

 
$
(1,079
)
 
$

     Commodity derivatives - non-current
 
120

 
(120
)
 

Total assets
 
$
1,199

 
$
(1,199
)
 
$

 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
     Commodity derivatives - current
 
$
(11,851
)
 
$
1,079

 
$
(10,772
)
     Commodity derivatives - non-current
 
(7,503
)
 
120

 
(7,383
)
Series B Preferred Stock bifurcated derivative - non-current
 
(625
)
 

 
(625
)
Total liabilities
 
$
(19,979
)
 
$
1,199

 
$
(18,780
)

(1)
The Company has agreements in place with all of its counterparties that allow for the financial right of offset for derivative assets and liabilities.

As of September 30, 2018, the open commodity derivative positions with respect to future production were as follows:

 
 
2018
 
2019
 
2020
 
2021
 
2022
Commodity derivative swaps
Oil:
 
 
 
 
 
 
 
 
 
 
Notional volume (Bbls)
699,000

 
2,664,000

 
960,000

 
360,000

 
300,000

 
Weighted average fixed price ($/Bbl)
$
55.15

 
$
53.59

 
$
51.16

 
$
50.42

 
$
50.12

Natural gas:
 
 
 
 
 
 
 
 
 
 
Notional volume (MMBtu)
960,000

 
2,220,000

 
1,500,000

 
1,200,000

 
1,200,000

 
Weighted average fixed price ($/MMbtu)
$
3.02

 
$
2.88

 
$
2.84

 
$
2.85

 
$
2.87

Ethane:
 
 
 
 
 
 
 
 
 
 
Notional volume (Gallons)
2,523,528

 
12,444,138

 

 

 

 
Weighted average fixed price ($/Gallons)
$
0.35

 
$
0.28

 
$

 
$

 
$

Propane:
 
 
 
 
 
 
 
 
 
 
Notional volume (Gallons)
1,682,352

 
8,296,218

 

 

 

 
Weighted average fixed price ($/Gallons)
$
0.97

 
$
0.79

 
$

 
$

 
$

Pentanes:
 
 
 
 
 
 
 
 
 
 
Notional volume (Gallons)
560,700

 
2,765,700

 

 

 

 
Weighted average fixed price ($/Gallons)
$
1.53

 
$
1.47

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Commodity derivative two-way collars
Oil:
 
 
 
 
 
 
 
 
 
 
Notional volume (Bbls)
182,000

 
601,000

 

 

 

 
Weighted average ceiling price ($/Bbl)
$
61.28

 
$
61.30

 
$

 
$

 
$

 
Weighted average floor price ($/Bbl)
$
57.53

 
$
55.21

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Commodity derivative three-way collars
Oil:
 
 
 
 
 
 
 
 
 
 
Notional volume (Bbls)

 
1,531,832

 
3,294,000

 

 

 
Weighted average ceiling price ($/Bbl)
$

 
$
68.52

 
$
70.29

 
$

 
$

 
Weighted average floor price ($/Bbl)
$

 
$
57.62

 
$
57.50

 
$

 
$

 
Weighted average sold put option price ($/Bbl)
$

 
$
45.51

 
$
47.50

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Crude oil basis swaps
Midland / Cushing:
 
 
 
 
 
 
 
 
 
 
Notional volume (Bbls)
920,000

 
4,800,832

 
3,513,600

 

 

 
Weighted average fixed price ($/Bbl)
$
(4.95
)
 
$
(4.93
)
 
$
(1.43
)
 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Argus WTI roll:
 
 
 
 
 
 
 
 
 
 
Notional volume (Bbls)
920,000

 

 

 

 

 
Weighted average fixed price ($/Bbl)
$
1.14

 
$

 
$

 
$

 
$

 
 
 
 
 
 
 
 
 
 
 
Natural gas basis swaps
EP Permian
 
 
 
 
 
 
 
 
 
 
Notional volume (MMBtu)

 
1,781,472

 
2,096,160

 

 

 
Weighted average fixed price ($/MMBtu)
$

 
$
(1.03
)
 
$
(1.03
)
 
$

 
$



For the three and nine months ended September 30, 2018 and 2017, the effect of the derivative activity on the Company’s Condensed Consolidated Statements of Operations was as follows:
 
 
Three Months
 
Nine Months
 
 
Ended September 30,
 
Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
 
 
(In thousands)
Realized gain (loss) on derivatives
 
 

 
 

 
 

 
 

Commodity derivative options
 
$

 
$
18

 
$
19

 
$
172

Commodity derivative swaps
 
(4,999
)
 
454

 
(17,212
)
 
(10
)
Total
 
(4,999
)
 
472

 
(17,193
)
 
162

Interest rate swap
 

 
6

 

 
(143
)
Total realized gain (loss) on derivatives
 
$
(4,999
)
 
$
478

 
$
(17,193
)
 
$
19

 
 
 
 
 
 
 
 
 
Unrealized gain (loss) on derivatives
 
 

 
 

 
 

 
 

Commodity derivative options
 
$
(45,349
)
 
$
55

 
$
(59,514
)
 
$
361

Commodity derivative swaps
 
(16,966
)
 
(1,978
)
 
(31,846
)
 
1,228

Total
 
(62,315
)
 
(1,923
)
 
(91,360
)
 
1,589

Interest rate swap
 

 

 
$

 
$
(226
)
Series B Preferred Stock bifurcated derivative
 
(104
)
 

 
53

 

Total unrealized gain (loss) on derivatives
 
$
(62,419
)
 
$
(1,923
)
 
$
(91,307
)
 
$
1,363


 
The gains and losses resulting from the cash settlement and mark-to-market of the commodity derivatives are included within “Gain (loss) on commodity derivative instruments, net” in the Condensed Consolidated Statements of Operations. The gains and losses resulting from the cash settlement and mark-to-market of the interest rate swap are included in “Interest expense, net” in the Condensed Consolidated Statements of Operations.