Derivative Activities | (12) DERIVATIVE ACTIVITIES We use commodity-based derivative contracts to manage exposure to commodity price fluctuations. We do not enter into these arrangements for speculative or trading purposes. We utilize commodity swaps, collars, calls or swaptions to (1) reduce the effect of price volatility of the commodities we produce and sell and (2) support our annual capital budget and expenditure plans. The fair value of our derivative contracts, represented by the estimated amount that would be realized upon termination, based on a comparison of the contract price and a reference price, generally the New York Mercantile Exchange (“NYMEX”) for natural gas and crude oil or Mont Belvieu for NGLs, approximated a net gain of $162.7 million at June 30, 2019. These contracts expire monthly through December 2020. The following table sets forth our commodity-based derivative volumes by year as of June 30, 2019, excluding our basis and freight swaps which are discussed separately below: Period Contract Type Volume Hedged Weighted Natural Gas 2019 Swaps 1,262,473 Mmbtu/day $ 2.81 2020 Swaps 305,000 Mmbtu/day $ 2.76 2019 Swaptions 150,000 Mmbtu/day $ 2.81 ( 1 ) 2020 Swaptions 177,568 Mmbtu/day $ 2.78 ( 1 ) November – December 2019 Swaptions 20,000 Mmbtu/day $ 3.20 (1) January – March 2020 Swaptions 20,000 Mmbtu/day $ 3.20 (1) Crude Oil 2019 Swaps 8,750 bbls/day $ 55.89 2020 Swaps 4,617 bbls/day $ 60.48 2019 Collars 1,000 bbls/day $ 63.00 − $ 73.00 NGLs (C5-Natural Gasoline) 2019 Swaps 4,500 bbls/day $ 1.36/gallon ( 1 ) Contains a combined derivative instrument consisting of a fixed price swap and a sold option to extend or double the volumes. We have swaps in place for 2019 for 150,000 Mmbtu/day on which the counterparty can elect to extend the contract through December 2020 at a weighted average price of $2.81. In addition, we have swaps in place for November and December 2019 where, if the counterparty elects to double the volume, we would have additional swaps in place for 20,000 Mmbtu/day at a weighted average price of $3.20. In 2020, if the counterparty elects to double the volume, we would have additional swaps in place for 140,000 Mmbtu/day at a weighted average price of $2.78. We also have swaps in place for 2020 for 50,000 Mmbtu/day on which the counterparty can elect to extend the contract through December 2021 at a weighted average price of $2.75. In addition, for January through March 2020, we have additional swaps in place where if the counterparty elects to double the volume, we would have an additional 20,000 Mmbtu/day at a weighted average price of $3.20. Every derivative instrument is required to be recorded on the balance sheet as either an asset or a liability measured at its fair value. We recognize all changes in fair value of these derivatives as earnings in derivative fair value income or loss in the periods in which they occur. Basis Swap Contracts In addition to the swaps, collars and swaptions described above, at June 30, 2019, we had natural gas basis swap contracts which lock in the differential between NYMEX Henry Hub and certain of our physical pricing indices. These contracts settle monthly through October 2021 and include a total volume of 107,960,000 Mmbtu. The fair value of these contracts was a loss of $2.0 million at June 30, 2019. At June 30, 2019, we also had propane spread swap contracts which lock in the differential between Mont Belvieu and international propane indices. The contracts settle monthly in October through December of 2019 and monthly in 2020 and include a total volume of 1,875,000 barrels. The fair value of these contracts was a loss of $1.8 million at June 30, 2019. Freight Swap Contracts In connection with our international propane sales, we utilize propane swaps. To further hedge our propane price, at June 30, 2019, we had freight swap contracts on the Baltic Exchange which lock in the freight rate for a specific trade route. These contracts settle monthly through December 2019 and cover 10,000 metric tons per month with a fair value gain of $1.5 million at June 30, 2019. Derivative Assets and Liabilities The combined fair value of derivatives included in the accompanying consolidated balance sheets as of June 30, 2019 and December 31, 2018 is summarized below. The assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty and we have master netting arrangements. The tables below provide additional information relating to our master netting arrangements with our derivative counterparties (in thousands): June 30, 2019 Gross Amounts of Recognized Assets Gross Amounts Offset in the Balance Sheet Net Amounts of Assets Presented in the Balance Sheet Derivative assets: Natural gas –swaps $ 128,392 $ (2,132 ) $ 126,260 –swaptions 29,982 (6,070 ) 23,912 –basis swaps 1,220 (1,305 ) (85 ) Crude oil –swaps 8,459 (4,932 ) 3,527 −collars 1,116 — 1,116 NGLs –C3 propane spread swaps 6,815 (7,767 ) (952 ) −C5 natural gasoline swaps 7,857 — 7,857 Freight −swaps 1,501 — 1,501 $ 185,342 $ (22,206 ) $ 163,136 June 30, 2019 Gross Amounts of Recognized (Liabilities) Gross Amounts Offset in the Balance Sheet Net Amounts of (Liabilities) Presented in the Balance Sheet Derivative (liabilities): Natural gas –swaps $ (2,132 ) $ 2,132 $ — –swaptions (6,070 ) 6,070 — –basis swaps (3,255 ) 1,305 (1,950 ) Crude oil –swaps (4,932 ) 4,932 — NGLs –C3 propane spread swaps (8,592 ) 7,767 (825 ) $ (24,981 ) $ 22,206 $ (2,775 ) December 31, 2018 Gross Amounts of Recognized Assets Gross Amounts Offset in the Balance Sheet Net Amounts of Assets Presented in the Balance Sheet Derivative assets: Natural gas –swaps $ 20,834 $ (11,748 ) $ 9,086 –swaptions 5,200 (3,883 ) 1,317 –basis swaps 6,468 (2,822 ) 3,646 Crude oil –swaps 26,481 (651 ) 25,830 –collars 5,945 (707 ) 5,238 NGLs –C3 propane swaps 18,719 (589 ) 18,130 –C3 propane collars 8,538 — 8,538 –C3 propane spread swaps 8,984 (8,868 ) 116 –NC4 butane swaps 4,084 — 4,084 –C5 natural gasoline swaps 17,371 — 17,371 Freight –swaps — (561 ) (561 ) $ 122,624 $ (29,829 ) $ 92,795 December 31, 2018 Gross Amounts of Recognized (Liabilities) Gross Amounts Net Amounts of (Liabilities) Presented in the Balance Sheet Derivative (liabilities): Natural gas –swaps $ (18,332 ) $ 11,748 $ (6,584 ) –swaptions (7,972 ) 3,883 (4,089 ) –basis swaps (1,702 ) 2,822 1,120 Crude oil –swaps — 651 651 –collars — 707 707 NGLs –C3 propane swaps — 589 589 –C3 propane spread swaps (8,868 ) 8,868 — Freight –swaps (561 ) 561 — $ (37,435 ) $ 29,829 $ (7,606 ) The effects of our derivatives on our consolidated statements of operations are summarized below (in thousands): Derivative Fair Value Income (Loss) Three Months Ended June 30, Six Months Ended June 30, 2019 2018 2019 2018 Commodity swaps $ 159,128 $ (91,195 ) $ 101,710 $ (107,730 ) Swaptions 32,383 (6,592 ) 29,092 (2,993 ) Collars 578 11 (3,946 ) (66 ) Calls — 152 — 329 Basis swaps 938 (5,828 ) 4,353 (6,693 ) Freight swaps 2,218 162 2,305 (146 ) Total $ 195,245 $ (103,290 ) $ 133,514 $ (117,299 ) |