Derivative Instruments
 12 Months Ended
Dec. 31, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Note 8—Derivative Instruments
The Company is exposed to certain risks relating to its ongoing business operations and may use derivative instruments to manage its exposure to commodity price risk from time to time.
Commodity Derivative Contracts
Historically, prices received for crude oil and natural gas production have been volatile because of supply and demand factors, worldwide political factors, general economic conditions and seasonal weather patterns. The Company may periodically use derivative instruments, such as swaps, costless collars and basis swaps, to mitigate its exposure to declines in commodity prices and to the corresponding negative impacts such declines can have on its cash flow from operations, returns on capital and other financial results. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. The Company does not enter into derivative contracts for speculative or trading purposes.
Commodity Swap Contracts. The Company may opportunistically use commodity derivative instruments known as fixed price swaps to realize a known price for a specific volume of production as well as basis swaps to hedge the difference between the index price and a local index price. All transactions are settled in cash with one party paying the other for the resulting difference in price multiplied by the contract volume.
The following table summarizes the approximate volumes and average contract prices of swap contracts the Company had in place as of December 31, 2018:

Period
 
Volume (Bbl)
 
Volume (Bbls/d)
 
Weighted Average Differential ($/Bbl) (1)
Crude oil basis swaps
January 2019 - March 2019
 
540,000
 
6,000

 
$
(5.34
)

April 2019 - June 2019
 
91,000
 
1,000

 
(10.00
)
 
July 2019 - September 2019
 
1,380,000
 
15,000

 
(9.03
)
 
October 2019 - December 2019
 
920,000
 
10,000

 
(4.24
)
 

(1) 
The oil basis swap transactions are settled based on the difference between the arithmetic average of the ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during the relevant calculation period.
 
Period
 
Volume (MMBtu)
 
Volume (MMBtu/d)
 
Weighted Average Fixed Price ($/MMBtu) (1)
Natural Gas Swaps - Henry Hub
January 2019 - December 2019
 
10,950,000
 
30,000
 
$
2.78

Natural Gas Swaps - West Texas WAHA
January 2019 - December 2019
 
5,475,000
 
15,000
 
1.61

 
 
 
 
 
 
 
 
 
Period
 
Volume (MMBtu)
 
Volume (MMBtu/d)
 
Weighted Average Differential ($/MMBtu) (2)
Natural gas basis swaps
January 2019 - December 2019
 
12,775,000
 
35,000
 
$
(1.31
)
 
(1) 
The natural gas swap contracts are settled based on either i) the NYMEX Henry Hub price or ii) the Inside FERC West Texas WAHA price of natural gas as of the specified settlement date, as applicable.
(2) 
The natural gas basis swap contracts are settled based on the difference between the Inside FERC’s West Texas WAHA price and the NYMEX price of natural gas during the relevant calculation period.
Derivative Instrument Reporting. The Company’s oil and natural gas derivative instruments have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in the Company’s Consolidated Statements of Operations. All derivative instruments are recorded at fair value in the Consolidated Balance Sheets, other than derivative instruments that meet the “normal purchase normal sale” exclusion, and any fair value gains and losses are recognized in current period earnings.
The following table presents the impact of our derivative instruments on our Consolidated Statements of Operations for the periods presented:
 
Successor
 
 
Predecessor
 
Year Ended December 31,
 
October 11, 2016
through
December 31, 2016
 
 
January 1, 2016
through
October 10, 2016
(in thousands)
2018
 
2017
 
 
 
Net gain (loss) on derivative instruments
$
15,336

 
$
5,138

 
$
(1,548
)
 
 
$
(6,838
)

Offsetting of Derivative Assets and Liabilities. The Company’s commodity derivatives are included in the accompanying Consolidated Balance Sheets as derivative assets and liabilities. The Company nets its financial derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master netting agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The tables below summarize the fair value amounts and classification in the Consolidated Balance Sheets of the Company’s derivative contracts outstanding at the respective balance dates, as well as the gross recognized derivative assets, liabilities and offset amounts:
 
December 31, 2018
 
Balance Sheet Classification
 
Gross Fair Value Asset/Liability Amounts
 
Gross Amounts Offset (1)
 
Net Recognized Fair Value Assets/Liabilities
Derivative Assets
 
 
 
 
 
 
 
Commodity contracts
Current assets - Derivative instruments
 
$
7,708

 
$
(6,076
)
 
$
1,632

Derivative Liabilities
 
 
 
 
 
 
 
Commodity contracts
Current liabilities - Derivative instruments
 
$
12,127

 
$
(6,076
)
 
$
6,051

 
(1)
The Company has agreements in place with all of its counterparties that allow for the financial right of offset for derivative assets and derivative liabilities at settlement or in the event of a default under the agreements or contract termination.
 
December 31, 2017
 
Balance Sheet Classification
 
Gross Fair Value Asset/Liability Amounts
 
Gross Amounts Offset (1)
 
Net Recognized Fair Value Assets/Liabilities
Derivative Assets
 
 
 
 
 
 
 
Commodity contracts
Current assets - Derivative instruments
 
$
720

 
$
(287
)
 
$
433

Commodity contracts
Noncurrent assets - Derivative instruments
 
662

 
—

 
662

 
 
 
$
1,382

 
$
(287
)
 
$
1,095

Derivative Liabilities
 
 
 
 
 
 
 
Commodity contracts
Current liabilities - Derivative instruments
 
$
527

 
$
(287
)
 
$
240


 
(1)
The Company has agreements in place with all of its counterparties that allow for the financial right of offset for derivative assets and derivative liabilities at settlement or in the event of a default under the agreements or contract termination.
Contingent Features in Financial Derivative Instruments. None of the Company’s derivative instruments contain credit-risk-related contingent features. Counterparties to the Company’s financial derivative contracts are high credit-quality financial institutions that are lenders under CRP’s credit agreement. The Company uses only credit agreement participants to hedge with, since these institutions are secured equally with the holders of any CRP bank debt, which eliminates the potential need to post collateral when Centennial is in a derivative liability position. As a result, the Company is not required to post letters of credit or corporate guarantees for its derivative counterparties in order to secure contract performance obligations.
In addition, the Company is exposed to credit risk associated with its derivative contracts from non-performance by its counterparties. The Company mitigates its exposure to any single counterparty by contracting with a number of financial institutions, each of which has a high credit rating and is a member of CRP’s credit facility as referenced above.