Derivative Instruments
 6 Months Ended
Jun. 30, 2017
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
Note 7—Derivative Instruments
The Company is exposed to certain risks relating to its ongoing business operations, and it uses derivative instruments mainly to manage its commodity price risk.
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 periodically uses derivative instruments, such as costless collars and swaps, to mitigate its exposure to declines in commodity prices and to the corresponding negative impacts such declines can have on its cash flow available for reinvestment. 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.
The following table summarizes the approximate volumes and average contract prices of swap contracts the Company had in place as of June 30, 2017:
 
Period
 
Volume (Bbl)
 
Weighted Average Fixed Price ($/Bbl)
Crude oil swaps
July 2017 - December 2017
 
340,400

 
$
50.41

 
January 2018 - December 2018
 
36,500

 
$
55.95

Crude oil basis swaps
July 2017 - November 2017
 
51,742

 
$
(0.20
)
 
 
 
 
 
 
 
Period
 
Volume (MMBtu)
 
Weighted Average Fixed Price ($/MMBtu)
Natural gas swaps
July 2017 - December 2017
 
736,000

 
$
2.94


Commodity Swap Contracts. In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index price and the agreed upon swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference. In addition, the Company has entered into basis swap contracts in order to hedge the difference between the NYMEX index price and a local index price. When the actual differential exceeds the fixed price provided by the basis swap contract, the Company receives the difference from the counterparty; when the differential is less than the fixed price provided by the basis swap contract, the Company pays the difference to the counterparty.
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 condensed consolidated statements of operations. All derivative instruments are recorded at fair value in the condensed consolidated balance sheets, other than derivative instruments that meet the “normal purchase normal sale” exclusion, and any gains and losses are recognized in current period earnings.
The following table presents gains and losses for derivative instruments not designated as hedges for accounting purposes for the periods presented:
 
Successor
 
 
Predecessor
 
 
Successor
 
 
Predecessor
(in thousands)
For the Three Months Ended June 30, 2017
 
 
For the Three Months Ended June 30, 2016
 
 
For the Six Months Ended June 30, 2017
 
 
For the Six Months Ended June 30, 2016
Net gain (loss) on derivative instruments
$
2,529

 
 
$
(7,843
)
 
 
$
6,288

 
 
$
(5,925
)

Offsetting of Derivative Assets and Liabilities. The Company’s commodity derivatives are measured at fair value and are included in the accompanying condensed 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 following tables summarize the location and fair value amounts of all the Company’s derivative instruments in the consolidated balance sheets, as well as the gross recognized derivative assets, liabilities and amounts offset in the condensed consolidated balance sheets:
 
June 30, 2017
(in thousands)
Balance Sheet Classification
 
Gross Asset/Liability Amounts
 
Gross Amounts Offset (1)
 
Net Recognized Fair Value Assets/Liabilities
Derivative Assets
 
 
 
 
 
 
 
Derivative instruments
Current assets
 
$
1,675

 
$
(159
)
 
$
1,516

Derivative instruments
Noncurrent assets
 
131

 
—

 
131

Total derivative assets
 
 
$
1,806

 
$
(159
)
 
$
1,647

Derivative Liabilities
 
 
 
 
 
 
 
Derivative instruments
Current liabilities
 
$
344

 
$
(159
)
 
$
185

Total derivative liabilities
 
 
$
344

 
$
(159
)
 
$
185

 
(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, 2016
(in thousands)
Balance Sheet Classification
 
Gross Asset/Liability Amounts
 
Gross Amounts Offset (1)
 
Net Recognized Fair Value Assets/Liabilities
Derivative Assets
 
 
 
 
 
 
 
Derivative instruments
Current assets
 
$
739

 
$
(308
)
 
$
431

Total derivative assets
 
 
$
739

 
$
(308
)
 
$
431

Derivative Liabilities
 
 
 
 
 
 
 
Derivative instruments
Current liabilities
 
$
5,669

 
$
(308
)
 
$
5,361

Derivative instruments
Noncurrent Liabilities
 
20

 
—

 
20

Total derivative liabilities
 
 
$
5,689

 
$
(308
)
 
$
5,381

 
(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.