Derivative Instruments
 6 Months Ended
Jun. 30, 2018
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 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 periodically uses derivative instruments, such as swaps, 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 opportunistically uses 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 June 30, 2018:

Period

Volume (Bbl)

Volume (Bbls/d)

Weighted Average Differential ($/Bbl) (1)
Crude oil basis swaps
July 2018 - September 2018

828,000


9,000


$
(2.38
)

October 2018 - December 2018

828,000


9,000


(2.38
)

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

552,000


6,000


(4.23
)

 
(1) 
The crude oil basis swap contracts are settled based on the difference between the arithmetic average of ARGUS MIDLAND WTI and ARGUS WTI CUSHING settlements 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
July 2018 - December 2018

920,000


5,000


$
(0.43
)

January 2019 - December 2019

12,775,000


35,000


(1.31
)
 
(1) 
The natural gas swap contracts are settled based on the month’s average daily NYMEX price of Henry Hub Natural Gas or Inside FERC’s West Texas WAHA price of natural gas.
(2) 
The natural gas basis swap contracts are settled based on the difference between Inside FERC’s West Texas WAHA price of natural gas and the NYMEX price of Henry Hub 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 gains and losses for derivative instruments not designated as hedges for accounting purposes for the periods presented:
 
For the Three Months Ended June 30,
 
For the Six Months Ended June 30,
(in thousands)
2018
 
2017
 
2018
 
2017
Net gain (loss) on derivative instruments
$
16,697

 
$
2,529

 
$
24,540

 
$
6,288


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 table below summarizes the fair value amounts and the classification in the Consolidated Balance Sheets of the Company’s derivative contracts outstanding at the respective balance sheet dates. Refer to Note 8—Fair Value Measurements for details of the gross and net derivative assets, liabilities and offset amounts as presented in the Consolidated Balance Sheets.
 
 
 
Gross Asset/Liability Amounts
(in thousands)
Balance Sheet Classification
 
June 30, 2018
 
December 31, 2017
Derivative Assets
 
 
 
 
 
Derivative instruments
Current assets
 
$
23,991

 
$
720

Derivative instruments
Noncurrent assets
 
1,622

 
662

Total derivative assets
 
 
$
25,613

 
$
1,382

Derivative Liabilities
 
 
 
 
 
Derivative instruments
Current liabilities
 
$
1,264

 
$
527

Derivative instruments
Noncurrent liabilities
 
4,479

 
—

Total derivative liabilities
 
 
$
5,743

 
$
527


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 the Company 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 lender under CRP’s credit facility as referenced above.