| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
NOTE 8 — DERIVATIVE FINANCIAL INSTRUMENTS
W&T’s market risk exposure relates primarily to commodity prices. The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps, costless collars, sold calls and purchased puts. The Company is exposed to credit loss in the event of nonperformance by the derivative counterparties; however, the Company currently anticipates that the derivative counterparties will be able to fulfill their contractual obligations. The Company is not required to provide additional collateral to the derivative counterparties and does not require collateral from the derivative counterparties.
W&T has elected not to designate commodity derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the Condensed Consolidated Balance Sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as Derivative (gain) loss on the Condensed Consolidated Statements of Operations in each period presented. The cash flows of all commodity derivative contracts are included in Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.
The crude oil contracts are based on West Texas Intermediate (“WTI”) crude oil prices and the natural gas contracts are based off the Henry Hub prices, both of which are quoted off the New York Mercantile Exchange (“NYMEX”).
The following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of September 30, 2022:
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Average |
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Instrument |
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Daily |
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Total |
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Weighted |
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Weighted |
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Weighted |
Period |
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Type |
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Volumes |
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Volumes |
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Strike Price |
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Put Price |
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Call Price |
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Crude Oil - WTI (NYMEX) |
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(Bbls)(1) |
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(Bbls)(1) |
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($/Bbls)(1) |
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($/Bbls)(1) |
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($/Bbls)(1) |
Jul 2022 - Nov 2022 |
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swaps |
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2,174 |
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132,612 |
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$ |
58.38 |
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$ |
— |
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$ |
— |
Jul 2022 - Nov 2022 |
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collars |
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2,174 |
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132,612 |
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$ |
— |
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$ |
46.00 |
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$ |
66.40 |
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Natural Gas - Henry Hub (NYMEX) |
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(MMbtu)(2) |
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(MMbtu)(2) |
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($/MMbtu)(2) |
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($/MMbtu)(2) |
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($/MMbtu)(2) |
Jul 2022 - Dec 2022 |
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calls |
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108,647 |
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9,995,479 |
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$ |
— |
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$ |
— |
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$ |
7.42 |
Jan 2023 - Dec 2023 |
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calls |
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70,000 |
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25,550,000 |
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$ |
— |
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$ |
— |
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$ |
7.50 |
Jan 2024 - Dec 2024 |
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calls |
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65,000 |
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23,790,000 |
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$ |
— |
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$ |
— |
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$ |
6.13 |
Jan 2025 - Mar 2025 |
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calls |
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62,000 |
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5,580,000 |
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$ |
— |
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$ |
— |
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$ |
5.50 |
Jul 2022 - Dec 2022 |
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collars |
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40,000 |
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3,680,000 |
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$ |
— |
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$ |
1.83 |
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$ |
3.00 |
Jul 2022 - Nov 2022 |
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swaps |
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16,838 |
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1,027,099 |
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$ |
2.60 |
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$ |
— |
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$ |
— |
Jul 2022 - Dec 2022(3) |
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swaps |
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78,261 |
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7,200,000 |
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$ |
2.63 |
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$ |
— |
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$ |
— |
Jan 2023 - Dec 2023(3) |
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swaps |
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72,329 |
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26,400,000 |
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$ |
2.48 |
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$ |
— |
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$ |
— |
Jan 2024 - Dec 2024(3) |
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swaps |
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65,574 |
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24,000,000 |
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$ |
2.46 |
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$ |
— |
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$ |
— |
Jan 2025 - Mar 2025(3) |
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swaps |
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63,333 |
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5,700,000 |
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$ |
2.72 |
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$ |
— |
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$ |
— |
Apr 2025 - Dec 2025(3) |
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puts |
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62,182 |
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17,100,000 |
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$ |
— |
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$ |
2.27 |
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$ |
— |
Jan 2026 - Dec 2026(3) |
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puts |
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55,890 |
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20,400,000 |
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$ |
— |
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$ |
2.35 |
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$ |
— |
Jan 2027 - Dec 2027(3) |
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puts |
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52,603 |
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19,200,000 |
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$ |
— |
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$ |
2.37 |
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$ |
— |
Jan 2028 - Apr 2028(3) |
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puts |
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49,587 |
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6,000,000 |
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$ |
— |
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$ |
2.50 |
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$ |
— |
(2) |
MMbtu – Million British Thermal Units |
(3) |
These contracts were entered into by the Company’s wholly owned subsidiary, A-I LLC, in conjunction with the Term Loan (see Note 5 – Subsidiary Borrowers). |
Financial Statement Presentation
The following fair value of derivative financial instruments amounts were recorded in the Condensed Consolidated Balance Sheets (in thousands):
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September 30, 2022 |
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December 31, 2021 |
Prepaid expenses and other current assets |
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$ |
28,747 |
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$ |
21,086 |
Other assets (long-term) |
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35,656 |
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34,435 |
Accrued liabilities |
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116,008 |
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81,456 |
Other liabilities (long-term) |
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75,079 |
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37,989 |
Although the Company has master netting arrangements with its counterparties, the amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.
Changes in the fair value and settlements of contracts are recorded on the Condensed Consolidated Statements of Operations as Derivative (gain) loss. The impact of commodity derivative contracts on the Condensed Consolidated Statements of Operations were as follows (in thousands):
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
Realized loss(1) |
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$ |
132,289 |
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$ |
30,026 |
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$ |
96,315 |
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$ |
53,627 |
Unrealized (gain) loss |
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(93,540) |
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43,111 |
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13,577 |
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125,529 |
Derivative loss |
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$ |
38,749 |
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$ |
73,137 |
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$ |
109,892 |
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$ |
179,156 |
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(1) |
The nine months ended September 30, 2022 includes the effect of the $138.0 million realized gain related to the monetization of certain natural gas call contracts through restructuring of strike prices which occurred in June 2022.
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Cash payments on commodity derivative contract settlements, net, are included within Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows and were as follows (in thousands):
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Nine Months Ended September 30, |
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2022 |
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2021 |
Derivative loss |
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$ |
109,892 |
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$ |
179,156 |
Derivative cash (payments) receipts, net(1) |
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(1,022) |
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(39,554) |
Derivative cash premium payments |
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(46,111) |
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(32,368) |
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(1) |
The nine months ended September 30, 2022 includes $105.3 million of net cash receipts related to the monetization of certain natural gas call contracts through restructuring of strike prices which occurred in June 2022.
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