Chord Energy Corp

7. Derivative Instruments

Commodity derivative contracts. The Company utilizes derivative financial instruments to manage risks related to changes in commodity prices. The Company’s crude oil contracts settle monthly based on the average NYMEX WTI, and its natural gas contracts settle monthly based on the average NYMEX Henry Hub natural gas index price (“NYMEX HH”).

The Company utilizes derivative financial instruments including fixed-price swaps and two-way and three-way collars to manage risks related to changes in commodity prices. The Company’s fixed-price swaps are designed to establish a fixed price for the volumes under contract. Two-way collars are designed to establish a minimum price (floor) and a maximum price (ceiling) for the volumes under contract. Three-way collars are designed to establish a minimum price (floor), unless the market price falls below the sold put (sub-floor), at which point the minimum price would be the index price plus the difference between the purchased put and the sold call strike price. The sold call establishes a maximum price (ceiling) for the volumes under contract. The Company may, from time to time, restructure existing derivative contracts or enter into new transactions to effectively modify the terms of current contracts in order to improve the pricing parameters in existing contracts.

2021 derivative contract modifications. During 2021, the Company entered into a series of transactions with derivative counterparties to modify the swap price of certain commodity derivative contracts. The Company modified the strike price of its 2022 crude oil swap contracts to $70.00 per barrel from a weighted average price of $40.89 per barrel and its 2023 crude oil swap contracts to $50.00 per barrel from a weighted average price of $43.68 per barrel. The commodity contracts modified included total notional volumes of 6,935 MBbl which settled in 2022 and 5,110 MBbl which settled in 2023. The Company paid $220.9 million to modify these commodity derivative contracts, which is reflected as a cash outflow from investing activities in the Consolidated Statement of Cash Flows for the year ended December 31, 2021.

At December 31, 2023, the Company had the following outstanding commodity derivative contracts:

Subsequent to December 31, 2023, the Company entered into the following commodity derivative contracts:

Transportation derivative contracts. The Company acquiredtwo contracts in the Merger that provide for the transportation of crude oil through a buy/sell structure from North Dakota to either Cushing, Oklahoma or Guernsey, Wyoming. The Company determined that these contracts qualified as derivatives and did not elect the “normal purchase normal sale” exclusion. As of December 31, 2023, the term ofone of these contracts expired. The remaining contract requires the purchase and sale of fixed volumes of crude oil through July 2024 as specified in the agreement. As of December 31, 2023, the estimated fair value of the remaining contract was a $5.9 million asset, which was classified as a current derivative asset on the Company’s Consolidated Balance Sheet. As of December 31, 2022, the estimated fair value of these contracts was a $14.7 million liability, of which $11.9 million was classified as a current derivative liability and $2.8 million was classified as a non-current derivative liability on the Company’s Consolidated Balance Sheet. The Company records the changes in fair value of these contracts to gathering, processing and transportation (“GPT”) expenses on the Company’s Consolidated Statement of Operations. Settlements on these contracts are reflected as operating activities on the Company’s Consolidated Statements of Cash Flows and represent cash payments to the counterparties for transportation of crude oil or the net settlement of contract liabilities if the transportation was not utilized, as applicable. See Note 6—Fair Value Measurements for additional information.

Contingent consideration. The Company bifurcated the Permian Basin Sale Contingent Consideration from the host contract and accounted for it separately at fair value. The fair value of the Permian Basin Sale Contingent Consideration was estimated to be $32.9 million as of the close date of the Permian Basin Sale (defined in Note 10—Divestitures). The Permian Basin Sale Contingent Consideration is marked-to-market each reporting period, with changes in fair value recorded in the other income (expense) section of the Company’s Consolidated Statements of Operations as a net gain or loss on derivative instruments. As of December 31, 2023, the estimated fair value of the Permian Basin Sale Contingent Consideration was $42.7 million, of which $22.6 million was classified as a current derivative asset and $20.1 million was classified as a non-current derivative asset on the Consolidated Balance Sheet. See Note 6—Fair Value Measurements and Note 10—Divestitures for additional information.

The following table summarizes the location and amounts of gains and losses from the Company’s derivative instruments recorded in the Company’s Consolidated Statements of Operations for the periods presented:

(1) The change in the fair value of the transportation derivative contracts was recorded as a gain in GPT expenses for the year ended December 31, 2023.

In accordance with the FASB’s authoritative guidance on disclosures about offsetting assets and liabilities, the Company is required to disclose both gross and net information about instruments and transactions eligible for offset in the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement. The Company’s derivative instruments are presented as assets and liabilities on a net basis by counterparty, as all counterparty contracts provide for net settlement. No margin or collateral balances are deposited with counterparties, and as such, gross amounts are offset to determine the net amounts presented in the Company’s Consolidated Balance Sheets.

The following tables summarize the location and fair value of all outstanding commodity derivative instruments recorded in the Company’s Consolidated Balance Sheets: