Derivatives

3 Months Ended

Sep. 30, 2022

Derivatives

Derivatives

Note 7. Derivatives

The Company is exposed to certain risks relating to its ongoing business operations, including commodity price risk and interest rate risk. In accordance with the Company’s policy and the requirements under the Senior Secured Credit Facility (as discussed in Note 5, “Senior Secured Credit Facility”), it may hedge or may be required to hedge a varying portion of anticipated oil and natural gas production for future periods. Derivatives are carried at fair value on the unaudited condensed consolidated balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited condensed consolidated statements of operations for the period in which the change occurs. The Company’s hedge policies and objectives may change significantly as its operational profile changes or as required under the Senior Secured Credit Facility. The Company does not enter into derivative contracts for speculative trading purposes.

It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers. As of September 30, 2022, the Company did not post collateral under any of its derivative contracts as they are secured under the Company’s Senior Secured Credit Facility.

The Company has in the past, and may utilize in the future, costless put/call collars and fixed-price swaps to hedge a portion of its anticipated future production. A costless collar consists of a sold call, which establishes a maximum price the Company will receive for the volumes under contract, and a purchased put that establishes a minimum price. Fixed-price swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for the volumes under contract. The Company has elected not to designate its open derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of the derivative contracts and all payments and receipts on settled derivative contracts in “Net gain (loss) on derivative contracts” on the unaudited condensed consolidated statements of operations.

All derivative contracts are recorded at fair market value in accordance with ASC 815, Derivatives and Hedging (“ASC 815”) and ASC 820, Fair Value Measurement (“ASC 820”) and included in the unaudited condensed consolidated balance sheets as assets or liabilities. The “Derivative contract assets” and “Derivative contract liabilities” represent the difference between the market commodity prices and the hedged prices for the remaining volumes of production hedges as of September 30, 2022 (the “mark-to-market valuation”). The following table summarizes the location and fair value amounts of all derivative contracts in the unaudited condensed consolidated balance sheets as of September 30, 2022 and June 30, 2022 (in thousands):

Derivatives not designated
as hedging contracts	Balance sheet	Derivative Contract Assets				Balance sheet	Derivative Contract Liabilities
under ASC 815	location	September 30, 2022		June 30, 2022		location	September 30, 2022		June 30, 2022
Commodity contracts	Current assets - derivative contract assets	$	49	$	170	Current liabilities - derivative contract liabilities	$	924	$	2,164
Commodity contracts	Other assets - derivative contract assets		—		—	Long term liabilities - derivative contract liabilities		—		—
Total derivatives not designated as hedging contracts under ASC 815		$	49	$	170		$	924	$	2,164

The following table summarizes the location and amounts of the Company’s realized and unrealized gains and losses on derivative contracts in the Company’s unaudited condensed consolidated statements of operations (in thousands). "Realized gain (loss) on derivative contracts" represents all receipts (payments) on derivative contracts settled during the period. "Unrealized gain (loss) on derivative contracts" represents the net change in the mark-to-market valuation of the derivative contracts.

Derivatives not designated	Location of gain (loss)	Three Months Ended
as hedging contracts	recognized in income on	September 30,
under ASC 815	derivative contracts	2022		2021
Commodity contracts:
Realized gain (loss) on derivative contracts	Other income and expenses - net gain (loss) on derivative contracts	$	(1,722)	$	—
Unrealized gain (loss) on derivative contracts	Other income and expenses - net gain (loss) on derivative contracts		1,119		—
Total net gain (loss) on derivative contracts		$	(603)	$	—

As of September 30, 2022, the Company had the following open crude oil and natural gas derivative contracts:

				Weighted Average		Weighted Average
			Volumes in	Floor Price per		Ceiling Price per
Period	Instrument	Commodity	MMBTU/BBL	MMBTU/BBL		MMBTU/BBL
October 2022	Collar	Natural Gas	117,523	$	3.75	$	5.05
October 2022	Collar	Natural Gas	78,928		5.25		6.67
November 2022 - February 2023	Collar	Natural Gas	443,750		3.75		7.30
November 2022 - March 2023	Collar	Natural Gas	374,072		5.25		7.50
October 2022 - February 2023	Collar	Crude Oil	76,425		70.00		87.50

The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited condensed consolidated balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the Company’s derivative contracts as of September 30, 2022 and June 30, 2022 (in thousands):

	Derivative Contracts Assets				Derivative Contracts Liabilities
Offsetting of Derivative Assets and Liabilities	September 30, 2022		June 30, 2022		September 30, 2022		June 30, 2022
Gross amounts presented in the Consolidated Balance Sheet	$	49	$	170	$	924	$	2,164
Amounts not offset in the Consolidated Balance Sheet		(7)		(170)		(7)		(170)
Net amount	$	42	$	—	$	917	$	1,994

The Company enters into an International Swap Dealers Association Master Agreements (“ISDA”) with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.