OIL PRICE RISK DERIVATIVES

9 Months Ended

Sep. 30, 2016

Price Risk Derivatives [Abstract]

OIL PRICE RISK DERIVATIVES

3. OIL PRICE RISK DERIVATIVES

The Company’s wholly-owned subsidiary Energy One has entered into crude oil derivative contracts (“economic hedges”) with Wells Fargo, the Company’s lender as discussed further in Note 7. The derivative contracts are priced based on West Texas Intermediate (“WTI”) quoted prices for crude oil. The Company is a guarantor of Energy One’s obligations under the economic hedges. The objective of utilizing the economic hedges is to reduce the effect of price changes on a portion of the Company’s future oil production, achieve more predictable cash flows in an environment of volatile oil and gas prices and to manage the Company’s exposure to commodity price risk. The use of these derivative instruments limits the downside risk of adverse price movements. However, there is a risk that such use may limit the Company’s ability to benefit from favorable price movements. Energy One may, from time to time, add incremental derivatives to hedge additional production, restructure existing derivative contracts or enter into new transactions to modify the terms of current contracts in order to realize the current value of its existing positions. The Company does not engage in speculative derivative activities or derivative trading activities, nor does it use derivatives with leveraged features. Presented below is a summary of outstanding “costless collars” with Wells Fargo as of September 30, 2016 (which total an aggregate of 27,600 barrels of oil production during the final three months of 2016):

Settlement Period				Quantity		Contract Price
Begin		End		(bbls/ day)		Put		Call
	10/1/16		12/31/16		300	$	50.00	$	65.25

As of September 30, 2016, the aggregate fair value of oil derivative put contracts was an asset of $78 and the aggregate fair value of oil derivative call contracts was a liability of $1. Since these contracts are with the same counterparty, the Company recognizes the net asset of $77 in the accompanying balance sheet as of September 30, 2016. Since all of the derivative contracts expire within three months of the balance sheet date, the entire amount is included in current assets. As of December 31, 2015, the aggregate fair value of oil derivative put contracts was an asset of $1,674 and the aggregate fair value of oil derivative call contracts was a liability of $40, resulting in a net asset of $1,634.

Unrealized gains and losses resulting from derivatives are recorded at fair value in the consolidated balance sheet. Changes in fair value, as well as realized gains (losses) arising upon derivative contract settlements, are included in the “change in unrealized gain (loss) on oil price risk derivatives” in the consolidated statements of operations.