Derivatives

6 Months Ended

Jun. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Derivatives

The Company is exposed to commodity price risk, which impacts the predictability of its cash flows from the sale of oil and natural gas. On occasion, the Company has attempted to manage this risk on a portion of its forecasted oil or natural gas production sales through the use of commodity derivative contracts. There were no open commodity derivative contracts as of June 30, 2021 and December 31, 2020.

Historically, the Company has not designated any of its derivative contracts as hedges for accounting purposes. All derivative contracts have historically been recorded at fair value with changes in derivative contract fair values recognized as a gain or loss on derivative contracts in the condensed consolidated statements of operations. None of the Company’s previous commodity derivative contracts could be terminated prior to contractual maturity solely as a result of a downgrade in the credit rating of a party to the contract. Commodity derivative contracts were settled on a monthly basis, and the commodity derivative contract valuations were adjusted to the mark-to-market valuation on a quarterly basis.

The following table summarizes derivative activity for the three and six-month periods ended June 30, 2021, and 2020 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
(Gain) loss on commodity derivative contracts	$	—	$	(2,241)	$	—	$	(12,467)
Cash received on settlements	$	—	$	6,490	$	—	$	10,577

Master Netting Agreements and the Right of Offset. As applicable, The Company historically had master netting agreements with all of its commodity derivative counterparties and has presented its derivative assets and liabilities with the same counterparty on a net basis in the unaudited condensed consolidated balance sheets. As a result of the netting provisions, the Company's maximum amount of loss under commodity derivative transactions due to credit risk is limited to the net amounts due from its counterparties. There were no open commodity derivatives contracts as of June 30, 2021 and December 31, 2020.

Because we did not designate any of our derivative contracts as hedges for accounting purposes, changes in the fair value of our derivative contracts were recognized as gains and losses in current period earnings. As a result, and as applicable, our current period earnings could have been significantly affected by changes in the fair value of our commodity derivative contracts. Changes in fair value were principally measured based on a comparison of future prices to the contract price at the end of the period.