NOTE 6. RISK MANAGEMENT

The Company’s business activities expose it to risks associated with changes in the market price of oil, natural gas and natural gas liquids. In addition, the Company’s floating rate credit facility exposes it to risks associated with changes in interest rates. As such, future earnings are subject to fluctuation due to changes in the market prices of oil, natural gas and natural gas liquids and interest rates. The Company uses derivatives to reduce its risk of volatility in the prices of oil, natural gas and natural gas liquids. The Company policies do not permit the use of derivatives for speculative purposes.

The Company has elected not to designate any of its derivatives as hedging instruments. Accordingly, changes in the fair value of derivatives are recorded immediately to operations as “Gain (loss) on derivatives, net” in the unaudited condensed consolidated statements of operations.

As of June 30, 2019, the Company had entered into derivatives with the following terms:


		Weighted Average
Period Covered	Hedged Volume	Fixed Price
Oil (Bbls):
Swaps - July 2019 to December 2019	372,600	$	63.37
Swaps - January 2020 to December 2020	667,950	$	60.51

Natural Gas (MMBtus):
Swaps - July 2019 to December 2019	12,880,000	$	2.77
Swaps - January 2020 to December 2020	23,790,000	$	2.71

Natural Gas Liquids (Bbls):
Swaps - July 2019 to December 2019	487,600	$	18.73
Swaps - January 2020 to December 2020	768,600	$	17.68

The following table sets forth the fair values and classification of the Company’s outstanding derivatives:


					Net Amounts
	Gross		Gross Amounts		of Assets
	Amount of		Offset in the		Presented in the
	Recognized		Consolidated		Consolidated
	Assets		Balance Sheet		Balance Sheet
As of June 30, 2019:
Derivative asset	$	14,137	$	—	$	14,137
Long-term derivative asset		4,781		—		4,781
Total	$	18,918	$	—	$	18,918

As of December 31, 2018:
Derivative asset	$	18,048	$	(2,596)	$	15,452
Long-term derivative asset		8,565		(66)		8,499
Total	$	26,613	$	(2,662)	$	23,951

Derivative liability	$	3,761	$	(2,596)	$	1,165
Long-term derivative liability		66		(66)		—
Total	$	3,827	$	(2,662)	$	1,165

The Company has entered into master netting arrangements with its counterparties. The amounts above are presented on a net basis in the unaudited condensed consolidated balance sheets when such amounts are with the same counterparty. In addition, the Company has recorded accounts payable and receivable balances related to settled derivatives that are subject to the master netting agreements. These amounts are not included in the above table; however, under the master netting agreements, the Company has the right to offset these positions against forward exposure related to outstanding derivatives.