NOTE 9. 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 price 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 and interest rates. 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 its derivatives are recorded immediately to earnings as “Gain on derivatives, net” in the consolidated statements of operations.

As of December 31, 2019, the Company had entered derivatives with the following terms:


		Weighted Average
Period Covered	Hedged Volume	Fixed Price
Oil (MBbls):
Swaps - January 2020 to December 2020	439.2	$	60.50

Natural Gas (MMBtus):
Swaps - January 2020 to December 2020	11,346.0	$	2.68

Natural Gas Liquids (MBbls):
Swaps - January 2020 to December 2020	111.6	$	20.71

During the first quarter of 2020, the Company terminated 47.6 MBbls of oil swaps, 1.0 MMBtus of natural gas swaps and 80.5 MBbls of natural gas liquids swaps for the periods between January 2020 to December 2020 at a fixed price of $60.53 per Bbl, $2.73 per MMbtu and $20.57 per Bbl, respectively; this termination resulted in a cash settlement received of $1.1 million.

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


					Net Amounts
	Gross		Gross Amounts		of Assets and Liabilities
	Amount of		Offset on the		Presented on the
	Recognized		Consolidated		Consolidated
	Assets and Liabilities		Balance Sheets		Balance Sheets
As of December 31, 2019:
Current derivative asset	$	6,231	$	—	$	6,231
Long-term derivative asset		—		—		—
Total	$	6,231	$	—	$	6,231

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

Current 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 a master netting arrangement with its counterparty. The amounts above are presented on a net basis in the 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 agreement. These amounts are not included in the above table; however, under the master netting agreement, the Company has the right to offset these positions against forward exposure related to outstanding derivatives.

The Company could be required to post cash collateral related to these derivatives under certain circumstances. As of December 31, 2019 and 2018, the Company was not required to post any collateral nor did they hold any collateral associated with derivatives, respectively.