Derivative Instruments

6 Months Ended

Jun. 30, 2025

Derivative Instruments

Derivative Instruments

(11) Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations, and it may use derivative instruments to manage its commodity price risk.  In addition, the Company periodically enters into contracts that contain embedded features that are required to be bifurcated and accounted for separately as derivatives.

(a) Commodity Derivative Positions

The Company periodically enters into natural gas, NGLs and oil derivative contracts with counterparties to hedge the price risk associated with its production. These derivatives are not entered into for trading purposes. To the extent that changes occur in the market prices of natural gas, NGLs and oil, the Company is exposed to market risk on these open contracts. This market risk exposure is generally offset by the change in market prices of natural gas, NGLs and oil recognized upon the ultimate sale of the Company’s production.

The Company was party to various commodity derivative contracts that settled during the three and six months ended June 30, 2024 and 2025. The Company enters derivative contracts when management believes that favorable future sales prices for the Company’s production can be secured. Under the Company’s swap agreements, when actual commodity prices upon settlement exceed the fixed price provided by the swap contracts, the Company pays the difference to the counterparty. When actual commodity prices upon settlement are less than the contractually provided fixed price, the Company receives the difference from the counterparty. Under the Company’s collar agreements, when actual commodity prices upon settlement are below the floor price provided by the contract, the Company receives the difference from the counterparty. When actual commodity prices upon settlement are above the ceiling price, the Company pays the difference to the counterparty.

The Company’s derivative contracts have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in the Company’s statements of operations and comprehensive income (loss).

As of June 30, 2025, the Company’s fixed price swap positions excluding Martica, the Company’s consolidated VIE, were as follows:

				Weighted
				Average
Commodity / Settlement Period	Index	Contracted Volume		Price
Natural Gas
July-December 2025	Henry Hub	100,000	MMBtu/day	$	3.12	/MMBtu

As of June 30, 2025, the Company’s collar contract positions excluding Martica, the Company’s consolidated VIE, were as follows:

				Weighted			Weighted
				Average			Average
Commodity / Settlement Period	Index	Contracted Volume		Ceiling Price			Floor Price
Natural Gas
January-December 2026	Henry Hub	500,000	MMBtu/day	$	6.31	/MMBtu	$	3.14	/MMBtu

The Company has a call option and an embedded put option tied to NYMEX pricing for the production volumes associated with the Company’s retained interest in the volumetric production payment transaction (“VPP”) properties. The put option was embedded within another contract, and since the embedded put option was not clearly and closely related to its host contract, the Company bifurcated this derivative instrument and reflects it at fair value in the unaudited condensed consolidated financial statements. As of June 30, 2025, the Company’s call option and embedded put option arrangements were as follows:

							Embedded
				Call Option			Put Option
Commodity / Settlement Period	Index	Contracted Volume		Strike Price			Strike Price
Natural Gas
July-December 2025	Henry Hub	44,000	MMBtu/day	$	2.564	/MMBtu	$	2.564	/MMBtu
January-December 2026	Henry Hub	32,000	MMBtu/day		2.629	/MMBtu		2.629	/MMBtu

During the three months ended March 31, 2025, all of Martica’s derivative contracts expired, and as a result, Martica had no derivative instruments as of March 31, 2025 or June 30, 2025.

(b) Summary

The table below presents a summary of the fair values of the Company’s derivative instruments and where such values are recorded in the condensed consolidated balance sheets (in thousands).

				(Unaudited)
		December 31,		June 30,
	Balance Sheet Location	2024		2025
Asset derivatives not designated as hedges for accounting purposes:
Commodity derivatives—current	Derivative instruments	$	—		387
Embedded derivatives—current	Derivative instruments		1,050		750
Commodity derivatives—noncurrent	Derivative instruments		—		371
Embedded derivatives—noncurrent	Derivative instruments		1,296		576
Total asset derivatives (1)			2,346		2,084
Liability derivatives not designated as hedges for accounting purposes:
Commodity derivatives—current (2)	Derivative instruments		31,792		34,019
Commodity derivatives—noncurrent	Derivative instruments		17,233		15,635
Total liability derivatives (1)			49,025		49,654
Net derivatives liability (1)		$	(46,679)		(47,570)

(1) The fair value of derivative instruments was determined using Level 2 inputs.

(2) As of December 31, 2024, $2 million of current commodity derivative liabilities are attributable to the Company’s consolidated VIE, Martica.

The following table sets forth the gross values of recognized derivative assets and liabilities, the amounts offset under master netting arrangements with counterparties, and the resulting net amounts presented in the condensed consolidated balance sheets as of the dates presented, all at fair value (in thousands):

							(Unaudited)
	December 31, 2024						June 30, 2025
					Net Amounts of						Net Amounts of
	Gross		Gross		Assets		Gross		Gross		Assets
	Amounts		Amounts Offset		(Liabilities) on		Amounts		Amounts Offset		(Liabilities) on
	Recognized		Recognized		Balance Sheet		Recognized		Recognized		Balance Sheet
Commodity derivative assets	$	3,482		(3,482)		—		36,917		(36,159)		758
Embedded derivative assets		2,346		—		2,346		1,326		—		1,326
Commodity derivative liabilities		(52,507)		3,482		(49,025)		(85,813)		36,159		(49,654)

The following table sets forth a summary of derivative fair value gains and losses and where such values are recorded in the unaudited condensed consolidated statements of operations and comprehensive income (loss) (in thousands):

	Statement of
	Operations	Three Months Ended June 30,				Six Months Ended June 30,
	Location	2024		2025		2024		2025
Commodity derivative fair value gains (losses) (1)	Revenue	$	(3,545)		53,220		4,721		(17,241)
Embedded derivative fair value gains (losses) (1)	Revenue		(2,040)		189		(860)		(1,021)

(1) The fair value of derivative instruments was determined using Level 2 inputs.