Commodity Price Risk Activities

3 Months Ended

Mar. 31, 2017

Derivative Instruments And Hedging Activities Disclosure [Abstract]

Commodity Price Risk Activities

5. Commodity Price Risk Activities

The Company has implemented a strategy to reduce the effects of volatility of oil and natural gas prices on the Company’s results of operations by securing fixed price contracts for a portion of its expected sales volumes.

Inherent in the Company’s fixed price contracts, are certain business risks, including market risk and credit risk. Market risk is the risk that the price of oil and natural gas will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by the Company’s counterparty to a contract. The Company does not currently require cash collateral from any of its counterparties nor does its counterparties require cash collateral from the Company.  At March 31, 2017, the Company had no open physical delivery obligations.

The Company enters into certain commodity derivative instruments to mitigate commodity price risk associated with a portion of its future oil, NGL and natural gas production and related cash flows. The oil, NGL and natural gas revenues and cash flows are affected by changes in commodity product prices, which are volatile and cannot be accurately predicted. The objective for holding these commodity derivatives is to protect the operating revenues and cash flows related to a portion of the future oil, NGL and natural gas sales from the risk of significant declines in commodity prices, which helps ensure the Company’s ability to fund the capital budget. The Company has not designated any of the commodity derivatives as hedges under the applicable accounting standards.  Consequently, all changes in fair value of these derivatives (realized and unrealized) are included in the consolidated statement of operations.

As of March 31, 2017, the following derivative transactions were outstanding:

Instrument	Total Volume	Settlement Period	Fixed Price
Oil – WTI Fixed Price Swap	82,500 Bbl	April – December 2017	$	51.05
Oil – WTI Fixed Price Swap	55,000 Bbl	April – December 2017		50.60
Oil – WTI Fixed Price Swap	275,000 Bbl	April – December 2017		52.90
Oil – WTI Fixed Price Swap	137,500 Bbl	April – December 2017		56.00
Oil – WTI Fixed Price Swap	365,000 Bbl	January – December 2018		54.18
Oil – WTI Fixed Price Swap	182,500 Bbl	January – December 2018		55.65
Oil – WTI Fixed Price Swap	182,500 Bbl	January – December 2018		55.50
Natural Gas – Henry Hub NYMEX Fixed Price Swap	1,925,000 MMBtu	April – December 2017		3.36

Instrument	Total Volume	Settlement Period	Puts		Calls
Oil – 3 Way Collar	267,400 Bbl	April – December 2017	$  40.00 / 60.00		$	85.00
Oil – 2 Way Collar	182,500 Bbl	January – December 2018		50.00		59.45

The above derivative contracts aggregate to 817,400 barrels or 2,970 barrels of oil per day for the remainder of 2017 and 912,500 barrels or 2,500 barrels of oil per day for 2018. The above natural gas derivative contract equates to 1,925,000 MMBtu or 7,000 MMBtu per day for 2017.  All derivative contracts are carried at their fair value on the balance sheet and all changes in value are recorded in the consolidated statement of operations in gain or loss on derivative financial instruments.

As of March 31, 2017 and December 31, 2016, all of the Company’s economic derivative hedge positions were with large financial institutions, which are not known to the Company to be in default on their derivative positions.  The Company is exposed to credit risk to the extent of non-performance by the counterparties in the derivative contracts discussed above; however, the Company does not anticipate non-performance by such counterparties.  None of the Company’s derivative instruments contain credit-risk related contingent features.