4. 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 collateral from any of its counterparties nor does its counterparties require collateral from the Company. At December 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 are included in the Consolidated Statements of Operations.

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

Instrument	Total Volume	Settlement Period	Fixed Price
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
Oil – WTI Fixed Price Swap	292,000 Bbl	January – December 2018		47.10
Oil – WTI Fixed Price Swap	509,000 Bbl	January – December 2018		50.17
Oil – WTI Fixed Price Swap	508,900 Bbl	January – December 2019		50.40
Oil – WTI Fixed Price Swap	560,700 Bbl	January – December 2019		48.04
Oil – WTI Fixed Price Swap	401,500 Bbl	January – December 2019		50.90
Oil – WTI Fixed Price Swap	203,600 Bbl	January – June 2020		48.90
Natural Gas – Henry Hub NYMEX Fixed Price Swap	1,825,000 MMBtu	January – December 2018		3.09

Instrument

Total Volume

Settlement Period

Puts

Calls

Oil – 2 Way Collar

182,500 Bbl

January – December 2018

50.00

59.45

The above oil derivative contracts aggregate to 1,713,500 Bbls or 4,695 Bbls/d for 2018; 1,471,100 Bbls or 4,030 Bbls/d for 2019; and 203,600 Bbls or 1,119 Bbls/d for 2020. The above natural gas derivative contract equates to 5,000 MMBtu/d for 2018. All derivative contracts are carried at their fair value on the balance sheet and all changes in value are recorded in the Consolidated Statements of Operations.

As of December 31, 2017 and 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.