Commodity Price Risk Activities

Lonestar 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 entering into 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.

Inherent in Lonestar'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 non-performance 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. As of June 30, 2019, the Company had no open physical delivery obligations.

The following table summarizes Lonestar's commodity derivative contracts as of June 30, 2019:



	Contract			Volumes	Weighted
Commodity	Type	Period	Range ⁽¹⁾	(Bbls/Mcf per day)	Average Price
Oil - WTI	Swaps	July - Dec 2019	$48.04 - $69.57	7,305	$	54.60
Oil - Argus WTI ⁽²⁾	Basis Swaps	July - Dec 2019	5.00 - 5.55	6,000	5.05
Oil - WTI	Swaps	Jan - Dec 2020	48.90 - 65.56	7,480	56.95
Oil - WTI	Swaps	Jan - Dec 2021	51.05 - 56.50	3,000	54.68
Natural Gas - Henry Hub	Swaps	July - Dec 2019	2.76 - 2.98	15,000	2.82
Natural Gas - Henry Hub	Swaps	Jan - Dec 2020	2.59 - 2.59	15,000	2.59

(1) Ranges presented for fixed-price swaps and basis swaps represent the lowest and highest fixed prices of all open contracts for the period presented.

(2) Basis swap contracts establish a fixed amount for the differential between Argus WTI and Argus LLS prices on a trade-month basis for the period indicated.

As of June 30, 2019, 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.