Commodity Price Risk Activities

Lonestar enters into certain commodity derivative instruments to mitigate commodity price risk associated with a portion of its future oil and natural gas production and related cash flows. The oil 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 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 December 31, 2019, the Company had no open physical delivery obligations.

The following table summarizes Lonestar's commodity derivative contracts as of December 31, 2019:

Contract

Volume Hedged

Weighted

Commodity

Type

Period

Range ⁽¹⁾

(Bbls/Mcf per day)

Average Price

Oil – WTI

Swaps

Jan - June 2020

$48.90 - $65.56

7,393

56.51

Oil – WTI

Swaps

July - Dec 2020

51.60 - 65.56

7,565

57.38

Oil - WTI

Swaps

Jan - Dec 2021

51.05 - 56.50

4,000

53.93

Natural Gas - Henry Hub

Swaps

Jan - Dec 2020

2.38 - 2.80

20,000

2.58

(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.

During January 2020, the Company entered into additional WTI swaps for 365,000 Bbls (1,000 Bbls per day) at an average strike price of $55.05 per Bbl for the period of January through December 2021. During March 2020, the Company entered into additional WTI swaps for 730,000 Bbls (2,000 Bbls per day) at an average strike price of $41 for the period of January through December 2021 and entered into additional Henry Hub swaps for 10,037,500 Mcf (27,500 Mcf per day) at an average strike price of $2.36 per Mcf.

During March 2020, the Company entered into one-month LIBOR interest rate swaps for $190 million of notional amount at a rate of 0.68% for the period of March 2020 through March 2023. The interest rate swaps were entered into to hedge variable interest rate changes associated with our Credit Line. See Note 9. Long-Term Debt for more information on the Credit Line's interest terms.

As of December 31, 2019, all of the Company’s 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. None of the Company’s derivative instruments contain credit-risk related contingent features.