Derivative Instruments and Hedging Activities

6 Months Ended

Jun. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities

Derivative Instruments and Hedging Activities

Commodity Derivative Instruments

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, 2020, the Company had no open physical delivery obligations.

The following table summarizes Lonestar's commodity derivative contracts as of June 30, 2020:

	Contract			Volumes	Weighted
Commodity	Type	Period	Range (1)	(Bbls/Mcf per day)	Average Price
Oil - WTI	Swaps	July - Dec 2020	51.60 - 65.56	7,565	57.38
Oil - WTI	Swaps	Jan - Dec 2021	40.95 - 56.50	7,000	50.40
Natural Gas - Henry Hub	Swaps	July - Dec 2020	2.38 - 2.80	20,000	2.55
Natural Gas - Henry Hub	Swaps	Jan - Dec 2021	2.32 - 2.39	27,500	2.36

(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.

As of June 30, 2020, 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.

Interest Rate Hedge Instruments

The Company uses interest rate swap contracts to manage its net exposure to rate changes attributable to its Credit Facility borrowings (see below). At June 30, 2020, the Company was a party to two one-month London Interbank Offered Rate ("LIBOR") swap contracts with notional amounts of $190 million in the aggregate and a fixed rate of 0.68%. The contracts settle monthly from April 2020 through March 2023, and the Company realized a loss of $0.1 million for the second quarter of 2020 related settlements of the Company's interest rate hedges, and an unrealized loss of $0.9 million.