Commodity Price Risk Activities

12 Months Ended

Dec. 31, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Commodity Price Risk Activities

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, 2020 (Successor), the Company had no open physical delivery obligations.

Under the terms of Company's Successor Credit Facility, by no later than 90 days following the Effective Date, which can be extended at the discretion of the Lenders, the Company is required to have hedges in place covering a minimum of 80% of its anticipated production for the period of 36 consecutive calendar months following the Effective Date and 75% of its anticipated production for the 24 months immediately following the date of each Swap Agreement Certificate (as defined in the Agreement).

As of December 31, 2020 (Successor), all of the Company's outstanding derivative contracts were subject to enforceable master netting arrangements whereby payables on those contracts can be offset against receivables from separate derivative contracts with the same counterparty. It is the Company's policy to classify derivative assets and liabilities on a gross basis on its balance sheets, even if the contracts are subject to enforceable master netting arrangements.

The following table summarizes Lonestar's commodity derivative contracts as of December 31, 2020 (Successor):

	Contract			Volume Hedged	Weighted
Commodity	Type	Period	Range (1)	(Bbls/Mcf per day)	Average Price
Oil - WTI	Swaps	Jan - Dec 2021	$42.20 - $47.09	4,146	$	43.05
Oil - WTI	Swaps	Jan - Dec 2022	$44.83 - $47.09	2,000	45.62
Natural Gas - Henry Hub	Swaps	Jan - Dec 2021	$2.86 - $3.28	11,991	3.03
Natural Gas - Henry Hub	Swaps	Jan - Dec 2022	$2.70 - $3.14	6,233	2.77

(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 2021, the Company entered into additional WTI swaps of 184,000 (1,000 barrels per day) at an average strike price of $50.37 for the period of July through December 2021, in addition the company entered into additional WTI swaps of 90,500 (500 barrels per day) at an average strike of $49.17 for the period of January through June 2022. During February 2021, the company entered into additional WTI swaps of 221,000 (722 barrels per day) at an average strike price of $55.50 for the period of March through December 2021, in addition the company entered into additional WTI swaps of 297,000 (814 barrels per day) at an average strike of $49.82 for the period of January through December 2022 and entered into Henry Hub swaps for 460,000 MMBtu (5,000 MMBtu/d) at an average strike price of $2.93 per MMBtu.

As of December 31, 2020 (Successor), 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.