The Company’s ongoing operations expose it to changes in the market price for oil and natural gas. To mitigate the inherent commodity price risk associated with its operations, the Company uses oil and natural gas commodity derivative instruments. From time to time, such instruments may include variable-to-fixed-price swaps, costless collars, fixed-price contracts, and other contractual

arrangements. The Company enters into oil and natural gas derivative contracts that contain netting arrangements with each counterparty. The Company does not enter into derivative instruments for speculative purposes.

As of December 31, 2020, the Company’s open derivative contracts consisted of fixed-price swap oil contracts and costless collar natural gas contracts. A fixed-price swap contract between the Company and a counterparty specifies a fixed price for the contract and pays a floating market price to the counterparty over a specified period for a contracted volume. A costless collar contract between the Company and the counterparty specifies a floor and a ceiling commodity price over a specified period for a contracted volume. The Company has not designated any of its contracts as fair value or cash flow hedges. Accordingly, the changes in fair value of the contracts are included in the consolidated statement of operations in the period of the change. All derivative gains and losses from the Company’s derivative contracts have been recognized in revenue in the Company’s accompanying consolidated statement of operations. Derivative instruments that have not yet been settled in cash are reflected as either derivative assets or liabilities in the Company’s accompanying consolidated balance sheets as of December 31, 2020 and 2019.

The Company’s oil fixed price swap transactions are settled based upon the average daily prices for the calendar month of the contract period and its natural gas costless collar contracts are settled based upon the last day settlement of the first nearby month futures contract of the contract period. Settlement for oil derivative contracts occurs in the succeeding month and natural gas derivative contracts are settled in the production month.

The Company’s derivative contracts expose it to credit risk in the event of nonperformance by counterparties that may adversely impact the fair value of the Company’s commodity derivative assets. While the Company does not require contract counterparties to post collateral, the Company does evaluate the credit standing on each counterparty as deemed appropriate. The evaluation includes reviewing a counterparty’s credit rating and latest financial information. As of December 31, 2020, the Company had one counterparty, which is rated Aa3 or better by Moody’s and is a lender under the Credit Facility. The Company did not enter into any derivative contracts during the year ended December 31, 2019.

The Company utilizes the market approach in determining the fair value of its derivative positions by using either NYMEX, ICE or WTI published market prices, independent broker pricing data or broker/dealer valuations. The valuations of derivatives with pricing based on NYMEX or ICE published market prices may be considered Level 1 if they are settled through a NYMEX or ICE clearing broker account with daily margining. Over-the-counter derivatives with NYMEX, ICE or WTI based prices are considered Level 2 due to the impact of counterparty credit risk. The Company’s derivatives are classified within Level 2.

The table below summarizes the fair values and classifications of the Company’s derivative instruments as of December 31, 2020 (in thousands):

		As of December 31, 2020
Classification	Balance Sheet Location	Gross Fair Value		Effect of Netting			Net Carrying Value
Assets:
Current asset	Other current assets	$	342	$	(342	)	$	-
Long-term asset	Other assets		-		-			-
Total assets		$	342	$	(342	)	$	-
Liabilities:
Current liability	Other current liabilities	$	1,286	$	(342	)	$	944
Long-term liability	Other non-current liabilities		-		-			-
Total liabilities		$	1,286	$	(342	)	$	944

Changes in the fair values of the Company’s derivative instruments are presented on a net basis in the accompanying consolidated statements of operations and consolidated statements of cash flows and consist of the following for the periods presented (in thousands):

	Year Ended
	December 31,
	2020			2019		2018
Unrealized gain (loss) of open non-hedge derivative instruments	$	(944	)	$	-	$	(1,151	)
Realized gain (loss) on settlement of non-hedge derivative instruments		(256	)		-		(305	)
Gain (loss) on commodity derivative instruments	$	(1,200	)	$	-	$	(1,456	)

The Company had the following open derivative contracts for oil as of December 31, 2020:

					Range (Per Bbl)
			Weighted Average
Period and Type of Contract	Volume (Bbl)		Price (Per Bbl)		Low		High
Oil Swap Contracts:
2021
First Quarter		98,000	$	40.40	$	40.40	$	40.40

The Company had the following open derivative contracts for natural gas as of December 31, 2020:

			Weighted Average		Weighted Average
Period and Type of Contract	Volume (MMBtu)		Floor Price (Per MMBtu)		Ceiling Price (Per MMBtu)
Natural Gas Collar Contracts:
2021
First Quarter		481,000	$	3.15	$	3.55