Note 5 - Derivative Financial Instruments

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 5. Derivative Financial Instruments

The Company primarily utilizes commodity swap contracts and deferred premium put options to (i) reduce the effect of price volatility on the commodities the Company produces and sells, particularly on the down side, and (ii) support the Company’s capital budgeting and expenditure plans, (iii) protect the Company’s borrowing base under the Credit Agreement and (iv) support the payment of contractual obligations.

The following table summarizes the effect of derivatives on the Company’s consolidated statements of operations (in thousands):

	Year Ended December 31,						August 22, 2020 through December 31,		January 1, 2020 through August 21,
	2022			2021			2020		2020
	Successor								Predecessor
Noncash derivative loss, net	$	(1,909	)	$	(15,467	)	$	—	$	—
Cash payments on settled derivatives, net		(58,096	)		(11,267	)		—		—
Derivative loss, net	$	(60,005	)	$	(26,734	)	$	—	$	—

Crude oil production derivatives. The Company sells its crude oil production at the lease and the sales contracts governing such crude oil production are tied directly to, or are correlated with, NYMEX WTI crude oil prices. As such, the Company uses NYMEX WTI derivative contracts to manage future crude oil price volatility.

The Company’s outstanding crude oil derivative contracts as of December 31, 2022 and the weighted average crude oil prices per barrel for those contracts are as follows:

	2023
Crude Oil Price Swaps – WTI:	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Volume (MBbls)		900.0		546.0		276.0		—		1,722.0
Price per Bbl	$	73.67	$	67.81	$	72.30	$	—	$	71.59

	2023
Deferred Premium Put Options – WTI:	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Volume (MBbls)		—		364.0		644.0		920.0		1,928.0
Price per Bbl (Put Price)	$	—	$	61.05	$	60.46	$	55.97	$	58.43
Price per Bbl (Net of Premium)	$	—	$	56.05	$	55.46	$	50.97	$	53.43

	2024
Deferred Premium Put Options – WTI:	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Volume (MBbls)		455.0		455.0		460.0		—		1,370.0
Price per Bbl (Put Price)	$	51.50	$	51.50	$	51.50	$	—	$	51.50
Price per Bbl (Net of Premium)	$	46.50	$	46.50	$	46.50	$	—	$	46.50

The Company uses credit and other financial criteria to evaluate the credit standings of, and to select, counterparties to its derivative financial instruments. Although the Company does not obtain collateral or otherwise secure the fair value of its derivative financial instruments, associated credit risk is mitigated by the Company’s credit risk policies and procedures.

Net derivative liabilities associated with the Company’s open commodity derivatives by counterparty are as follows (in thousands): 

	As of December 31, 2022
Fifth Third Bank, National Association	$	(11,102	)
Bank of America, National Association		(5,054	)
Citizens Bank, National Association		(1,220	)
	$	(17,376	)