Note 5 - Derivative Financial Instruments

6 Months Ended

Jun. 30, 2023

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):

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Noncash derivative gain (loss), net	$	703		$	25,191		$	6,017		$	(16,442	)
Cash payments on settled derivatives, net		(5,066	)		(37,082	)		(7,260	)		(61,843	)
Derivative loss, net	$	(4,363	)	$	(11,891	)	$	(1,243	)	$	(78,285	)

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 June 30, 2023 and the weighted average crude oil prices per barrel for those contracts are as follows:

	Remainder of 2023
	Third Quarter		Fourth Quarter		Total
Crude Oil Price Swaps – WTI:
Volume (MBbls)		276.0		—		276.0
Price per Bbl	$	72.30	$	—	$	72.30
Deferred Premium Put Options – WTI:
Volume (MBbls)		644.0		920.0		1,564.0
Price per Bbl (Put Price)	$	60.46	$	55.97	$	57.82
Price per Bbl (Net of Premium)	$	55.46	$	50.97	$	52.82

	2024
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total
Deferred Premium Put Options – WTI:
Volume (MBbls)		910.0		910.0		920.0		—		2,740.0
Price per Bbl (Put Price)	$	53.83	$	53.83	$	53.83	$	—	$	53.83
Price per Bbl (Net of Premium)	$	48.83	$	48.83	$	48.83	$	—	$	48.83

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 June 30, 2023
Bank of America, National Association	$	(7,994	)
Citizens Bank, National Association		(3,365	)
	$	(11,359	)