Note 5 - Derivative Financial Instruments

9 Months Ended

Sep. 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, deferred premium put options and deferred premium collars to (i) reduce the effect of price volatility on the commodities the Company produces and sells, (ii) support the Company’s capital budgeting and expenditure plans, (iii) protect the Company’s commitments under the Term Loan Credit Agreement and Senior Credit Facility Agreement and (iv) support the payment of contractual obligations.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Noncash gain (loss) on derivative instruments, net	$	(15,883	)	$	38,098		$	(9,866	)	$	21,656
Cash paid on settlement of derivative instruments, net		(13,772	)		(2,300	)		(21,032	)		(64,143	)
Gain (loss) on derivative instruments, net	$	(29,655	)	$	35,798		$	(30,898	)	$	(42,487	)

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 instruments as of September 30, 2023 and the weighted average crude oil prices and premiums payable per barrel for those contracts are as follows:

						Swaps		Deferred Premium Collars & Deferred Premium Puts
Settlement Month	Settlement Year	Type of Contract	Bbls Per Day		Index	Price		Floor or Strike Price		Ceiling Price		Deferred Premium Payable
Crude Oil:
Oct - Dec	2023	Swap		11,300	WTI	$	77.84	$	—	$	—	$	—
Oct - Dec	2023	Collar		5,000	WTI	$	—	$	75.50	$	100.00	$	0.35
Oct - Dec	2023	Put		19,000	WTI	$	—	$	69.46	$	—	$	5.00
Jan - Mar	2024	Swap		4,000	WTI	$	84.00	$	—	$	—	$	—
Jan - Mar	2024	Collar		6,000	WTI	$	—	$	80.00	$	100.00	$	3.50
Jan - Mar	2024	Put		20,000	WTI	$	—	$	66.44	$	—	$	5.00
Apr - Jun	2024	Swap		4,000	WTI	$	84.00	$	—	$	—	$	—
Apr - Jun	2024	Collar		5,500	WTI	$	—	$	69.73	$	95.00	$	0.61
Apr - Jun	2024	Put		14,000	WTI	$	—	$	60.41	$	—	$	5.00
Jul - Sep	2024	Swap		4,000	WTI	$	84.00	$	—	$	—	$	—
Jul - Sep	2024	Collar		1,500	WTI	$	—	$	69.00	$	95.00	$	0.85
Jul - Sep	2024	Put		14,000	WTI	$	—	$	60.41	$	—	$	5.00
Oct - Dec	2024	Swap		5,500	WTI	$	76.37	$	—	$	—	$	—
Oct - Dec	2024	Collar		10,600	WTI	$	—	$	65.68	$	90.32	$	1.85
Oct - Dec	2024	Put		2,000	WTI	$	—	$	58.00	$	—	$	5.00
Jan - Mar	2025	Swap		5,500	WTI	$	76.37	$	—	$	—	$	—
Jan - Mar	2025	Collar		8,000	WTI	$	—	$	65.00	$	90.00	$	2.12
Jan - Mar	2025	Put		2,000	WTI	$	—	$	58.00	$	—	$	5.00
Apr - Jun	2025	Swap		5,500	WTI	$	76.37	$	—	$	—	$	—
Apr - Jun	2025	Collar		7,000	WTI	$	—	$	65.00	$	90.08	$	2.28
Apr - Jun	2025	Put		2,000	WTI	$	—	$	58.00	$	—	$	5.00
Jul - Sep	2025	Swap		3,000	WTI	$	75.85	$	—	$	—	$	—
Jul - Sep	2025	Collar		7,000	WTI	$	—	$	65.00	$	90.08	$	2.28
Jul - Sep	2025	Put		2,000	WTI	$	—	$	58.00	$	—	$	5.00

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 derivative instruments by counterparty are as follows (in thousands):

	As of September 30, 2023
Macquarie Bank Limited	$	(16,697	)
Wells Fargo Bank, National Association		(10,034	)
Mercuria Energy Trading SA		(888	)
Fifth Third Bank, National Association		377
	$	(27,242	)