Note 5 - Derivative Financial Instruments

9 Months Ended

Sep. 30, 2024

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 enhanced 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 condensed consolidated statements of operations (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2024			2023			2024			2023
Noncash derivative gain (loss), net	$	33,775		$	(15,883	)	$	(11,514	)	$	(9,866	)
Cash payments on settled derivatives, net		(1,441	)		(13,772	)		(11,897	)		(21,032	)
Derivative gain (loss), net	$	32,334		$	(29,655	)	$	(23,411	)	$	(30,898	)

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 Cushing and Argus WTI Midland crude oil prices. As such, the Company primarily uses NYMEX WTI Cushing derivative contracts as well as Argus WTI Midland basis swaps to manage future crude oil price volatility. The Argus WTI Midland basis differential represents the amount of premium to NYMEX WTI Cushing.

The Company’s outstanding NYMEX WTI Cushing and Argus WTI Midland crude oil derivative instruments as of September 30, 2024 and the weighted average crude oil prices and premiums payable per barrel for those contracts are as follows:

						Swaps		Enhanced Collars & Deferred Premium Puts
Settlement Month	Year	Type of Contract	Bbls Per Day		Index	Price per Bbl		Floor or Strike Price per Bbl		Ceiling Price per Bbl		Deferred Premium Payable per Bbl
Crude Oil:
Oct – Dec	2024	Swap		8,500	WTI Cushing	$	74.12	$	—	$	—	$	—
Oct – Dec	2024	Basis Swap		25,000	Argus WTI Midland	$	1.12	$	—	$	—	$	—
Oct – Dec	2024	Collar		13,667	WTI Cushing	$	—	$	64.41	$	87.47	$	1.43
Oct – Dec	2024	Put		9,000	WTI Cushing	$	—	$	65.78	$	—	$	5.00
Jan – Mar	2025	Swap		7,467	WTI Cushing	$	74.69	$	—	$	—	$	—
Jan – Mar	2025	Collar		11,000	WTI Cushing	$	—	$	63.64	$	86.66	$	1.54
Jan – Mar	2025	Put		9,000	WTI Cushing	$	—	$	65.78	$	—	$	5.00
Apr – Jun	2025	Swap		5,500	WTI Cushing	$	76.37	$	—	$	—	$	—
Apr – Jun	2025	Collar		7,989	WTI Cushing	$	—	$	64.38	$	88.55	$	2.00
Apr – Jun	2025	Put		9,000	WTI Cushing	$	—	$	65.78	$	—	$	5.00
Jul – Sep	2025	Swap		3,000	WTI Cushing	$	75.85	$	—	$	—	$	—
Jul – Sep	2025	Collar		7,000	WTI Cushing	$	—	$	65.00	$	90.08	$	2.28
Jul – Sep	2025	Put		9,000	WTI Cushing	$	—	$	65.78	$	—	$	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 assets associated with the Company’s open commodity derivative instruments by counterparty are as follows (in thousands):

	As of September 30, 2024
Mercuria Energy Trading SA	$	11,792
Fifth Third Bank, National Association		7,178
Wells Fargo Bank, National Association		3,609
Macquarie Bank Limited		327
	$	22,906