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Note 5 - Derivative Financial Instruments
3 Months Ended
Mar. 31, 2025
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, collars 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

March 31,

 
   

2025

   

2024

 
                 

Noncash derivative loss, net

  $ (4,856

)

  $ (47,895 )

Cash payments on settled derivatives, net

    (3,071 )     (5,148 )

Derivative loss, net

  $ (7,927 )   $ (53,043 )

 

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 from time to time 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 March 31, 2025 and the weighted average crude oil prices and premiums payable per barrel for those contracts are as follows:

 

                                     

Swaps

   

Collars, Enhanced Collars

& Deferred

Premium Puts

 

Settlement

Month

   

Settlement

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:

                                                                 

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  

Oct - Dec

     

2025

     

Collar

      5,000      

WTI Cushing

    $     $ 60.00     $ 72.80     $  

Jan - Mar

     

2026

     

Collar

      5,000      

WTI Cushing

    $     $ 60.00     $ 72.80     $  

 

 

Natural gas production derivatives. The Company sells its natural gas production at the tailgate of the gas processing plants and the sales contracts governing such natural gas production are tied directly to, or are correlated with, HH natural gas prices. As such, the Company primarily uses HH derivative contracts to manage future natural gas price volatility.

 

The Company’s outstanding HH natural gas derivative instruments as of March 31, 2025 and the weighted average natural gas prices per MMBtu for those contracts are as follows:

 

Settlement Month

   

Settlement

Year

   

Type of

Contract

   

MMBtu

Per Day

   

Index

   

Price per

MMBtu

 

Natural Gas:

                                         

Apr – Jun

     

2025

     

Swap

      30,000      

HH

    $ 4.43  

Jul – Sep

     

2025

     

Swap

      30,000      

HH

    $ 4.43  
Oct – Dec      

2025

     

Swap

      30,000      

HH

    $ 4.43  

Jan – Mar

     

2026

     

Swap

      19,667      

HH

    $ 4.43  

 

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

March 31,

2025

 

Macquarie Bank Limited

  $ (2,812 )

Wells Fargo Bank, National Association

    (1,200 )

Fifth Third Bank, National Association

    (583 )

Mercuria Energy Trading SA

    1,940  
    $ (2,655 )