19. RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

The future results of the Company's crude oil and natural gas operations will be affected by market prices of crude oil and natural gas which is affected by numerous factors beyond the control of the Company, including weather, imports, marketing of competitive fuels, proximity and capacity of crude oil and natural gas pipelines and other transportation facilities, any oversupply or undersupply of crude oil, natural gas and natural gas liquid products, economic disruptions, the regulatory environment, the economic environment, and other regional and political events, none of which can be predicted with certainty.

The Company's operations are also subject to concentration risk due to the fact that all of its oil and natural gas revenue is sourced from its operations in the United States. Further, two of the Company's customers reflect 84.7% of its oil and gas revenues for the three months ended March 31, 2023, with each of these customers representing 49.3% and 35.4% of the revenues, which represents further concentration risk in specific customers.

Credit Risks

Financial instruments which potentially subject the Company to credit risk consist principally of cash balances, accounts receivable, and derivatives.

The Company maintains cash balances at financial institutions, which may at times exceed the federally insured limits. The Company has not experienced any significant losses from such investments, and the Company believes the credit quality of the financial institutions to be high.

The Company's accounts receivables are subject to normal industry credit risk. The accounts receivables are mainly due from participants in the oil and gas industry, who may be affected by periodic downturns in the economy, in general, or in their specific segment of the crude oil or natural gas industry. The Company believes that its level of credit-related losses due to such economic fluctuations have been immaterial.

The Company's derivative contracts are with established financial institutions with investment grade credit ratings which are believed to have minimal credit risk. As such, the Company is exposed to credit risk to the extent of nonperformance by the counterparties in the derivative contracts; however, the Company does not anticipate such nonperformance.

Commodity Price Risk and Interest Rate Risk

The Company has utilized various commodity price derivative instruments to reduce commodity price risk being the risk that future cash flows will fluctuate as a result of changes in commodity prices. In addition, from time to time the Company utilizes interest rate swaps to mitigate exposure to changes in interest rates on the Company's variable rate indebtedness.

All derivative instruments are recorded in the Company's condensed consolidated balance sheet as either assets or liabilities measured at their fair value. The Company has not designated any derivative instruments as hedges for accounting purposes and does not enter into such instruments for speculative trading purposes. The changes in the fair value are recognized in the Company's condensed consolidated statements of operations and comprehensive income (loss).

The location and amounts of the Company's realized and unrealized gains and losses on derivative contracts in the Company's condensed consolidated statements of operations and comprehensive income (loss) are as follows:

			For the three months ended
			March 31
	Statements of Operations Location		2023			2022
Commodity derivative contracts
Unrealized loss	Gain / (loss) on derivative instruments	$	(3,077,079	)	$	(13,772,152	)
Realized gain (loss)	Gain / (loss) on derivative instruments		21,546,737			(8,828,893	)
Total gain (loss), net		$	18,469,658		$	(22,601,045	)
Interest rate derivative contracts
Unrealized loss	Finance and interest expense	$	-		$	(43,421	)
Realized gain	Finance and interest expense		-			493,345
Total gain, net		$	-		$	449,924

Gains and losses on derivative instruments are included in the operating section of the condensed consolidated statements of cash flows.

As at March 31, 2023 the Company had closed out all of its open commodity derivative positions, realizing a net gain of $18,469,658. There were no remaining open derivative positions as at March 31, 2023.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with the financial liabilities as they become due.

At March 31, 2023 the Company had negative working capital of $226,314,535. The Company expects to repay its financial liabilities in the normal course of operations and to fund future operational and capital requirements through operating cash flows and through issuance of debt and/or equity.

The Company may need to conduct asset sales and/or issuances of debt and/or equity if liquidity risk increases in a given period. The Company believes it has sufficient funds to meet foreseeable obligations by actively monitoring its credit facilities through use of the loans, asset sales, and coordinating payment and revenue cycles.