Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS

v3.21.2
DERIVATIVE FINANCIAL INSTRUMENTS
9 Months Ended
Sep. 30, 2021
DERIVATIVE FINANCIAL INSTRUMENTS  
DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company is exposed to fluctuations in crude oil and natural gas prices on its production. It utilizes derivative strategies that consist of either a single derivative instrument or a combination of instruments to manage the variability in cash flows associated with the forecasted sale of its future domestic oil and natural gas production. While the use of derivative instruments may limit or partially reduce

the downside risk of adverse commodity price movements, the use also may limit future income from favorable commodity price movements.

The Company’s derivative financial instruments are recorded at fair value and included as either assets or liabilities in the accompanying balance sheets. The Company has not designated its derivative financial instruments as hedges for accounting purposes, and, as a result, any gains or losses resulting from changes in fair value of outstanding derivative financial instruments and from the settlement of derivative financial instruments are recognized in earnings and included as a component of “Other income (expense)” under the heading “Gain (loss) on derivative contracts” in the accompanying Statements of Operations.

The use of derivative transactions involves the risk that the counterparties, which generally are financial institutions, will be unable to meet the financial terms of such transactions. At September 30, 2021, 100% of the Company’s volumes subject to derivative instruments are with lenders under its Credit Facility (as defined in Note 8). The Company is not subject to master netting agreements and classifies the fair value of its derivative positions on a gross basis in its corresponding balance sheets. The following presents the impact of the Company’s contracts on its balance sheets for the periods indicated.

As of

    

September 30, 2021

    

December 31, 2020

Liabilities

 

  

 

  

Commodity derivative instruments

$

(38,402,944)

$

(3,287,328)

Derivative liabilities, current

$

(38,402,944)

$

(3,287,328)

Commodity derivative instruments

$

(6,061,724)

$

(869,273)

Derivative liabilities, non-current

$

(6,061,724)

$

(869,273)

The components of “Gain (loss) on derivative contracts” are as follows for the respective periods:

Three months ended September 30,

Nine months ended September 30,

    

2021

    

2020

    

2021

    

2020

Gain (loss) on oil derivative

$

(6,720,320)

$

(4,502,080)

$

(73,387,510)

$

32,900,767

Gain (loss) on natural gas derivatives

 

 

(198,689)

Gain (loss) on derivative contracts

$

(6,720,320)

$

(4,502,080)

$

(73,586,199)

$

32,900,767

The components of “Cash (paid) received for commodity derivative settlements” are as follows for the respective periods:

Three months ended September 30,

Nine months ended September 30,

    

2021

    

2020

    

2021

    

2020

Cash flows from operating activites

Cash (paid) received on oil derivatives

$

(14,921,008)

$

1,726,373

$

(34,030,310)

$

18,814,068

Cash (paid) received on natural gas derivatives

 

 

 

743,178

 

Cash (paid) received from derivative settlements

$

(14,921,008)

$

1,726,373

$

(33,287,132)

$

18,814,068

Throughout 2020 and the first half of 2021, the Company entered into additional derivative contracts in the form of costless collars, puts and swaps for 2021 and 2022 calendar period for both oil and natural gas. The following tables reflect the details of current contracts as of September 30, 2021:

Date entered into

    

Period covered

    

Barrels per day

    

Put price

    

Call price

    

Swap price

Oil derivative contracts

2021 costless collars

2/25/2020

 

Calendar year 2021

 

1,000

$

45.00

$

54.75

2/25/2020

 

Calendar year 2021

 

1,000

 

45.00

 

52.71

 

2/27/2020

Calendar year 2021

1,000

40.00

55.08

2021 put

3/2/2020

Calendar year 2021

1,500

40.00

2021 swaps

11/25/2020

Calendar year 2021

2,000

$

45.37

12/2/2020

Calendar year 2021

500

45.38

12/3/2020

Calendar year 2021

500

45.00

12/4/2020

 

Calendar year 2021

 

500

 

 

45.40

12/4/2020

Calendar year 2021

500

 

45.60

12/7/2020

Calendar year 2021

500

45.96

2022 swaps

12/4/2020

Calendar year 2022

500

44.22

12/7/2020

Calendar year 2022

500

44.75

12/10/2020

Calendar year 2022

500

44.97

12/17/2020

Calendar year 2022

250

45.98

1/4/2021

Calendar year 2022

250

47.00

2/4/2021

 

Calendar year 2022

 

250

 

 

 

50.05

5/11/2021

Calendar year 2022

879

(1)

49.03

(1) The notional quantity per the swap contract entered into on May 11, 2021 is for 26,750 barrels of oil per month. The 879 represents the daily amount on an annual basis.