Quarterly report [Sections 13 or 15(d)]

DERIVATIVE FINANCIAL INSTRUMENTS

v3.26.3
DERIVATIVE FINANCIAL INSTRUMENTS
 9 Months Ended
Sep. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
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 our 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, their use also may limit future income from favorable commodity price movements.
From time to time, the Company enters into derivative contracts to protect the Company’s cash flow from price fluctuation and maintain its capital programs. The Company has historically used costless collars, deferred premium puts, or swaps for this purpose. Oil derivative contracts are based on West Texas Intermediate ("WTI") crude oil prices and natural gas contracts are based on the Henry Hub. A “costless collar” is the combination of two options, a put option (floor) and call option (ceiling) with the options structured so that the premium paid for the put option will be offset by the premium received from selling the call option. Similar to costless collars, there is no cost to enter into the swap contracts. A deferred premium put contract has the premium established upon entering the contract, and due upon settlement of the contract.
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. All of our derivative contracts are with lenders under our Credit Facility. Non-performance risk is incorporated in the discount rate by adding the quoted bank (counterparty) credit default swap (CDS) rates to the risk free rate. Although the counterparties hold the right to offset (i.e. netting) the settlement amounts with the Company, in accordance with ASC 815-10-50-4B, the Company classifies the fair value of all its derivative positions on a gross basis in the Company's Condensed Balance Sheets.
The Company’s derivative financial instruments are recorded at fair value and included as either assets or liabilities in the accompanying Condensed Balance Sheets. The Company has not designated its derivative 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 Condensed Statements of Operations.
The following table presents the impact of the Company’s contracts on its Condensed Balance Sheets for the periods indicated.
As of
September 30, 2026 December 31, 2025
Commodity derivative instruments, marked to market:
Derivatives assets, current $ 7,115,775  $ 21,468,134 
Derivative assets, noncurrent $ 8,955,873  $ 9,739,430 
Derivative liabilities, current $ 44,004,900  $ 841,193 
Derivative liabilities, noncurrent $ 20,007,162  $ 2,512,692 
The components of “Gain (loss) on derivative contracts” from the Condensed Statements of Operations are as follows for the respective periods:
For the Three Months Ended
For the Nine Months Ended
September 30, 2026 September 30, 2025 September 30, 2026 September 30, 2025
Oil derivatives:
Realized gain (loss) on oil derivatives $ (12,326,980) $ 2,065,490  $ (38,002,808) $ 1,858,524 
Unrealized gain (loss) on oil derivatives (40,095,482) (3,526,149) (80,531,788) 10,961,216 
Gain (loss) on oil derivatives $ (52,422,462) $ (1,460,659) $ (118,534,596) $ 12,819,740 
Natural gas derivatives:
Realized gain (loss) on natural gas derivatives $ 149,385  $ 520,740  $ 2,090,122  $ 851,955 
Unrealized gain (loss) on natural gas derivatives (927,203) 1,384,224  4,737,695  491,874 
Gain (loss) on natural gas derivatives $ (777,818) $ 1,904,964  $ 6,827,817  $ 1,343,829 
Gain (loss) on derivative contracts $ (53,200,280) $ 444,305  $ (111,706,779) $ 14,163,569 
The components of “Cash received (paid) for derivative settlements, net” within the Condensed Statements of Cash Flows are as follows for the respective periods:
For the Three Months Ended
For the Nine Months Ended
September 30, 2026 September 30, 2025 September 30, 2026 September 30, 2025
Cash flows from operating activities
Cash received (paid) for oil derivatives $ (12,326,980) $ 2,065,490  $ (38,002,808) $ 1,858,524 
Cash received (paid) for natural gas derivatives 149,385  520,740  2,090,122  851,955 
Cash received (paid) for derivative settlements, net $ (12,177,595) $ 2,586,230  $ (35,912,686) $ 2,710,479 
The following tables reflect the details of current derivative contracts as of September 30, 2026 (quantities are in barrels (Bbl) for the oil derivative contracts and in million British thermal units (MMBtu) for the natural gas derivative contracts).
Oil Hedges (WTI) Q4 2026 Q1 2027 Q2 2027 Q3 2027 Q4 2027 Q1 2028 Q2 2028 Q3 2028
Swaps:
Hedged volume (Bbl) 529,000  509,500  492,000  432,000  412,963  —  —  — 
Weighted average swap price $ 65.34  $ 62.82  $ 60.45  $ 61.80  $ 57.59  $ —  $ —  $ — 
Two-way collars:
Hedged volume (Bbl) 368,000  272,935  —  32,910  33,435  430,080  415,580  402,614 
Weighted average put price $ 65.00  $ 64.97  $ —  $ 60.00  $ 60.00  $ 55.59  $ 57.50  $ 60.00 
Weighted average call price $ 80.00  $ 98.45  $ —  $ 72.30  $ 72.30  $ 66.02  $ 73.02  $ 77.21 
Swaps: WTI NYMEX Rolls
Hedged volume (BBL) 455,000  —  —  —  —  —  —  — 
Weighted average swap price $ 5.71  $ —  $ —  $ —  $ —  $ —  $ —  $ — 
Gas Hedges (Henry Hub) Q4 2026 Q1 2027 Q2 2027 Q3 2027 Q4 2027 Q1 2028 Q2 2028 Q3 2028
NYMEX Swaps:
Hedged volume (MMBtu) 1,072,305  439,678  423,035  1,079,906  1,046,151  1,012,567  984,322  956,865 
Weighted average swap price $ 3.99  $ 4.02  $ 4.02  $ 3.86  $ 4.02  $ 3.77  $ 3.77  $ 3.77 
Two-way collars:
Hedged volume (MMBtu) 128,000  717,000  694,000  —  —  —  —  — 
Weighted average put price $ 3.50  $ 3.99  $ 3.00  $ —  $ —  $ —  $ —  $ — 
Weighted average call price $ 5.42  $ 5.21  $ 4.32  $ —  $ —  $ —  $ —  $ — 
Gas Hedges (Henry Hub) Q4 2028 Q1 2029 Q2 2029 Q3 2029 Q4 2029 Q1 2030 Q2 2030
NYMEX Swaps:
Hedged volume (MMBtu) 931,539  908,117  886,933  866,585  846,134  —  — 
Weighted average swap price $ 3.77  $ 3.67  $ 3.67  $ 3.67  $ 3.67  $ —  $ — 
Gas Hedges (basis differential) Q4 2026 Q1 2027 Q2 2027 Q3 2027 Q4 2027 Q1 2028 Q2 2028 Q3 2028
Waha basis swaps:
Hedged volume (MMBtu) 411,451  196,372  480,325  464,360  449,846  435,403  —  — 
Weighted average spread price (1)
$ 1.81  $ 0.78  $ 0.78  $ 0.78  $ 0.78  $ 0.68  $ —  $ — 
El Paso Permian Basin basis swaps:
Hedged volume (MMBtu) 788,851  960,307  636,710  615,547  596,306  577,163  —  — 
Weighted average spread price (1)
$ 1.92  $ 0.72  $ 0.67  $ 0.67  $ 0.67  $ 0.60  $ —  $ — 
Gas Hedges (basis differential) Q4 2028 Q1 2029 Q2 2029 Q3 2029 Q4 2029 Q1 2030 Q2 2030
Waha basis swaps:
Hedged volume (MMBtu) —  —  —  259,975  253,840  —  — 
Weighted average spread price (1)
$ —  $ —  $ —  $ 0.61  $ 0.71  $ —  $ — 
El Paso Permian Basin basis swaps:
Hedged volume (MMBtu) —  —  —  606,610  592,294  —  — 
Weighted average spread price (1)
$ —  $ —  $ —  $ 0.54  $ 0.64  $ —  $ — 
(1) The gas basis swap hedges are calculated as the Henry Hub natural gas price less the fixed amount specified as the weighted average spread price above.