Quarterly report pursuant to Section 13 or 15(d)

DERIVATIVE FINANCIAL INSTRUMENTS

v3.21.2
DERIVATIVE FINANCIAL INSTRUMENTS
6 Months Ended
Jun. 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 June 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.

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As of

​

    

June 30, 2021

    

December 31, 2020

Liabilities

​

 

  

​

 

  

Commodity derivative instruments

​

$

(42,517,473)

​

$

(3,287,328)

Derivative liabilities, current

​

$

(42,517,473)

​

$

(3,287,328)

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​

​

​

​

​

​

Commodity derivative instruments

​

$

(10,147,883)

​

$

(869,273)

Derivative liabilities, non-current

​

$

(10,147,883)

​

$

(869,273)

​

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

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Three months ended June 30,

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Six months ended June 30,

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2021

    

2020

    

2021

    

​

2020

Gain (loss) on oil derivative

​

$

(35,277,240)

​

$

(13,017,962)

​

$

(66,667,190)

​

$

37,402,847

Gain (loss) on natural gas derivatives

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—

​

 

—

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​

(198,689)

​

​

—

Gain (loss) on derivative contracts

​

$

(35,277,240)

​

$

(13,017,962)

​

$

(66,865,879)

​

$

37,402,847

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

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​

​

​

​

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Three months ended June 30,

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Six months ended June 30,

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2021

    

2020

    

2021

    

2020

Cash flows from operating activities

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Cash (paid) received on oil derivatives

​

$

(12,436,333)

​

$

13,753,567

​

$

(19,100,302)

​

$

17,087,695

Cash (paid) received on natural gas derivatives

​

 

—

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—

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743,178

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—

Cash (paid) received from derivative settlements

​

$

(12,436,333)

​

$

13,753,567

​

$

(18,357,124)

​

$

17,087,695

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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 June 30, 2021:

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Date entered into

    

Period covered

    

Barrels per day

    

Put price

    

Call price

    

Swap price

Oil derivative contracts

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​

2021 costless collars

​

​

​

​

​

​

​

​

​

​

​

​

​

2/25/2020

 

Calendar year 2021

 

1,000

​

$

45.00

​

$

54.75

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​

​

2/25/2020

 

Calendar year 2021

 

1,000

​

 

45.00

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52.71

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2/27/2020

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Calendar year 2021

​

1,000

​

​

40.00

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​

55.08

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​

2021 put

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​

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​

​

​

​

​

​

​

​

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3/2/2020

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Calendar year 2021

​

1,500

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​

40.00

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​

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2021 swaps

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​

​

​

​

​

​

​

​

​

​

​

​

11/25/2020

​

Calendar year 2021

​

2,000

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​

​

​

​

​

​

$

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

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​

​

​

​

​

​

​

​

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2022 swaps

​

​

​

​

​

​

​

​

​

​

​

​

​

12/4/2020

​

Calendar year 2022

​

500

​

​

​

​

​

​

​

​

44.22

12/7/2020

​

Calendar year 2022

​

500

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​

​

​

​

​

​

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44.75

12/10/2020

​

Calendar year 2022

​

500

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​

​

​

​

​

​

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44.97

12/17/2020

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Calendar year 2022

​

250

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​

​

​

​

​

​

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45.98

1/4/2021

​

Calendar year 2022

​

250

​

​

​

​

​

​

​

​

47.00

2/4/2021

 

Calendar year 2022

 

250

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​

​

 

​

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50.05

5/11/2021

​

Calendar year 2022

​

879

(1)

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49.03

(1) The notional quantity per the swap contract entered into on May 21, 2021 is for 26,750 barrels of oil per month. The 879 represents the daily amount on an annual basis.