v3.26.1
Note 5 - Derivative Financial Instruments
 6 Months Ended
Jun. 30, 2026
Notes to Financial Statements  
Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 5. Derivative Financial Instruments

 

The Company utilizes derivative financial instruments, primarily swaps, costless collars, basis swaps and roll swaps 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 Company has not designated its derivative financial instruments as hedges for accounting purposes and, as a result, marks its derivative instruments to fair value and recognizes the cash and non-cash changes in fair value in the consolidated statements of operations under the caption “Gain (loss) on derivative instruments, net.” 

 

The following table summarizes the effect of derivative instruments on the Company’s condensed consolidated statements of operations (in thousands):

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2026

    

2025

    

2026

    

2025

  
                                 

Noncash derivative gain (loss), net

   $ 108,154     $ 19,034     $ (31,400 )   $ 14,178  

Cash (payments) receipts on settled derivatives, net

     (54,728 )     7,412       (72,201 )     4,341  

Derivative gain (loss), net

   $ 53,426     $ 26,446     $ (103,601 )   $ 18,519  

 

 

By using derivative instruments to economically hedge exposure to changes in commodity prices, the Company exposes itself to credit risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. The Company has entered into commodity derivative instruments only with counterparties that are also lenders under its Term Loan Credit Agreement and Senior Credit Facility Agreement and have been deemed acceptable credit risk. As such, collateral is not required from either the counterparties or the Company on its outstanding derivative contracts.

 

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 and NYMEX WTI roll 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, Argus WTI Midland and NYMEX WTI Roll crude oil derivative instruments as of June 30, 2026 and the weighted average crude oil prices per barrel for those contracts are as follows:

 

Settlement

Month

  

Settlement

Year

  

Type of

Contract

  

Bbls

Per Day

    

Index

  

Swap

Price per

Bbl

    

Costless

Collar

Floor

Price per

Bbl

    

Costless

Collar

Ceiling

Price per

Bbl

  

Crude Oil:

                                            

Jul – Sep

  

2026

  

Costless Collar

     13,000    

WTI Cushing

   $ —     $ 61.38     $ 69.39  

Jul – Sep

  

2026

  

Swap

     5,000    

WTI Cushing

   $ 63.45     $ —     $ —  

Jul – Sep

  

2026

  

Roll Swap

     26,011    

NYMEX WTI Roll

   $ 4.30             $ —  

Jul – Sep

  

2026

  

Basis Swap

     23,000    

Argus WTI Midland

   $ 1.37     $ —     $ —  

Oct – Dec

  

2026

  

Costless Collar

     10,800    

WTI Cushing

   $ —     $ 61.67     $ 68.52  

Oct – Dec

  

2026

  

Swap

     5,000    

WTI Cushing

   $ 63.45     $ —     $ —  

Oct – Dec

  

2026

  

Roll Swap

     25,000    

NYMEX WTI Roll

   $ 4.23     $ —     $ —  

Oct – Dec

  

2026

  

Basis Swap

     23,000    

Argus WTI Midland

   $ 1.37     $ —     $ —  

Jan – Mar

  

2027

  

Costless Collar

     8,900    

WTI Cushing

   $ —     $ 59.78     $ 65.24  

Jan – Mar

  

2027

  

Swap

     4,400    

WTI Cushing

   $ 62.14     $ —     $ —  

Jan – Mar

  

2027

  

Basis Swap

     10,000    

Argus WTI Midland

   $ 1.00     $ —     $ —  

Apr – Jun

  

2027

  

Costless Collar

     4,000    

WTI Cushing

   $ —     $ 52.00     $ 62.85  

Apr – Jun

  

2027

  

Swap

     6,470    

WTI Cushing

   $ 59.61     $ —     $ —  

Apr – Jun

  

2027

  

Basis Swap

     10,000    

Argus WTI Midland

   $ 1.00     $ —     $ —  

Jul – Sep

  

2027

  

Swap

     8,950    

WTI Cushing

   $ 61.46     $ —     $ —  

Jul – Sep

  

2027

  

Basis Swap

     10,000    

Argus WTI Midland

   $ 1.00     $ —     $ —  

Oct – Dec

  

2027

  

Swap

     7,500    

WTI Cushing

   $ 70.42     $ —     $ —  

Oct – Dec

  

2027

  

Basis Swap

     10,000    

Argus WTI Midland

   $ 1.00     $ —     $ —  

 

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 correlated with HH and WAHA natural gas prices. As such, the Company primarily uses HH and WAHA derivative contracts to manage future natural gas price volatility.

 

The Company’s outstanding HH and WAHA natural gas derivative instruments as of June 30, 2026 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:

                            

Jul – Sep

  

2026

  

Swap

     30,000    

HH

  

$

 4.300  

Oct – Dec

  

2026

  

Swap

     30,000    

HH

  

$

 4.300  

Oct – Dec

  

2026

  

Basis Swap

     15,000    

WAHA

   $ (1.667 )

Jan – Mar

  

2027

  

Swap

     19,667    

HH

  

$

 4.300  

Jan – Mar

  

2027

  

Basis Swap

     15,000    

WAHA

   $ (1.525 )

Apr – Jun

  

2027

  

Basis Swap

     15,000    

WAHA

   $ (1.525 )

Jul – Sep

  

2027

  

Basis Swap

     15,000    

WAHA

   $ (1.525 )

Oct – Dec

  

2027

  

Basis Swap

     15,000    

WAHA

   $ (1.525 )

 

Balance Sheet Offsetting of Derivative Assets and Liabilities.  The fair value of derivative instruments is generally determined using established index prices and other sources which are based upon, among other things, futures prices and time to maturity. While it is acceptable to record these fair values by netting asset and liability positions, including any deferred premiums, that are with the same counterparty and are subject to contractual terms which provide for net settlement, the Company elects to record them at the gross level showing assets and liabilities as if they were settled separately. See Note 4 – Fair Value Measurements for further details. Net derivative assets associated with the Company’s open commodity derivative instruments by counterparty are as follows (in thousands):

 

   

As of

June 30,

2026

  

J. Aron & Company LLC

  

$

 21,330  

Macquarie Bank Limited

     (2,295 )

Mercuria Energy Trading SA

     (3,977 )

Fifth Third Bank, National Association

     (13,427 )
   

$

 1,631