7. COMMODITY DERIVATIVES

The Company’s results of operations and cash flows are affected by changes in market prices for crude oil and natural gas. To manage a portion of its exposure to price volatility from producing crude oil and natural gas, the Company may enter into commodity derivative contracts to protect against price declines in future periods. The Company does not enter into derivative contracts for speculative or trading purposes. The Company does not apply hedge accounting. Accordingly, changes in the fair value of the derivative contracts are recorded in the Condensed Consolidated Statements of Operations and are included as a non-cash adjustment to net loss in the operating activities section in the Condensed Consolidated Statements of Cash Flows.

On April 7, 2026, the Company entered into derivative contracts to manage its exposure to fluctuations in crude oil prices. Specifically, the Company entered into a costless collar contract under which it sold call options with a strike price of $88.09 per barrel and purchased put options with a strike price of $65.00 per barrel, based on the monthly average West Texas Intermediate crude oil price. The contracts cover 3,800 barrels of oil per month for the period from June 2026 through July 2027.

As of June 30, 2026, the fair value gain of the oil contracts was $167 thousand and there were no cash settlements through June 30, 2026.