Note 7 - Derivative Instruments |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2026 | |||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Text Block] |
Note 7. Derivative Instruments
Participation in the oil and natural gas industry exposes the Partnership to risks associated with potentially volatile changes in energy commodity prices, and therefore, the Partnership’s future earnings are subject to these risks. Therefore, the Partnership periodically utilizes derivative contracts to manage the commodity price risk on the Partnership’s future production it will produce and sell and to reduce the effect of volatility in commodity price changes to provide a base level of cash flow from operations. In March 2026, the Partnership entered into costless collar derivative contracts to mitigate the commodity price risk for a portion of the Partnership's expected oil production for the period from April 2026 to December 2026. The Partnership generally uses costless collar derivative contracts, which establish floor and ceiling prices on future anticipated production. The Partnership did pay or receive a premium related to the costless collars into which it entered, and the contracts will be settled monthly.
As of June 30, 2026, the Partnership’s derivative instruments were in an asset position. The Partnership recognized total assets of approximately $0.5 million, which has been recorded as Derivative asset on the Partnership’s consolidated balance sheet as of June 30, 2026.
The Partnership did not designate its derivative instruments as hedges for accounting purposes and did not enter into such instruments for speculative trading purposes. As a result, when derivatives do not qualify or are not designated as a hedge, the changes in the fair value are recognized on the Partnership’s consolidated statements of operations as a gain or loss on derivative instruments. The following table presents the settlement losses of matured derivative instruments and non-cash mark-to-market gains for the periods presented.
The table below summarizes the Partnership’s outstanding derivative contracts (costless collars – purchased put options and written call options) on the Partnership’s future oil production.
The Partnership’s outstanding derivative instruments are covered by International Swaps and Derivatives Association Master Agreements (“ISDA”) entered into with the counterparty. The ISDA may provide that as a result of certain circumstances, such as cross-defaults, a counterparty may require all outstanding derivative instruments under an ISDA to be settled immediately. The Partnership has netting arrangements with its counterparties that provide for offsetting payables against receivables from separate derivative instruments. The use of derivative instruments involves the risk that the Partnership’s counterparty will be unable to meet the financial terms of such instruments.
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