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Derivatives and Fair Value | 9 Months Ended
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Sep. 30, 2019
Derivatives and Fair Value [Abstract] |
Derivatives and Fair Value | 8. DERIVATIVES AND FAIR VALUE The Company uses derivative financial instruments to achieve a more predictable cash flow from oil production by reducing the Company’s exposure to price fluctuations. See Note 1 for further information. Commodity swaps - In June 2018, the Company entered into commodity swaps at a Dated Brent weighted average of $74.00 per barrel for the period from and including June 2018 through June 2019 for a quantity of approximately 400,000 barrels. On May 6, 2019, the Company entered into commodity swaps at a Dated Brent weighted average of $66.70 per barrel for the period from and including July 2019 through June 2020 for an approximate quantity of 500,000 barrels. If a liability position for these swaps exceed $10.0 million, the Company would be required to provide a bank letter of credit or deposit cash into an escrow account for the amount by which the liability exceeds $10.0 million. At September 30, 2019, the Company’s unexpired commodity swaps as shown in the table below had a fair value asset position of $3.7 million reflected in “Prepayments and other” line of the Company’s condensed consolidated balance sheet. These swaps settle on a monthly basis.
|  |  |  |  |  |  |  |  |  |  | Swaps
Settlement Period |  |  | Type of Contract |  |  | Index |  |  | Barrels |  | Weighted Average Fixed Price
2019 |  |  | Swaps |  |  | Dated Brent |  |  | 119,865 |  | $ | 66.70
2020 |  |  | Swaps |  |  | Dated Brent |  |  | 274,870 |  |  | 66.70
|  |  |  |  |  |  |  |  | 394,735 |  |  |
While these commodity swaps are intended to be an economic hedge to mitigate the impact of a decline in oil prices, the Company has not elected hedge accounting. The contracts are being measured at fair value each period, with changes in fair value recognized in net income. T he Company does not enter into derivative instruments for speculative or trading proposes. The crude oil swaps contracts are measured at fair value using the Black Scholes option pricing model. Level 2 observable inputs used in the valuation model include market information as of the reporting date, such as prevailing Brent crude futures prices, Brent crude futures commodity price volatility and interest rates. The determination of the swap contracts fair value includes the impact of the counterparty’s non-performance risk. To mitigate counterparty risk, the Company enters into such derivative contracts with creditworthy financial institutions deemed by management as competent and competitive market makers. The following table sets forth the gain (loss) on derivative instruments on the Company’s condensed consolidated statements of operations:
|  |  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
Derivative Item |  | Statement of Operations Line |  | 2019 |  | 2018 |  | 2019 |  | 2018
|  |  |  | (in thousands)
Crude oil swaps |  | Realized gain - contract settlements |  | $ | 493 |  | $ | 39 |  | $ | 2,056 |  | $ | 28
|  | Unrealized gain (loss) |  |  | 1,774 |  |  | (1,065) |  |  | 210 |  |  | (2,064)
|  | Derivative instruments gain (loss), net |  | $ | 2,267 |  | $ | (1,026) |  | $ | 2,266 |  | $ | (2,036)

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- Definition The entire disclosure for derivatives and fair value of assets and liabilities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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