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Note 8 - Derivatives and Fair Value | 3 Months Ended
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Mar. 31, 2023
Notes to Financial Statements |
Derivatives and Fair Value [Text Block] | 8. DERIVATIVES AND FAIR VALUE The Company uses derivative financial instruments from time to time to achieve a more predictable cash flow from crude oil production by reducing the Company’s exposure to price fluctuations. See the table below for the list of outstanding contracts as of March 31, 2023:
Settlement Period | Type of Contract | Index |  | Average Monthly Volumes |  |  | Weighted Average Put Price |  |  | Weighted Average Call Price |
|  |  |  | (Bbls) |  |  | (per Bbl) |  |  | (per Bbl) |
April 2023 - June 2023 | Collars | Dated Brent |  |  | 95,500 |  |  | $ | 65.00 |  |  | $ | 100.00 |
While these derivative instruments are intended to be an economic hedge to mitigate the impact of a decline in crude 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. The Company does not enter into derivative instruments for speculative or trading proposes. In connection with the RBL facility entered in May 2022, the Company is required to hedge a portion of its anticipated oil production at the time the Company draws down on the borrowing base. The derivative instruments are measured at fair value using the Income Method. 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 derivative instrument 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. At times, the Company’s counterparties require that it post collateral for changes in the net fair value of the derivative contracts. This cash collateral is reported in the line item "Restricted cash" on the unaudited condensed consolidated balance sheets. The following table sets forth the loss on derivative instruments on the Company’s unaudited condensed consolidated statements of operations and comprehensive income:
|  |  |  | Three Months Ended March 31, |
Derivative Item |  | Statements of Operations Line |  | 2023 |  |  | 2022 |
|  |  |  | (in thousands) |
Commodity derivatives |  | Cash settlements paid on matured derivative contracts, net |  | $ | (59 | ) |  | $ | (12,500 | )
|  | Unrealized gain (loss) |  |  | 80 |  |  |  | (19,258 | )
|  | Derivative instruments gain (loss), net |  | $ | 21 |  |  | $ | (31,758 | )
Subsequent Event On April 3, 2023, the Company entered into additional derivatives contracts for the first quarter of 2023. The details are in the chart below:
Settlement Period | Type of Contract | Index | Average Monthly Volumes | Weighted Average Put Price | Weighted Average Call Price
|  |  | (Bbls) | (per Bbl) | (per Bbl)
July 2023 - September 2023 | Collars | Dated Brent |  | 95,000 | $ | 65.00 | $ | 96.00

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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 -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 820 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//820/tableOfContent + Details
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