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Derivative Instruments
 9 Months Ended
Sep. 30, 2025
Derivative Instruments  
Derivative Instruments

(11) Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations, and it may use derivative instruments to manage its commodity price risk.  In addition, the Company periodically enters into contracts that contain embedded features that are required to be bifurcated and accounted for separately as derivatives.

(a)Commodity Derivative Positions

The Company periodically enters into natural gas, NGLs and oil derivative contracts with counterparties to hedge the price risk associated with its production. These derivatives are not entered into for trading purposes. To the extent that changes occur in the market prices of natural gas, NGLs and oil, the Company is exposed to market risk on these open contracts. This market risk exposure is generally offset by the change in market prices of natural gas, NGLs and oil recognized upon the ultimate sale of the Company’s production.

The Company was party to various commodity derivative contracts that settled during the three and nine months ended September 30, 2024 and 2025. The Company enters into derivative contracts when management believes that favorable future sales prices for the Company’s production can be secured. Under the Company’s swap agreements, when actual commodity prices upon settlement exceed the fixed price provided by the swap contracts, the Company pays the difference to the counterparty. When actual commodity prices upon settlement are less than the contractually provided fixed price, the Company receives the difference from the counterparty. Under the Company’s collar agreements, when actual commodity prices upon settlement are below the floor price provided by the contract, the Company receives the difference from the counterparty. When actual commodity prices upon settlement are above the ceiling price, the Company pays the difference to the counterparty.

The Company’s derivative contracts have not been designated as hedges for accounting purposes; therefore, all gains and losses are recognized in the Company’s unaudited condensed consolidated statements of operations and comprehensive income (loss).

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As of September 30, 2025, the Company’s fixed price swap positions were as follows:

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Weighted

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Average

Commodity / Settlement Period

 

Index

 

Contracted Volume

 

Price

Natural Gas

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October-December 2025

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Henry Hub

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559,891

MMBtu/day

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$

3.66

/MMBtu

January-December 2026

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Henry Hub

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470,000

MMBtu/day

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3.78

/MMBtu

January-December 2027

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Henry Hub

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80,000

MMBtu/day

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3.92

/MMBtu

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As of September 30, 2025, the Company’s collar contract positions were as follows:

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Weighted

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Weighted

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Average

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Average

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Commodity / Settlement Period

 

Index

 

Contracted Volume

 

Ceiling Price

 

Floor Price

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Natural Gas

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January-December 2026

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Henry Hub

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500,000

MMBtu/day

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$

5.83

/MMBtu

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$

3.22

/MMBtu

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The Company has a call option and an embedded put option tied to NYMEX pricing for the production volumes associated with the Company’s retained interest in the volumetric production payment transaction (“VPP”) properties. The put option was embedded within another contract, and since the embedded put option was not clearly and closely related to its host contract, the Company bifurcated this derivative instrument and reflects it at fair value in the unaudited condensed consolidated financial statements. As of September 30, 2025, the Company’s call option and embedded put option arrangements were as follows:

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Embedded

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Call Option

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Put Option

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Commodity / Settlement Period

 

Index

 

Contracted Volume

 

Strike Price

 

Strike Price

   

Natural Gas

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October-December 2025

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Henry Hub

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44,000

MMBtu/day

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$

2.56

/MMBtu

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$

2.56

/MMBtu

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January-December 2026

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Henry Hub

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32,000

MMBtu/day

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2.63

/MMBtu

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2.63

/MMBtu

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During the three months ended March 31, 2025, all of Martica’s derivative contracts expired. As of September 30, 2025, Martica had no derivative instruments.

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(b)Summary

The table below presents a summary of the fair values of the Company’s derivative instruments and where such values are recorded in the condensed consolidated balance sheets (in thousands).

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(Unaudited)

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December 31,

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September 30,

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Balance Sheet Location

   

2024

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2025

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Asset derivatives not designated as hedges for accounting purposes:

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Commodity derivatives—current

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Derivative instruments

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$

—

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16,535

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Embedded derivatives—current

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Derivative instruments

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1,050

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888

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Commodity derivatives—noncurrent

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Derivative instruments

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—

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332

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Embedded derivatives—noncurrent

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Derivative instruments

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1,296

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306

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Total asset derivatives (1)

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2,346

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18,061

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Liability derivatives not designated as hedges for accounting purposes:

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Commodity derivatives—current (2)

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Derivative instruments

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31,792

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—

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Commodity derivatives—noncurrent

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Derivative instruments

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17,233

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24,820

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Total liability derivatives (1)

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49,025

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24,820

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Net derivatives liability (1)

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$

(46,679)

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(6,759)

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(1)The fair value of derivative instruments was determined using Level 2 inputs.
(2)As of December 31, 2024, $2 million of current commodity derivative liabilities are attributable to the Company’s consolidated VIE, Martica.

The following table sets forth the gross values of recognized derivative assets and liabilities, the amounts offset under master netting arrangements with counterparties, and the resulting net amounts presented in the condensed consolidated balance sheets as of the dates presented, all at fair value (in thousands):

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(Unaudited)

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December 31, 2024

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September 30, 2025

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Net Amounts of

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Net Amounts of

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Gross

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Gross

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Assets

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Gross

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Gross

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Assets

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Amounts

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Amounts Offset

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(Liabilities) on

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Amounts

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Amounts Offset

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(Liabilities) on

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Recognized

   

Recognized

   

Balance Sheet

   

Recognized

   

Recognized

   

Balance Sheet

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Commodity derivative assets

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$

3,482

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(3,482)

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—

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84,296

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(67,429)

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16,867

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Embedded derivative assets

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2,346

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—

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2,346

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1,194

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—

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1,194

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Commodity derivative liabilities

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(52,507)

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3,482

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(49,025)

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(92,249)

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67,429

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(24,820)

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The following table sets forth a summary of derivative fair value gains and losses and where such values are recorded in the unaudited condensed consolidated statements of operations and comprehensive income (loss) (in thousands):

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Statement of

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Three Months Ended

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Nine Months Ended

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Operations

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September 30,

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September 30,

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Location

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2024

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2025

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2024

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2025

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Commodity derivative fair value gains (1)

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Revenue

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$

18,004

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39,374

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22,726

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22,133

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Embedded derivative fair value gains (losses) (1)

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Revenue

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364

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(131)

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(497)

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(1,152)

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(1)The fair value of derivative instruments was determined using Level 2 inputs.

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