Derivative Financial Instruments

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company uses derivative financial instruments in connection with its oil and natural gas operations to provide an economic hedge of the Company’s exposure to commodity price risk associated with anticipated future oil and natural gas production. The Company does not hold or issue derivative financial instruments for trading purposes.

The Company does not designate its derivative instruments to qualify for hedge accounting. Accordingly, the Company reflects changes in the fair value of its derivative instruments in its condensed consolidated statements of operations as they occur.

Collar and Producer 3-way Option Contracts

The Company’s derivative financial instruments consist of collar and producer 3-way option contracts.

A collar option is established with the sale of a short call option and the purchase of a long put option set to expire at a predetermined date in the future. The options give the owner the right but not the obligation to exercise the option at the expiration date.

A producer 3-way option contract is established with the sale of a short call option and the purchase of a long put option set to expire at a predetermined date in the future. However, the producer 3-way option contract also includes the sale of a short put option set to expire at a predetermined date in the future. The options give the owner the right but not the obligation to exercise the option at the expiration date.

The Company has master netting agreements with its counterparties, and therefore certain amounts may be presented on a net basis in the condensed consolidated balance sheets.

Volume of Derivative Activities

The following table sets forth the Company’s outstanding commodity derivative contracts as of March 31, 2023. All of the Company’s commodity derivative contracts at March 31, 2023 are expected to settle by December 31, 2023.


	2023
	Second Quarter		Third Quarter		Fourth Quarter		Total
Producer 3-way (oil)
Volume (Bbl)	340,263		228,659		208,488		777,410
Weighted-average sub-floor price ($/Bbl)	$	62.22	$	60.42	$	60.43	$	61.21
Weighted-average floor price ($/Bbl)	$	77.89	$	79.25	$	80.00	$	78.86
Weighted-average ceiling price ($/Bbl)	$	99.23	$	100.61	$	101.92	$	100.36





Collar (natural gas)
Volume (Mcf)	3,051,421		2,530,000		2,070,000		7,651,421
Weighted-average floor price ($/Mcf)	$	4.12	$	4.25	$	4.50	$	4.27
Weighted-average ceiling price ($/Mcf)	$	5.63	$	5.90	$	6.35	$	5.91

The following table summarizes the amounts reported in the condensed consolidated statements of operations related to the commodity derivative instruments for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
(in thousands)	2023		2022
Gain (loss) on commodity derivatives
Oil derivatives	$	15,097	$	(19,579)
Natural gas derivatives	(1,774)		(8,816)
Total	$	13,323	$	(28,395)

The following table represents the Company’s net cash receipts (payments on) commodity derivatives for the three months ended March 31, 2023 and 2022:


	Three Months Ended March 31,
(in thousands)	2023		2022
Net cash receipts from (payments on) commodity derivatives
Oil derivatives	$	1,953	$	(6,464)
Natural gas derivatives	4,433		(1,311)
Total	$	6,386	$	(7,775)

Common Stock Warrants

On October 24, 2022, in connection with the Business Combination, the Company issued 10,349,975 common stock warrants. Each warrant entitles the holder to purchase one share of Granite Ridge’s common stock at an exercise price of $11.50 per share. The common stock warrants became exercisable 30 days after the completion of the Business Combination and will expire five-years after the completion of the Business Combination. The Company has the right to redeem the common stock warrants at a price of $0.01 per warrant when the price of Granite Ridge’s common stock equals or exceeds $18.00 for 20 days within a 30-day trading period.

The fair value of the common stock warrants was $6.6 million and $11.9 million as of March 31, 2023 and December 31, 2022, respectively. We recognized a gain of $5.3 million during the three months ended March 31, 2023 from the change in fair value of the warrant liability in the condensed consolidated statements of operations. No common stock warrants have been exercised as of March 31, 2023.