Derivative financial instruments

12 Months Ended

Dec. 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 consolidated statements of operations as they occur.

Collar Option Contracts and Swaps

The Company’s derivative financial instruments consist of collar option contracts and swaps.

A collar option is established with the sale of a short call option (ceiling price) and the purchase of a long put option (floor price) 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.

When the settlement price is below the established floor price, the Company receives an amount from its counterparty equal to the difference between the settlement price and the floor price multiplied by the hedged contract volume. When the settlement price is above the established ceiling price, the Company pays its counterparty an amount equal to the difference between the settlement price and the ceiling price multiplied by the hedged contract volume. When the settlement price is between the established floor and the ceiling, no amounts are due to or from the counterparty.

A swap contract allows the Company to receive a fixed price and pay a floating market price to the counterparty for the hedged commodity.

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

Volume of Derivative Activities

The following table sets forth the Company’s outstanding commodity derivative contracts as of December 31, 2023.


	2024										2025
	First Quarter		Second Quarter		Third Quarter		Fourth Quarter		Total		Total
Collar (oil)
Volume (Bbl)	461,524		401,874		361,552		311,496		1,536,446		273,000
Weighted-average floor price ($/Bbl)	$	64.22	$	64.27	$	64.32	$	64.13	$	64.24	$	63.00
Weighted-average ceiling price ($/Bbl)	$	84.99	$	85.11	$	85.24	$	84.97	$	85.07	$	82.70
Swaps (oil)
Volume (Bbl)	62,000		48,000		39,000		32,000		181,000		—
Weighted-average price ($/Bbl)	$	80.00	$	80.00	$	80.00	$	80.00	$	80.00	$	—
Collar (natural gas)
Volume (Mcf)	3,856,000		—		—		1,615,000		5,471,000		2,156,000
Weighted-average floor price ($/Mcf)	$	2.93	$	—	$	—	$	3.57	$	3.12	$	3.57
Weighted-average ceiling price ($/Mcf)	$	4.39	$	—	$	—	$	5.37	$	4.68	$	5.37
Swaps (natural gas)
Volume (Mcf)	—		3,236,000		2,823,000		844,000		6,903,000		450,000
Weighted-average price ($/Mcf)	$	—	$	3.22	$	3.22	$	3.22	$	3.22	$	3.68

The following table summarizes the amounts reported in the consolidated statements of operations related to the commodity derivative instruments for the years ended December 31, 2023, 2022 and 2021:


	Year Ended December 31,
(in thousands)	2023		2022		2021
Gain (loss) on commodity derivatives
Oil derivatives	$	6,459	$	(14,985)	$	(24,885)
Natural gas derivatives	19,085		(10,339)		(7,504)
Total	$	25,544	$	(25,324)	$	(32,389)

The following table represents the Company’s net cash receipts (payments on) commodity derivatives for the years ended December 31, 2023, 2022 and 2021:


	Year Ended December 31,
(in thousands)	2023		2022		2021
Net cash receipts from (payments on) commodity derivatives
Oil derivatives	$	4,576	$	(23,695)	$	(19,034)
Natural gas derivatives	18,319		(18,742)		(6,185)
Total	$	22,895	$	(42,437)	$	(25,219)

Common stock warrants

On October 24, 2022, in connection with the Business Combination, the Company issued 10,349,975 common stock warrants. Each warrant entitled 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 461 common stock warrants were exercised as of December 31, 2023.

On June 22, 2023, the Company issued 2,471,738 shares of common stock in exchange for 9,887,035 warrants tendered in the Offer, with a minimal cash settlement in lieu of partial shares. In July 2023, each remaining outstanding warrant was converted into 0.225 shares of the Company’s common stock.

The fair value of the common stock warrants as of December 31, 2022 was a liability of $11.9 million. The Company recognized a loss of $5.7 million and a gain of $0.4 million during 2023 and 2022, respectively, from the change in fair value of the warrant liability in the consolidated statements of operations. The warrants exchanged in the Offer were marked to fair value on the date of settlement, and the liability of $17.0 million and $0.7 million related to the exchanged common stock warrants was removed from the consolidated balance sheet in June 2023 and July 2023, respectively, and the issuance of shares of the Company’s common stock was reflected in stockholders’ equity. See Note 9 for further discussion of the Warrant Exchange.