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Financial Instruments
 3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Financial Instruments
(10) Financial Instruments
Fair Value Measurements:
Authoritative guidance on fair value measurements defines fair value, establishes a framework for measuring fair value and stipulates the related disclosure requirements. The Company follows a three-level hierarchy, prioritizing and defining the types of inputs used to measure fair value. The fair values of the natural gas, crude oil price swaps and natural gas liquid swaps are designated as Level 3. The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018:
 
March 31, 2019
 
Quoted Prices in
Active Markets
For Identical
Assets (Level 1)
 
 
Significant
Other
Observable
Inputs (Level 2)
 
 
Significant
Unobservable
Inputs (Level 3)
 
 
Balance at
March 31,
2019
 
(Thousands of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity derivative contracts
 
$
—
 
 
$
—
 
 
$
—
 
 
$
118
 
Total assets
 
 
—
 
 
$
—
 
 
$
—
 
 
$
118
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity derivative contracts
 
$
—
 
 
$
—
 
 
$
—
 
 
$
(3,574
)
Total liabilities
 
$
—
 
 
$
—
 
 
$
—
 
 
$
(3,574
)
December 31, 2018
 
Quoted Prices in
Active Markets
For Identical
Assets (Level 1)
 
 
Significant
Other
Observable
Inputs (Level 2)
 
 
Significant
Unobservable
Inputs (Level 3)
 
 
Balance at
December 31,
2018
 
(Thousands of dollars)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity derivative contracts
 
$
—
 
 
$
—
 
 
$
2,394
 
 
$
2,394
 
Total assets
 
$
—
 
 
$
—
 
 
$
2,394
 
 
$
2,394
 
Liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commodity derivative contract
 
$
—
 
 
$
—
 
 
$
(98
)
 
$
(98
)
Total liabilities
 
$
—
 
 
$
—
 
 
$
(98
)
 
$
(98
)
The derivative contracts were measured based on quotes from the Company’s counterparties. Such quotes have been derived using valuation models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas , crude oil, natural gas liquids, volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term as applicable. These estimates are verified using comparable NYMEX futures contracts or are compared to multiple quotes obtained from counterparties for reasonableness.
The significant unobservable inputs for Level 3 derivative contracts include basis differentials and volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties’ valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.
The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the three months ended March 31, 2019.
 
(Thousands of dollars)
 
 
 
Net Asset– December 31, 2018
 
$
2,296
 
Total realized and unrealized (gains) losses:
 
 
 
 
Included in earnings (a)
 
 
(5,674
)
Purchases, sales, issuances and settlements
 
 
(78
)
Net Liabilities—March 31, 2019
 
$
(3,456
)
 
a)
Derivative instruments are reported in revenues as realized gain (loss) and on a separately reported line item captioned unrealized gain (loss) on derivative instruments.
Derivative Instruments:
The Company is exposed to commodity price and interest rate risk, and management considers periodically the Company’s exposure to cash flow variability resulting from the commodity price changes and interest rate fluctuations. Futures, swaps and options are used to manage the Company’s exposure to commodity price risk inherent in the Company’s oil and gas production operations. The Company does not apply hedge accounting to any of its commodity-based derivatives. Both realized and unrealized gains and losses associated with commodity derivative instruments are recognized in earnings.
Interest rate swap derivatives are treated as cash-flow hedges and are used to fix our floating interest rates on existing debt. The value of interest rate swaps if applicable, would be recorded in accumulated other comprehensive loss, net of tax. There are no current interest rate swaps for the periods ending March 31, 2019 and December 31, 2018.
The following table sets forth the effect of derivative instruments on the consolidated balance sheets at March 31, 2019 and December 31, 2018:
 
 
  
 
  
Fair Value
 
(Thousands of dollars)
  
Balance Sheet Location
  
March 31,
2019
 
  
December 31,
2018
 
Asset Derivatives:
  
 
  
   
  
   
Derivatives not designated as cash-flow hedging instruments:
  
 
  
   
  
   
Natural gas commodity contracts
  
Derivative asset short-term
  
$
2
 
  
$
63
 
Natural gas liquid contracts
  
Derivative asset short-term
  
 
69
 
  
 
138
 
Crude oil commodity contracts
  
Derivative asset short-term
  
 
—
 
  
 
1,473
 
Natural gas commodity contracts
  
Derivative asset long-term and other assets
  
 
—
 
  
 
7
 
Crude oil commodity contracts
  
Derivative asset long-term
and other assets
  
 
—
 
  
 
713
 
Natural gas liquid contracts
  
Derivative asset long-term
and other assets
  
 
47
 
  
 
—  
 
Total
  
 
  
$
 118
 
  
$
 2,394
 
Liability Derivatives:
  
 
  
   
  
   
Derivatives not designated as cash-flow hedging instruments:
  
 
  
   
  
   
Crude oil commodity contracts
  
Derivative liability short-term
  
$
 (3,552
) 
  
$
—
 
Natural gas commodity contracts
  
Derivative liability short-term
  
 
(22
) 
  
 
(75
) 
Natural gas liquid contracts
  
Derivative liability short-term
  
 
—
 
  
 
(13
) 
Natural gas commodity contracts
  
Derivative liability long-term
  
 
—
 
  
 
(10
) 
Total
  
 
  
$
 (3,574
) 
  
$
(98
) 
Total derivative instruments
  
 
  
$
 (3,456
) 
  
$
2,296
 
The following table sets forth the effect of derivative instruments on the consolidated statements of operations for the three month period ended March 31, 2019 and 2018:
 
 
  
 
  
Amount of gain/loss
recognized in income
 
(Thousands of dollars)
  
Location of gain (loss) recognized in income
  
2019
 
  
2018
 
Derivatives not designated as cash-flow hedge instruments:
  
 
  
   
  
   
Natural gas commodity contracts
  
Unrealized (loss) on derivative instruments, net
  
$
(5
) 
  
$
(79
) 
Crude oil commodity contracts
  
Unrealized (loss) on derivative instruments, net
  
 
(5,738
) 
  
 
(1,868
) 
Natural gas liquids contracts
  
Unrealized (loss) gain on derivative instruments, net
  
 
(9
) 
  
 
126
 
Natural gas commodity contracts
  
Realized (loss) on derivative instruments, net
  
 
(12
) 
  
 
(20
) 
Crude oil commodity contracts
  
Realized gain (loss) on derivative instruments, net
  
 
88
 
  
 
(478
) 
Natural gas liquids contracts
  
Realized gain on derivative instruments, net
  
 
2
 
  
 
2
 
 
  
 
  
$
 (5,674
) 
  
$
 (2,317
)