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Note 10 - Financial Instruments

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Financial Instruments Disclosure [Text Block]

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 Company’s interest rate swaps, natural gas and crude oil price collars and 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 December 31, 2022:

December 31, 2022		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, 2022
(Thousands of dollars)
Assets
Commodity derivative contracts		$	—			$	—			$	210			$	210
Total assets		$	—			$	—			$	210			$	210
Liabilities
Commodity derivative contract		$	—			$	—			$	(1,190	)		$	(1,190	)
Total liabilities		$	—			$	—			$	(1,190	)		$	(1,190	)

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 and crude oil, 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 year ended December 2023.

(Thousands of dollars)
Net Liabilities – December 31, 2022		$	(980	)
Total realized and unrealized gains			980
Net Liabilities – December 31, 2023		$	—

(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.

The following table sets forth the effect of derivative instruments on the consolidated balance sheets at December 31, 2023 and 2022:

			Fair Value
(Thousands of dollars)	Balance Sheet Location		December 31, 2023				December 31, 2022
Asset Derivatives:
Derivatives not designated as cash-flow hedging instruments:
Crude oil commodity contract	Other current assets		$	—			$	162
Natural gas commodity contract	Other current assets			—				48
Total			$	—			$	210

Liability Derivatives:
Derivatives not designated as cash-flow hedging instruments:
Crude oil commodity contracts	Derivative liability short-term		$	—			$	(931	)
Natural gas commodity contracts	Derivative liability short-term			—				(259	)
Total			$	—			$	(1,190	)
Total derivative instruments			$	—			$	(980	)

The following table sets forth the effect of derivative instruments on the consolidated statements of income for the years ended December 31, 2023 and 2022:

				Amount of gain/loss recognized in income
(Thousands of dollars)		Location of gain/loss recognized in income		2023				2022
Derivatives not designated as cash-flow hedge instruments:
Natural gas commodity contracts		Unrealized gain on derivative instruments, net			—				892
Crude oil commodity contracts		Unrealized gain on derivative instruments, net			—				3,713
Natural gas commodity contracts		Realized gain (loss) on derivative instruments, net			235				(4,543	)
Crude oil commodity contracts		Realized gain (loss) on derivative instruments, net			179				(12,101	)
				$	414			$	(12,039	)