Derivatives

9 Months Ended

Mar. 31, 2022

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company is exposed to certain risks relating to its ongoing business operations, including commodity price risk and interest rate risk. In accordance with the Company's policy and the requirements under the Senior Secured Credit Facility (as discussed in Note 14, "Senior Secured Credit Agreement"), it may hedge or may be required to hedge a varying portion of anticipated oil and natural gas production for future periods. Derivatives are carried at fair value on the unaudited consolidated condensed balance sheets as assets or liabilities, with the changes in the fair value included in the unaudited consolidated condensed statements of operations for the period in which the change occurs. The Company's hedge policies and objectives may change significantly as its operational profile changes. The Company does not enter into derivative contracts for speculative trading purposes.

It is the Company’s policy to enter into derivative contracts only with counterparties that are creditworthy financial or commodity hedging institutions deemed by management as competent and competitive market makers. As of March 31, 2022, the Company did not post collateral under any of its derivative contracts as they are secured under the Company's Senior Secured Credit Facility.

The Company has in the past and may utilize in the future costless put/call collars and fixed-price swaps to hedge a portion of its anticipated future production. A costless collar consists of a sold call, which establishes a maximum price the Company will receive for the volumes under contract, and a purchased put that establishes a minimum price. Fixed-price swaps are designed so that the Company receives or makes payments based on a differential between fixed and variable prices for the volumes under contract. The Company has elected not to designate its open derivative contracts for hedge accounting. Accordingly, the Company records the net change in the mark-to-market valuation of the derivative contracts and all payments and receipts on settled derivative contracts in “Net loss (gain) on derivative contracts” on the unaudited consolidated condensed statements of operations.

All derivative contracts are recorded at fair market value in accordance with ASC 815, Derivatives and Hedging ("ASC 815") and ASC 820, Fair Value Measurement ("ASC 820") and included in the unaudited consolidated condensed balance sheets as assets or liabilities. The “Derivative contract liabilities” represents the difference between the market commodity prices and the hedged prices for the remaining volumes of production hedges as of March 31, 2022 (the “mark-to-market valuation”). The following table summarizes the location and fair value amounts of all derivative contracts in the unaudited consolidated condensed balance sheets as of March 31, 2022 and June 30, 2021:


Derivatives not designated as hedging contracts under ASC 815		Derivative Contract Asset					Derivative Contract Liability
	Balance sheet location	March 31, 2022		June 30, 2021		Balance sheet location	March 31, 2022		June 30, 2021
Commodity contracts	Current assets - derivative contract assets	$	—	$	—	Current liabilities - derivative contract liabilities	$	2,398,237	$	—
Commodity contracts	Other assets - derivative contract assets	—		—		Long term liabilities - derivative contract liabilities	—		—
Total derivatives not designated as hedging contracts under ASC 815		$	—	$	—		$	2,398,237	$	—

The following table summarizes the location and amounts of the Company's realized and unrealized gains and losses on derivative contracts in the Company's unaudited consolidated condensed statements of operations. "Realized loss (gain) on derivative contracts" represents all payments (receipts) on derivative contracts settled during the quarter. "Unrealized loss (gain) on derivative contracts" represents the net change in the mark-to-market valuation of the derivative contracts. For the three months ended March 31, 2022, the "Unrealized loss (gain) on derivative contracts" is equal to the "Derivative contract liabilities" since there were no hedges in place in the prior quarter.


Derivatives not designated as hedging contracts under ASC 815	Location of loss recognized in income on derivative contracts	Three Months Ended				Nine Months Ended
		March 31,				March 31,
		2022		2021		2022		2021
Commodity contracts:
Realized loss (gain) on derivative contracts	Other income and expenses - net loss (gain) on derivative contracts	$	193,228	$	—	$	193,228	$	2,525,988
Unrealized loss (gain) on derivative contracts	Other income and expenses - net loss (gain) on derivative contracts	2,398,237		—		2,398,237		(1,911,343)
Total net loss (gain) on derivative contracts		$	2,591,465	$	—	$	2,591,465	$	614,645

At March 31, 2022, the Company had the following open crude oil and natural gas derivative contracts:


Period	Instrument	Commodity	Volumes in Barrels	Weighted Average Floor Price per MMBTU/Bbl		Weighted Average Ceiling Price per MMBTU/Bbl
April 2022 - October 2022	Collar	Natural Gas	835,956	$	3.75	$	5.05
November 2022 - February 2023	Collar	Natural Gas	443,750	3.75		7.30
April 2022 - June 2022	Collar	Crude Oil	60,475	75.00		95.65
July 2022 - February 2023	Collar	Crude Oil	122,389	70.00		87.50

Subsequent to March 31, 2022, the Company entered into the following natural gas derivative contracts:


Period	Instrument	Commodity	Volumes in Barrels	Weighted Average Floor Price per MMBTU/Bbl		Weighted Average Ceiling Price per MMBTU/Bbl
May 2022 - October 2022	Collar	Natural Gas	479,590	$	5.25	$	6.67
November 2022 - March 2023	Collar	Natural Gas	374,072	$	5.25	$	7.50

The Company presents the fair value of its derivative contracts at the gross amounts in the unaudited consolidated condensed balance sheets. The following table shows the potential effects of master netting arrangements on the fair value of the Company's derivative contracts at March 31, 2022 and June 30, 2021:


	Derivative Assets				Derivative Liabilities
Offsetting of Derivative Assets and Liabilities	March 31, 2022		June 30, 2021		March 31, 2022		June 30, 2021
Gross amounts presented in the Consolidated Balance Sheet	$	—	$	—	$	2,398,237	$	—
Amounts not offset in the Consolidated Balance Sheet	—		—		—		—
Net amount	$	—	$	—	$	2,398,237	$	—

The Company enters into an International Swap Dealers Association Master Agreement ("ISDA") with each counterparty prior to a derivative contract with such counterparty. The ISDA is a standard contract that governs all derivative contracts entered into between the Company and the respective counterparty. The ISDA allows for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency.