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Derivative Financial Instruments

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

7. Derivative Financial Instruments

The Company uses derivative financial instruments to manage its exposure to commodity price fluctuations. Commodity derivative instruments are used to reduce the effect of volatility of price changes on the oil and gas the Company produces and sells. The Company's derivative financial instruments consist of oil and natural gas swaps.

The Company does not enter into derivative financial instruments for speculative or 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. Unrealized gains and losses related to the swap contracts are recognized and recorded as an asset or liability on the Company's balance sheet.

The following table summarized the amounts reported in earnings, as a component of operating expenses, related to the commodity derivative instruments for the years ended December 31, 2018 and 2017:

		As of December 31,
		2018				2017
Gain (loss) on derivatives:
Oil derivatives			125,902				—
Natural gas derivatives			(8,105	)			—
Total			117,797				—

The following represents the Company's net cash receipts from (payments on) derivatives for the years ended December 31, 2018 and 2017:

		As of December 31,
		2018				2017
Net cash receipts from (payments on) derivatives:
Oil derivatives			16,629				—
Natural gas derivatives			(11,913	)			—
Total			4,716				—

The following table sets forth the Company's outstanding derivative contracts at December 31, 2018. All of the Company's derivatives are expected to settle by October 31, 2019:

		First quarter				Second quarter				Third quarter				Fourth quarter
Oil Swaps:
Volume (Bbl)			1,767				1,767				1,767				589
Price per Bbl		$	65.85			$	65.85			$	65.85			$	65.85

Natural Gas Swaps:
Volume (Bbl)			1,138				1,138				1,138				—
Price per Bbl		$	2.875			$	2.875			$	2.875				—
Total