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Commodity Risk Management Activities | 12 Months Ended
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Dec. 31, 2022
Commodity Risk Management Activities |
Commodity Risk Management Activities | 13. Commodity Risk Management Activities Commodity Price Risks Epsilon engages in price risk management activities from time to time. These activities are intended to manage Epsilon’s exposure to fluctuations in commodity prices for natural gas by securing fixed price contracts for a portion of expected sales volumes. Inherent in the Company’s fixed price contracts, are certain business risks, including market risk and credit risk. Market risk is the risk that the price of oil and natural gas will change, either favorably or unfavorably, in response to changing market conditions. Credit risk is the risk of loss from nonperformance by the Company’s counterparty to a contract. The Company does not currently require collateral from any of its counterparties nor does its counterparties require collateral from the Company. The Company enters into certain commodity derivative instruments to mitigate commodity price risk associated with a portion of its future natural gas production and related cash flows. The natural gas revenues and cash flows are affected by changes in commodity product prices, which are volatile and cannot be accurately predicted. The objective for holding these commodity derivatives is to protect the operating revenues and cash flows related to a portion of the future natural gas sales from the risk of significant declines in commodity prices, which helps ensure the Company’s ability to fund the capital budget. Epsilon has historically elected not to designate any of its financial commodity derivative contracts as accounting hedges and, accordingly, accounts for these financial commodity derivative contracts using the mark-to-market accounting method. Under this accounting method, changes in the fair value of outstanding financial instruments are recognized as gains or losses in the period of change and are recorded as gain (loss) on derivative contracts on the consolidated statements of operations and comprehensive income. The related cash flow impact is reflected in cash flows from operating activities. During 2022, Epsilon recognized gains on financial commodity derivative contracts of $236,077. This amount included settlements of these contracts of $1,225,837. For 2021, Epsilon recognized losses on financial commodity derivative contracts of $4,482,909. This amount included settlements of these contracts of $4,243,085. Commodity Derivative Contracts At December 31, 2022, the Company had outstanding NYMEX HH swaps totaling 1.07 Bcf and Tennessee Z4 basis swaps totaling 1.07 Bcf outstanding. At December 31, 2021, Epsilon had two natural gas commodity two-way costless collar contracts totaling 0.59 Bcf outstanding. ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value of Derivative Assets
​ |  | December 31, |  | December 31,
​ | ​ | 2022 | ​ | 2021
Current |  | ​ |  |  | ​ |
NYMEX Henry Hub swap |  | $ | 1,219,865 | ​ | $ | —
Tennessee Z4 basis swap |  | ​ | 181,775 | ​ | ​ | —
Two-way costless collar |  | ​ | — | ​ | ​ | 13,312
​ |  | $ | 1,401,640 | ​ | $ | 13,312
​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Fair Value of Derivative Liabilities
​ |  | December 31, |  | December 31,
​ | ​ | 2022 | ​ | 2021
Current |  | ​ |  |  | ​ |
Tennessee Z4 basis swap |  | $ | (179,550) | ​ | $ | —
Two-way costless collar |  | ​ | — | ​ | ​ | (253,136)
​ |  | $ | (179,550) | ​ | $ | (253,136)
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | ​ | ​ | ​ | ​ | ​
Net Fair Value of Derivatives |  | $ | 1,222,090 | ​ | $ | (239,824)
​ The following table presents the changes in the fair value of Epsilon’s commodity derivatives for the periods indicated: ​
​ | ​ | ​ | ​ | ​ | ​ | ​
​ | ​ | Year ended December 31,
​ |  | 2022 |  | 2021
Fair value of asset (liability), beginning of the period | ​ | $ | (239,824) | ​ | $ | —
Gains (losses) on derivative contracts included in earnings | ​ |  | 236,077 | ​ |  | (4,482,909)
Settlement of commodity derivative contracts | ​ |  | 1,225,837 | ​ |  | 4,243,085
Fair value of asset (liability), end of the period | ​ | $ | 1,222,090 | ​ | $ | (239,824)
​

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
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