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COMMODITY PRICE RISK DERIVATIVES

9 Months Ended

Sep. 30, 2017

3.	COMMODITY PRICE RISK DERIVATIVES

The Company’s wholly-owned subsidiary Energy One has historically entered into crude oil derivative contracts (“economic hedges”). The derivative contracts are priced based on West Texas Intermediate (“WTI”) quoted prices for crude oil. The Company is a guarantor of Energy One’s obligations under the economic hedges. The objective of utilizing the economic hedges is to reduce the effect of price changes on a portion of the Company’s future oil production, achieve more predictable cash flows in an environment of volatile oil and gas prices and to manage the Company’s exposure to commodity price risk. The use of these derivative instruments limits the downside risk of adverse price movements. However, there is a risk that such use may limit the Company’s ability to benefit from favorable price movements. Energy One may, from time to time, add incremental derivatives to hedge additional production, restructure existing derivative contracts or enter into new transactions to modify the terms of current contracts in order to realize the current value of its existing positions. The Company does not engage in speculative derivative activities or derivative trading activities, nor does it use derivatives with leveraged features. Presented below is a summary of outstanding crude oil and natural gas swaps as of September 30, 2017.

Begin

End

Quantity

(bbls/d)

Price

Crude oil price swaps

10/1/17

12/31/17

300

52.40

1/1/18

6/30/18

150

52.20

Begin

End

Quantity

(mcf/d)

Price

Natural gas price swaps

1/1/18

12/31/18

500

3.01

Unrealized gains and losses resulting from derivatives are recorded at fair value in the consolidated balance sheet. Changes in fair value are included in the “change in unrealized gain (loss) on oil price risk derivatives” in the consolidated statements of operations. For the nine months ended September 30, 2017 and 2016, the Company’s unrealized gains (losses) from derivatives amounted to $0.03 and $(1.6) million, respectively. Derivative contract settlements are included in the “realized gain (loss) on oil price risk derivatives” in the consolidated statement of operations. All derivative positions are carried at their fair value on the condensed consolidated balance sheet and are included in “Commodity price risk derivatives.” For the nine months ended September 30, 2017 and 2016, the Company’s realized gains from derivatives amounted to $0.2 and $1.4 million, respectively.