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Commodity Risk Derivatives

3 Months Ended

Mar. 31, 2018

5. COMMODITY RISK DERIVATIVES

The Company’s wholly-owned subsidiary Energy One has entered into commodity price derivative contracts (“economic hedges”) with BP Energy, a third-party hedge counterparty. The derivative contracts are priced based on West Texas Intermediate (“WTI”) quoted prices for crude oil and Henry Hub quoted prices for natural gas. 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. The Company had a net liability from commodity risk derivatives of $0.1 million at March 31, 2018. Presented below is a summary of outstanding crude oil and natural gas swaps as of March 31, 2018.

Position

Begin

End

Quantity

(bbls/d)

Price

Crude oil price swaps

Bought

4/1/18

6/30/18

150

52.20

Crude oil call option

Bought

4/1/18

4/30/18

150

60.00

Position

Begin

End

Quantity

(mcf/d)

Price

Natural gas price swaps

Bought

4/1/18

12/31/18

500

3.01

-9-

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 three months ended March 31, 2018 and 2017, the Company’s unrealized gains (losses) from derivatives amounted to $0.1 and $0.0 million, respectively. Derivative contract settlements are included in the “realized gain (loss) on oil price risk derivatives” in the consolidated statement of operations. For the three months ended March 31, 2018 and 2017, the Company’s realized gain (loss) from derivatives amounted to $(0.2) and $0.0 million, respectively. All derivative positions are carried at their fair value on the condensed consolidated balance sheet and are included in “Commodity price risk derivatives.” The following table summarizes the fair value of our open commodity derivatives as of March 31, 2018, and December 31, 2017 (in thousands). Please see Note 13 for further disclosure.

	March 31, 2018									December 31, 2017
Fair Value of Oil and Natural Gas Derivatives (in thousands)	Gross Amount			Amount Offset			As Presented			Gross Amount			Amount Offset			As Presented
Fair value of oil and natural gas derivatives – Current Assets	$	126		$	(126	)	$	-		$	168		$	(168	)	$	-
Fair value of oil and natural gas derivatives – Current Liabilities		(170	)		63			(107	)		(216	)		55			(161	)