Objectives and Strategy: The Company’s major market risk exposure is in the pricing applicable to its natural gas and oil production. Realized pricing is currently driven primarily by the prevailing price for the Company’s natural gas production. Historically, prices received for natural gas production have been volatile and unpredictable. Pricing volatility is expected to continue. The prices we receive for our production depend on many factors outside of our control, including volatility in the differences between product prices at sales points and the applicable index price.

The Company relies on various types of derivative instruments to manage its exposure to commodity price risk and to provide a level of certainty in the Company’s forward cash flows supporting the Company’s operations and capital investment program. These types of instruments may include fixed price swaps, costless collars, deferred premium puts or basis differential swaps. These contracts are financial instruments, and do not require or allow for physical delivery of the hedged commodity. While mitigating the effects of fluctuating commodity prices, these derivative contracts may limit the benefits we would receive from increases in commodity prices above the fixed hedge prices.

The Company’s Revolving Credit Facility requires the Company to hedge 65% of forecast proved producing natural gas production, based on its most recent reserve report for 18 months from the end of the given quarter. This requirement is in effect through September 29, 2019. After that time, the requirement decreases to 50% of the estimated proved producing forecast for natural gas through March 30, 2020. This means the Company may unwind hedges beginning September 30, 2019 at its discretion providing the Company remains hedged at the 50% level for natural gas. Additionally, the Revolving Credit Facility limits the amount of hedging to 85% of forecast production for all products within a given quarter.

Fair Value of Commodity Derivatives: FASB ASC 815 requires that all derivatives be recognized on the Condensed Consolidated Balance Sheets as either an asset or liability and be measured at fair value. Changes in the derivative’s fair value are recognized currently in earnings unless specific hedge accounting criteria are met. The Company does not apply hedge accounting to any of its derivative instruments.

Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at fair value on the Condensed Consolidated Balance Sheets and the associated unrealized gains and losses are recorded as current income or expense in the Condensed Consolidated Statements of Operations. Unrealized gains or losses on commodity derivatives represent the non-cash change in the fair value of these derivative instruments and do not impact operating cash flows on the Condensed Consolidated Statements of Cash Flows.

Commodity Derivative Contracts: At March 31, 2019, the Company had the following open commodity derivative contracts to manage commodity price risks. For the fixed price swaps, the Company receives the fixed price for the contract and pays the variable price to the counterparty. For the basis swaps, the Company receives a fixed price for the difference between two sales points for a specified commodity volume over a specified time period. For the collars, the Company pays the counterparty if the market price is above the ceiling price and the counterparty pays if the market price is below the floor price on a notional quantity. For deferred premium puts, the Company pays the deferred premium in the month of settlement. To the extent the market price is below the put price, the counterparty owes the Company the difference between the market price and put price in the period of settlement. The reference prices of these commodity derivative contracts are typically referenced to index prices as published by independent third parties. Refer to Note 8 for more information regarding the Company’s derivative instruments.

Type/Year	Index	Total Volumes		Weighted Average Price per Unit		Fair Value - March 31, 2019
		(in millions)				Asset (Liability)
Natural gas fixed price swaps		(Mmbtu)		($/Mmbtu)
2019 (April through December)	NYMEX-Henry Hub		137.8	$	2.77	$	(2,079	)
2020	NYMEX-Henry Hub		24.6		2.78		(5,439	)

Natural gas basis swaps (1)		(Mmbtu)		($/Mmbtu)
2019 (April through December)	NW Rockies Basis Swap		90.2	$	0.58	$	(18,734	)
2020	NW Rockies Basis Swap		7.7		0.15		770

Crude oil fixed price swaps		(Bbl)		($/Bbl)
2019 (April through December)	NYMEX-WTI		1.0	$	58.64	$	(1,680	)
2020	NYMEX-WTI		0.1		60.05		51

Type/Year	Index	Total Volumes		Weighted Average Floor Price ($/MMBTU)		Weighted Average Ceiling Price ($/MMBTU)		Fair Value - March 31, 2019
		(in millions)						Asset (Liability)
Natural gas collars		(Mmbtu)
2019 (April through December)	NYMEX		2.8	$	2.85	$	3.13	$	264
2020	NYMEX		49.4	$	2.51	$	2.97	$	(1,298	)

Natural gas deferred premium put options		(Mmbtu)
2020	NYMEX		25.1	$	2.41	N/A		$	(394	)

⁽¹⁾	Represents swap contracts that fix the basis differentials for gas sold at or near Opal, Wyoming and the value of natural gas established on the last trading day of the month by the NYMEX for natural gas swaps for the respective period.

The following table summarizes the pre-tax realized and unrealized gain (loss) the Company recognized related to its derivative instruments in the Condensed Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018: