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.

Under the Revolving Credit Facility, the Company is subject to the following minimum hedging requirements: through September 29, 2019, the Company is required to hedge a minimum of 65% of the quarterly projected volumes of natural gas from its PDP reserves; and during the period beginning on September 30, 2019 and ending on March 30, 2020, the Company is required to hedge a minimum of 50% of the quarterly projected volumes of natural gas from PDP reserves. Beginning April 1, 2020, the Company will no longer be subject to a minimum hedging requirement.

Fair Value of Commodity Derivatives: The Company follows FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”). The Company does not apply hedge accounting to any of its derivative instruments. Instead, in accordance with ASC 815 the derivative contracts are recorded at fair value as derivative assets and liabilities on the Condensed Consolidated Balance Sheets and the associated unrealized gains and losses are recorded as current income or expense on the Condensed Consolidated Statements of Operations. The Company does not offset the value of its derivative arrangements with the same counterparty. 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 June 30, 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 10 for more information regarding the Company’s derivative instruments.

Type/Year	Index	Total Volumes		Weighted Average (“WA”) Price per Unit			Fair Value - June 30, 2019
		(in millions)					Asset (Liability)
Natural gas fixed price swaps		(Mmbtu)		($/Mmbtu)
2019 (July through December)	NYMEX-Henry Hub		90.5	$	2.78		$	37,790
2020	NYMEX-Henry Hub		24.6		2.78			2,979

Natural gas basis swaps (1)		(Mmbtu)		($/Mmbtu)
2019 (July through December)	NW Rockies Basis Swap		63.5	$	(0.54	)	$	(13,336	)
2020	NW Rockies Basis Swap		11.4		(0.17	)		1,114

Crude oil fixed price swaps		(Bbl)		($/Bbl)
2019 (July through December)	NYMEX-WTI		0.7	$	59.06		$	601
2020	NYMEX-WTI		0.5		60.31			1,727

Type/Year	Index	Total Volumes		WA Floor Price ($/MMBTU)		WA Ceiling Price ($/MMBTU)		Fair Value - June 30, 2019
		(in millions)						Asset (Liability)
Natural gas collars		(Mmbtu)
2019 (July through December)	NYMEX		2.8	$	2.85	$	3.13	$	1,376
2020	NYMEX		76.1	$	2.49	$	2.97	$	6,127
2021	NYMEX		7.2	$	2.47	$	3.03	$	(390	)
Natural gas deferred premium put options		(Mmbtu)
2020	NYMEX		27.9	$	2.41	N/A		$	1,707

(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.

(2)

The Natural gas deferred premium put options include an average deferred premium of $0.14 for the six months ended June 30, 2019.

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 June 30, 2019 and 2018:

	For the Three Months						For the Six Months
	Ended June 30,						Ended June 30,
Commodity Derivatives (in thousands):	2019			2018			2019			2018
Realized gain (loss) on commodity derivatives - natural gas (1)	$	3,936		$	10,982		$	(77,267	)	$	12,426
Realized gain (loss) on commodity derivatives - oil (1)		(516	)		(4,320	)		2,056			(4,690	)
Unrealized gain (loss) on commodity derivatives (1)		68,234			(53,933	)		82,527			(61,539	)
Total gain (loss) on commodity derivatives	$	71,654		$	(47,271	)	$	7,316		$	(53,803	)

(1)	Included in Gain (Loss) on commodity derivatives in the condensed consolidated statements of operations.