The following table presents the carrying amounts and estimated fair values of financial instruments (in thousands):

	September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
11.00% Second-Priority Senior Secured Notes – due April 2022⁽¹⁾	$	383,186	$	398,685	$	381,229	$	362,168
7.50% Senior Secured Notes – due May 2022	$	6,060	$	5,272	$	6,060	$	5,151
Bank Credit Facility – due May 2022⁽¹⁾	$	307,946	$	315,000	$	257,448	$	265,000
Oil and Natural Gas Derivatives	$	46,296	$	46,296	$	74,923	$	74,923

As of September 30, 2019 and December 31, 2018, the carrying amounts of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate their fair values due to the short-term nature of these instruments.

11.00% Second-Priority Senior Secured Notes – due April 2022. The $390.9 million aggregate principal amount of 11.00% Senior Secured Notes are reported on the condensed consolidated balance sheet as of September 30, 2019 at their carrying value, net of original issue discount and deferred financing costs (see Note 6 – Debt). The fair value of the 11.00% Senior Secured Notes are estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices.

7.50% Senior Secured Notes – due May 2022. The $6.1 million aggregate principal amount of 7.50% Stone Senior Notes are reported on the condensed consolidated balance sheet as of September 30, 2019 at their carrying value (see Note 6 – Debt). The fair value of the 7.50% Stone Senior Notes are estimated (representing a Level 1 fair value measurement) using quoted secondary market trading prices.

Bank Credit Facility – due May 2022. In May 2018, in conjunction with the Stone Combination, the Company and Talos Production LLC, our wholly-owned subsidiary, executed a new bank credit facility with an initial borrowing base of $600.0 million (the “Bank Credit Facility”) which is reported on the condensed consolidated balance sheet as of September 30, 2019 at its carrying value net of deferred financing costs (see Note 6 – Debt). The fair value of the Bank Credit Facility is estimated based on the outstanding borrowings under the Bank Credit Facility since it is secured by the Company’s reserves and the interest rates are variable and reflective of market rates (representing a Level 2 fair value measurement).

Oil and natural gas derivatives. The Company attempts to mitigate a portion of its commodity price risk and stabilize cash flows associated with sales of oil and natural gas production through the use of oil and natural gas swaps and costless collars. Swaps are contracts where the Company either receives or pays depending on whether the oil or natural gas floating market price is above or below the contracted fixed price. Costless collars consist of a purchased put option and a sold call option with no net premiums paid to or received from counterparties. Collar contracts typically require payments by the Company if the NYMEX average closing price is above the ceiling price or payments to the Company if the NYMEX average closing price is below the floor price.

The Company has elected not to designate any of its derivative contracts for hedge accounting. Accordingly, commodity derivatives are recorded on the condensed consolidated balance sheets at fair value with settlements of such contracts, and changes in the unrealized fair value, recorded as “Price risk management activities income (expense)” on the condensed consolidated statements of operations in each period.

The following table presents the impact that derivatives, not qualifying as hedging instruments, had on the Company’s condensed consolidated statements of operations (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019		2018			2019			2018
Net cash received (paid) on settled derivative instruments	$	5,360	$	(40,746	)	$	(7,202	)	$	(94,802	)
Unrealized gain (loss)		38,400		(12,584	)		(28,627	)		(101,680	)
Price risk management activities income (expense)	$	43,760	$	(53,330	)	$	(35,829	)	$	(196,482	)

The following table reflects the contracted volumes and weighted average prices the Company will receive under its derivative contracts as of September 30, 2019:

Production Period	Instrument Type	Average Daily Volumes		Weighted Average Swap Price		Weighted Average Put Price		Weighted Average Call Price
Crude Oil – WTI:		(Bbls)		(per Bbl)		(per Bbl)		(per Bbl)
Oct 2019 - Dec 2019	Swap		29,468	$	56.04	$	—	$	—
Jan 2020 - Dec 2020	Swap		13,492	$	56.13	$	—	$	—
Jan 2020 - Dec 2020	Costless collars		7,481	$	—	$	55.00	$	64.23
Natural Gas – Henry Hub NYMEX:		(MMBtu)		(per MMBtu)		(per MMBtu)		(per MMBtu)
Oct 2019 - Dec 2019	Swap		37,475	$	2.92	$	—	$	—
Jan 2020 - Dec 2020	Swap		16,216	$	2.78	$	—	$	—

The Company’s commodity derivative instruments are measured at fair value based on third-party industry-standard models using various inputs substantially observable in active markets, including forward oil and natural gas price curves, and are therefore classified as Level 2 in the required fair value hierarchy for the periods presented. The following tables provide additional information related to financial instruments measured at fair value on a recurring basis (in thousands):

	September 30, 2019
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas derivatives	$	—	$	50,878		$	—	$	50,878
Liabilities:
Oil and natural gas derivatives		—		(4,582	)		—		(4,582	)
Total net asset	$	—	$	46,296		$	—	$	46,296

	December 31, 2018
	Level 1		Level 2			Level 3		Total
Assets:
Oil and natural gas derivatives	$	—	$	75,473		$	—	$	75,473
Liabilities:
Oil and natural gas derivatives		—		(550	)		—		(550	)
Total net asset	$	—	$	74,923		$	—	$	74,923

Financial Statement Presentation. Derivatives are classified as either current or non-current assets or liabilities based on their anticipated settlement dates. Although the Company has master netting arrangements with its counterparties, the Company presents its derivative financial instruments on a gross basis on its condensed consolidated balance sheets. The following table presents the fair value of derivative financial instruments at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019				December 31, 2018
	Assets		Liabilities		Assets		Liabilities
Oil and natural gas derivatives:
Current	$	43,058	$	3,832	$	75,473	$	550
Non-current		7,820		750		—		—
Total	$	50,878	$	4,582	$	75,473	$	550

Credit Risk. The Company is subject to the risk of loss on its financial instruments as a result of nonperformance by counterparties pursuant to the terms of their contractual obligations. The Company entered into International Swaps and Derivative Association agreements with counterparties to mitigate this risk. The Company also maintains credit policies with regard to its counterparties to minimize overall credit risk. The Company’s assets and liabilities from commodity price risk management activities at September 30, 2019 represent derivative instruments from twelve counterparties; all of which are registered swap dealers that have an “investment grade” (minimum Standard & Poor’s rating of BBB- or better) credit rating, and ten of which are parties under the Company’s Bank Credit Facility. The Company enters into derivatives directly with these counterparties and, subject to the terms of the Company’s Bank Credit Facility, is not required to post collateral or other securities for credit risk in relation to the derivative activities.