Derivatives

6 Months Ended

Jun. 30, 2024

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

NOTE 9: Derivatives

The Company has entered into commodity price derivative agreements, including fixed swap contracts and costless collar contracts. These instruments are intended to reduce the Company’s exposure to short-term fluctuations in the price of natural gas and oil. Fixed swap contracts set a fixed price and provide payments to the Company if the index price is below the fixed price, or require payments by the Company if the index price is above the fixed price. Collar contracts set a fixed floor price and a fixed ceiling price and provide payments to the Company if the index price falls below the floor or require payments by the Company if the index price rises above the ceiling. These contracts cover only a portion of the Company’s natural gas and oil production and provide only partial price protection against declines in natural gas and oil prices. The Company’s derivative contracts are currently with BP Energy Company (“BP”). The derivative contracts with BP are secured under the Credit Facility with Independent Bank (see Note 5: Long-Term Debt). The derivative instruments have settled or will settle based on the prices below:

Derivative Contracts in Place as of June 30, 2024

Calendar Period	Contract total volume	Index	Contract average price
Natural gas costless collars
2024	430,000 Mmbtu	NYMEX Henry Hub	$3.19 floor / $4.84 ceiling
2025	1,365,000 Mmbtu	NYMEX Henry Hub	$3.26 floor / $4.66 ceiling
2026	570,000 Mmbtu	NYMEX Henry Hub	$3.50 floor / $4.82 ceiling
Natural gas fixed price swaps
2024	1,262,500 Mmbtu	NYMEX Henry Hub	$3.41
2025	1,030,000 Mmbtu	NYMEX Henry Hub	$3.47
Oil costless collars
2024	12,250 Bbls	NYMEX WTI	$65.79 floor / $76.76 ceiling
Oil fixed price swaps
2024	21,500 Bbls	NYMEX WTI	$68.66
2025	40,800 Bbls	NYMEX WTI	$69.58
2026	4,500 Bbls	NYMEX WTI	$70.74

Derivative Settlements during the Three Months Ended June 30, 2024

	Monthly			Settlement
Contract period (1)	Production volume	Index	Contract price	(paid) received
Natural gas costless collars
April - June 2024	30,000 Mmbtu	NYMEX Henry Hub	$3.00 floor / $3.60 ceiling	$	99,540
April 2024	90,000 Mmbtu	NYMEX Henry Hub	$3.50 floor / $4.70 ceiling	$	173,250
May 2024	95,000 Mmbtu	NYMEX Henry Hub	$3.50 floor / $4.70 ceiling	$	179,170
June 2024	90,000 Mmbtu	NYMEX Henry Hub	$3.50 floor / $4.70 ceiling	$	90,630
Natural gas fixed price swaps
April - June 2024	10,000 Mmbtu	NYMEX Henry Hub	$3.21	$	39,480
April - June 2024	50,000 Mmbtu	NYMEX Henry Hub	$3.17	$	191,400
April - June 2024	127,500 Mmbtu	NYMEX Henry Hub	$3.24	$	514,845
Oil costless collars
March 2024	1,650 Bbls	NYMEX WTI	$65.00 floor / $76.50 ceiling	$	(6,443	)
April - May 2024	500 Bbls	NYMEX WTI	$65.00 floor / $76.50 ceiling	$	(5,008	)
March 2024	1,750 Bbls	NYMEX WTI	$63.00 floor / $76.00 ceiling	$	(7,708	)
April 2024	1,700 Bbls	NYMEX WTI	$63.00 floor / $76.00 ceiling	$	(14,270	)
May 2024	1,750 Bbls	NYMEX WTI	$63.00 floor / $76.00 ceiling	$	(4,587	)
Oil fixed price swaps
March 2024	750 Bbls	NYMEX WTI	$71.75	$	(6,491	)
April - May 2024	1,000 Bbls	NYMEX WTI	$66.10	$	(30,815	)
April - May 2024	1,300 Bbls	NYMEX WTI	$70.59	$	(28,386	)
			Total (paid) received	$	1,184,607

(1) Natural gas derivatives settle at first of the month pricing and oil derivatives settle at a monthly daily average.

The Company has elected not to complete all of the documentation requirements necessary to permit these derivative contracts to be accounted for as cash flow hedges. The Company’s fair value of derivative contracts was a net asset of $638,166 as of June 30, 2024, and a net asset of $3,283,587 as of December 31, 2023. Cash receipts or payments in the following table reflect the gain or loss on derivative contracts which settled during the respective periods, and the non-cash gain or loss reflect the change in fair value of derivative contracts as of the end of the respective periods.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2024			2023			2024			2023
Cash received (paid) on derivative contracts:
Natural gas costless collars	$	542,590		$	475,320		$	1,650,165		$	1,190,910
Natural gas fixed price swaps(1)		745,725			576,490			1,300,973			659,590
Oil costless collars		(38,016	)		12,515			(39,235	)		12,515
Oil fixed price swaps(1)		(65,692	)		(15,384	)		(57,987	)		(183,653	)
Cash received (paid) on derivative contracts, net	$	1,184,607		$	1,048,941		$	2,853,916		$	1,679,362
Non-cash gain (loss) on derivative contracts:
Natural gas costless collars	$	(633,105	)	$	(488,755	)	$	(1,392,373	)	$	94,846
Natural gas fixed price swaps		(1,050,328	)		(521,078	)		(852,312	)		1,652,299
Oil costless collars		60,234			29,131			(34,664	)		51,394
Oil fixed price swaps		19,595			114,767			(366,072	)		507,925
Non-cash gain (loss) on derivative contracts, net	$	(1,603,604	)	$	(865,935	)	$	(2,645,421	)	$	2,306,464
Gains (losses) on derivative contracts, net	$	(418,997	)	$	183,006		$	208,495		$	3,985,826

(1) For the six months ended June 30, 2023, excludes $373,745 of cash paid to settle off-market derivative contracts that are not reflected on the Condensed Statements of Income. Total cash paid related to off-market derivatives was $560,162 for the six months ended June 30, 2023 and is reflected in the Financing Activities section of the Condensed Statements of Cash Flows.

The fair value amounts recognized for the Company’s derivative contracts executed with the same counterparty under a master netting arrangement may be offset. The Company has the choice of whether or not to offset, but that choice must be applied consistently. A master netting arrangement exists if the reporting entity has multiple contracts with a single counterparty that are subject to a contractual agreement that provides for the net settlement of all contracts through a single payment in a single currency in the event of default on or termination of any one contract. Offsetting the fair values recognized for the derivative contracts outstanding with a single counterparty results in the net fair value of the transactions being reported as an asset or a liability in the Company’s balance sheets.

The following table summarizes and reconciles the Company’s derivative contracts’ fair values at a gross level back to net fair value presentation on the Company’s balance sheets at June 30, 2024 and December 31, 2023. The Company has offset all amounts subject to master netting agreements in the Company's balance sheets at June 30, 2024 and December 31, 2023.

	June 30, 2024												December 31, 2023
	Fair Value (a)												Fair Value (a)
	Commodity Contracts												Commodity Contracts
	Current Assets			Current Liabilities			Non-Current Assets			Non-Current Liabilities			Current Assets			Current Liabilities			Non-Current Assets			Non-Current Liabilities
Gross amounts recognized	$	1,554,997		$	677,459		$	465,630		$	705,002		$	3,318,046		$	197,439		$	344,614		$	181,634
Offsetting adjustments		(677,459	)		(677,459	)		(465,630	)		(465,630	)		(197,439	)		(197,439	)		(181,634	)		(181,634	)
Net presentation on condensed balance sheets	$	877,538		$	-		$	-		$	239,372		$	3,120,607		$	-		$	162,980		$	-

(a) See Note 10: Fair Value Measurements for further disclosures regarding fair value of financial instruments.

The fair value of derivative assets and derivative liabilities is adjusted for credit risk. The impact of credit risk was immaterial for all periods presented.