Derivatives

9 Months Ended

Jun. 30, 2020

Derivative Instruments And Hedging Activities Disclosure [Abstract]

NOTE 10: 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 oil and natural gas. 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 Bank of Oklahoma. The derivative contracts with Bank of Oklahoma are secured under the Credit Facility with Bank of Oklahoma (see Note 6: Long-Term Debt). The derivative instruments have settled or will settle based on the prices below:

Derivative contracts in place as of June 30, 2020

	Production volume
Contract period	covered per month	Index	Contract price
Natural gas costless collars
April - October 2020	10,000 Mmbtu	NYMEX Henry Hub	$2.20 floor / $2.59 ceiling
November 2020 - December 2021	50,000 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.90 ceiling
November 2020 - December 2021	40,000 Mmbtu	NYMEX Henry Hub	$2.30 floor / $3.10 ceiling
November 2020	26,500 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
December 2020	28,000 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
January 2021	32,000 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
February 2021	25,500 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
March 2021	30,500 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
April 2021	31,500 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
May 2021	32,500 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
June 2021	30,500 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
July 2021	31,500 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
August 2021	12,500 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
September 2021	11,000 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
October 2021	9,000 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
November 2021	8,000 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
December 2021	10,000 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
January 2022	25,500 Mmbtu	NYMEX Henry Hub	$2.30 floor / $2.85 ceiling
Natural gas fixed price swaps
January - December 2020	80,000 Mmbtu	NYMEX Henry Hub	$2.750
April - October 2020	10,000 Mmbtu	NYMEX Henry Hub	$2.405
November 2020 - March 2021	10,000 Mmbtu	NYMEX Henry Hub	$2.661
January - December 2021	10,000 Mmbtu	NYMEX Henry Hub	$2.765
January 2021 - February 2022	50,000 Mmbtu	NYMEX Henry Hub	$2.729
November 2020	26,500 Mmbtu	NYMEX Henry Hub	$2.582
December 2020	28,000 Mmbtu	NYMEX Henry Hub	$2.582
January 2021	32,000 Mmbtu	NYMEX Henry Hub	$2.582
February 2021	25,500 Mmbtu	NYMEX Henry Hub	$2.582
March 2021	30,500 Mmbtu	NYMEX Henry Hub	$2.582
April 2021	31,500 Mmbtu	NYMEX Henry Hub	$2.582
May 2021	32,500 Mmbtu	NYMEX Henry Hub	$2.582
June 2021	30,500 Mmbtu	NYMEX Henry Hub	$2.582
July 2021	31,500 Mmbtu	NYMEX Henry Hub	$2.582
August 2021	12,500 Mmbtu	NYMEX Henry Hub	$2.582
September 2021	11,000 Mmbtu	NYMEX Henry Hub	$2.582
October 2021	9,000 Mmbtu	NYMEX Henry Hub	$2.582
November 2021	8,000 Mmbtu	NYMEX Henry Hub	$2.582
December 2021	10,000 Mmbtu	NYMEX Henry Hub	$2.582
January 2022	25,500 Mmbtu	NYMEX Henry Hub	$2.582
Oil costless collars
January - December 2020	2,000 Bbls	NYMEX WTI	$55.00 floor / $62.00 ceiling
August - October 2020	1,000 Bbls	NYMEX WTI	$36.00 floor / $43.60 ceiling
November - December 2020	500 Bbls	NYMEX WTI	$36.00 floor / $43.60 ceiling
January 2021	2,000 Bbls	NYMEX WTI	$36.00 floor / $43.60 ceiling
February 2021	1,500 Bbls	NYMEX WTI	$36.00 floor / $43.60 ceiling
March - July 2021	2,000 Bbls	NYMEX WTI	$36.00 floor / $43.60 ceiling
January 2022	2,500 Bbls	NYMEX WTI	$36.00 floor / $43.60 ceiling
Oil fixed price swaps
January - December 2020	2,000 Bbls	NYMEX WTI	$55.28
January - December 2020	2,000 Bbls	NYMEX WTI	$58.65
January - December 2020	2,000 Bbls	NYMEX WTI	$60.00
January - December 2020	2,000 Bbls	NYMEX WTI	$58.05
July - December 2020	2,000 Bbls	NYMEX WTI	$58.10
January - December 2021	8,000 Bbls	NYMEX WTI	$37.00

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 $1,679,511 as of June 30, 2020, and a net asset of $2,494,144 as of September 30, 2019. Cash receipts 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						Nine Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Cash received (paid) on derivative contracts:
Natural gas costless collars	$	18,000		$	-		$	18,000		$	(191,200	)
Natural gas fixed price swaps		268,650			525,200			1,488,970			(294,940	)
Oil costless collars		625,968			(104,394	)		827,664			(359,564	)
Oil fixed price swaps		786,504			(1,914	)		895,400			(253,698	)
Cash received (paid) on derivative contracts, net	$	1,699,122		$	418,892		$	3,230,034		$	(1,099,402	)
Non-cash gain (loss) on derivative contracts:
Natural gas costless collars	$	(60,035	)	$	-		$	(32,152	)	$	10,453
Natural gas fixed price swaps		(129,865	)		1,255,469			(815,630	)		2,177,594
Oil costless collars		(757,060	)		128,829			(283,255	)		1,516,144
Oil fixed price swaps		(1,590,444	)		510,005			316,404			2,421,334
Non-cash gain (loss) on derivative contracts, net	$	(2,537,404	)	$	1,894,303		$	(814,633	)	$	6,125,525
Gains (losses) on derivative contracts, net	$	(838,282	)	$	2,313,195		$	2,415,401		$	5,026,123

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, 2020, and September 30, 2019. The Company has offset all amounts subject to master netting agreements in the Company's Balance Sheets at June 30, 2020, and September 30, 2019.

	June 30, 2020												September 30, 2019
	Fair Value (a)												Fair Value (a)
	Commodity Contracts												Commodity Contracts
	Current Assets			Current Liabilities			Non-Current Assets			Non-Current Liabilities			Current Assets		Non-Current Assets
Gross amounts recognized	$	2,028,640		$	208,663		$	57,386		$	197,852		$	2,256,639	$	237,505
Offsetting adjustments		(208,663	)		(208,663	)		(57,386	)		(57,386	)		-		-
Net presentation on Condensed Balance Sheets	$	1,819,977		$	-		$	-		$	140,466		$	2,256,639	$	237,505

(a) See Note 11: 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.