Derivatives

9 Months Ended

Jun. 30, 2021

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 Bank of Oklahoma. The derivative contracts with BOKF are secured under the Credit Facility with BOKF (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, 2021

Contract period (Calendar Year)	Contract total volume	Index	Contract average price
Natural gas costless collars
Remaining 2021	1,462,000 Mmbtu	NYMEX Henry Hub	$2.37 floor / $3.06 ceiling
2022	2,540,500 Mmbtu	NYMEX Henry Hub	$2.42 floor / $3.17 ceiling
2023	166,000 Mmbtu	NYMEX Henry Hub	$2.37 floor / $3.26 ceiling
Natural gas fixed price swaps
Remaining 2021	742,000 Mmbtu	NYMEX Henry Hub	$2.81
2022	547,500 Mmbtu	NYMEX Henry Hub	$2.73
2023	84,000 Mmbtu	NYMEX Henry Hub	$2.56
Oil costless collars
Remaining 2021	15,000 Bbls	NYMEX WTI	$36.87 floor / $45.76 ceiling
2022	68,500 Bbls	NYMEX WTI	$40.25 floor / $50.35 ceiling
Oil fixed price swaps
Remaining 2021	63,000 Bbls	NYMEX WTI	$40.27
2022	59,000 Bbls	NYMEX WTI	$41.51

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 liability of $8,108,502 as of June 30, 2021, and a net liability of $707,647 as of September 30, 2020. 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						Nine Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
Cash received (paid) on derivative contracts:
Natural gas costless collars	$	(11,975	)	$	18,000		$	(21,064	)	$	18,000
Natural gas fixed price swaps		(20,185	)		268,650			(18,943	)		1,488,970
Oil costless collars		(346,786	)		625,968			(370,432	)		827,664
Oil fixed price swaps		(625,744	)		786,504			(278,368	)		895,400
Cash received (paid) on derivative contracts, net	$	(1,004,690	)	$	1,699,122		$	(688,807	)	$	3,230,034
Non-cash gain (loss) on derivative contracts:
Natural gas costless collars	$	(1,732,932	)	$	(60,035	)	$	(1,135,852	)	$	(32,152	)
Natural gas fixed price swaps		(953,201	)		(129,865	)		(670,605	)		(815,630	)
Oil costless collars		(680,443	)		(757,060	)		(1,787,689	)		(283,255	)
Oil fixed price swaps		(1,116,217	)		(1,590,444	)		(3,806,709	)		316,404
Non-cash gain (loss) on derivative contracts, net	$	(4,482,793	)	$	(2,537,404	)	$	(7,400,855	)	$	(814,633	)
Gains (losses) on derivative contracts, net	$	(5,487,483	)	$	(838,282	)	$	(8,089,662	)	$	2,415,401

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, 2021 and September 30, 2020. The Company has offset all amounts subject to master netting agreements in the Company's balance sheets at June 30, 2021 and September 30, 2020.

	June 30, 2021												September 30, 2020
	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 Liabilities
Gross amounts recognized	$	130,690		$	6,885,018		$	144,462		$	1,498,636		$	864,466		$	1,146,408		$	425,705
Offsetting adjustments		(130,690	)		(130,690	)		(144,462	)		(144,462	)		(864,466	)		(864,466	)		-
Net presentation on Condensed Balance Sheets	$	-		$	6,754,328		$	-		$	1,354,174		$	-		$	281,942		$	425,705

(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.