Derivative Instruments

Historically, the Company has reduced its exposure to commodity price volatility by hedging a portion of its production through commodity derivative instruments. When the conditions for hedge accounting are met, the Company designated its commodity derivatives as cash flow hedges. The changes in fair value of derivative instruments that qualify for hedge accounting treatment are recorded in other comprehensive income (loss) until the hedged oil or natural gas quantities are produced. If a derivative does not qualify for hedge accounting treatment, the changes in the fair value of the derivative are recorded in the income statement as derivative income (expense). At June 30, 2019, the Company had no outstanding derivative contracts.

Oil and gas sales include reductions related to the settlement of oil hedges of $307,000 and $571,000, respectively, for the three and six month periods ended June 30, 2018. Oil and gas sales include increases related to the settlement of gas hedges of $0 and $805,000, respectively, for the three and six month periods ended June 30, 2018. No such settlements occurred in the periods ended June 30, 2019 or February 8, 2019.

Derivatives designated as hedging instruments:

Effect of Cash Flow Hedges on the Consolidated Statements of Operations and Comprehensive Loss for the three month period ended June 30, 2018:



Instrument	Amount of Gain Recognized in Other Comprehensive Income			Location of Gain Reclassified into Income	Amount of Gain (Loss) Reclassified into Oil and Gas Sales
Commodity Derivatives - June 30, 2018	$	(445	)	Oil and gas sales	$	(307	)

Effect of Cash Flow Hedges on the Consolidated Statements of Operations and Comprehensive Loss for the six month period ended June 30, 2018:



Instrument	Amount of Gain (Loss) Recognized in Other Comprehensive Income			Location of Gain Reclassified into Income	Amount of Gain (Loss) Reclassified into Oil and Gas Sales
Commodity Derivatives - June 30, 2018	$	(990	)	Oil and gas sales	$	233