COMMODITY DERIVATIVE INSTRUMENTS

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company utilizes derivative instruments to manage its exposure to fluctuations in the underlying commodity prices of its inventory. The Company's management sets and implements hedging policies, including volumes, types of instruments and counterparties, to support oil prices at targeted levels and manage its exposure to fluctuating prices.

The Company’s derivative instruments consist of swap and futures arrangements for oil. In a commodity swap agreement, if the agreed-upon published third-party index price (“index price”) is lower than the swap fixed price, the Company receives the difference between the index price and the swap fixed price. If the index price is higher than the swap fixed price, the Company pays the difference. For futures arrangements, the Company receives the difference positive or negative between an agreed-upon strike price and the market price.

The mark-to-market effects of these contracts as of September 30, 2020 and December 31, 2019, are summarized in the following table. The notional amount is equal to the total net volumetric derivative position during the period indicated. The fair

value of the crude oil swap agreements is based on the difference between the strike price and the New York Mercantile Exchange futures price for the applicable trading months.


As of September 30, 2020
Contract Type	Contract Period	Weighted Average Strike Price (Barrels)		Remaining Volume (Barrels)	Fair Value

Swap	Sep. 2020- Oct. 2020	$	37.10	10,000	$	9,000
Swap	Sep. 2020- Oct. 2020	$	46.33	10,000	(28,896)
Futures	Sep. 2020- Dec. 2020	$	48.67	26,000	(4,099)
					$	(23,995)


As of December 31, 2019
Contract Type	Contract Period	Weighted Average Strike Price (Barrels)		Remaining Volume (Barrels)	Fair Value

Swap	Dec. 2019-Mar. 2020	$	40.88	130,000	$	539,800
Swap	Dec. 2019-Mar. 2020	$	81.19	130,000	(673,428)
Futures	Dec. 2019-Mar. 2020	$	84.53	105,000	(242,222)
					$	(375,850)

The carrying values of the Company's derivatives positions and their locations on the consolidated balance sheets as of September 30, 2020 and December 31, 2019 are presented in the table below.


Balance Sheet Classification	Contract Type	2020		2019

	Crude oil swaps	$	(19,896)	$	(133,628)
	Crude oil futures	(4,099)		(242,222)

Derivative commodity liability		$	(23,995)	$	(375,850)

For the three months ended September 30, 2020 and 2019, we recognized a $4,557 gain and a $1,622,056 loss, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our costs of revenues. For the nine months ended September 30, 2020 and 2019, we recognized a $4,489,355 gain and a $2,691,833 loss, respectively, on commodity derivative contracts on the consolidated statements of operations as part of our costs of revenues.