7.        Derivative Financial Instruments

Our market risk exposure relates primarily to commodity prices and, from time to time, we use various derivative instruments to manage our exposure to this commodity price risk from sales of our crude oil and natural gas. All of the current derivative counterparties are also lenders or affiliates of lenders participating in our Company Credit Agreement or Term Loan. We are exposed to credit loss in the event of nonperformance by the derivative counterparties; however, we currently anticipate that each of our derivative counterparties will be able to fulfill their contractual obligations. We are not required to provide additional collateral to the derivative counterparties and we do not require collateral from our derivative counterparties.

We have elected not to designate our commodity derivative contracts as hedging instruments; therefore, all current period changes in the fair value of derivative contracts are recognized in earnings during the periods presented. The cash flows of all of our commodity derivative contracts are included in Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows.

We entered into commodity contracts for crude oil and natural gas which related to a portion of our expected future production. The crude oil contracts are based on West Texas Intermediate (“WTI”) crude oil prices and the natural gas contracts are based off the Henry Hub prices, both of which are quoted off the New York Mercantile Exchange (“NYMEX”).

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The following table reflects the contracted volumes and weighted average prices under the terms of the Company’s open derivative contracts as of September 30, 2021:

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The following amounts were recorded in the Condensed Consolidated Balance Sheets in the categories presented and include the fair value of open contracts as well as closed contracts which had not yet settled (in thousands):

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The amounts recorded on the Condensed Consolidated Balance Sheets are on a gross basis.

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Changes in the fair value and settlements of contracts are recorded on the Condensed Consolidated Statements of Operations as Derivative loss (gain). The impact of our commodity derivative contracts has on the Condensed Consolidated Statements of Operations were as follows (in thousands):

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Cash payments on commodity derivative contract settlements, net, are included within Net cash provided by operating activities on the Condensed Consolidated Statements of Cash Flows and were as follows (in thousands):

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Subsequent Events. On October 6, 2021, the Company executed the unwinding of two natural gas collar contracts for $5.2 million. The following table reflects the contracted volumes and weighted average prices under the terms of these two contracts as of September 30, 2021:

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The following table presents the fair value of the open positions related to the two unwound contracts as recorded in the Condensed Consolidated Balance Sheets as of September 30, 2021 in the category presented (in thousands):

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Additionally, as a result of certain amendments to the Company Credit Agreement entered into on November 2, 2021 (as described in Note 12 – Subsequent Events), certain existing commodity derivative contracts not associated with the Mobile Bay Transaction (as described above in Note 4) have been novated to a new counterparty at the same terms.