9. 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 oil and natural gas.  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.  Additional collateral was not required by us and we do not require collateral from our derivative counterparties.

Each derivative contract is recorded on the balance sheet as an asset or liability at fair value as of the respective period.  We have elected not to designate our commodity derivative contracts as hedging instruments; therefore, all changes in the fair value of derivative contracts were recognized currently in earnings during the periods presented.  While these contracts are intended to reduce the effects of price volatility, they may have limited incremental income from favorable price movements.

Commodity Derivatives

During 2018 and 2017, we entered into commodity contracts for crude oil and natural gas which related to a portion of our expected production for the time frames covered by the contracts.  The crude oil contracts were based on West Texas Intermediate (“WTI”) crude oil prices as quoted off the New York Mercantile Exchange (“NYMEX”).  The natural gas contracts are based on Henry Hub natural gas prices as quoted off the NYMEX.  The open contracts as of December 31, 2018 are presented in the following tables:

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

The amounts recorded on the Consolidated Balance Sheets are on a gross basis.  If these were recorded on a net settlement basis, it would not have resulted in any differences in reported amounts.  

Changes in the fair value and settlements of our commodity derivative contracts were as follows (in thousands):

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