Quarterly report pursuant to Section 13 or 15(d)

FINANCIAL INSTRUMENTS

v3.22.2.2
FINANCIAL INSTRUMENTS
 9 Months Ended
Sep. 30, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
FINANCIAL INSTRUMENTS
NOTE 6 — FINANCIAL INSTRUMENTS
Natural Gas Financial Instruments
The primary purpose of our commodity risk management activities is to hedge our exposure to cash flow variability from commodity price risk due to fluctuations in commodity prices. The Company uses natural gas financial futures and option contracts to economically hedge the commodity price risks associated with a portion of our expected natural gas production. The Company’s open positions as of September 30, 2022, had notional volumes of approximately 14.7 Bcf, with maturities extending through October 2023.
LNG Financial Instruments
During the three months ended December 31, 2021, we entered into LNG financial futures contracts to reduce our exposure to commodity price fluctuations, and to achieve more predictable cash flows relative to two LNG cargos that we were committed to purchase from and sell to unrelated third-party LNG merchants in the normal course of business in January and April 2022. As of September 30, 2022, there were no open LNG financial instrument positions.
Contingent Consideration
The purchase price of certain natural gas assets acquired in the Haynesville Shale basin includes Contingent Consideration payable to the sellers if natural gas commodity prices exceed a specific threshold, refer to Note 3, Property, Plant and Equipment, for further information. The Contingent Consideration was determined to be an embedded derivative that is recorded at fair value in the Condensed Consolidated Balance Sheets. As of the date of the acquisition, the fair value of the Contingent Consideration was approximately $3.9 million, which was recorded as part of the basis in proved natural gas properties with a corresponding embedded derivative liability. Changes in the fair value of the Contingent Consideration are recognized in the period they occur and included within Other expense, net on the Condensed Consolidated Statements of Operations.

The following table summarizes the effect of the Company’s financial instruments which are included within Other expense, net on the Condensed Consolidated Statements of Operations (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
Natural gas financial instruments:
Realized loss $ 12,547  $ —  $ 23,798  $ 1,202 
Unrealized loss 390  —  8,701  — 
LNG financial futures contracts:
Realized gain —  —  3,532  — 
Unrealized loss —  —  5,161  — 
Contingent Consideration
Unrealized gain 309  —  309  — 
The following table presents the classification of the Company’s financial instruments that are required to be measured at fair value on a recurring basis on the Company’s Condensed Consolidated Balance Sheets (in thousands):
September 30, 2022 December 31, 2021
Current assets:
LNG financial futures contracts $ —  $ 8,693 
Non-current assets:
Natural gas financial instruments 685  — 
Current liabilities:
Natural gas financial instruments 9,386  — 
Contingent Consideration 3,579  — 
The Company’s natural gas and LNG financial instruments are valued using quoted prices in active exchange markets as of the balance sheet date and are classified as Level 1 within the fair value hierarchy.
The fair value of the Contingent Consideration was determined using Monte Carlo simulations including inputs such as quoted future natural gas price curves, natural gas price volatility, and discount rates. These inputs are substantially observable in active markets throughout the full term of the Contingent Consideration arrangement and are therefore designated as Level 2 within the valuation hierarchy.