Quarterly report pursuant to Section 13 or 15(d)

FINANCIAL INSTRUMENTS

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FINANCIAL INSTRUMENTS
 9 Months Ended
Sep. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
FINANCIAL INSTRUMENTS
NOTE 8 — 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 may use natural gas financial futures and option contracts to economically hedge the commodity price risks associated with a portion of our expected natural gas production. As of September 30, 2023, there were no open natural gas financial instrument positions.
LNG Financial Futures
During the year 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, 2023, there were no open LNG financial instrument positions.
Contingent Consideration
On August 18, 2022, the Company completed the acquisition of certain natural gas assets in the Haynesville Shale basin (the “Asset Acquisition”). The Asset Acquisition included cash consideration payable to the sellers of $7.5 million (the “Contingent Consideration”) if the average NYMEX Henry Hub gas price for the contract delivery months beginning with August 2022 through March 2023 exceeded a specific threshold (the “Threshold”) per MMBtu. The Threshold was not met and, therefore, the Company is not obligated to pay the Contingent Consideration.
Embedded Derivatives
We evaluate embedded features within a host contract to determine whether they are embedded derivatives that should be bifurcated and carried separately at fair value. Embedded derivatives that are not clearly and closely related to the host contract are bifurcated and recorded at fair value with subsequent changes in fair value recorded in Other income (expense), net in the Company’s Condensed Consolidated Statement of Operations. As described in Note 7, Borrowings, we determined that the Replacement Notes contained embedded features which required bifurcation from the host contracts.
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, 2023 December 31, 2022
Current assets:
Natural gas financial instruments $ —  $ 10,463 
LNG financial futures —  — 
Current liabilities:
Contingent Consideration —  118 
Embedded derivatives 13,268  — 
Long-term liabilities:
Embedded derivatives 22,496  — 
The Company’s natural gas financial instruments are valued using quoted prices in active exchange markets as of the balance sheet date and are classified as a Level 1 fair value measurement. The fair value of the Company’s embedded derivatives as of September 30, 2023 was estimated using a Black-Scholes valuation model which is considered to be a Level 3 fair value measurement.
The following table summarizes the effect of the Company’s financial instruments on the Condensed Consolidated Statements of Operations (in thousands):
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
Natural gas financial instruments:
Realized (loss) gain $ —  $ (12,547) $ 23,310  $ (23,798)
Unrealized loss —  (390) (10,463) (8,701)
LNG financial futures:
Realized gain —  —  —  3,532 
Unrealized loss —  —  —  5,161 
Contingent Consideration:
Realized gain —  —  118  — 
Unrealized gain —  309  —  309 
Embedded Derivatives
Unrealized gain 2,526  —  2,526  — 
The following table summarizes changes in the Company’s Embedded Derivatives (in thousands):
Nine Months Ended September 30, 2023
Balance at January 1, 2023 $ — 
Issued 40,878 
Settled (2,588)
Unrealized gain for the period included in earnings (2,526)
Balance at September 30, 2023
 $ 35,764