California Resources Corp 10-Q

Item 3 Quantitative and Qualitative Disclosures About Market Risk For the three and nine months ended September 30, 2021, there were no material changes to market risks from the information provided under Item 305 of Regulation S-K included under the caption Part II, Item 7A – Quantitative and Qualitative Disclosures About Market Risk in the 2020 Annual Report, except as discussed below . Commodity Price Risk Our financial results are sensitive to fluctuations in oil, NGL and natural gas prices. To mitigate some of the risk inherent in the downward movement in oil prices, we may enter into various derivative instruments to hedge commodity price risk. The primary market risk relating to our derivative contracts relates to fluctuations in market prices as compared to the fixed contract price for a notional amount of our production. As of September 30, 2021, we had net liabilities of $418 million for our derivative commodity positions which are carried at fair value, using industry-standard models with various inputs, including the forward curve for the relevant price index. For more information on our derivative positions as of September 30, 2021, refer to Part I, Item 1 – Financial Statements, Note 9 Derivatives. Interest-Rate Risk In March 2018, we entered into derivative contracts that limit our interest-rate exposure with respect to a notional amount of $1.3 billion of variable-rate indebtedness . The interest-rate contracts reset monthly and require the counterparties to pay any excess interest owed on such amount in the event the one-month LIBOR exceeds 2.75% for any monthly period prior to May 4, 2021. The contracts expired on May 4, 2021. We did not report any gains or losses on these contracts for the nine months ended September 30, 2021 or September 30, 2020. No settlement payments were received in either 2021 or 2020. Counterparty Credit Risk Our credit risk relates primarily to trade receivables and derivative financial instruments. Credit exposure for each customer is monitored for outstanding balances and current activity. For derivative instruments entered into as part of our hedging program, we are subject to counterparty credit risk to the extent the counterparty is unable to meet its settlement commitments. We actively manage this credit risk by selecting counterparties that we believe to be financially strong and continuously monitor their financial health. As of September 30, 2021, the majority of the credit exposures related to our business was with investment-grade counterparties. We believe exposure to counterparty credit-related losses related to our business at September 30, 2021 was not material and losses associated with counterparty credit risk have been insignificant for all periods presented.