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Commodity Price Risk and Derivative Instruments.
−Removed: The Company's primary market risk exposure is the volatility of future prices for natural gas and NGLs.
−Removed: Due to the volatility of commodity prices, the Company is unable to predict future potential movements in the market prices for natural gas and NGLs at the Company's ultimate sales points and, thus, cannot predict the ultimate impact of prices on its operations.
−Removed: Prolonged low, or significant extended declines in, natural gas and NGLs prices could adversely affect, among other things, the Company's development plans, which would decrease the pace of development and the level of the Company's proved reserves.
−Removed: Increases in natural gas and NGLs prices may be accompanied by, or result in, increased well drilling costs, increased production taxes, increased lease operating expenses, increased volatility in seasonal gas price spreads for the Company's storage assets and increased end-user conservation or conversion to alternative fuels.
−Removed: In addition, to the extent the Company has hedged its production at prices below the current market price, the Company will not benefit fully from any increase in the price of natural gas.
−Removed: The overall objective of the Company's hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices.
−Removed: The Company's use of derivatives is further described in Note 3 to the Condensed Consolidated Financial Statements and "Commodity Risk Management" under "Capital Resources and Liquidity" in Item 2., "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's OTC derivative commodity instruments are placed primarily with financial institutions and the creditworthiness of those institutions is regularly monitored.
−Removed: The Company primarily enters into derivative instruments to hedge forecasted sales of production.
−Removed: The Company also enters into derivative instruments to hedge basis and exposure to fluctuations in interest rates.
−Removed: The Company's use of derivative instruments is implemented under a set of policies approved by the Company's Hedge and Financial Risk Committee and reviewed by the Company's Board of Directors.
−Removed: For derivative commodity instruments used to hedge the Company's forecasted sales of production, which are at, for the most part, NYMEX natural gas prices, the Company sets policy limits relative to the expected production and sales levels that are exposed to price risk.
−Removed: The Company has an insignificant amount of financial natural gas derivative commodity instruments for trading purposes.
−Removed: The derivative commodity instruments used by the Company are primarily swap, collar and option agreements.
+Added: Our primary market risk exposure is the volatility of future prices for natural gas and NGLs.
+Added: Due to the volatility of commodity prices, we are unable to predict future potential movements in the market prices for natural gas and NGLs at our ultimate sales points and, thus, cannot predict the ultimate impact of prices on our operations.
+Added: Prolonged low, or significant, extended declines in, natural gas and NGLs prices could adversely affect, among other things, our development plans, which would decrease the pace of development and the level of our proved reserves.
+Added: Increases in natural gas and NGLs prices may be accompanied by, or result in, increased well drilling costs, increased production taxes, increased lease operating expenses, increased volatility in seasonal gas price spreads for our storage assets and increased end-user conservation or conversion to alternative fuels.
+Added: In addition, to the extent we have hedged our production at prices below the current market price, we will not benefit fully from an increase in the price of natural gas.
+Added: The overall objective of our hedging program is to protect cash flows from undue exposure to the risk of changing commodity prices.
+Added: Our use of derivatives is further described in Note 3 to the Condensed Consolidated Financial Statements and "Commodity Risk Management" under "Capital Resources and Liquidity" in Item 2., "Management's Discussion and Analysis of Financial Condition and Results of Operations." Our OTC derivative commodity instruments are placed primarily with financial institutions and the creditworthiness of those institutions is regularly monitored.
+Added: We primarily enter into derivative instruments to hedge forecasted sales of production.
+Added: We also enter into derivative instruments to hedge basis.
+Added: Our use of derivative instruments is implemented under a set of policies approved by our management-level Hedge and Financial Risk Committee and is reviewed by our Board of Directors.
+Added: For derivative commodity instruments used to hedge our forecasted sales of production, which are at, for the most part, NYMEX natural gas prices, we set policy limits relative to the expected production and sales levels that are exposed to price risk.
+Added: We have an insignificant amount of financial natural gas derivative commodity instruments for trading purposes.
+Added: The derivative commodity instruments we use are primarily swap, collar and option agreements.
These agreements may require payments to, or receipt of payments from, counterparties based on the differential between two prices for the commodity.
−Removed: The Company uses these agreements to hedge its NYMEX and basis exposure.
−Removed: The Company may also use other contractual agreements when executing its commodity hedging strategy.
−Removed: The Company monitors price and production levels on a continuous basis and makes adjustments to quantities hedged as warranted.
−Removed: A hypothetical decrease of 10% in the market price of natural gas on September 30, 2020 and December 31, 2019 would increase the fair value of the Company's natural gas derivative commodity instruments by approximately $501.4 million and $389.4 million, respectively.
−Removed: A hypothetical increase of 10% in the market price of natural gas on September 30, 2020 and December 31, 2019 would decrease the fair value of the Company's natural gas derivative commodity instruments by approximately $489.3 million and $394.5 million, respectively.
−Removed: For purposes of this analysis, the Company applied the 10% change in the market price of natural gas on September 30, 2020 and December 31, 2019 to the Company's natural gas derivative commodity instruments as of September 30, 2020 and December 31, 2019 to calculate the hypothetical change in fair value.
−Removed: The change in fair value was determined using a method similar to the Company's normal process for determining derivative commodity instrument fair value described in Note 4 to the Condensed Consolidated Financial Statements.
−Removed: The above analysis of the Company's derivative commodity instruments does not include the offsetting impact that the same hypothetical price movement may have on the Company's physical sales of natural gas.
−Removed: The portfolio of derivative commodity instruments held to hedge the Company's forecasted produced gas approximates a portion of the Company's expected physical sales of natural gas;
−Removed: therefore, an adverse impact to the fair value of the portfolio of derivative commodity instruments held to hedge the Company's forecasted production associated with the hypothetical changes in commodity prices referenced above should be offset by a favorable impact on the Company's physical sales of natural gas, assuming that the derivative commodity instruments are not closed in advance of their expected term and the derivative commodity instruments continue to function effectively as hedges of the underlying risk.
+Added: We use these agreements to hedge our NYMEX and basis exposure.
+Added: We may also use other contractual agreements when executing our commodity hedging strategy.
+Added: We monitor price and production levels on a continuous basis and make adjustments to quantities hedged as warranted.
+Added: A hypothetical decrease of 10% in the market price of natural gas on March 31, 2021 and December 31, 2020 would increase the fair value of our natural gas derivative commodity instruments by approximately $473 million and $501 million, respectively.
+Added: A hypothetical increase of 10% in the market price of natural gas on March 31, 2021 and December 31, 2020 would decrease the fair value of our natural gas derivative commodity instruments by approximately $469 million and $495 million, respectively.
+Added: For purposes of this analysis, we applied the 10% change in the market price of natural gas on March 31, 2021 and December 31, 2020 to our natural gas derivative commodity instruments as of March 31, 2021 and December 31, 2020 to calculate the hypothetical change in fair value.
+Added: The change in fair value was determined using a method similar to our normal process for determining derivative commodity instrument fair value described in Note 4 to the Condensed Consolidated Financial Statements.
+Added: The above analysis of our derivative commodity instruments does not include the offsetting impact that the same hypothetical price movement may have on our physical sales of natural gas.
+Added: The portfolio of derivative commodity instruments held to hedge our forecasted produced gas approximates a portion of our expected physical sales of natural gas;
+Added: therefore, an adverse impact to the fair value of the portfolio of derivative commodity instruments held to hedge our forecasted production associated with the hypothetical changes in commodity prices referenced above should be offset by a favorable impact on our physical sales of natural gas, assuming that the derivative commodity instruments are not closed in advance of their expected term and the derivative commodity instruments continue to function effectively as hedges of the underlying risk.
If the underlying physical transactions or positions are liquidated prior to the maturity of the derivative commodity instruments, a loss on the financial instruments may occur or the derivative commodity instruments might be worthless as determined by the prevailing market value on their termination or maturity date, whichever comes first.
Interest Rate Risk.
−Removed: Changes in market interest rates affect the amount of interest the Company earns on cash, cash equivalents and short-term investments and the interest rates the Company pays on borrowings on its credit facility and, prior to its full redemption on June 30, 2020, term loan facility.
−Removed: None of the interest the Company pays on its senior notes fluctuate based on changes to market interest rates.
−Removed: A 1% increase in interest rates on the Company's borrowings on its credit facility and term loan facility during the nine months ended September 30, 2020 would have increased interest expense by approximately $5 million.
−Removed: Interest rates on the Adjustable Rate Notes fluctuate based on changes to the credit ratings assigned to the Company's senior notes by Moody's, S&P and Fitch.
−Removed: For a discussion of credit rating downgrade risk, see Item 1A., "Risk Factors – Our exploration and production operations have substantial capital requirements, and we may not be able to obtain needed capital or financing on satisfactory terms" in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.
−Removed: See also Item 1A., "Risk Factors" in this Quarterly Report on Form 10-Q.
−Removed: Changes in interest rates affect the fair value of the Company's fixed rate debt.
−Removed: See Note 6 to the Condensed Consolidated Financial Statements for further discussion of the Company's debt and Note 4 to the Condensed Consolidated Financial Statements for a discussion of fair value measurements, including the fair value of the Company's debt.
+Added: Changes in market interest rates affect the amount of interest we earn on cash, cash equivalents and short-term investments and the interest rate we pay on borrowings under our credit facility.
+Added: None of the interest we pay on our senior notes fluctuate based on changes to market interest rates.
+Added: A 1% increase in interest rates on the borrowings under our credit facility during the three months ended March 31, 2021 would have increased interest expense by approximately $5 million.
+Added: Interest rates on our senior notes fluctuate based on changes to the credit ratings assigned to our senior notes by Moody's, S&P and Fitch.
+Added: For a discussion of credit rating downgrade risk, see Item 1A., "Risk Factors – Our exploration and production operations have substantial capital requirements, and we may not be able to obtain needed capital or financing on satisfactory terms" in our Annual Report on Form 10-K for the year ended December 31, 2020.
+Added: Changes in interest rates affect the fair value of our fixed rate debt.
+Added: See Note 6 to the Condensed Consolidated Financial Statements for further discussion of our debt and Note 4 to the Condensed Consolidated Financial Statements for a discussion of fair value measurements, including the fair value of our debt.
Other Market Risks.
−Removed: The Company is exposed to credit loss in the event of nonperformance by counterparties to its derivative contracts.
+Added: We are exposed to credit loss in the event of nonperformance by counterparties to our derivative contracts.
This credit exposure is limited to derivative contracts with a positive fair value, which may change as market prices change.
−Removed: The Company's OTC derivative instruments are primarily with financial institutions and, thus, are subject to events that would impact those companies individually as well as the financial industry as a whole.
−Removed: The Company uses various processes and analyses to monitor and evaluate its credit risk exposures, including monitoring current market conditions and counterparty credit fundamentals.
+Added: Our OTC derivative instruments are primarily with financial institutions and, thus, are subject to events that would impact those companies individually as well as the financial industry as a whole.
+Added: We use various processes and analyses to monitor and evaluate our credit risk exposures, including monitoring current market conditions and counterparty credit fundamentals.
Credit exposure is controlled through credit approvals and limits based on counterparty credit fundamentals.
−Removed: To manage the level of credit risk, the Company enters into transactions primarily with financial counterparties that are of investment grade, enters into netting agreements whenever possible and may obtain collateral or other security.
−Removed: Approximately 36%, or $436.8 million, of the Company's OTC derivative contracts outstanding at September 30, 2020 had a positive fair value.
−Removed: Approximately 75%, or $718.0 million, of the Company's OTC derivative contracts outstanding at December 31, 2019 had a positive fair value.
−Removed: As of September 30, 2020, the Company was not in default under any derivative contracts and had no knowledge of default by any counterparty to its derivative contracts.
−Removed: During the three months ended September 30, 2020, the Company made no adjustments to the fair value of its derivative contracts due to credit related concerns outside of the normal non-performance risk adjustment included in the Company's established fair value procedure.
−Removed: The Company monitors market conditions that may impact the fair value of its derivative contracts.
−Removed: The Company is exposed to the risk of nonperformance by credit customers on physical sales of natural gas, NGLs and oil.
−Removed: Revenues and related accounts receivable from the Company's operations are generated primarily from the sale of produced natural gas, NGLs and oil to marketers, utilities and industrial customers located in the Appalachian Basin and in markets that are accessible through the Company's transportation portfolio, which includes markets in the Gulf Coast, Midwest and Northeast United States and Canada.
−Removed: The Company also contracts with certain processors to market a portion of NGLs on behalf of the Company.
−Removed: No one lender of the large group of financial institutions in the syndicate for the Company's credit facility holds more than 10% of the financial commitments under such facility.
−Removed: The large syndicate group and relatively low percentage of participation by each lender are expected to limit the Company's exposure to disruption or consolidation in the banking industry.
+Added: To manage the level of credit risk, we enter into transactions primarily with financial counterparties that are of investment grade, enter into netting agreements whenever possible and may obtain collateral or other security.
+Added: Approximately 41%, or $367 million, of our OTC derivative contracts outstanding at March 31, 2021 had a positive fair value.
+Added: Approximately 47%, or $456 million, of our OTC derivative contracts outstanding at December 31, 2020 had a positive fair value.
+Added: As of March 31, 2021, we were not in default under any derivative contracts and had no knowledge of default by any counterparty to our derivative contracts.
+Added: During the three months ended March 31, 2021, we made no adjustments to the fair value of our derivative contracts due to credit related concerns outside of the normal non-performance risk adjustment included in our established fair value procedure.
+Added: We monitor market conditions that may impact the fair value of our derivative contracts.
+Added: We are exposed to the risk of nonperformance by credit customers on physical sales of natural gas, NGLs and oil.
+Added: Revenues and related accounts receivable from our operations are generated primarily from the sale of produced natural gas, NGLs and oil to marketers, utilities and industrial customers located in the Appalachian Basin and in markets that are accessible through our transportation portfolio, which includes markets in the Gulf Coast, Midwest and Northeast United States and Canada.
+Added: We also contract with certain processors to market a portion of NGLs on our behalf.
+Added: No one lender of the large group of financial institutions in the syndicate for our credit facility holds more than 10% of the financial commitments under such facility.
+Added: The large syndicate group and relatively low percentage of participation by each lender are expected to limit our exposure to disruption or consolidation in the banking industry.
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.