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The Company is exposed to various market risks, including the effects of adverse changes in commodity prices and credit risk as described below.
−Removed: The Company continually monitors its market risk exposure, including the impact and developments related to the COVID-19 pandemic, which introduced significant volatility and uncertainties in the financial markets during 2020 and 2021.
+Added: The Company continually monitors its market risk exposure, including the impact and developments related to the armed conflict in Ukraine, increase in interest rate and inflation trend, which introduced significant volatility and uncertainties in the financial markets during 2022.
Commodity Price Risk
−Removed: Currently, a majority of the Company’s midstream service agreements are fee-based, with no direct commodity price exposure to oil, natural gas, or NGLs, and only an immaterial portion of the agreements are based on the underlying value of a commodity.
−Removed: However, the Company is indirectly exposed to adverse changes in commodity prices through Apache and potential third-party customers’ economic decisions to develop and produce oil and natural gas from which Altus receives revenues for providing gathering, processing, and transmission services.
+Added: The results of the Company’s operations may be affected by the market prices of oil and natural gas.
+Added: A portion of the Company’s revenue is directly tied to local crude, natural gas, NGLs and condensate prices in the Permian Basin.
Fluctuations in commodity prices also impact operating cost elements both directly and indirectly.
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Management regularly reviews the Company’s potential exposure to commodity price risk and may periodically enter into financial or physical arrangements intended to mitigate potential volatility.
+Added: Refer to Note 14—Derivative and Hedging Activities in the Notes to our Consolidated Financial Statements in this Form 10-K for additional discussion regarding our hedging strategies and objectives, including certain commodity hedges entered into during the fourth quarter of 2022.
Interest Rate Risk
−Removed: At December 31, 2021, Altus Midstream had $657.0 million of proceeds drawn on its revolving credit facility.
−Removed: The interest rate for the facility is variable, which exposes the Company to the risk of increased interest expense in the event of increases to short-term interest rates.
−Removed: If interest rates increased by 1.0 percent, the Company’s annual consolidated interest expense would have increased by approximately $6.7 million.
+Added: The market risk inherent in our financial instruments and our financial position represents the potential loss arising from adverse changes in interest rates.
+Added: As of December 31, 2022, the Company had interest bearing debt, net of deferred financing costs, with principal amount of $3.37 billion.
+Added: The interest rate for the revolving and term loan credit facilities is variable, which exposes the Company to the risk of increased interest expense in the event of increases of short-term interest rates.
Accordingly, results of operations, cash flows, financial condition, and the ability to make cash distributions could be adversely affected by significant increases in interest rates.
−Removed: Altus currently has no interest rate derivative instruments outstanding, but the Company continues to monitor its interest rate exposure and may enter into interest rate derivative instruments in the future if it determines that it is necessary to invest in such instruments in order to mitigate its interest rate risk.
−Removed: The Company is subject to credit risk resulting from nonpayment or nonperformance by, or the insolvency or liquidation of, Apache or third-party customers.
+Added: If interest rates increase by 10.0%, the Company’s consolidated interest expense would have increased by approximately $63.4 million for the year ended December 31, 2022 on a pro forma basis giving effect to the Company’s comprehensive sustainability-linked refinancing completed at the beginning of the second quarter of 2022.
+Added: To manage its exposure to interest rate movements, in November 2022, the Company entered into an interest rate swap with a notional amount of $1.00 billion at a fixed rate of 4.46% that is effective from May 1, 2023 to May 31, 2025.
+Added: Refer to Note 14—Derivative and Hedging Activities in the Notes to our Consolidated Financial Statements in this Form 10-K for additional discussion regarding our hedging strategies and objectives.
+Added: The Company also expects to realize 0.05% reductions to the effective interest rates of both the revolving credit facility and the term loan credit facility during 2023 in relation to sustainability adjustment features embedded in these facilities.
+Added: The rate reductions are dependent upon the Company meeting certain sustainability targets after 2022, which are currently subject to the completion of certain attestation procedures.
+Added: The Company is subject to credit risk resulting from nonpayment or nonperformance by, or the insolvency or liquidation of third-party customers.
Any increase in the nonpayment and nonperformance by, or the insolvency or liquidation of, the Company’s customers could adversely affect the Company’s results of operations.
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.