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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2020-08-06 compared with 2020-02-12 · 46 added, 24 removed, 17 unchanged (80% of the section changed)

Quantitative and Qualitative Disclosures About Market Risk

primary sources of market risk for us include fluctuations in commodity prices and interest rates.

primary source of market risk for us includes fluctuations in commodity prices and interest rates.

All of our financial instruments

are for purposes other than trading.

At June 30, 2020, we had an outstanding loan balance of $930,000 under our

credit agreement, which bears interest at a rate equal to the prime rate as quoted in the Wall Street Journal plus one-half

of one percent (0.5%) floating daily.

If the interest rate on our bank debt increases or

decreases by one percentage point our annual pretax income would change by $9,300, based on the outstanding balance at June 30,

Credit risk is the risk of loss as a result of nonperformance by other parties of their contractual obligations.

primary credit risk is related to oil and gas production sold to various purchasers and the receivables are generally not collateralized.

At December 31, 2019, our largest credit risk associated with any single purchaser was $220,707 or 56% of our total oil and gas

We have not experienced any significant credit losses.

Our most significant market risk is the pricing for natural gas and crude oil.

At June 30, 2020, our largest credit risk associated with any single purchaser was $113,067 or 58% of our total oil and gas receivables.

not experienced any significant credit losses.

Our most significant market risk is the pricing for crude oil and natural gas.

Our financial condition, results

2 unchanged sentences

We cannot predict future oil and natural gas prices with any certainty.

Historically, the markets for oil and gas have been volatile, and they are likely to continue to be volatile.

for natural gas were adversely affected by temporary pipeline capacity constraints primarily in the Permian Basin.

This limitation

has been currently alleviated by commencement of operations of a new 42-inch natural gas pipeline capable of transporting 2 Bcf

per day to the Gulf Coast which began in September 2019.

We cannot predict future disruptions to, capacity constraints in or other

limitations on the pipeline systems.

Pricing for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility

to continue in the future.

that can cause price fluctuations include the level of global demand for petroleum products, foreign and domestic supply of oil

1 unchanged sentence

and availability of alternative fuels and overall political and economic conditions in oil producing countries.

prices dropped sharply in early March 2020, and then continued to decline reaching levels below zero dollars per barrel.

was a result of multiple factors affecting supply and demand in global oil and gas markets, including the announcement of price

reductions and production increases by OPEC members and other oil exporting nations and the ongoing COVID-19 pandemic.

natural gas prices are expected to continue to be volatile as a result of the changes in oil and natural gas production, inventories

and demand, as well as national and international economic performance.

Even though oil prices improved in June 2020, we cannot

predict when oil prices will stabilize.

addition, prices for natural gas have been adversely effected by temporary pipeline capacity constraints in the Permian Basin.

We are unable to predict exactly how long this limitation will continue.

example, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil on March 31, 2020 was $16.75 per bbl

and averaged $14.68, $24.67 and $34.35 per bbl for the months of April, May and June 2020, respectively.

The WTI posted price

for crude oil was $35.25 on June 30, 2020.

The Henry Hub Spot Market Price (“Henry Hub”) posted price for natural

gas on March 31, 2020 was $1.71 per MMBtu and averaged $1.74, $1.75 and $1.63 per MMBtu for the months of April, May and June

2020, respectively.

The Henry Hub posted price for natural gas was $1.67 on June 30, 2020.

See Results of Operations above for

the Company’s realized prices during the quarter.

in oil and natural gas prices will materially adversely affect our financial condition, liquidity, ability to obtain financing

and operating results.

Changes in oil and gas prices impact both estimated future net revenue and the estimated quantity of proved

Any reduction in reserves, including reductions due to price fluctuations, can reduce the borrowing base under our credit

facility and adversely affect the amount of cash flow available for capital expenditures and our ability to obtain additional

capital for our acquisition, exploration and development activities.

In addition, a noncash write-down of our oil and gas properties

could be required under full cost accounting rules if prices declined significantly, even if it is only for a short period of

Lower prices may also reduce the amount of crude oil and natural gas that can be produced economically.

Thus, we may experience

material increases or decreases in reserve quantities solely as a result of price changes and not as a result of drilling or well

Changes in oil and gas

prices impact both estimated future net revenue and the estimated quantity of proved reserves.

Any reduction in reserves, including

reductions due to price fluctuations, can reduce the borrowing base under our credit facility and adversely affect the amount

of cash flow available for capital expenditures and our ability to obtain additional capital for our acquisition, exploration

and development activities.

In addition, a noncash write-down of our oil and gas properties could be required under full cost

accounting rules if prices declined significantly, even if it is only for a short period of time.

Lower prices may also reduce

the amount of crude oil and natural gas that can be produced economically.

Thus, we may experience material increases or decreases

in reserve quantities solely as a result of price changes and not as a result of drilling or well performance.

any improvements in oil and gas prices can have a favorable impact on our financial condition, results of operations and capital

1 unchanged sentence

If the average oil price

had increased or decreased by ten dollars per barrel for the first nine months of fiscal 2020, pretax income or loss would have

changed by $322,060.

If the average gas price had increased or decreased by one dollar per mcf for the first nine months of fiscal

2020, pretax income or loss would have changed by $221,116.

had increased or decreased by ten dollars per barrel for the quarter ended June 30, 2020, our pretax income would have increased

or decreased by $115,340.

If the average gas price had increased or decreased by one dollar per mcf for the quarter ended June

30, 2020, our pretax income would have increased or decreased by $79,516.

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.

What changed 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk