Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item
3. Quantitative and Qualitative Disclosures About Market Risk
The
primary sources of market risk for us include fluctuations in commodity prices and interest rates. All of our financial instruments are
for purposes other than trading.
Credit
Risk. Credit risk is the risk of loss as a result of nonperformance by other parties of their contractual obligations. Our primary
credit risk is related to oil and gas production sold to various purchasers and the receivables are generally not collateralized. At
December 31, 2021, our largest credit risk associated with any single purchaser was $530,696 or 71% of our total oil and gas receivables.
We have not experienced any significant credit losses.
Energy
Price Risk. Our most significant market risk is the pricing applicable to our crude oil and natural gas production. Our financial
condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of, and demand for, oil
and natural gas. Prices for oil and natural gas production has been volatile and unpredictable for several years, and we expect this
volatility to continue in the future.
For
example, in the last twelve months, the NYMEX West Texas Intermediate (“WTI”) posted price for crude oil has ranged from
a low of $43.60 per bbl in January 2021 to a high of $80.63 per bbl in October 2021. The Henry Hub Spot Market Price (“Henry Hub”)
posted price for natural gas has ranged from a low of $2.43 per MMBtu in April 2021 to a high of $23.86 per MMBtu in February 2021. On
December 31, 2021, the WTI posted price for crude oil was $71.19 and the Henry Hub posted price for natural gas was $3.83. See Results
of Operations above for the Company’s realized prices during the three and nine months. Subsequently, on January 25, 2022, the
WTI posted price for crude oil was $81.58 and the Henry Hub posted price for natural gas was $4.24.
Similarly,
any improvements in oil and gas prices can have a favorable impact on our financial condition, results of operations and capital resources.
If the average oil price had increased or decreased by ten dollars per barrel for the first nine months of fiscal 2022, pretax income
or loss would have changed by $458,570. If the average gas price had increased or decreased by one dollar per mcf for the first nine
months of fiscal 2022, pretax income or loss would have changed by $274,204.
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