Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Commodity Price Risk
The price we receive for our oil and natural gas production heavily influences our revenue, profitability, access to capital and future rate of growth. Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand and other factors. Historically, the markets for oil and natural gas have been volatile, and we believe these markets will likely continue to be volatile in the future. The prices we receive for our production depend on numerous factors beyond our control. Our revenue generally would have increased or decreased along with any increases or decreases in oil or natural gas prices, but the exact impact on our income is indeterminable given the variety of expenses associated with producing and selling oil that also increase and decrease along with oil prices. See “Item 2. Properties - Proved Reserves Sensitivity by Price Scenario” for estimates of how a change in oil and gas prices from the 2024 SEC Case to the $60 Flat Case would reduce our proved reserves volumes and the PV-10 value thereof while the $80 Flat Case would increase our proved reserves volumes and the PV-10 value thereof.
We enter into derivative contracts to achieve a more predictable cash flow by reducing our exposure to commodity price volatility. All derivative positions are carried at their fair value on the balance sheet and are marked-to-market at the end of each period. Any realized gains and losses on settled derivatives, as well as mark-to-market gains or losses, are aggregated and recorded to gain (loss) on derivative instruments, net on the statements of operations rather than as a component of other comprehensive income or other income (expense).
We generally use derivatives to economically hedge a significant, but varying portion of our anticipated future production. Any payments due to counterparties under our derivative contracts are funded by proceeds received from the sale of our production. Production receipts, however, lag payments to the counterparties. Any interim cash needs are funded by cash from operations or borrowings under our Revolving Credit Facility.
The following table summarizes our open crude oil derivative contracts as of December 31, 2024, by fiscal quarter.
Crude Oil Contracts
Swaps (1)
Collars
Contract Period Volume (MBbls) Weighted Average Price
($/Bbl) Volume Ceiling (MBbls) Volume Floor (MBbls) Weighted Average Ceiling Price
($/Bbl) Weighted Average Floor Price
($/Bbl)
2025:
Q1 3,176 $ 74.58 2,303 1,890 $ 78.25 $ 69.68
Q2 2,696 74.27 2,503 2,019 77.45 69.41
Q3 2,338 73.29 2,305 1,818 77.43 69.15
Q4 2,294 73.07 2,279 1,791 77.55 69.15
2026:
Q1 264 $ 70.38 1,326 894 $ 74.41 $ 66.15
Q2 267 70.31 1,340 904 74.41 66.15
Q3 270 70.24 1,355 914 74.41 66.15
Q4 270 70.15 1,355 914 74.41 66.15
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(1) This table does not include volumes subject to swaptions and call options, which are crude oil derivative contracts we have entered into which may increase our swapped volumes at the option of our counterparties. This table also does not include basis swaps. See Note 12 to our financial statements for further details regarding our commodity derivatives, including the swaptions and call options that are not included in the foregoing table.
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The following table summarizes our open natural gas derivative contracts as of December 31, 2024, by fiscal quarter.
Natural Gas Contracts
Swaps (1)
Collars
Contract Period Volume
(MMBTU) Weighted Average Price
($/MMBTU) Volume Ceiling
(MMBTU) Volume Floor
(MMBTU) Weighted Average Ceiling Price
($/MMBTU) Weighted Average Floor Price
($/MMBTU)
2025:
Q1 6,675,000 $ 3.45 10,086,417 10,086,417 $ 4.98 $ 3.12
Q2 3,220,000 3.46 9,691,297 9,691,297 4.71 3.11
Q3 3,375,000 3.52 9,327,569 9,327,569 4.73 3.11
Q4 3,210,000 3.67 8,228,723 8,228,723 4.86 3.11
2026:
Q1 2,230,000 $ 3.86 5,828,249 5,828,249 $ 5.06 $ 3.09
Q2 2,145,000 3.69 6,024,706 6,024,706 5.06 3.09
Q3 1,840,000 3.78 6,024,706 6,024,706 5.06 3.09
Q4 1,370,000 3.76 4,304,642 4,304,642 4.97 3.09
2027:
Q1 155,000 $ 3.20 890,000 890,000 $ 3.83 $ 3.00
Q2 — — 920,000 920,000 3.83 3.00
Q3 — — 920,000 920,000 3.83 3.00
Q4 — — 610,000 610,000 3.83 3.00
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(1) This table does not include volumes subject to swaptions and call options, which are natural gas derivative contracts we have entered into which may increase our swapped volumes at the option of our counterparties. This table also does not include basis swaps. See Note 12 to our financial statements for further details regarding our commodity derivatives, including the call options and basis swaps that are not included in the foregoing table.
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NGL Contracts
Swaps
Contract Period Volume
(BBL) Weighted Average Price
($/BBL)
2025:
Q1 — $ —
Q2 4,550 37.03
Q3 29,900 36.39
Q4 66,700 36.75
2026:
Q1 92,250 $ 36.00
Q2 106,925 33.32
Q3 96,600 33.03
Q4 80,500 33.32
2027:
Q1 65,250 $ 32.30
Q2 59,150 30.73
Q3 57,500 30.69
Q4 52,900 30.87
Interest Rate Risk
Our long-term debt as of December 31, 2024 was comprised of borrowings that contain fixed and floating interest rates. Our Senior Notes, and Convertible Notes bear cash interest at fixed rates. Our Revolving Credit Facility interest rate is a floating rate option that is designated by us within the parameters established by the underlying agreement (see Note 4 to our financial statements).
From time to time, the Company may use interest rate swaps to effectively convert a portion of its variable rate indebtedness to fixed rate indebtedness. The following table summarizes our open interest rate derivative contracts as of December 31, 2024.
Fixed Rate Swap Agreements (in thousands)
Swaps
Contract Period Notional Amount Fixed Rate Floating Benchmark
October 1, 2024 - October 1, 2026 $ 25,000 3.423 % USD-SOFR CME
Changes in interest rates can impact results of operations and cash flows. A 1% increase in short-term interest rates on our floating-rate debt outstanding at December 31, 2024 would cost us approximately $6.9 million in additional annual interest expense.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary financial information required by this item are included on the pages immediately following the Index to Financial Statements appearing on page F-1.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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