Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A: Quantitative and Qualitative Disclosures About Market Risk
Commodity Price Risk
Our major market risk exposure is in the pricing applicable to our oil and natural gas production. Market risk refers to the risk of loss from adverse changes in oil and natural gas prices. Realized pricing is primarily driven by the prevailing domestic price for crude oil and spot prices applicable to the region in which we produce natural gas. Historically, prices received for oil and natural gas production have been volatile and unpredictable. We expect pricing volatility to continue.
The prices we receive depend on many factors outside of our control. Oil prices we received during 2022 ranged from a monthly average low of $75.33 per barrel to a monthly average high of $114.86 per barrel. Natural gas prices we received during 2022 ranged from a monthly average low of $2.16 per Mcf to a monthly average high of $9.78 per Mcf. A significant decline in the prices of oil or natural gas could have a material adverse effect on our financial condition and results of operations. In order to reduce commodity price uncertainty and increase cash flow predictability relating to the marketing of our crude oil and natural gas, we may enter into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production. The following table summarizes the Company's hedges in place on a monthly basis by commodity type. See "Note 8 - DERIVATIVE FINANCIAL INSTRUMENTS" to our financial statements for further information.
Oil Hedges (WTI) Gas Hedges (Henry Hub)
Month Average BBL/day Average MMBtu/day
January 2023 5,180 3,862
February 2023 5,145 11,652
March 2023 5,113 11,580
April 2023 4,832 11,259
May 2023 4,802 11,188
June 2023 4,774 11,119
July 2023 4,497 10,802
August 2023 4,471 10,735
September 2023 4,447 10,669
October 2023 4,423 10,356
November 2023 4,400 10,294
December 2023 4,379 10,233
January 2024 4,150 6,500
February 2024 4,132 6,500
March 2024 4,113 6,500
April 2024 4,096 6,250
May 2024 4,081 6,250
June 2024 4,066 6,250
July to September 2024 3,750 6,000
October to December 2024 4,000 6,000
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Customer Credit Risk
Our principal exposure to credit risk is through receivables from the sale of our oil and natural gas production (approximately $40.1 million as of December 31, 2022). We are subject to credit risk due to the concentration of our oil and natural gas receivables with our most significant customers. We do not require our customers to post collateral, and the inability of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results. For the year ended December 31, 2022, sales to three customers, Phillips, NGL Crude, and Enterprise represented 68%, 13% and 5%, respectively, of our oil, natural gas, and natural gas liquids revenues. As of December 31, 2022, Phillips represented 69% of our accounts receivable, NGL Crude represented 7% of our accounts receivable and Enterprise represented 10% of our accounts receivable. We believe that the loss of any of these customers would not materially impact our business because we could readily find other purchasers for our oil and natural gas.
Interest Rate Risk
We are subject to market risk exposure related to changes in interest rates on our indebtedness under our Credit Facility, which bears variable interest based upon a prime rate and is therefore susceptible to interest rate fluctuations. Changes in interest rates affect the interest earned on the Company’s cash and cash equivalents and the interest rate paid on borrowings under the Credit Facility.
As of December 31, 2022, we had $415.0 million outstanding on our Credit Facility with a weighted average interest rate of 5.8%. A 1% change in the interest rate on our Credit Facility would result in an estimated $4.2 million change in our annual interest expense. See "Note 10 - REVOLVING LINE OF CREDIT" in the Footnotes to the financial statements for more information on the Company’s interest rates on our Credit Facility.
Currently, we do not use interest rate derivative instruments to manage exposure to interest rate changes.
Please also see Item 1A “Risk Factors” above for a discussion of other risks and uncertainties we face in our business.
Item 8: Financial Statements and Supplementary Data
The financial statements and supplementary data required by this item are included beginning at page F-1 of this Annual Report.
Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.