Quantitative and Qualitative Disclosures About Market Risk
−Removed: This discussion provides information about the financial instruments we use to manage commodity prices.
−Removed: All contracts are settled in cash and do not require the actual delivery of a commodity at settlement.
+Added: This discussion provides information about the financial instruments we have historically used to manage commodity prices.
+Added: All contracts were settled in cash and did not require the actual delivery of a commodity at settlement.
Additionally, our exposure to credit risk and interest rate risk is also discussed.
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Our most significant market risk relates to the prices we receive for our oil, natural gas and NGLs.
−Removed: Due to the historical price volatility of these commodities, from time to time, depending upon our view of opportunities under the then-prevailing current market conditions, we enter into commodity price derivative contracts for a portion of our anticipated production volumes for the purpose of reducing variability of oil and natural gas prices we receive.
−Removed: Our credit facility limits our ability to enter into derivative transactions to 90% of expected production volumes from estimated proved reserves over the period covered by the transactions.
−Removed: Historically, we have used a variety of commodity-based derivative contracts, including fixed price swaps, basis swaps and collars.
−Removed: At September 30, 2020, the Company's open derivative contracts consisted of natural gas commodity derivative contracts under which we will receive a fixed price for the contract and pay a floating market price to the counterparty over a specified period for a contracted volume.
−Removed: These commodity derivative contracts consisted of the following:
−Removed: Notional (MMBtu) Weighted Average Fixed Price per Unit
−Removed: Natural Gas Price Swaps:
−Removed: October 2020 1,240,000 $ 2.14
−Removed: Natural Gas Price Swaps:
−Removed: November 2020 - December 2020 2,135,000 $ 2.54
−Removed: Natural Gas Price Swaps:
−Removed: January 2021 - December 2021 10,950,000 $ 2.61
−Removed: Because we have not designated any of our derivative contracts as hedges for accounting purposes, changes in the fair value of our derivative contracts are recognized as gains and losses in current period earnings.
−Removed: As a result, our current period earnings may be significantly affected by changes in the fair value of our commodity derivative contracts.
−Removed: Changes in fair value are principally measured based on a comparison of future prices to the contract price at the period-end.
−Removed: The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2020, and 2019 (in thousands):
−Removed: Three Months Ended September 30, Nine Months Ended September 30,
−Removed: 2020 2019 2020 2019
+Added: Due to the historical price volatility of these commodities, from time to time, depending upon our view of opportunities under the then-prevailing current market conditions, we have historically entered into commodity pricing derivative contracts for a portion of our anticipated production volumes for the purpose of reducing variability of oil and natural gas prices we receive.
+Added: We have used, and may use, a variety of commodity-based derivative contracts, including fixed price swaps, basis swaps and collars.
+Added: At March 31, 2021, we had no open commodity derivative contracts.
+Added: Because we historically have not designated any of our derivative contracts as hedges for accounting purposes, changes in the fair value of our derivative contracts were recognized as gains and losses in current period earnings.
+Added: As a result, and when applicable, current period earnings could have been significantly affected by changes in the fair value of our commodity derivative contracts.
+Added: Changes in fair value was principally measured based on a comparison of future prices to the contract price at the end of the period.
+Added: The following table summarizes derivative activity for the three-month periods ended March 31, 2021, and 2020 (in thousands):
+Added: Three Months Ended March 31,
(Gain) loss on commodity derivative contracts $ — $ (10,226)
−Removed: Cash received on settlements $ 619 $ 622 $ 11,197 $ 5,700
+Added: Cash (received) paid on settlements $ — $ (4,087)
See “Note 3 - Derivatives” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our commodity derivatives.
−Removed: We are exposed to credit risk related to counterparties to our derivative financial contracts.
+Added: As applicable, we were exposed to credit risk related to counterparties to our derivative financial contracts.
All of our derivative transactions have been carried out in the over-the-counter market.
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The counterparties for all of our derivative transactions have had an “investment grade” credit rating.
−Removed: We monitor the credit ratings of our derivative counterparties and consider our counterparties’ credit default risk ratings in determining the fair value of our derivative contracts.
−Removed: Our derivative contracts are with multiple counterparties to minimize exposure to any individual counterparty.
−Removed: We do not require collateral or other security from counterparties to support derivative instruments.
−Removed: We have master netting agreements with each of our derivative contract counterparties, which allow us to net our derivative assets and liabilities by commodity type with the same counterparty.
−Removed: This limits our maximum amount of loss under derivative transactions due to our ability to net the amounts due from the counterparties under any outstanding commodity derivative contracts.
−Removed: Our loss is further limited as any amounts due from a defaulting counterparty that is also a lender under the credit facility can be offset against amounts owed, if any, to such counterparty.
−Removed: As of September 30, 2020, the counterparties to our open commodity derivative contracts consisted of three financial institutions, all of which are also lenders under our credit facility.
−Removed: As a result, we are not required to post additional collateral under our commodity derivative contracts.
+Added: We have monitored the credit ratings of our derivative counterparties and considered our counterparties’ credit default risk ratings in determining the fair value of our derivative contracts.
+Added: Our derivative contracts have historically been with multiple counterparties to minimize exposure to any individual counterparty, and in addition our counterparties have been large financial institutions.
+Added: We did not require collateral or other security from counterparties to support derivative instruments.
+Added: We historically had master netting agreements with each of our derivative contract counterparties, which allowed us to net our derivative assets and liabilities by commodity type with the same counterparty.
+Added: As a result of the netting provisions, our maximum amount of loss under derivative transactions due to credit risk was limited to the net amounts due from the counterparties under the commodity derivative contracts.
+Added: Therefore, we were not required to post additional collateral under our commodity derivative contracts.
We are also exposed to credit risk related to the collection of receivables from our joint interest partners for their proportionate share of expenditures made on projects we operate.
−Removed: As discussed in “ Note 1 - Basis of Presentation ” to the accompanying unaudited consolidated financial statements, we adopted ASU 2016-13 on January 1, 2020, and recorded an immaterial adjustment to our joint interest receivables for estimated credit losses on our joint interest receivables.
+Added: Historically, our credit losses on joint interest receivables have been immaterial.
Interest Rate Risk.
−Removed: We are exposed to interest rate risk on our credit facility.
−Removed: This variable interest rate on our credit facility fluctuates and exposes us to short-term changes in market interest rates as our interest obligation on this instrument is based on prevailing market interest rates, primarily LIBOR and the federal funds rate.
−Removed: We had $12.0 million in outstanding variable rate debt as of September 30, 2020.
+Added: We are exposed to interest rate risk on our New Credit Facility.
+Added: This variable interest rate on our New Credit Facility fluctuates, and exposes us to short-term changes in market interest rates as our interest obligations on this instrument is periodically redetermined based on prevailing market interest rates, primarily LIBOR.
+Added: We had $20.0 million in outstanding variable rate debt as of March 31, 2021.
+Added: Tabl e of Contents
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.