Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Commodity Price Risk

The Company’s revenues, earnings, cash flow, capital investments and, ultimately, future rate of growth are highly dependent on the prices the Company receives for its crude oil, natural gas, and NGLs, which have historically been very volatile because of unpredictable events such as economic growth or retraction, weather, political climate, and global supply and demand. These factors have only been heightened as uncertainties in the commodity and financial markets associated with the COVID-19 pandemic, the conflict in Ukraine, global inflation, and other current events continue to impact oil and gas supply and demand. The Company continually monitors its market risk exposure.

The Company’s average crude oil price realizations increased 36 percent from $71.72 per barrel to $97.81 per barrel during the third quarters of 2021 and 2022, respectively. The Company’s average natural gas price realizations increased 45 percent from $3.87 per Mcf to $5.62 per Mcf during the third quarters of 2021 and 2022, respectively. The Company’s average NGL price realizations increased 6 percent from $31.42 per barrel to $33.39 per barrel during the third quarters of 2021 and 2022, respectively. Based on average daily production for the third quarter of 2022, a $1.00 per barrel change in the weighted average realized oil price would have increased or decreased revenues for the quarter by approximately $16 million, a $0.10 per Mcf change in the weighted average realized natural gas price would have increased or decreased revenues for the quarter by approximately $8 million, and a $1.00 per barrel change in the weighted average realized NGL price would have increased or decreased revenues for the quarter by approximately $6 million.

The Company periodically enters into derivative positions on a portion of its projected crude oil and natural gas production through a variety of financial and physical arrangements intended to manage fluctuations in cash flows resulting from changes in commodity prices. Such derivative positions may include the use of futures contracts, swaps, and/or options. The Company does not hold or issue derivative instruments for trading purposes. As of September 30, 2022, the Company had open natural gas derivatives not designated as cash flow hedges in a liability position with a fair value of $88 million. A 10 percent increase in gas prices would increase the liability by approximately $24 million, while a 10 percent decrease in prices would decrease the liability by approximately $24 million. These fair value changes assume volatility based on prevailing market parameters as of September 30, 2022. Refer to Note 4—Derivative Instruments and Hedging Activities in the Notes to Consolidated Financial Statements set forth in Part I, Item 1 of this Quarterly Report on Form 10-Q for notional volumes and terms with the Company’s derivative contracts.

Interest Rate Risk

As of September 30, 2022, the Company had $5.0 billion, net, in outstanding notes and debentures, all of which was fixed-rate debt, with a weighted average interest rate of 5.25 percent. Although near-term changes in interest rates may affect the fair value of fixed-rate debt, such changes do not expose the Company to the risk of earnings or cash flow loss associated with that debt.

The Company is also exposed to interest rate risk related to its interest-bearing cash and cash equivalents balances and amounts outstanding under the indentures and credit facilities. As of September 30, 2022, the Company had approximately $268 million in cash and cash equivalents, approximately 39 percent of which was invested in money market funds and short-term investments with major financial institutions. As of September 30, 2022, there were $520 million of borrowings outstanding under the Company’s syndicated revolving credit facilities. A change in the interest rate applicable to short-term investments and credit facility borrowings would have an immaterial impact on earnings and cash flows but could impact interest costs associated with future debt issuances or any future borrowings.

Foreign Currency Exchange Rate Risk

The Company’s cash activities relating to certain international operations is based on the U.S. dollar equivalent of cash flows measured in foreign currencies. The Company’s North Sea production is sold under U.S. dollar contracts, while the majority of costs incurred are paid in British pounds. The Company’s Egypt production is primarily sold under U.S. dollar contracts, and the majority of costs incurred are denominated in U.S. dollars. Transactions denominated in British pounds are converted to U.S. dollar equivalents based on the average exchange rates during the period.

Foreign currency gains and losses also arise when monetary assets and monetary liabilities denominated in foreign currencies are translated at the end of each month. Foreign currency gains and losses are included as either a component of “Other” under “Revenues and Other” or, as is the case when the Company re-measures its foreign tax liabilities, as a component of the Company’s provision for income tax expense on the statement of consolidated operations. Excluding the impacts of the foreign exchange contracts discussed below, foreign currency net gain or loss of $6 million would result from a 10 percent weakening or strengthening, respectively, in the British pound as of September 30, 2022.

The Company has periodically entered into foreign exchange contracts in order to minimize the impact of fluctuating exchange rates for the British pound on the Company’s operating expenses. As of September 30, 2022, the Company had outstanding foreign exchange contracts not designated as cash flow hedges with a total notional amount of £45 million in a liability position with a fair value of $8 million. A 10 percent strengthening of the British pound against the U.S. dollar would decrease the liability by approximately $4 million, while a 10 percent weakening of the British pound against the U.S. dollar would increase the liability by approximately $5 million.