Item 3. Quantitative and Qualitative Disclosures About Market Risk

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our exposure to market risk. The term market risk relates to our risk of loss arising from adverse changes in natural gas, oil and NGL prices and interest rates. These disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. The forward-looking information provides indicators of how we view and manage our ongoing market risk exposures.

Commodity Price Risk

Our results of operations and cash flows are impacted by changes in market prices for natural gas, oil and NGL, which have historically been volatile. To mitigate a portion of our exposure to adverse price changes, we enter into various derivative instruments. Our natural gas, oil and NGL derivative activities, when combined with our sales of natural gas, oil and NGL, allow us to predict with greater certainty the revenue we will receive. We believe our derivative instruments continue to be highly effective in achieving our risk management objectives.

We determine the fair value of our derivative instruments utilizing established index prices, volatility curves and discount factors. These estimates are compared to counterparty valuations for reasonableness. Derivative transactions are also subject to the risk that counterparties will be unable to meet their obligations. This non-performance risk is considered in the valuation of our derivative instruments, but to date has not had a material impact on the values of our derivatives. Future risk related to counterparties not being able to meet their obligations has been partially mitigated under our commodity hedging arrangements that require counterparties to post collateral if their obligations to us are in excess of defined thresholds. The values we report in our financial statements are as of a point in time and subsequently change as these estimates are revised to reflect actual results, changes in market conditions and other factors. See Note 11 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further discussion of the fair value measurements associated with our derivatives.

Our natural gas, oil and NGL revenues during the first three months of 2023, excluding any effect of our derivative instruments, were $1,042 million, $373 million and $38 million, respectively. Based on production, natural gas, oil and NGL revenue for the first three months of 2023 would have increased or decreased by approximately $104 million, $37 million, and $4 million, respectively, for each 10% increase or decrease in prices. As of March 31, 2023, the fair values of our natural gas and oil derivatives were net assets of $508 million and $11 million, respectively. A 10% increase in forward natural gas prices would decrease the valuation of natural gas derivatives by approximately $256 million. A 10% decrease in forward natural gas prices would increase the valuation of natural gas derivatives by approximately $260 million. A 10% increase in forward oil prices would decrease the valuation of oil derivatives by approximately $8 million. A 10% decrease in forward oil prices would increase the valuation of oil derivatives by approximately $9 million. See Note 11 of the notes to our condensed consolidated financial statements included in Item 1 of Part I of this report for further information on our open derivative positions.

Interest Rate Risk

Our exposure to interest rate changes relates primarily to borrowings under our New Credit Facility for the first three months of 2023 and the Exit Credit Facility for the first three months of 2022. Interest is payable on borrowings under each respective credit facility based on floating rates. See Note 4 of the notes to our condensed consolidated financial statements included in Item 1 of Part 1 of this report for additional information. As of March 31, 2023, we did not have any outstanding borrowings under our New Credit Facility.

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