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 revenues during the Current Period, excluding any effect of our derivative instruments, were $1,374 million. We did not have any oil or NGL revenues during the Current Period. Based on production, natural gas revenues for the Current Period would have increased or decreased by approximately $137 million, for a 10% increase or decrease in prices. As of September 30, 2024, the fair value of our natural gas derivatives was a net asset of $191 million. As of September 30, 2024, we did not have any open oil or NGL derivative positions. A 10% increase in forward natural gas prices would decrease the valuation of natural gas derivatives by approximately $176 million, while a 10% decrease would increase the valuation by approximately $180 million. This fair value change assumes volatility based on prevailing market parameters at September 30, 2024. Additionally, should oil prices not meet the average target prices specified within the contingent payment from Crescent, we may not receive any payment from the up to $50 million contingent consideration arrangement. 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, including information about the contingent consideration arrangement.

As a result of the Southwestern Merger, our results of operations and cash flows will continue to be impacted by changes in market prices for natural gas, oil and NGL, which have historically been volatile. We plan to mitigate a portion of our exposure to adverse price changes and have entered into various derivative instruments, which includes hedge positions that cover approximately 45% of our projected natural gas volumes through the end of 2025.

Interest Rate Risk

Our exposure to interest rate changes relates primarily to borrowings under our Credit Facility. Interest is payable on borrowings under the 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 September 30, 2024, we did not have any outstanding borrowings under our Pre-IG Credit Facility.

As a result of the Southwestern Merger, we assumed approximately $3.7 billion of Southwestern’s senior notes, all of which had fixed interest rates. On October 1, 2024, Southwestern’s existing credit facility, which was based on floating interest rates, was terminated, with all loan amounts and other outstanding obligations thereunder repaid in full and all commitments thereunder extinguished, for approximately $585 million, which included all outstanding borrowings and transaction fees.

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