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. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable to our natural gas production. Pricing for oil and natural gas production has been volatile and unpredictable for several years, and we expect this volatility to continue in the future. The prices we receive for production depend on many factors outside of our control.

We use price swap derivatives, including basis swaps and three-way collars, to reduce price volatility associated with certain of our oil and natural gas sales. With respect to these fixed price swap contracts, the counterparty is required to make a payment to us if the settlement price for any settlement period is less than the swap price, and we are required to make a payment to the counterparty if the settlement price for any settlement period is greater than the swap price. Our derivative contracts are based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on NYMEX WTI

(Cushing and Magellan East Houston) and Crude Oil - Brent and with natural gas derivative settlements based on NYMEX Henry Hub and Waha Hub.

At December 31, 2018, we had a net asset derivative position of $215.3 million as compared to a net liability derivative position of $106.1 million at December 31, 2017, related to our price swap, price basis swap derivatives and three-way collars. Utilizing actual derivative contractual volumes under our fixed price swaps and fixed price basis swaps as of December 31, 2018, a 10% increase in forward curves associated with the underlying commodity would have decreased the net asset position to $157.8 million, an increase of $57.6 million, while a 10% decrease in forward curves associated with the underlying commodity would have increased the net asset derivative position to $272.9 million, a decrease of $57.6 million. However, any cash derivative gain or loss would be substantially offset by a decrease or increase, respectively, in the actual sales value of production covered by the derivative instrument.

Counterparty and Customer Credit Risk

Our principal exposures to credit risk are through receivables resulting from joint interest receivables (approximately $95.5 million at December 31, 2018) and receivables from the sale of our oil and natural gas production (approximately $296.5 million at December 31, 2018).

We are subject to credit risk due to the concentration of our oil and natural gas receivables with several 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, 2018, three purchasers each accounted for more than 10% of our revenue: Shell Trading (US) Company (26%); Koch Supply & Trading LP (15%); and Occidental Energy Marketing Inc (11%). For the year ended December 31, 2017, three purchasers each accounted for more than 10% of our revenue: Shell Trading (US) Company (31%); Koch Supply & Trading LP (19%); and Enterprise Crude Oil LLC (11%). For the year ended December 31, 2016, three purchasers each accounted for more than 10% of our revenue: Shell Trading (US) Company (45%); Koch Supply & Trading LP (15%); and Enterprise Crude Oil LLC (13%). No other customer accounted for more than 10% of our revenue during these periods.

Joint operations receivables arise from billings to entities that own partial interests in the wells we operate. These entities participate in our wells primarily based on their ownership in leases on which we intend to drill. We have little ability to control whether these entities will participate in our wells. At December 31, 2018, we had four customers that represented approximately 82% of our total joint operations receivables. At December 31, 2017, we had three customer that represented approximately 74% of our total joint operations receivables.

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates on our indebtedness under our revolving credit facility. The terms of our revolving credit facility provide for interest on borrowings at a floating rate equal to an alternative base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.5% and 3-month LIBOR plus 1.0%) or LIBOR, in each case plus the applicable margin. The applicable margin ranges from 0.25% to 1.25% in the case of the alternative base rate and from 1.25% to 2.25% in the case of LIBOR, in each case depending on the amount of the loan outstanding in relation to the borrowing base.

As of December 31, 2018, we had $1.5 billion borrowings outstanding under our revolving credit facility. Our weighted average interest rate on borrowings under our revolving credit facility was 4.10% on December 31, 2018. An increase or decrease of 1% in the interest rate would have a corresponding decrease or increase in our interest expense of approximately $14.9 million based on the $1.5 billion outstanding in the aggregate under our revolving credit facility as of such date.