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, double-up swaps, put spreads, interest rate 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 West Texas Intermediate pricing (Cushing and Magellan East Houston) and Crude Oil - Brent and with natural gas derivative settlements based on NYMEX Henry Hub and Waha Hub pricing.

At December 31, 2019 and December 31, 2018, we had a net asset derivative position of $26 million and $216 million, respectively, 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, 2019, a 10% increase in forward curves associated with the underlying commodity would have decreased the net asset position to a net liability position of $178 million, a decrease of $204 million, while a 10% decrease in forward curves associated with the underlying commodity would have increased the net asset derivative position to $232 million, an increase of $206 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 $186 million at December 31, 2019) and receivables from the sale of our oil and natural gas production (approximately $429 million at December 31, 2019).

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, 2019, three purchasers each accounted for more than 10% of our revenue: Shell (27%); Plains (23%); and Vitol (15%). For the year ended December 31, 2018, three purchasers each accounted for more than 10% of our revenue: Shell (26%); Koch (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 (31%); Koch (19%); and Enterprise Crude Oil LLC (11%). 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, 2019, we had 15 customers that represented approximately 80% of our total joint operations receivables. At December 31, 2018, we had four customer that represented approximately 82% 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 outstanding borrowings under the credit agreement bear interest at a per annum rate elected by us that is equal an alternate base rate (which is equal to the greatest of the prime rate, the Federal Funds effective rate plus 0.50% and 3-month LIBOR plus 1.0%) or LIBOR, in each case plus the applicable margin. The applicable margin ranges from 0.125% to 1.0% per annum and from 1.125% to 2.0% per annum in the case of LIBOR, in each case, depending on the pricing level, which in turn depends on the rating agencies’ rating of our unsecured debt. We are obligated to pay a quarterly commitment fee ranging from 0.125% to 0.350% per year on the unused portion of the commitment, based on the pricing level, which in turn depends on the rating agencies’ rating of our unsecured debt.

As of December 31, 2019, we had $13 million borrowings outstanding under our revolving credit facility. Our weighted average interest rate on borrowings under our revolving credit facility was 3.20% on December 31, 2019. An increase or decrease of 1% in the interest rate would have a corresponding increase or decrease in our interest expense of approximately $130,000 based on the $13 million outstanding in the aggregate under our revolving credit facility as of such date.

As of December 31, 2019, Viper LLC had $97 million in outstanding borrowings. Viper LLC’s weighted average interest rate was 4.30%. An increase or decrease of 1% in the interest rate would have a corresponding increase or decrease in Viper LLC’s interest expense of approximately $1 million based on the $97 million outstanding in the aggregate under the Viper credit agreement on December 31, 2019.

As of December 31, 2019, Rattler LLC had $424 million of outstanding borrowings. Rattler LLC’s weighted average interest rate was 2.98%. An increase or decrease of 1% in the interest rate would have a corresponding increase or decrease in Rattler LLC’s interest expense of approximately $4 million based on the $424 million outstanding under the Rattler credit agreement as of December 31, 2019.