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At December 31, 2007 we had the following
open derivative positions:
Item 7A. Qualitative and Quantitative Disclosures
About Market Risk
Commodity Risk. Our major market
risk exposure is the commodity pricing applicable to our oil and
natural gas production. Realized commodity prices received for such
production are primarily driven by the prevailing worldwide price
for oil and spot prices applicable to natural gas. The effects of
such pricing volatility have been discussed above, and such volatility
is expected to continue. A 10% fluctuation in the price received
for oil and natural gas production would have an approximate $12.6
million impact on our 2007 annual revenues.
To mitigate some of this risk, we engage
periodically in certain limited hedging activities, including price
swaps, costless collars and, occasionally, put options, in order
to establish some price floor protection. Costs and any benefits
derived fromthese price floors are accordingly recorded as a reduction
or increase, as applicable, in oil and gas sales revenue and were
notsignificant for any year presented. The costs to purchase put
options are amortized over the option period. We do not hold orissue
derivative instruments for trading purposes. Net gains (losses)
realized by us related to these instruments were $6.4 million, $5.6
million and $(2.3) million or $0.83, $0.98 and $(0.50) per MMBtu
for the years ended December 31, 2007, 2006 and 2005, respectively.
Interest Rate Risk. Our exposure
to changes in interest rates results from our floating rate debt.
The result of a 10% fluctuation in short-term interest rates would
have impacted 2007 interest expense by approximately $2.4 million.
During 2007, we entered into interest rate swap agreements with
respect to amounts outstanding under the amended Second Lien Credit
Facility. These arrangements are designed to manage our exposure
to interest rate fluctuations through December 31, 2008 by effectively
exchanging existing obligations to pay interest based on floating
rates for obligations to pay interest basedon fixed LIBOR. These
derivatives will be marked-to-market at the end of each period and
the realized and unrealized gain or
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