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ITEM 7A.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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In addition to the risks inherent in operations, CNX is exposed to financial, market, political and economic risks. The following discussion provides additional detail regarding CNX's exposure to the risks of changing commodity prices, interest rates and foreign exchange rates.
CNX is exposed to market price risk in the normal course of selling natural gas. CNX uses fixed-price contracts, options and derivative commodity instruments to minimize exposure to market price volatility in the sale of natural gas and NGLs. Under our risk management policy, it is not our intent to engage in derivative activities for speculative purposes.
CNX has established risk management policies and procedures to strengthen the internal control environment of the marketing of commodities produced from its asset base. All of the derivative instruments without other risk assessment procedures are held for purposes other than trading. They are used primarily to mitigate uncertainty and volatility and cover underlying exposures. The Company's market risk strategy incorporates fundamental risk management tools to assess market price risk and establish a framework in which management can maintain a portfolio of transactions within pre-defined risk parameters.
CNX believes that the use of derivative instruments, along with our risk assessment procedures and internal controls, mitigates our exposure to material risks. The use of derivative instruments without other risk assessment procedures could materially affect the Company's results of operations depending on market prices; however, we believe that use of these instruments will not have a material adverse effect on our financial position or liquidity due to our risk assessment procedures and internal controls.
For a summary of accounting policies related to derivative instruments, see Note 1 - Significant Accounting Policies in the Notes to the Audited Consolidated Financial Statements in Item 8 of this Form 10-K.
At December 31, 2019 and 2018, our open derivative instruments were in a net asset position with a fair value of $406 million and $99 million, respectively. A sensitivity analysis has been performed to determine the incremental effect on future earnings related to open derivative instruments at December 31, 2019 and 2018. A hypothetical 10 percent increase in future natural gas prices would have decreased the fair value by $383 million and $427 million at December 31, 2019 and 2018, respectively. A hypothetical 10 percent decrease in future natural gas prices would have increased the fair value by $402 million and $453 million at December 31, 2019 and 2018, respectively.
CNX's interest expense is sensitive to changes in the general level of interest rates in the United States. At December 31, 2019 and 2018, CNX had $1,797 million and $1,703 million, respectively, aggregate principal amount of debt outstanding under fixed-rate instruments, each including unamortized debt issuance costs of $9 million. At December 31, 2019 and 2018, CNX had $973 million and $696 million, respectively, of debt outstanding under variable-rate instruments. CNX’s primary exposure to market risk for changes in interest rates relates to our Credit Facility, under which there were $661 million of borrowings at December 31, 2019 and $612 million of borrowings at December 31, 2018, and CNXM's revolving credit facility, under which there were $312 million of borrowings at December 31, 2019 and $84 million at December 31, 2018. A hypothetical 100 basis-point increase in the average rate for CNX's and CNXM's revolving credit facilities would decrease pre-tax future earnings as of December 31, 2019 and 2018 by $10 million and $7 million, respectively, on an annualized basis.
All of CNX's transactions are denominated in U.S. dollars, and, as a result, it does not have material exposure to currency exchange-rate risks.
Natural Gas Hedging Volumes
As of January 8, 2020, the Company's hedged volumes for the periods indicated are as follows:
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For the Three Months Ended
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March 31,
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June 30,
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September 30,
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December 31,
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Total Year
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2020 Fixed Price Volumes
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Hedged Bcf
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121.6
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126.5
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127.9
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121.8
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497.5*
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Weighted Average Hedge Price per Mcf
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$
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2.67
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$
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2.50
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$
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2.49
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$
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2.53
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$
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2.55
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2021 Fixed Price Volumes
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Hedged Bcf
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108.4
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111.8
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113.2
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109.9
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443.3
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Weighted Average Hedge Price per Mcf
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$
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2.44
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$
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2.41
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$
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2.41
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$
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2.41
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$
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2.42
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2022 Fixed Price Volumes
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Hedged Bcf
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76.0
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76.8
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77.6
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74.8
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305.2
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Weighted Average Hedge Price per Mcf
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$
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2.46
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$
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2.44
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$
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2.44
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$
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2.42
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$
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2.44
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2023 Fixed Price Volumes
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Hedged Bcf
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42.9
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43.4
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43.9
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43.9
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174.1
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Weighted Average Hedge Price per Mcf
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$
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2.31
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$
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2.28
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$
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2.28
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$
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2.30
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$
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2.29
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2024 Fixed Price Volumes
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Hedged Bcf
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39.9
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36.9
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37.3
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37.4
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151.5
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Weighted Average Hedge Price per Mcf
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$
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2.38
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$
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2.29
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$
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2.29
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$
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2.29
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$
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2.32
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2025 Fixed Price Volumes
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Hedged Bcf
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5.3
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5.3
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5.4
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5.4
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21.4
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Weighted Average Hedge Price per Mcf
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$
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2.08
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$
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2.08
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$
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2.08
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$
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2.08
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$
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2.08
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*Quarterly volumes do not add to annual volumes inasmuch as a discrete condition in individual quarters, where basis hedge volumes exceed NYMEX hedge volumes, does not exist for the year taken as a whole.
