goodrich petroleum corporation - RR DONNELLEY FINANCIAL

Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company’s primary market risks are attributable to fluctuations in commodity prices and interest rates.
These fluctuations can affect revenues and cash flow from operating, investing and financing activities. The
Company’s risk-management policies provide for the use of derivative instruments to manage these risks. The
types of derivative instruments utilized by the Company include futures, swaps, options and fixed-price physicaldelivery
contracts. The volume of commodity derivative instruments utilized by the Company may vary from
year to year and is governed by risk-management policies with levels of authority delegated by the Board of
Directors. Both exchange and over-the-counter traded commodity derivative instruments may be subject to
margin deposit requirements, and the Company may be required from time to time to deposit cash or provide
letters of credit with exchange brokers or its counterparties in order to satisfy these margin requirements.
For information regarding the Company’s accounting policies and additional information related to the
Company’s derivative and financial instruments, see Note 1—“Summary of Significant Accounting Policies”,
Note 8—“Derivative Instruments” and Note 4—“Debt and Interest Expense” in the Notes to Consolidated
Financial Statements in Part II Item 8 of this Annual Report on Form 10-K.
Commodity Price Risk
The Company’s most significant market risk relates to fluctuations in natural gas and crude oil prices.
Management expects the prices of these commodities to remain volatile and unpredictable. As these prices
decline or rise significantly, revenues and cash flow will also decline or rise significantly. In addition, a non-cash
write-down of the Company’s oil and natural gas properties may be required if future commodity prices
experience a sustained and significant decline. Below is a sensitivity analysis of the Company’s commodityprice-related
derivative instruments.
The Company had derivative instruments in place to reduce the price risk associated with production in
2012 of approximately 60 MMBtus per day of natural gas and 2 MBbls per day of crude oil as of December 31,
2011. At December 31, 2011, the Company had a net asset derivative position of $39.1 million related to these
derivative instruments. Utilizing actual derivative contractual volumes, a 10% increase in underlying commodity
prices would have reduced the fair value of these instruments by approximately $6.8 million, while a 10%
decrease in underlying commodity prices would have increased the fair value of these instruments by
approximately $22.8 million. However, a gain or loss would be substantially offset by a decrease or increase,
respectively, in the actual sales value of production covered by the derivative instruments.
Interest Rate Risk
As of December 31, 2011, we had $102.5 million outstanding variable-rate debt and $493.9 million of
principal fixed-rate debt. To the extent we incur borrowings under our Senior Credit Facility, our exposure to
variable interest rates will increase. In the past, we have entered into interest rate swaps to help reduce our
exposure to interest rate risk, and we may seek to do so in the future if we deem appropriate. As of December 31,
2011, we have no interest rate swaps.
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