Currently, the Company does not use derivative financial instruments to manage any financial risks. Exchange rate risk managed through foreign currency denominated invoicing by The Company's US subsidiary and reducing the timing of between procurement and payment of foreign currency denominated payables.
Foreign currency exchange rate risk
As the Company operates primarily in Canada and the United States of America ("U.S."), fluctuations in the exchange rate between the U.S. dollar and Canadian dollar can have a significant effect on the operating results and the fair value or future cash flows of The Company's financial assets and liabilities. The Canadian entities are exposed to currency risk on foreign currency denominated financial assets and liabilities with adjustments recognized as foreign exchange gains or losses in the consolidated statement of comprehensive income. The U.S. entities with a U.S. dollar denominated functional currency expose the Company to currency risk on the translation of these entities' financial assets and liabilities to Canadian dollars on consolidation. In addition, U.S. entities are exposed to currency risk on financial assets and liabilities denominated in currencies other than their functional currency (U.S. dollars) with adjustments recognized in the consolidated statements of comprehensive income. For the year ended December 31, 2012, a 1% fluctuation in the value of the Canadian dollar relative to the U.S. dollar would have impacted profit before tax by $nil (2011 - $19 thousand.
Interest rate risk
The Company is exposed to interest rate risk because the Company borrows funds at only variable interest rates. The sensitivity analyses have been determined based on the exposure to interest rates for applicable to outstanding borrowings at the end of the reporting period. For floating rate liabilities, the analysis is prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of the reasonably possible change in interest rates. If interest rates had been 50 basis points higher/lower and all other variables were held constant, The Company's profit before tax would be $46 thousand lower/higher based on the borrowings outstanding at year end. (2011 - $111 thousand). All finance leases are concluded at fixed interest rates and a change in market interest rates relating to finance leases will not impact the Company's profit. The Company's sensitivity to interest rates has increased during the current year mainly due to the continued capital construction program leading to a draw on The Company's credit facility.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company assesses the creditworthiness of its customers on an ongoing basis. The Company's exposure and the credit ratings of its counterparties are continuously monitored as are amounts outstanding and age of receivables.
Trade receivables are predominately with customers who explore and develop petroleum and natural gas resources mainly in Canada and the southern U.S. The Company is subject to normal industry credit risk. This includes fluctuations in oil and natural gas commodity prices and the ability of customers to obtain attractive debt and/or equity financing. These balances represent the Companies total credit exposure. During the year, the Company earned revenues from more than 40 (2011: greater than 50) customers with the top three customers representing 67% (2011 - 42%) of revenue.
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