What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-06 compared with 2023-08-08 · 127 added, 121 removed, 241 unchanged (51% of the section changed)

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Industry Trends

Oil, natural gas and NGLs prices have decreased in 2023 when compared to the same period of 2022 and, as a result, we experienced a decrease in revenues.

We continue to monitor the impact of the actions of the Organization of the Petroleum Exporting Countries and other large producing nations, the Russia-Ukraine conflict, global inventories of oil and gas and the uncertainty associated with recovering oil demand, inflation and future monetary policy, and governmental policies aimed at transitioning towards lower carbon energy.

Commodity prices have decreased in 2023 when compared to the same period of 2022, and as a result, we experienced a decline in revenues.

We continue to monitor the impact of the actions of the Organization of the Petroleum Exporting Countries and other large producing nations, the Russia-Ukraine conflict, conflicts in the Middle East, global inventories of oil and gas and the uncertainty associated with recovering oil demand, inflation and future monetary policy, and governmental policies aimed at transitioning towards lower carbon energy.

We expect prices for some or all of the commodities to remain volatile.

The COVID-19 pandemic and the Russia-Ukraine conflict continue to evolve, and the extent to which these events may impact our business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

The COVID-19 pandemic, the Russia-Ukraine conflict and conflicts in the Middle East continue to evolve, and the extent to which these events may impact our business, results of operations, financial condition and cash flows will depend on future developments, which are highly uncertain and cannot be predicted with confidence.

Recent Developments

Amended and Restated Credit Agreement

On July 31, 2023, OLLC and Acquisitionco amended and restated the Revolving Credit Facility with Keybanc Capital Markets Inc., Cadence Bank, N.A.

and Citizens Bank, N.A.

as joint lead arrangers and KeyBank National Association as the administrative agent (the “New Credit Facility”).

The New Credit Facility is a replacement in full of the Revolving Credit Facility.

The aggregate principal amount of loans outstanding under the New Credit Facility as of July 31, 2023, was $120.0 million.

The initial borrowing base under the facility is $150.0 million with elected commitments of $135.0 million, and, consistent with our prior Revolving Credit Facility, the New Credit Facility borrowing base will be redetermined on a semi-annual basis with the next redetermination expected to occur in the fourth quarter of 2023.

Certain key terms and conditions under the New Credit Facility include (but are not limited to):

● A maturity date of July 31, 2027;

● The loans shall bear interest at a rate per annum equal to (i) adjusted SOFR or (ii) an adjusted base rate, plus an applicable margin based on a utilization ratio of the lesser of the borrowing base and the aggregate commitments.

The applicable margin ranges from 2.00% to 3.00% for adjusted base rate borrowings, and 3.00% to 4.00% for adjusted SOFR borrowings;

● The unused commitments under the New Credit Facility will accrue a commitment fee of 0.50%, payable quarterly in arrears;

● Certain financial covenants, including the maintenance of (i) a net debt leverage ratio not to exceed 3.00 to 1.00, determined as of the last day of each fiscal quarter for the four fiscal-quarter period then ending and (ii) a current ratio of not less than 1.00 to 1.00, determined as of the last day of each fiscal quarter, in each case commencing with the fiscal quarter ending December 31, 2023;

● Certain events of default, including, without limitation:

non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy;

● Initial minimum hedging requirements covering 75% of the reasonably monthly production of hydrocarbons from proved developed producing reserves for the 24-month period following the effective date of the New Credit Facility (the “First Period”) and (ii) 50% for the 12-month period immediately following the First Period.

Certain Board of Director Appointments and Departures

On October 3, 2023, the board of directors (the “Board”) of the Company appointed Vidisha Prasad to the Board, effective immediately.

Prasad was also appointed to the audit committee of the Board.

In addition, Randal T.

Klein has informed the Board of his decision not to seek reelection as a director on the Board at the Company’s 2024 Annual Meeting of Stockholders (the “2024 Annual Meeting”).

Klein will continue to serve on the Board and the respective Board committees for the remainder of his term as a director until the 2024 Annual Meeting.

Klein’s decision not to stand for reelection was not due to any disagreements with the Company on any matter relating to the Company’s operations, policies, or practices.

Borrowing Base Redetermination

On October 19, 2023, we completed the fall 2023 borrowing base redetermination, which reaffirmed the borrowing base of $150.0 million with elected commitments of $135.0 million.

The next redetermination is expected to occur in the second quarter of 2024.

Business Environment and Operational Focus

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Critical Accounting Policies and Estimates

Our critical accounting policies and estimates, including a discussion regarding the estimation uncertainty and the impact that our critical accounting estimates have had, or are reasonably likely to have, on our financial condition or results of operations, are described in Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K.

Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K.

Significant estimates include, but are not limited to, oil and natural gas reserves;

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Results of Operations

The results of operations for the three and six months ended June 30, 2023 and 2022 have been derived from our unaudited condensed consolidated financial statements.

The results of operations for the three and nine months ended September 30, 2023 and 2022 have been derived from our unaudited condensed consolidated financial statements.

The comparability of the results of operations among the periods presented below is impacted by the Incident and suspension of operations at our Beta properties.

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

($ In thousands except per unit amounts)

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Pipeline incident loss

Pipeline incident settlement

Interest expense, net

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Depletion, depreciation and amortization

For the Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Net income of $9.8 million and $29.2 million were recorded for the three months ended June 30, 2023 and 2022, respectively.

Oil, natural gas and NGL revenues were $67.4 million and $112.9 million for the three months ended June 30, 2023 and 2022, respectively.

Average net production volumes were approximately 21.2 MBoe/d and 20.4 MBoe/d for the three months ended June 30, 2023 and 2022, respectively.

The change in production volumes was primarily due to the restart of operations at Beta and was partially offset by natural declines.

The average realized sales price was $34.97 per Boe and $60.74 per Boe for the three months ended June 30, 2023 and 2022, respectively.

The decrease in average realized sales price was primarily due to the decrease in commodity prices.

Other revenues were $4.6 million and $8.9 million for the three months ended June 30, 2023 and 2022, respectively.

The change in other revenues was primarily related to one month of loss of production income (“LOPI”) insurance proceeds of $4.5 million for the three months ended June 30, 2023 compared to two months of LOPI proceeds of $8.8 million for the three months ended June 30, 2022.

Lease operating expense was $34.9 million and $33.3 million for the three months ended June 30, 2023 and 2022, respectively.

On a per Boe basis, lease operating expense was $18.10 and $17.91 for the three months ended June 30, 2023 and 2022, respectively.

The change in lease operating expense on a per Boe basis was due to higher costs associated with the restart of operations at Beta.

Gathering, processing and transportation expense was $5.1 million and $7.3 million for the three months ended June 30, 2023 and 2022, respectively.

The decrease in gathering, processing and transportation expense was primarily related to the expiration of the minimum volume commitment (“MVC”) fee for the East Texas/North Louisiana property in November 2022.

During the three months ended June 30, 2022, we started marketing our own natural gas in Oklahoma, which resulted in us now recognizing certain revenue deductions as gathering, processing and transportation expenses.

On a per Boe basis, gathering, processing and transportation expense was $2.67 and $3.92 for the three months ended June 30, 2023 and 2022, respectively.

The change on a per BOE basis is primarily related to decrease in production and a decrease in MVC fees.

Taxes other than income were $5.2 million and $8.6 million for the three months ended June 30, 2023 and 2022, respectively.

The decrease was due to a reduction in production taxes as a result of lower commodity prices and lower production.

On a per Boe basis, taxes other than income were $2.70 and $4.64 for the three months ended June 30, 2023 and 2022, respectively.

DD&A expense was $7.1 million and $5.9 million for the three months ended June 30, 2023 and 2022, respectively.

The change in DD&A expense was primarily due to an increase in production of 70 MBoe, which equates to an increase of approximately $0.2 million in the change of production and an increase of $1.0 million in our depletion rate.

General and administrative expense was $7.8 million and $8.6 million for the three months ended June 30, 2023 and 2022, respectively.

The change in general and administrative expense was primarily related to (i) a decrease of $0.8 million in legal expense, and (ii) a decrease of $0.6 million in professional services partially offset by (i) an increase of $0.5 million in stock compensation expense and (ii) an increase of $0.1 million in salaries and other payroll benefits.

Net gain on commodity derivative instruments of $3.8 million were recognized for the three months ended June 30, 2023, consisting of a $1.5 million of cash settlements received on expired positions and an increase of $2.3 million in the fair value of open positions.

Net loss on commodity derivative instruments of $18.6 million was recognized for the three months ended June 30, 2022, consisting of a $30.0 million increase in the fair value of open positions offset by $48.6 million of cash settlements paid on expired positions.

Pipeline incident loss was $6.8 million and $5.1 million for the three months ended June 30, 2023 and 2022, respectively.

The costs reflect certain expenses that are not expected to be recovered under an insurance policy.

For the Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

We reported a net loss of $13.4 million and net income of $47.2 million for the three months ended September 30, 2023 and 2022, respectively.

Oil, natural gas and NGL revenues were $76.4 million and $112.8 million for the three months ended September 30, 2023 and 2022, respectively.

Average net production volumes were approximately 20.6 MBoe/d and 21.0 MBoe/d for the three months ended September 30, 2023 and 2022, respectively.

The average realized sales price was $40.28 per Boe and $58.31 per Boe for the three months ended September 30, 2023 and 2022, respectively.

The decrease in revenue and average realized sales price was primarily due to lower commodity prices.

Other revenues were $0.4 million and $13.5 million for the three months ended September 30, 2023 and 2022, respectively.

The change in other revenues was primarily related to the termination of LOPI insurance proceeds.

Lease operating expense was $37.1 million and $32.0 million for the three months ended September 30, 2023 and 2022, respectively.

On a per Boe basis, lease operating expense was $19.54 and $16.56 for the three months ended September 30, 2023 and 2022, respectively.

The change in lease operating expense was primarily driven by higher costs associated with the restart of operations at Beta.

Gathering, processing and transportation expense was $5.0 million and $7.5 million for the three months ended September 30, 2023 and 2022, respectively.

On a per Boe basis, gathering, processing and transportation expense was $2.63 and $3.87 for the three months ended September 30, 2023 and 2022, respectively.

The decrease in gathering, processing and transportation expense was primarily driven by the expiration of the minimum volume commitment (“MVC”) fee in East Texas/North Louisiana (November 2022) and Oklahoma (June 2023) and lower commodity prices.

Taxes other than income were $4.9 million and $9.2 million for the three months ended September 30, 2023 and 2022, respectively.

On a per Boe basis, taxes other than income were $2.60 and $4.73 for the three months ended September 30, 2023 and 2022, respectively.

The decrease was primarily related to a reduction in production taxes due to lower commodity prices.

DD&A expense was $7.5 million and $6.3 million for the three months ended September 30, 2023 and 2022, respectively.

The change in DD&A expense was primarily driven by three months of production at Beta.

General and administrative expenses were $8.3 million and $7.0 million for the three months ended September 30, 2023 and 2022, respectively.

The change in general and administrative expense was primarily related to (i) an increase of $0.5 million in stock compensation expense, (ii) an increase of $0.3 million in salaries and other payroll benefits, and (iii) an increase of $0.3 million in professional services.

Net loss on commodity derivative instruments of $23.3 million were recognized for the three months ended September 30, 2023, consisting of a $3.9 million of cash settlements paid on expired positions, an increase of $20.1 million in the fair value of open positions and $0.7 million of cash settlements received on terminated derivative instruments.

Net gain on commodity derivative instruments of $3.3 million was recognized for the three months ended September 30, 2022, consisting of a $44.1 million increase in the fair value of open positions and $40.8 million of cash settlements paid on expired positions.

Pipeline incident loss was $0.5 million and $2.6 million for the three months ended September 30, 2023 and 2022, respectively.

The costs reflect certain expenses not expected to be recovered under an insurance policy.

See Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report for additional information.

Litigation settlement was not recorded for the three months ended June 30, 2023 and 2022.

Interest expense, net was $3.7 million and $3.1 million for the three months ended June 30, 2023 and 2022, respectively.

The change in interest expense is primarily due to higher interest rates offset by lower debt outstanding during the period.

Average outstanding borrowings under our Revolving Credit Facility were $123.8 million and $219.4 million for the three months ended June 30, 2023 and 2022, respectively.

Current income tax benefit (expense) was $6.9 million for the three months ended June 30, 2023.

Litigation settlement was not recorded for the three months ended September 30, 2023 and 2022.

Interest expense, net was $4.5 million and $4.0 million for the three months ended September 30, 2023 and 2022, respectively.

The change in interest expense was primarily due to higher interest rates and the amortization and write-off of deferred issuance costs partially offset by lower debt outstanding during the period.

Average outstanding borrowings under our Revolving Credit Facility were $121.8 million and $214.9 million for the three months ended September 30, 2023 and 2022, respectively.

Current income tax (expense) benefit was ($1.4) million for the three months ended September 30, 2023.

See additional information discussed in Note 15 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

No current income tax expense was recorded for the three months ended June 30, 2022.

Deferred income tax benefit (expense) was less than ($0.1) million for the three months ended June 30, 2023.

No current income tax expense was recorded for the three months ended September 30, 2022.

Deferred income tax benefit (expense) was $4.7 million for the three months ended September 30, 2023.

Starting in the first quarter of 2023, we achieved three years of cumulative income which allowed the release of the valuation allowance.

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Financial Statements” of this quarterly report.

No deferred income tax benefit was recorded for the three months ended June 30, 2022.

For the Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

Net income of $362.6 million and a net loss of $19.4 million were recorded for the six months ended June 30, 2023 and 2022, respectively.

Oil, natural gas and NGL revenues were $133.7 million and $206.8 million for the six months ended June 30, 2023 and 2022, respectively.

Average net production volumes were approximately 20.3 MBoe/d and 20.4 MBoe/d for the six months ended June 30, 2023 and 2022, respectively.

The change in production volumes was primarily due to the restart of operations at Beta and natural declines.

The average realized sales price was $36.40 per Boe and $55.95 per Boe for the six months ended June 30, 2023 and 2022, respectively.

The decrease in average realized sales price was primarily due to the decrease in commodity prices.

Other revenues were $18.2 million and $26.5 million for the six months ended June 30, 2023 and 2022, respectively.

The change in other revenues was primarily related to LOPI insurance proceeds of $17.9 million for the six months ended June 30.

2023 compared to $26.2 million of LOPI proceeds for the six months ended June 30, 2022.

Lease operating expense was $67.9 million and $66.2 million for the six months ended June 30, 2023 and 2022, respectively.

On a per Boe basis, lease operating expense was $18.48 and $17.92 for the six months ended June 30, 2023 and 2022, respectively.

The change in lease operating expense on a per Boe basis was due to higher costs associated with the restart of operations at Beta partially offset with lower production.

Gathering, processing and transportation expense was $10.8 million and $15.3 million for the six months ended June 30, 2023 and 2022, respectively.

The decrease in gathering, processing and transportation expense was primarily related to the expiration of the MVC fee for the East Texas/North Louisiana property in November 2022.

During the six months ended June 30, 2022, we started marketing our own natural gas in Oklahoma, which improved our differentials, but, in 2022, we started to recognize certain revenue deductions as gathering, processing and transportation expenses.

On a per Boe basis, gathering, processing and transportation expense was $2.93 and $4.14 for the six months ended June 30, 2023 and 2022, respectively.

The change on a per BOE basis primarily related to decrease in production and a decrease in MVC fees.

Taxes other than income were $10.5 million and $16.2 million for the six months ended June 30, 2023 and 2022, respectively.

The decrease was due to a reduction in production taxes as a result of lower commodity prices and lower production.

No deferred income tax benefit was recorded for the three months ended September 30, 2022.

For the Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

We reported net income of $349.2 million and $27.8 million for the nine months ended September 30, 2023 and 2022, respectively.

Oil, natural gas and NGL revenues were $210.1 million and $319.6 million for the nine months ended September 30, 2023 and 2022, respectively.

Average net production volumes were approximately 20.4 MBoe/d and 20.6 MBoe/d for the nine months ended September 30, 2023 and 2022, respectively.

The average realized sales price was $37.72 per Boe and $56.76 per Boe for the nine months ended September 30, 2023 and 2022, respectively.

The decrease in revenue and average realized sales price was primarily due to lower commodity prices.

Other revenues were $18.5 million and $39.9 million for the nine months ended September 30, 2023 and 2022, respectively.

The change in other revenues was primarily related to LOPI insurance proceeds of $17.9 million for the nine months ended September 30.

2023 compared to $39.6 million of LOPI proceeds for the nine months ended September 30, 2022.

Lease operating expense was $104.9 million and $98.3 million for the nine months ended September 30, 2023 and 2022, respectively.

On a per Boe basis, lease operating expenses were $18.84 and $17.45 for the nine months ending September 30, 2023 and 2022, respectively.

The change in lease operating expense was primarily related to higher costs associated with the restart of operations at Beta.

Gathering, processing and transportation expense was $15.7 million and $22.8 million for the nine months ended September 30, 2023 and 2022, respectively.

On a per Boe basis, gathering, processing and transportation expenses were $2.83 and $4.05 for the nine months ending September 30, 2023 and 2022, respectively.

The decrease in gathering, processing and transportation expense was primarily driven by the expiration of the MVC fee in East Texas/North Louisiana (November 2022) and in Oklahoma (June 2023) and lower commodity prices.

Taxes other than income were $15.4 million and $25.3 million for the nine months ended September 30, 2023 and 2022, respectively.

On a per Boe basis, taxes other than income were $2.77 and $4.50 for the nine months ended September 30, 2023 and 2022, respectively.

The decrease was primarily related to a reduction in production taxes due to lower commodity prices.

In addition, we received a $0.4 million from a one-time positive severance tax adjustment related to our non-operated Eagle Ford operations.

On a per Boe basis, taxes other than income were $2.86 and $4.38 for the six months ended June 30, 2023 and 2022, respectively.

DD&A expense was $12.9 million and $11.5 million for the six months ended June 30, 2023 and 2022, respectively.

The change in DD&A expense was primarily due to a decrease in production of 23 MBoe, which equates to a decrease of $0.1 million in the change in production offset by an increase of $1.5 million in the change in our depletion rate.

General and administrative expense was $16.3 million and $16.4 million for the six months ended June 30, 2023 and 2022, respectively.

The change in general and administrative expenses was primarily related to (i) an increase of $0.6 million in salaries and other payroll benefits, and (ii) an increase of $0.8 million in stock compensation expense, offset by a (i) a decrease of $0.4 million in professional services, and (ii) a decrease of $1.1 million in legal expense.

Net gain on commodity derivative instruments of $19.0 million were recognized for the six months ended June 30, 2023, consisting of a $20.1 million increase in the fair value of open positions partially offset by $1.2 million of cash settlements paid on expired positions.

Net loss on commodity derivative instruments of $112.0 million was recognized for the six months ended June 30, 2022, consisting of a $32.4 million decrease in the fair value of open positions and $79.5 million of cash settlements paid on expired positions.

Pipeline incident loss was $15.1 million and $5.7 million for the six months ended June 30, 2023 and 2022, respectively.

The costs reflect certain expenses that are not expected to be recovered under an insurance policy.

DD&A expense was $20.4 million and $17.8 million for the nine months ended September 30, 2023 and 2022, respectively.

The increase in DD&A expense was primarily driven by production at Beta.

General and administrative expenses were $24.5 million and $23.4 million for the nine months ended September 30, 2023 and 2022, respectively.

The change in general and administrative expenses was primarily related to (i) an increase of $1.2 million in salaries and other payroll benefits and (ii) an increase of $1.3 million in stock compensation expense, partially offset by a decrease of $1.1 million in professional services.

Net loss on commodity derivative instruments of $4.4 million were recognized for the nine months ended September 30, 2023, consisting of less than $0.1 million increase in the fair value of open positions, $0.7 million of cash settlement received on terminated derivative instruments partially offset by $5.1 million of cash settlements paid on expired positions.

Net loss on commodity derivative instruments of $108.7 million was recognized for the nine months ended September 30, 2022, consisting of a $11.6 million increase in the fair value of open positions and $120.3 million of cash settlements paid on expired positions.

Pipeline incident loss was $15.7 million and $8.3 million for the nine months ended September 30, 2023 and 2022, respectively.

The costs reflect certain expenses not expected to be recovered under an insurance policy.

See Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report for additional information.

Litigation settlement was $84.9 million for the six months ended June 30, 2023, related to the settlement with the shipping companies related to the containerships’ anchor strikes of the Company’s pipeline.

Litigation settlement was $84.9 million for the nine months ended September 30, 2023, related to the settlement with the shipping companies related to the containerships’ anchor strikes of the Company’s pipeline.

See additional information discussed in Note 16 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

No litigation settlement was recorded for the six months ended June 30, 2022.

Interest expense, net was $9.4 million and $5.5 million for the six months ended June 30, 2023 and 2022, respectively.

We had an increase of $2.7 million in interest expense due to higher interest rates offset by lower debt outstanding, an increase of $0.4 million in the amortization and write-off of debt issuance costs, and a change of $0.8 million in the change in interest rate swaps.

Average outstanding borrowings under our Revolving Credit Facility were $157.9 million and $223.7 million for the six months ended June 30, 2023 and 2022, respectively.

Current income tax benefit (expense) was ($5.7) million for the six months ended June 30, 2023.

No litigation settlement was recorded for the nine months ended September 30, 2022.

Interest expense, net was $13.9 million and $9.5 million for the nine months ended September 30, 2023 and 2022, respectively.

The change in interest expense was primarily driven by (i) higher interest rates, (ii) amortization and write-off of deferred issuance cost, and (iii) the change in interest rate swaps.

Average outstanding borrowings under our Revolving Credit Facility were $145.8 million and $220.7 million for the nine months ended September 30, 2023 and 2022, respectively.

Current income tax (expense) benefit was ($7.1) million for the nine months ended September 30, 2023.

See additional information discussed in Note 15 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

No current income tax expense was recorded for the six months ended June 30, 2022.

Deferred income tax benefit (expense) was $259.4 million for the six months ended June 30, 2023.

No current income tax expense was recorded for the nine months ended September 30, 2022.

Deferred income tax benefit (expense) was $264.1 million for the nine months ended September 30, 2023.

Starting in the first quarter of 2023, we achieved three years of cumulative income which allowed the release of the valuation allowance.

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Financial Statements” of this quarterly report.

No deferred income tax benefit was recorded for the six months ended June 30, 2022.

No deferred income tax benefit was recorded for the nine months ended September 30, 2022.

Adjusted EBITDA

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● Other non-routine items that we deem appropriate.

We believe that Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure.

We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance and compare the results of our operations from period to period without regard to our financing methods or capital structure.

Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net income (loss) or cash flows from operating activities as determined in accordance with GAAP or as an indicator of our operating performance or liquidity.

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

(In thousands)

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Pipeline incident loss

Pipeline incident settlement

Litigation settlement

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For the Three Months Ended

For the Six Months Ended

For the Nine Months Ended

September 30,

(In thousands)

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Pipeline incident loss

Pipeline incident settlement

Litigation settlement

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Cash settlements paid (received) on interest rate swaps

Cash settlements paid (received) on terminated derivatives

Plugging and abandonment cost

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In connection with the settlement between the Company and the vessels that struck and damaged the pipeline and their respective owners and operators, the Company received a net payment of approximately $85.0 million.

Proceeds from the settlement have been used to reduce debt outstanding under the Company’s credit facility and to enhance liquidity.

Proceeds from the settlement have been used to reduce debt outstanding under the Company’s Revolving Credit Facility and to enhance liquidity.

Capital Markets.

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Furthermore, management determined that our ability to maintain long-term profitability despite near-term changes in commodity prices and capital and operating costs demonstrated that there is sufficient positive evidence to conclude that it is more likely than not that all net deferred tax asset is realizable.

As a result of our assessment, during the quarter ended June 30, 2023, we released substantially all of our valuation allowance previously recorded.

The result of the valuation allowance release during the six months ended June 30, 2023 was a tax benefit of $279.3 million.

As a result of our assessment, during the quarter ended September 30, 2023, we released substantially all of our valuation allowance previously recorded.

The result of the valuation allowance release during the nine months ended September 30, 2023 was a tax benefit of $278.8 million.

Capital Expenditures.

Our total capital expenditures were approximately $16.9 million for the six months ended June 30, 2023, which were primarily related to capital workovers and facilities upgrades located in Oklahoma and California and non-operated drilling and completion activities in the Eagle Ford.

Our total capital expenditures were approximately $26.6 million for the nine months ended September 30, 2023, which were primarily related to capital workovers and facilities upgrades located in Oklahoma and California and non-operated drilling and completion activities in the Eagle Ford.

Working Capital.

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We expect that our future working capital requirements will be impacted by these same factors.

As of June 30, 2023, we had a working capital deficit of $12.7 million primarily due to accrued liabilities of $55.4 million, revenues payable of $21.5 million, accounts payable of $23.4 million and short-term derivatives of $0.7 million, partially offset by accounts receivable of $63.0 million, prepaid expenses of $23.5 million and cash on hand of $1.9 million.

As of September 30, 2023, we had a working capital deficit (excluding commodity derivatives) of $17.0 million primarily due to accrued liabilities of $55.4 million, revenues payable of $21.2 million, and accounts payable of $18.7 million partially offset by accounts receivable of $47.9 million, prepaid expenses of $24.0 million and cash on hand of $6.4 million.

Debt Agreement

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On July 31, 2023, OLLC and Acquisitionco entered into the New Credit Facility.

The New Credit Facility is a replacement in full of the Revolving Credit Facility.

The aggregate principal amount of loans outstanding under the New Credit Facility as of July 31, 2023, was $120.0 million.

The initial borrowing base under the facility is $150.0 million, with elected commitments of $135.0 million, and, consistent with the prior Revolving Credit Facility, the New Credit Facility borrowing base will be redetermined on a semi-annual basis with the next redetermination expected to occur in the fourth quarter of 2023.

The New Credit Facility is a replacement in full of the prior Revolving Credit Facility.

The aggregate principal amount of loans outstanding under the New Credit Facility as of September 30, 2023, was $120.0 million.

As of September 30, 2023, we had approximately $15.0 million of available borrowings under our New Credit Facility.

As of September 30, 2023, we were in compliance with all the financial (current ratio and total leverage ratio) and non-financial covenants associated with the New Credit Facility.

Subsequent Event .

On October 19, 2023, we completed the fall 2023 borrowing base redetermination, which reaffirmed the borrowing base of $150.0 million with elected commitments of $135.0 million.

The next redetermination is expected to occur in the second quarter of 2024.

For additional information regarding our Revolving Credit Facility and New Credit Facility, see Note 7 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

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We have a funding requirement to fund a trust account to comply with supplemental regulatory bonding requirements related to our decommissioning obligations for our offshore Southern California production facilities.

As of June 30, 2023, our future commitment under this agreement were $4.0 million for the remaining of 2023, and $15.8 million a year for years 2024 through 2033.

As of September 30, 2023, our future commitment under this agreement was $2.0 million for the remainder of 2023, and $15.8 million per year for years 2024 through 2033.

See Note 14 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

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The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated.

The cash flows for the six months ended June 30, 2023 and 2022 have been derived from our Unaudited Condensed Consolidated Financial Statements.

The cash flows for the nine months ended September 30, 2023 and 2022 have been derived from our Unaudited Condensed Consolidated Financial Statements.

For information regarding the individual components of our cash flow amounts, see our Unaudited Condensed Consolidated Statements of Cash Flows included under “Item 1.

Financial Statements” of this quarterly report.

For the Six Months Ended

For the Nine Months Ended

September 30,

(In thousands)

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Key drivers of net operating cash flows are commodity prices, production volumes and operating costs.

Net cash provided by operating activities was $95.2 million and $30.4 million for the six months ended June 30, 2023 and 2022, respectively.

Production volumes were approximately 20.3 MBoe/d and 20.4 MBoe/d for the six months ended June 30, 2023 and 2022, respectively.

The average realized sales price was $36.40 per Boe and $55.95 per Boe for the six months ended June 30, 2023 and 2022, respectively.

The change in average realized sales price was primarily due to the decrease in commodity prices.

Net cash provided by operating activities for the six months ended June 30, 2023 included $1.2 million of cash paid on expired commodity derivative instruments compared to $79.5 million of cash paid on expired commodity derivatives for the six months ended June 30, 2022.

For the six months ended June 30, 2023, we had net gains on commodity derivative instruments of $19.0 million compared to net losses of $112.0 million for the six months ended June 30, 2022.

Net cash provided by operating activities was $113.2 million and $49.3 million for the nine months ended September 30, 2023 and 2022, respectively.

Production volumes were approximately 20.4 MBoe/d and 20.6 MBoe/d for the nine months ended September 30, 2023 and 2022, respectively.

The average realized sales price was $37.72 per Boe and $56.76 per Boe for the nine months ended September 30, 2023 and 2022, respectively.

The change in average realized sales price was primarily due to lower commodity prices.

For the nine months ended September 30, 2023, we received $84.9 million in connection with the settlement between the Company and the vessels that struck and damaged the pipeline and their respective owners and operators.

Net cash provided by operating activities for the nine months ended September 30, 2023 included $5.1 million of cash paid on expired commodity derivative instruments and $0.7 million of cash received on terminated derivatives compared to $120.3 million of cash paid on expired commodity derivatives for the nine months ended September 30, 2022.

For the nine months ended September 30, 2023, we had net losses on commodity derivative instruments of $4.4 million compared to net losses of $108.7 million for the nine months ended September 30, 2022.

Investing Activities.

Net cash used in investing activities for the six months ended June 30, 2023 was $21.1 million, of which $16.8 million was used for additions to oil and natural gas properties.

Net cash provided by investing activities for the six months ended June 30, 2022 was $16.9 million, of which $12.9 million was used for additions to oil and natural gas properties.

Net cash used in investing activities for the nine months ended September 30, 2023 was $30.0 million, of which $23.1 million was used for additions to oil and natural gas properties.

Net cash provided by investing activities for the nine months ended September 30, 2022 was $31.6 million, of which $26.2 million was used for additions to oil and natural gas properties.

Various restricted investment accounts fund certain long-term contractual and regulatory asset retirement obligations and collateralize certain regulatory bonds associated with our offshore Southern California properties.

Additions to restricted investments were $4.2 million and $4.0 million during the six months ended June 30, 2023 and 2022, respectively.

Additions to restricted investments were $6.4 million and $5.4 million during the nine months ended September 30, 2023 and 2022, respectively.

Financing Activities .

We had net repayments of $70.0 million and $15.0 million for the six months ended June 30, 2023 and 2022, respectively, related to our Revolving Credit Facility.

We had net repayments of $70.0 million and $25.0 million for the nine months ended September 30, 2023 and 2022, respectively, related to our Revolving Credit Facility.

For the nine months ended September 30, 2023, we paid $4.7 million in deferred financing costs under the New Credit Facility.

Off–Balance Sheet Arrangements

As of June 30, 2023, we had no off–balance sheet arrangements.

As of September 30, 2023, we had no off–balance sheet arrangements.

Recently Issued Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis