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Item 2. Management’s Discussion and Analysis

2025-05-12 compared with 2024-11-06 · 114 added, 166 removed, 193 unchanged (59% of the section changed)

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Industry Trends

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 natural 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 continue to monitor the impact of the actions of OPEC+ and other large producing nations, the Russia-Ukraine conflict, conflicts in the Middle East, the imposition of tariffs or other economic sanctions, global inventories of oil and natural gas and the uncertainty associated with recovering oil demand, inflation and future monetary policy and governmental policies aimed at transitioning towards lower carbon energy.

Most recently, in early 2025, there has been a decline of oil, natural gas and NGL prices that continued into April 2025 resulting from (i) trade tariff uncertainties driving concerns over an increase in inflation and (ii) OPEC+’s decision to increase production starting in May, creating additional global supply and further downward pressure on oil prices.

inflation rates during the first quarter of 2025 remained relatively stable, they continued to be slightly higher than historical averages.

Such inflation, along with the effects of economic pressures from international military and trade conflicts, could, as a result, continue to raise the cost of borrowing, impact the demand for and price of oil and natural gas, increase the price of crucial supplies and raw materials and impact interest rates.

Due to these factors, among others, we expect prices for some or all commodities to remain volatile.

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Recent Developments

Credit Agreement Amendment

On October 25, 2024, OLLC entered into the Credit Agreement Amendment, which among other things, (i) reduced the borrowing base under the Revolving Credit Facility from $150.0 million to $145.0 million, (ii) increased the aggregate elected commitments under the Revolving Credit Facility from $135.0 million to $145.0 million and (iii) amended certain interest rates applicable to loans under the Revolving Credit Facility.

The next redetermination is expected in the spring of 2025.

East Texas Haynesville Monetization

On May 1, 2025, the Company sold certain rights, title and interest in assets located in East Texas to a third party.

The Company received net proceeds of $1.5 million.

Termination of Contemplated Merger with Juniper Capital

In connection with the Contemplated Mergers, on April 25, 2025, pursuant to Section 8.1(a) of the Merger Agreement, the Company and the Acquired Companies entered into the Termination Agreement to terminate the Merger Agreement, effective immediately.

As a result of the Termination Agreement, the Merger Agreement is of no further force and effect.

For additional information regarding the Termination, see Notes 4 and 18 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

Business Environment and Operational Focus

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2024 Form 10-K.

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

fair value estimates;

revenue recognition;

and contingencies and insurance accounting.

Significant estimates include, but are not limited to, oil and natural gas reserves, fair value estimates, revenue recognition and contingencies and insurance accounting.

These estimates, in our opinion, are subjective in nature, require the use of professional judgment and involve complex analysis.

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Subsequent changes in these estimates may have a significant impact on our consolidated financial position, results of operations and cash flows.

Revenue Payables in Suspense

In the normal course of business, we undertake efforts to research and resolve the disputes, legal reasons or uncertainties causing revenues of owners of mineral interests in our leases to go into suspense.

As resolutions occur, obligations related to revenue payables in suspense are released.

For the nine months ended September 30, 2024, we released $8.4 million, respectively, of net revenues in suspense as a result of these efforts.

The following table presents the impact of releases of revenue payables in suspense to our statements of operations for the nine months ended September 30, 2024:

For the Nine Months Ended

September 30,

(In thousands)

Oil and natural gas sales

Other revenues

Severance tax and other deducts

Total net revenue

Production volumes:

Natural gas (MMcf)

Total (MBoe/d)

Results of Operations

The results of operations for the three and nine months ended September 30, 2024 and 2023 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 during 2023.

The results of operations for the three months ended March 31, 2025 and 2024 have been derived from our unaudited condensed consolidated financial statements.

The following table summarizes certain of the results of operations for the periods indicated.

For the Three Months Ended

For the Nine Months Ended

September 30,

($ In thousands except per unit amounts)

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Pipeline incident loss

(Gain) loss on sale of properties

Interest expense, net

Litigation settlement

Income tax (expense) benefit - current

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Depletion, depreciation and amortization

For the Three Months Ended September 30, 2024 Compared to the Three Months Ended September 30, 2023

We reported net income of $22.7 million compared to a net loss of $13.4 million for the three months ended September 30, 2024 and 2023, respectively.

Oil, natural gas and NGL revenues were $68.1 million and $76.4 million for the three months ended September 30, 2024 and 2023, respectively.

Average net production volumes were approximately 19.0 MBoe/d and 20.6 MBoe/d for the three months ended September 30, 2024 and 2023, respectively.

The change in production volumes was driven by several days shut-in for the electrification and emissions reduction project at Beta and natural decline in well productivity over time.

The average realized sales prices were $38.88 per Boe and $40.28 per Boe for the three months ended September 30, 2024 and 2023, respectively.

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

Other revenues were $1.7 million and $0.4 million for the three months ended September 30, 2024 and 2023, respectively.

For the three months ended September 30, 2024, other revenues consisted of iodine sales, rental income with respect to our wholly owned subsidiary, Magnify Energy Services (“Magnify”), and interest income earned on our sinking fund escrow accounts.

Lease operating expenses were $33.3 million and $36.5 million for the three months ended September 30, 2024 and 2023, respectively.

On a per Boe basis, lease operating expenses were $18.98 and $19.23 for the three months ended September 30, 2024 and 2023, respectively.

The change in lease operating expenses was primarily due to a decrease of $1.5 million in lease operating cost and a decrease of $1.7 million in workover expense.

Gathering, processing and transportation expenses were $4.3 million and $5.0 million for the three months ended September 30, 2024 and 2023, respectively.

On a per Boe basis, gathering, processing and transportation expenses were $2.45 and $2.63 for the three months ended September 30, 2024 and 2023, respectively.

The change in gathering, processing and transportation expense was primarily due to lower gas volumes and natural gas prices.

Taxes other than income were $6.0 million and $5.5 million for the three months ended September 30, 2024 and 2023, respectively.

On a per Boe basis, taxes other than income were $3.42 and $2.92 for the three months ended September 30, 2024 and 2023, respectively.

The change was primarily related to waste emissions charges and air quality management district fees in California.

DD&A expenses were $8.1 million and $7.5 million for the three months ended September 30, 2024 and 2023, respectively.

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

General and administrative expenses were $8.3 million for each of the three months ended September 30, 2024 and 2023.

General and administrative expenses were previously forecasted to remain flat compared to the prior year.

Net gain on commodity derivative instruments of $25.0 million were recognized for the three months ended September 30, 2024, consisting of $18.7 million increase in the fair value of open positions, $5.6 million of cash settlements received on expired positions and $0.8 million of cash settlements received on terminated derivative instruments.

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

Pipeline incident loss was $0.2 million and $0.6 million for the three months ended September 30, 2024 and 2023, respectively.

These 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.

Interest expense, net was $3.8 million and $4.5 million for the three months ended September 30, 2024 and 2023, respectively.

The change in interest expense was primarily attributable to the write-off of deferred financing costs in connection with the refinancing of the Revolving Credit Facility in July 2023.

Average outstanding borrowings under our Revolving Credit Facility were $122.5 million and $121.8 million for the three months ended September 30, 2024 and 2023, respectively.

Litigation settlement was not recorded for the three months ended September 30, 2024 and 2023.

Current income tax benefit (expense) was ($0.4) million and ($1.4) million for the three months ended September 30, 2024 and 2023, respectively.

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.

Deferred income tax benefit (expense) was ($5.7) million and $4.7 million for the three months ended September 30, 2024 and 2023, respectively.

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

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.

For the Nine Months Ended September 30, 2024 Compared to the Nine Months Ended September 30, 2023

We reported net income of $20.4 million compared to net income of $349.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Oil, natural gas and NGL revenues were $215.8 million and $210.1 million for the nine months ended September 30, 2024 and 2023, respectively.

Average net production volumes were approximately 19.8 MBoe/d and 20.4 MBoe/d for the nine months ended September 30, 2024 and 2023, respectively.

The average realized sales prices were $39.69 per Boe and $37.72 per Boe for the nine months ended September 30, 2024 and 2023, respectively.

The change in realized sales prices was primarily due to higher commodity prices, Beta returning to production after being offline for the first quarter of 2023 and the release of revenue suspense of $4.0 million.

Other revenues were $9.9 million and $18.5 million for the nine months ended September 30, 2024 and 2023, respectively.

For the nine months ended September 30, 2024, other revenues consisted of iodine sales, Magnify rental income, and interest income earned on our sinking fund escrow accounts.

Additionally, for the nine months ended September 30, 2024, we recorded a revenue suspense release of $4.8 million.

For the nine months ended September 30, 2023, other revenues were primarily related to our receipt of LOPI insurance proceeds of $17.9 million.

We have not received LOPI insurance proceeds since payments under the LOPI policy terminated on March 31, 2023.

Lease operating expenses were $107.9 million and $104.0 million for the nine months ended September 30, 2024 and 2023, respectively.

On a per Boe basis, lease operating expenses were $19.83 and $18.67 for the nine months ended September 30, 2024 and 2023, respectively.

The change in lease operating expense was primarily related to operating costs associated with Beta returning to production after being offline for the first quarter of 2023.

Gathering, processing and transportation expenses were $14.0 million and $15.7 million for the nine months ended September 30, 2024 and 2023, respectively.

On a per Boe basis, gathering, processing and transportation expenses were $2.57 and $2.83 for the nine months ended September 30, 2024 and 2023, respectively.

The change in gathering, processing and transportation expense was primarily due to lower gas volumes, lower natural gas prices and the expiration of minimum volume commitments for our Oklahoma properties.

Taxes other than income were $15.5 million and $16.4 million for the nine months ended September 30, 2024 and 2023, respectively.

On a per Boe basis, taxes other than income were $2.86 and $2.95 for the nine months ended September 30, 2024 and 2023, respectively.

The decrease was primarily related to a reduction in production taxes and ad valorem taxes for 2024 due to lower natural gas prices, partially offset by an increase in emissions charges.

DD&A expenses were $24.2 million and $20.4 million for the nine months ended September 30, 2024 and 2023, respectively.

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

General and administrative expenses were $26.4 million and $24.5 million for the nine months ended September 30, 2024 and 2023, respectively.

The change in general and administrative expenses was primarily related to an increase of $1.5 million in stock compensation expense, an increase of $0.5 million in legal expense, and an increase of $0.5 million in office lease expense related to the early termination of our Oklahoma office lease, partially offset by a $0.2 million decrease in professional services.

Net gain on commodity derivative instruments of $7.3 million were recognized for the nine months ended September 30, 2024, consisting of $13.6 million of cash settlements received on expired positions and $0.8 million of cash settlements received on terminated derivative instruments, partially offset by a decrease of $7.1 million in the fair value of open positions.

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

Pipeline incident loss was $1.5 million and $15.7 million for the nine months ended September 30, 2024 and 2023, respectively.

For the Three Months Ended March 31, 2025 Compared to the Three Months Ended March 31, 2024

We reported a net loss of $5.9 million compared to a net loss of $9.4 million for the three months ended March 31, 2025 and 2024, respectively.

Oil, natural gas and NGL revenues were $70.3 million and $75.3 million for the three months ended March 31, 2025 and 2024, respectively.

Average net production volumes were approximately 17.9 MBoe/d and 20.2 MBoe/d for the three months ended March 31, 2025 and 2024, respectively.

The average realized sales prices were $43.76 per Boe and $40.89 per Boe for the three months ended March 31, 2025 and 2024, respectively.

The change in realized sales prices was due to higher natural gas and NGL prices, partially offset by lower realized sales prices for oil.

In addition, oil production had a higher percentage of total production in the first quarter of 2025 when compared to the first quarter of 2024.

Other revenues were $1.7 million and $1.0 million for the three months ended March 31, 2025 and 2024, respectively.

The increase primarily related to an increase of $0.7 million for iodine sales from the renegotiation of our sales contract in 2024.

Lease operating expenses were $37.4 million and $38.3 million for the three months ended March 31, 2025 and 2024, respectively.

On a per Boe basis, lease operating expenses were $23.28 and $20.78 for the three months ended March 31, 2025 and 2024, respectively.

The change in lease operating expense on a per Boe basis was primarily due to a decrease in volumes.

Gathering, processing and transportation expenses were $4.3 million and $4.8 million for the three months ended March 31, 2025 and 2024, respectively.

On a per Boe basis, gathering, processing and transportation expenses were $2.67 and $2.59 for the three months ended March 31, 2025 and 2024, respectively.

The change in gathering, processing and transportation expense was primarily due to lower gas volumes.

Taxes other than income were $4.4 million and $4.9 million for the three months ended March 31, 2025 and 2024, respectively.

On a per Boe basis, taxes other than income were $2.73 and $2.67 for the three months ended March 31, 2025 and 2024, respectively.

The decrease was primarily related to a reduction in production taxes due to lower volumes and a decrease in emissions charges.

DD&A expenses were $8.5 million and $8.2 million for the three months ended March 31, 2025 and 2024, respectively.

General and administrative expenses were $10.8 million and $9.8 million for the three months ended March 31, 2025 and 2024, respectively.

The change in general and administrative expenses was primarily related to (i) an increase of $1.5 million in legal expenses, (ii) an increase of $0.4 million in stock compensation expense and (iii) an increase of $0.2 million in professional services, partially offset by a decrease of $0.4 million in office lease expense related to the early termination of our Oklahoma office lease in 2024 and a decrease of $0.6 million in salaries and wages.

Net loss (gain) on commodity derivative instruments of $14.3 million was recognized for the three months ended March 31, 2025, consisting of a $14.8 million decrease in the fair value of open positions, partially offset by $0.5 million of cash settlements received on expired positions.

A net loss on commodity derivative instruments of $16.6 million was recognized for the three months ended March 31, 2024, consisting of a $20.8 million decrease in the fair value of open positions, partially offset by $4.3 million of cash settlements received on expired positions.

Pipeline incident loss was $0.4 million and $0.7 million for the three months ended March 31, 2025 and 2024, respectively.

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

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Financial Statements” of this quarterly report for additional information.

Interest expense, net was $10.9 million and $13.9 million for the nine months ended September 30, 2024 and 2023, respectively.

The change in interest expense was primarily driven by lower outstanding borrowings and amortization and write-off of deferred issuance costs.

Average outstanding borrowings under our Revolving Credit Facility were $119.8 million and $145.8 million for the nine months ended September 30, 2024 and 2023, respectively.

Litigation settlement was not recorded for the nine months ended September 30, 2024 and $84.9 million was recorded for the nine months ended September 30, 2023, related to the settlement with the shipping companies and the containerships whose anchors struck 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.

Current income tax benefit (expense) was ($2.4) million and ($7.1) million for the nine months ended September 30, 2024 and 2023, respectively.

Interest expense, net was $3.5 million and $3.5 million for the three months ended March 31, 2025 and 2024, respectively.

Average outstanding borrowings under our Revolving Credit Facility were $127.3 million and $115.2 million for the three months ended March 31, 2025 and 2024, respectively.

Current income tax benefit (expense) was less than ($0.1) million and was ($1.4) million for the three months ended March 31, 2025 and 2024, respectively.

See additional information discussed in Note 17 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

Deferred income tax benefit (expense) was ($3.1) million and $264.1 million for the nine months ended September 30, 2024 and 2023, respectively.

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

Deferred income tax benefit (expense) was $1.5 million and $4.7 million for the three months ended March 31, 2025 and 2024, respectively.

See additional information discussed in Note 17 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

Non-GAAP Financial Measures

We include in this report the non-GAAP financial measure of Adjusted Net Income (Loss) and Adjusted EBITDA and provide our reconciliation of net income (loss) to Adjusted Net Income (Loss), Adjusted EBITDA to net income (loss), and net cash flows from operating activities, our most directly comparable financial measures calculated and presented in accordance with GAAP.

Adjusted Net Income (Loss)

We define Adjusted Net Income (Loss) as net income (loss) adjusted for unrealized loss (gain) on commodity derivative instruments, acquisition and divestiture-related expenses, unusual and infrequent items, and the income tax expense or benefit of these adjustments using our federal statutory tax rate.

This measure is not meant to disassociate these items from management's performance but rather is intended to provide helpful information to investors interested in comparing our performance between periods.

Adjusted Net Income (Loss) is not considered to be an alternative to net income (loss) reported in accordance with GAAP.

The following tables present our reconciliation of the Company’s net income (loss) to Adjusted Net Income (Loss), our most directly comparable GAAP financial measures, for each of the periods indicated.

For the Three Months Ended

(In thousands)

Net (loss) income

Unrealized loss (gain) on commodity derivative instruments

Acquisition and divestiture-related expenses

Non-recurring costs:

Income tax expense (benefit) - deferred

Gain on sale of properties

Tax effect of adjustments (1)

Adjusted net income (loss)

(1) The federal statutory rates were utilized for all periods presented.

Adjusted EBITDA

We include in this report the non-GAAP financial measure of Adjusted EBITDA and provide our reconciliation of Adjusted EBITDA to net income (loss) and net cash flows from operating activities, our most directly comparable financial measures calculated and presented in accordance with GAAP.

Adjusted EBITDA is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies.

Adjusted EBITDA is not a measure of net income or cash flows as determined by GAAP.

We define Adjusted EBITDA as net income (loss):

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We believe that Adjusted EBITDA is a widely followed measure of operating performance and may also be used by investors to measure our ability to meet debt service requirements.

In addition, we use Adjusted EBITDA to evaluate actual cash flow available to develop existing reserves or acquire additional oil and natural gas properties.

The following tables present our reconciliation of the Company’s net income (loss) and cash flows from operating activities to Adjusted EBITDA, our most directly comparable GAAP financial measures, for each of the periods indicated.

In addition, we use Adjusted EBITDA as an additional measure to evaluate actual cash flow available to develop existing reserves or acquire additional oil and natural gas properties.

The following tables present our reconciliation of the Company’s net income (loss) to Adjusted EBITDA and cash flows from operating activities to Adjusted EBITDA, our most directly comparable GAAP financial measures, for each of the periods indicated.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

For the Three Months Ended

For the Nine Months Ended

September 30,

(In thousands)

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Accretion of AROs

Losses (gains) on commodity derivative instruments

Loss (gain) on commodity derivative instruments

Cash settlements (paid) received on expired commodity derivative instruments

Pipeline incident loss

Litigation settlement

(Gain) loss on sale of properties

Share-based compensation expense

Acquisition and divestiture related expenses

Amortization of gain associated with terminated commodity derivatives

Pipeline incident loss

Loss on settlement of AROs

Exploration costs

Acquisition and divestiture related expenses

Bad debt expense

LOPI - timing difference

Adjusted EBITDA

(1) Adjusted EBITDA includes a revenue suspense release of $8.4 million for the nine months ended September 30, 2024.

See “Revenue Payables in Suspense” discussion noted above for additional information.

Reconciliation of Net Cash from Operating Activities to Adjusted EBITDA

For the Three Months Ended

For the Nine Months Ended

September 30,

(In thousands)

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Pipeline incident loss

Litigation settlement

(Gain) loss on sale of property

Income tax expense (benefit) - current

Acquisition and divestiture related expenses

Plugging and abandonment cost

Amortization and write-off of deferred financing fees

Exploration costs

Cash settlements paid (received) on terminated derivatives

Plugging and abandonment cost

LOPI - timing difference

Acquisition and divestiture related expenses

Amortization of gain associated with terminated commodity derivatives

Adjusted EBITDA

(1) Adjusted EBITDA includes a non-cash revenue suspense release of $8.4 million for the nine months ended September 30, 2024.

See “Revenue Payables in Suspense” discussion noted above for additional information.

Liquidity and Capital Resources

Our ability to finance our operations, including funding capital expenditures and acquisitions, to meet our indebtedness obligations, to refinance our indebtedness or to meet our collateral requirements will depend on our ability to generate cash in the future.

Our primary sources of liquidity and capital resources have historically been cash flows generated by operating activities and borrowings under our Revolving Credit Facility.

Our primary sources of liquidity and capital resources have historically been cash flows generated by operating activities, borrowings under our Revolving Credit Facility and equity and debt capital markets.

As we pursue reserve and production growth, we plan to monitor which capital resources, including equity and debt financings, are available to us to meet our future financial obligations, planned capital expenditure activities and liquidity requirements.

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We cannot assure you that operations and other needed capital will be available on acceptable terms, or at all.

For the remainder of 2024, we expect our primary funding sources to be from internally generated cash flow but retain the flexibility to utilize borrowings under our Revolving Credit Facility and/or to access the debt and equity capital markets.

Impact of the Beta Pipeline Incident.

There are remaining uncertainties surrounding the full impact that the Incident will have on our financial condition and cash flow generation going forward.

We have incurred and will continue to incur certain costs as a result of the Incident.

However, in addition to the settlement amount disclosed elsewhere in this Quarterly Report on Form 10-Q that we received from the vessels that struck and damaged the Pipeline and their respective owners and operators, we carry customary insurance policies, which have covered a material portion of aggregate costs, including loss of production income insurance to offset loss of revenue resulting from suspended operations.

The loss of production income insurance related to the Incident expired on March 31, 2023.

We restarted operations at Beta in April 2023.

We can provide no assurance that our coverage will adequately protect us against liability from all potential consequences, damages and losses related to the Incident.

For the remainder of 2025, we anticipate funding our 2025 capital program from internally generated cash flow but retain the flexibility to utilize borrowings under our Revolving Credit Facility, to access the debt and equity capital markets and continue to evaluate opportunities to optimize our portfolio to reduce debt and accelerate Beta development.

We believe that existing cash and cash equivalents, any positive cash flows from operations and available borrowings under our Revolving Credit Facility will be sufficient to support working capital, capital expenditures and other cash requirements for at least the next 12 months and, based on our current expectations, for the foreseeable future thereafter.

Termination of Contemplated Merger with Juniper Capital .

In accordance with the terms of the Termination Agreement, the Company made a cash payment to the Acquired Companies in lieu of any termination fee which might have otherwise been payable pursuant to the Merger Agreement in the amount of $800,000 as payment for certain of the Acquired Companies’ expenses.

The Company expects to incur professional fees and expenses of approximately $3.0 million in connection with the Contemplated Mergers and the Termination.

For additional information regarding the Termination, see Notes 4 and 18 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

Capital Markets.

We do not currently anticipate any near-term capital markets activity, but we will continue to evaluate the availability of public debt and equity for funding potential future growth projects and acquisition activity.

We do not currently anticipate any near-term capital markets activity, but we will continue to evaluate the availability of public debt and equity for funding capital needs.

Commodity hedging has been and remains an important part of our strategy to reduce cash flow volatility.

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Should any of these financial counterparties not perform, we may not realize the benefit of some of our hedges under lower commodity prices.

We sell our oil and natural gas to a variety of purchasers.

Non-performance by a customer could also result in a loss.

Capital Expenditures.

Total capital expenditures were approximately $55.3 million for the nine months ended September 30, 2024, which were primarily related to the development program at Beta, capital workovers and facilities upgrade projects at Beta and in Oklahoma and non-operated drilling and completion activities in East Texas and the Eagle Ford.

Our total capital expenditures were approximately $23.1 million for the three months ended March 31, 2025, which were primarily related to the development program at Beta and non-operated drilling and completion activities in East Texas and 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 September 30, 2024, we had a working capital deficit (excluding commodity derivatives) of $11.6 million primarily due to accrued liabilities of $36.7 million, revenues payable of $11.4 million, and accounts payable of $18.1 million partially offset by accounts receivable of $32.3 million and prepaid expenses of $22.3 million.

From time-to-time, our working capital will reflect a deficit, while at other times it will reflect a surplus.

This fluctuation is not unusual.

As of March 31, 2025, we had a working capital deficit (excluding commodity derivatives) of $12.5 million primarily due to accrued liabilities of $40.3 million, revenues payable of $12.5 million, and accounts payable of $19.9 million, partially offset by accounts receivable of $35.9 million and prepaid expenses of $24.3 million.

As of March 31, 2025, although we had a working capital deficit, we had $20.0 million of available borrowings as of such date under our Revolving Credit Facility that provides additional liquidity, and therefore we have met all debt covenant ratio requirements as of March 31, 2025.

Debt Agreement

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

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

The aggregate principal amount of loans outstanding under the Revolving Credit Facility as of September 30, 2024, was $120.0 million.

As of September 30, 2024, we had approximately $15.0 million of available borrowings under our Revolving Credit Facility.

As of September 30, 2024, we were in compliance with all the financial (current ratio and total leverage ratio) and non-financial covenants associated with the Revolving Credit Facility.

On October 25, 2024, we entered into the Credit Agreement Amendment, which among other things, (i) reduced the borrowing base under the Revolving Credit Facility from $150.0 million to $145.0 million, (ii) increased the aggregate elected commitments under the Revolving Credit Facility from $135.0 million to $145.0 million and (iii) amended certain interest rates applicable to loans under the Revolving Credit Facility.

The aggregate principal amount of loans outstanding under the Revolving Credit Facility as of March 31, 2025, was $125.0 million.

As of March 31, 2025, we had approximately $20.0 million of available borrowings under our Revolving Credit Facility.

As of March 31, 2025, we were in compliance with all the financial (current ratio and total leverage ratio) and non-financial covenants associated with the Revolving Credit Facility.

For additional information regarding our Revolving Credit Facility, see Note 8 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

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We have a funding requirement to fund two trust accounts to comply with supplemental regulatory bonding requirements related to our decommissioning obligations for the Beta production facilities.

As of September 30, 2024, our future commitments under these agreements were $2.3 million for the remainder of 2024 and $9.0 million per year until the escrow accounts are fully funded.

As of March 31, 2025, our future commitments under these agreements were $6.8 million for the remainder of 2025 and $9.0 million per year until the escrow accounts are fully funded.

See Note 16 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 nine months ended September 30, 2024 and 2023 have been derived from our Unaudited Condensed Consolidated Financial Statements.

The cash flows for the three months ended March 31, 2025 and 2024 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 Nine Months Ended

September 30,

For the Three Months Ended

(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 $38.8 million and $113.2 million for the nine months ended September 30, 2024 and 2023, respectively.

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.

Production volumes were approximately 19.8 MBoe/d and 20.4 MBoe/d for the nine months ended September 30, 2024 and 2023, respectively.

The average realized sales price was $39.69 per Boe and $37.72 per Boe for the nine months ended September 30, 2024 and 2023, respectively.

Net cash provided by operating activities for the nine months ended September 30, 2024 included $13.6 million of cash received on expired commodity derivative instruments compared to $5.1 million of cash paid on expired commodity derivatives for the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, we had a net gain on commodity derivative instruments of $7.3 million compared to a net loss of $4.4 million for the nine months ended September 30, 2023.

Net cash provided by operating activities was $25.5 million and $7.7 million for the three months ended March 31, 2025 and 2024, respectively.

Production volumes were approximately 17.9 MBoe/d and 20.2 MBoe/d for the three months ended March 31, 2025 and 2024, respectively.

The average realized sales price was $43.76 per Boe and $40.89 per Boe for the three months ended March 31, 2025 and 2024, respectively.

The change in realized sales prices was due to higher natural gas and NGL prices, partially offset by lower realized sales prices for oil.

In addition, oil production had a higher percentage of total production in the first quarter of 2025 when compared to the first quarter of 2024.

Net cash provided by operating activities for the three months ended March 31, 2025 included $0.5 million of cash received on expired commodity derivative instruments compared to $4.3 million of cash received on expired commodity derivatives for the three months ended March 31, 2024.

For the three months ended March 31, 2025, we had a net loss on commodity derivative instruments of $14.3 million compared to a net loss of $16.6 million for the three months ended March 31, 2024.

Investing Activities.

Net cash used in investing activities for the nine months ended September 30, 2024 was $62.7 million, of which $54.1 million was used for additions to oil and natural gas properties and $1.0 million for additions to other property and equipment.

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 and $0.5 million for additions to other property and equipment.

Net cash used in investing activities for the three months ended March 31, 2025 was $21.5 million, of which $24.9 million was used for additions to oil and natural gas properties and $0.3 million for additions to other property and equipment.

Net cash used in investing activities for the three months ended March 31, 2024 was $23.7 million, of which $19.1 million was used for additions to oil and natural gas properties.

In addition, we had a decrease of $1.5 million in our capital expenditures payable account.

In January 2025, we purchased and sold certain rights, title and interest in assets in East Texas from a third party, whereby we received net proceeds of $6.3 million.

See additional information discussed in Note 4 of the Notes to Unaudited Condensed Consolidated Financial Statements included under “Item 1.

Financial Statements” of this quarterly report.

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

Additions to restricted investments were $7.5 million and $6.4 million during the nine months ended September 30, 2024 and 2023, respectively.

Additions to restricted investments were $2.5 million for the three months ended March 31, 2025 and 2024, respectively.

Financing Activities .

We had net borrowings of $5.0 million for the nine months ended September 30, 2024 related to our Revolving Credit Facility compared to net repayments of $70.0 million for the nine months ended September 30, 2023.

Shares withheld for taxes was $1.9 million and $2.2 million for the nine months ended September 30, 2024 and 2023, respectively.

We had net repayments of $2.0 million for the three months ended March 31, 2025 related to our Revolving Credit Facility compared to repayments of $25.0 million for the three months ended March 31, 2024.

Shares withheld for taxes was $2.0 million and $1.7 million for the three months ended March 31, 2025 and 2024, respectively.

Off–Balance Sheet Arrangements

As of September 30, 2024, we had no off–balance sheet arrangements.

As of March 31, 2025, we had no off–balance sheet arrangements.

Recently Issued Accounting Pronouncements

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What changed 10-Q

Item 2. Management’s Discussion and Analysis