What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-02-25 compared with 2021-03-12 · 79 added, 56 removed, 198 unchanged (41% of the section changed)

We are an independent energy company engaged in the acquisition, exploration, development and production of oil and natural gas properties, primarily in the Bakken and Three Forks formations within the Williston Basin in North Dakota and Montana.

We believe the location, size and concentration of our acreage position in one of North America’s leading unconventional oil-resource plays provide us with drilling and development opportunities that will result in significant long-term value.

Our primary focus is investing in non-operated minority working and mineral interests in oil and gas properties in the United States.

We are an independent energy company engaged in the acquisition, exploration, development and production of oil and natural gas properties in the United States, primarily in the Williston Basin, the Appalachian Basin and the Permian Basin.

We believe the location, size and concentration of our acreage positions in some of North America’s leading unconventional oil and gas resource plays provide us with drilling and development opportunities that will result in significant long term value.

We currently report a single reportable segment.

See “Financial Statements” and the notes to our consolidated financial statements for financial information about this reportable segment.

Our primary focus is investing in non-operated minority working and mineral interests in oil and gas properties, with a core area of focus in three premier basins within the United States.

As a non-operator, we are able to diversify our investment exposure by participating in a large number of gross wells, as well as entering into additional project areas by partnering with numerous experienced operating partners or pursuing value enhancing acquisitions.

3 unchanged sentences

We have more than 50 experienced operating partners that provide technical insights and opportunities for acquisitions.

Across these operators, no single operator represented more than 15% of our net producing wells as of December 31, 2020.

We had historically focused entirely in the Williston Basin of the United States, in North Dakota and Montana, where substantially all of our assets were located as of December 31, 2020.

We expanded our strategy in 2020, making our first small acquisitions in the Permian Basin.

In February 2021, we entered into an agreement to acquire producing natural gas properties in the Appalachian Basin from Reliance Marcellus, LLC (the “Reliance Acquisition”), which we anticipate will close in April 2021.

See Note 14 to our financial statements for further details regarding the pending Reliance Acquisition.

Across these operators, no single operator represented more than 20% of our fourth quarter 2021 oil and natural gas sales.

Prior to 2020, we focused our operations exclusively on oil-weighted properties in the Williston Basin.

We first expanded beyond the Williston Basin in 2020, with several small acquisitions in the Permian Basin.

Since then, we have accelerated our diversification outside the Williston Basin via several larger acquisitions, including our April 2021 acquisition of natural gas properties in the Appalachian Basin (the “Reliance Acquisition”), our August 2021 acquisition of oil and gas properties in the Permian Basin (the “CM Resources Acquisition”), and our January 2022 acquisition of oil and gas properties in the Permian Basin (the “Veritas Acquisition”).

We have also added to our legacy position, with our November 2021 acquisition of oil and gas properties in the Williston Basin (the “Comstock Acquisition”).

See Notes 3 and 14 to our financial statements for further details regarding these acquisitions.

Our acquisition activity was a significant driver of our production growth from 35,738 Boe per day in the fourth quarter of 2020 to 64,155 Boe per day in the fourth quarter of 2021.

The following table provides a summary of certain information regarding our assets as of December 31, 2021, including reserves information as estimated by our third-party independent reserve engineers, Cawley, Gillespie & Associates, Inc.

This table does not include any contribution from the Veritas Acquisition, which closed in January 2022.

As of December 31, 2021

4 unchanged sentences

Permian Basin 3,462 83 11.6 5,174 12,974 58 44

Appalachian Basin 61,586 357 97.5 12,964 104,077 — 46

Total 245,431 7,436 680.8 64,155 287,682 46 % 59 %

2 unchanged sentences

Business Strategy

Key elements of our business strategies include:

Our business strategy is focused on growing our reserves, production and free cash flow to create long-term value for our stakeholders while maintaining a strong balance sheet.

The key elements of our business strategy include the following:

• Diversify Our Risk Through Non-Operated Participation in a Large Number of Wells and Multiple Basins .

As a non-operator, we seek to diversify our investment and operational risk through participation in a large number of oil and gas wells and with multiple operators.

As a non-operator, we seek to diversify our investment and operational risk through participation in a large number of oil and gas wells and with multiple operators across multiple basins.

As of December 31, 2021, we have participated in 7,436 gross (680.8 net) producing wells with an average working interest of 9.2% in each gross well, with more than 50 experienced operating partners.

We believe the best way to develop our acreage is to take a long-term approach and to participate in the development of our locations with potential for the highest rates of return while preserving optionality to allocate capital to assets in our portfolio that offer the highest projected rates of return.

We also believe that we can further diversify our risk with acquisitions in other basins, which we began in 2020 in the Permian Basin and expect to continue in 2021, including via the pending Reliance Acquisition.

We also believe that we can further diversify our risk with acquisitions in multiple basins, focusing on accretive acquisitions of top tier assets with top tier operators in the premier basins in the United States.

For the three months ended December 31, 2021, our production consisted of approximately 46,017 Boe per day in the Williston Basin, 12,964 Boe per day in the Appalachian Basin and 5,174 Boe per day in the Permian Basin (which does not include any contribution from the Veritas Acquisition, which closed in January 2022).

• Accelerate Growth by Pursuing Value-Enhancing Acquisitions.

We strive to be the natural consolidator and clearing house of non-operated working interest in various leading oil and gas shale plays in the United States.

We strive to be the natural consolidator and clearing house of non-operated working interests in various leading oil and gas shale plays in the United States.

Our “ground game” acquisition strategy is to build a strong presence in our core basins and seek to acquire smaller additional lease positions at a significant discount to the contiguous acreage positions typically sought by larger producers and operators of oil and gas wells, focusing on near term drilling opportunities.

Such acquisitions have been a significant driver of our net well additions and additions to production.

We intend to continue these activities, while at the same time evaluating and pursuing larger non-operated asset packages, such as the pending Reliance Acquisition, that we believe can responsibly accelerate our growth strategy.

We intend to continue these activities, while at the same time evaluating and pursuing larger non-operated asset packages that we believe can responsibly add significant production, cash flow and scale to existing operations.

• Build and Maintain a Strong Balance Sheet and Proactively Manage to Limit Downside.

We strive for financial strength and flexibility through the prudent management of our balance sheet.

Additionally, given the volatility of the commodity price environment, we employ an active commodity price risk management program to better enable us to execute our business plan over the entire commodity price cycle.

We intend to use a significant portion of our expected free cash flow in 2022 to further reduce our borrowings under our Revolving Credit Facility with the objective to bring our leverage closer to our target of 1.0x Debt / Adjusted EBITDA.

• Systematic Hedging Strategy.

Given the volatility of the commodity price environment, we employ an active commodity price risk management program to better enable us to execute our business plan over the entire commodity price cycle.

We have a rolling target of hedging 65% or more of our anticipated next 18-month production.

• Shareholder Returns .

The foregoing strategies are collectively aimed at building a diversified, low-leverage, cash generating business that can deliver meaningful returns to our investors.

We instituted a common stock dividend program in 2021 and intend to continue to grow shareholder returns over time.

Industry Operating Environment

13 unchanged sentences

Historically, we have participated pursuant to our working interest in a vast majority of the wells proposed to us.

However, declines in oil prices typically reduce both the number of well proposals we receive and the proportion of well

proposals in which we elect to participate.

However, declines in oil prices typically reduce both the number of well proposals we receive and the proportion of well proposals in which we elect to participate.

Our land and engineering team uses our extensive database to make these economic decisions.

5 unchanged sentences

Although we have historically relied on our operating partners for these activities, we may in the future seek to take a portion of our production in kind and internally manage the marketing activities for such production.

The price at which production is sold generally is tied to the spot market for oil.

Williston Basin Light Sweet Crude from the Bakken source rock is generally 41-42 API crude oil and is readily accepted into the pipeline infrastructure.

Our weighted average oil price differential during 2020 was $6.63 per barrel below NYMEX pricing.

The price at which our production is sold is generally tied to the spot market for oil or natural gas.

The price at which our oil production is sold typically reflects a discount to the NYMEX benchmark price.

This differential primarily represents the transportation costs in moving the oil from wellhead to refinery and will fluctuate based on availability of pipeline, rail and other transportation methods.

The price at which our natural gas production is sold may reflect either a discount or premium to the NYMEX benchmark price.

Using our commodity hedging program, we may, from time to time, enter into financial hedging contracts to help mitigate pricing risk and volatility with respect to differentials.

3 unchanged sentences

Marketing and Customers

The market for oil and natural gas that will be produced from our properties depends on many factors, including the extent of domestic production and imports of oil and natural gas, the proximity and capacity of pipelines and other transportation facilities, demand for oil and natural gas, the marketing of competitive fuels and the effects of state and federal regulation.

The market for oil and natural gas that will be produced from our properties depends on many factors, including the extent of domestic production and imports of oil and natural gas, the proximity and capacity of pipelines and other transportation and storage facilities, demand for oil and natural gas, the marketing of competitive fuels and the effects of state and federal regulation.

The oil and natural gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual consumers.

6 unchanged sentences

Our oil and natural gas properties are subject to customary royalty and other interests, liens under indebtedness, liens incident to operating agreements, liens for current taxes and other burdens, including other mineral encumbrances and restrictions.

A significant portion of our indebtedness, including under our revolving credit facility and senior secured notes, is also secured by liens on substantially all of our assets.

Our indebtedness under our Revolving Credit Facility is also secured by liens on substantially all of our assets.

We do not believe that any of these burdens materially interfere with the use of our properties or the operation of our business.

4 unchanged sentences

These constraints and the resulting shortages or high costs could delay or temporarily halt the operations of our operating partners and materially increase our operating and capital costs.

seasonal anomalies can also pose challenges for meeting well drilling objectives and may increase competition for equipment, supplies and personnel during the spring and summer months, which could lead to shortages and increase costs or delay or temporarily halt our operating partners’ operations.

Such seasonal anomalies can also pose challenges for meeting well drilling objectives and may increase competition for equipment, supplies and personnel during the spring and summer months, which could lead to shortages and increase costs or delay or temporarily halt our operating partners’ operations.

Principal Agreements Affecting Our Ordinary Business

We do not own any physical real estate, but, instead, our acreage is comprised of leasehold interests subject to the terms and provisions of lease agreements that provide our company the right to participate in drilling and maintenance of wells in specific geographic areas.

We generally do not own physical real estate, but, instead, our acreage is primarily comprised of leasehold interests subject to the terms and provisions of lease agreements that provide our company the right to participate in drilling and maintenance of wells in specific geographic areas.

Lease arrangements that comprise our acreage positions are generally established using industry-standard terms that have been established and used in the oil and natural gas industry for many years.

Some of our leases may be acquired from other parties that obtained the original leasehold interest prior to our acquisition of the leasehold interest.

Many of our leases are or were acquired from other parties that obtained the original leasehold interest prior to our acquisition of the leasehold interest.

In general, our lease agreements stipulate three-to-five year terms.

28 unchanged sentences

Effective January 1, 1995, the FERC implemented regulations establishing an indexing system (based on inflation) for transportation rates for oil pipelines that allows a pipeline to increase its rates annually up to a prescribed ceiling, without making a cost of service filing.

Every five years, the FERC reviews the appropriateness of the index

level in relation to changes in industry costs.

On December 17, 2015, the FERC established a new price index for the five-year period which commenced on July 1, 2016.

Every five years, the FERC reviews the appropriateness of the index level in relation to changes in industry costs.

On January 20, 2022, the FERC established a new price index for the five-year period which commenced on July 1, 2021.

Intrastate oil pipeline transportation rates are subject to regulation by state regulatory commissions.

23 unchanged sentences

• limit or prohibit construction, drilling and other activities on certain lands lying within wilderness and other protected areas;

• impose substantial liabilities for pollution resulting from its operations.

• impose substantial liabilities for pollution resulting from our operations.

The permits required for our operations may be subject to revocation, modification and renewal by issuing authorities.

15 unchanged sentences

CAA regulations include New Source Performance Standards (“NSPS”) for the oil and natural gas source category to address emissions of sulfur dioxide and volatile organic compounds (“VOCs”) and a separate set of emission standards to address hazardous air pollutants frequently associated with oil and natural gas production and processing activities.

In recent years, there has been considerable uncertainty surrounding regulation of methane emissions, as the EPA previously published final regulations under the Clean Air Act establishing new performance standards for methane in 2016, but since that time the EPA has undertaken several measures, including issuing rules in 2020, to delay implementation of the methane standards.

Various states and industry and environmental groups are separately challenging both the original 2016 standards and the EPA’s 2020 final rule.

Notwithstanding the current court challenges, the EPA under the current administration may reconsider the 2020 final rule, which could result in more stringent methane emission rulemaking.

On November 2, 2021, the Environmental Protection Agency (“EPA”) proposed to revise and add to the NSPS program rules.

These rules, if adopted, could have a significant impact on the upstream and midstream oil and gas sectors.

The proposed rule would formally reinstate methane emission limitations for existing and modified facilities in the oil and gas sector.

Methane is a greenhouse gas.

The proposed rules also would regulate, for the first time under the NSPS program, existing oil and gas facilities.

Specifically, EPA’s proposed new rule would require states to implement plans that meet or exceed emission federally established emission reduction guidelines for oil and natural gas facilities.

Additionally, various states and groups of states have adopted or are considering adopting legislation, regulations or other regulatory initiatives that are focused on such areas as greenhouse gas cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions.

7 unchanged sentences

CWA jurisdiction depends on the definition of WOTUS.

This definition has been in flux since 2015, when US EPA and the Army Corps of Engineers enacted regulations to more broadly define WOTUS, thereby potentially expanding CWA jurisdiction.

The 2015 WOTUS rule is subject to numerous legal challenges, which have left the new definition in place in 26 states but enjoined in 24 states, including Montana and North Dakota.

Furthering uncertainty about CWA jurisdiction, in February 2019, US EPA and the Army Corps of Engineers proposed a replacement WOTUS rule circumscribing CWA jurisdiction.

This rule will likely also be challenged once it is finally promulgated.

On December 7, 2021, EPA and the Corps of Engineers proposed a rule to revise the definition of WOTUS, that would potentially expand CWA jurisdiction to include more features in areas where oil and gas operations are conducted.

Some states also maintain groundwater protection programs that require permits for discharges or operations that may impact groundwater conditions.

federal CWA is currently interpreted not to regulate discharges to groundwater, on February 21, 2019, the United States Supreme Court accepted jurisdiction to review the case County of Maui v.

Hawaii Wildlife Fund , No.

18-260, which raises the question whether the federal CWA regulates pollutants that originate from a point source but are only conveyed to navigable water through groundwater.

In 2021, the United States Supreme Court held that the CWA requires a discharge permit if the addition of pollutants through groundwater is the functional equivalent of a direct discharge from the point source into navigable waters.

Costs may be associated with the treatment of wastewater and/or developing and implementing storm water pollution prevention plans.

The CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of oil and other pollutants and impose liability on parties responsible for those discharges, for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release.

The CAA, CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of oil and other pollutants and impose liability on parties responsible for those discharges, for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release.

The underground injection of oil and natural gas wastes are regulated by the Underground Injection Control program authorized by the Safe Drinking Water Act.

10 unchanged sentences

In Colorado, the Colorado Supreme Court has ruled the municipal bans were preempted by state law.

However, the Colorado legislature subsequently enacted “SB 101” that gave significant local control over oil and gas well head operations.

Municipalities in Colorado have enacted local rules restricting oil and gas operations based on SB 101.

We cannot predict whether any other legislation will ever be enacted and if so, what its provisions would be.

If additional levels of regulation and permits were required through the adoption of new laws and regulations at the federal or state level, which could lead to delays, increased operating costs and process prohibitions that would materially adversely affect our revenue and results of operations.

If additional levels of regulation and permits were required through the adoption of new laws and regulations at the federal or state level, it could lead to delays, increased operating costs and process prohibitions that would materially adversely affect our revenue and results of operations.

The National Environmental Policy Act (“NEPA”) establishes a national environmental policy and goals for the protection, maintenance and enhancement of the environment and provides a process for implementing these goals within federal agencies.

A major federal agency action having the potential to significantly impact the environment requires review under NEPA.

Many of the activities of our third-party operating partners are covered under categorical exclusions which results in a shorter NEPA review process.

The Council on Environmental Quality has announced an intention to reinvigorate NEPA reviews and on March 12, 2012, issued final guidance that may result in longer review processes that could lead to delays and increased costs that could materially adversely affect our revenues and results of operations.

Many of the activities of our third-party operating partners are covered under NEPA.

Some activities are subject to robust NEPA review which could lead to delays and increased costs that could materially adversely affect our revenues and results of operations.

Other activities are covered under categorical exclusions which results in a shorter NEPA review process.

In 2021, the Biden Administration proposed a rule to undue changes to NEPA enacted under the Trump Administration that had streamlined NEPA review.

The proposed changes would emphasize the need to review federal actions for climate change and environmental justice impacts, among other factors.

These proposed changes, if enacted, would affect the assessment of projects ranging from oil and gas leasing to development on public and Indian lands.

Climate Change

2 unchanged sentences

Recent scientific research and political debate has focused in part on carbon dioxide and methane incidental to oil and natural gas exploration and production.

In the United States, no comprehensive federal climate change legislation has been implemented to date but the current administration has indicated willingness to pursue new climate change legislation, executive actions or other regulatory initiatives to limit greenhouse gas (“GHG”) emissions.

Further, legislative and regulatory initiatives are already underway to that purpose.

initiatives to limit greenhouse gas (“GHG”) emissions.

These include rejoining the Paris Agreement treaty on climate change, several executive orders to address climate change, the U.S.

Methane Emissions Reduction Action Plan, and a commitment to cut greenhouse gas emissions 50-52 percent of 2005 levels by 2030.

Further, legislative and regulatory initiatives are underway to that purpose.

Congress has considered legislation that would control GHG emissions through a “cap and trade” program and several states have already implemented programs to reduce GHG emissions.

2 unchanged sentences

In 2014, Colorado was the first state in the nation to adopt rules to control methane emissions from oil and gas facilities.

In 2016, the EPA issued three final rules that were intended to curb emissions of methane, VOCs and toxic air pollutants such as benzene from new, reconstructed and modified oil and gas sources.

These regulations include leak detection

and repair provisions, and may require controls to reduce methane emissions from certain oil and gas facilities.

To the extent that these regulations remain in place and to the extent that our third party operating partners are required to further control methane emissions, such controls could impact our business.

In addition, our third party operating partners are required to report their greenhouse gas emissions under CAA rules.

In 2016, the EPA revised and expanded NSPS to include final rules to curb emissions of methane, a greenhouse gas, from new, reconstructed and modified oil and gas sources.

Previously, already existing NSPS regulated VOCs, and controlling VOCs also had the effect of controlling methane, because natural gas leaks emit both compounds.

However, by explicitly regulating methane as a separate air pollutant, the 2016 regulations were a statutory predicate to propose regulating emissions from existing oil and gas facilities.

In September 2020, EPA made technical and policy changes to the methane rules that limited the scope of the rules.

In 2021, President Biden issued Executive Order 13990, Protecting Public Health and the Environment and Restoring Science to Tackle the Climate Crisis.

In furtherance of this EO, EPA on November 2, 2021 proposed rules to regulate methane emissions from the oil and natural gas industry, including, for the first time, reductions from certain upstream and midstream existing oil and gas sources.

These regulations also expanded controls to reduce methane emissions, such as enhancement of leak detection and repair provisions.

The Pipeline and Hazardous Materials Safety Administration (“PHMSA”) and the Department of Interior continue to focus on regulatory initiatives to control methane emissions from upstream and midstream equipment.

To the extent that these regulations or initiatives remain in place and to the extent that our third-party operating partners are required to further control methane emissions, such controls could impact our business.

In addition, our third-party operating partners are required to report their GHG emissions under CAA rules.

Because regulation of GHG emissions continues to evolve, further regulatory, legislative and judicial developments are likely to occur.

6 unchanged sentences

Legislation or regulations that may be adopted to address climate change could also affect the markets for our products by making our products more or less desirable than competing sources of energy.

To the extent that our products are competing with higher greenhouse gas emitting energy sources, our products would become more desirable in the market with more stringent limitations on greenhouse gas emissions.

To the extent that our products are competing with lower GHG emitting energy sources such as solar and wind, our products would become less desirable in the market with more stringent limitations on greenhouse gas emissions.

To the extent that our products are competing with higher GHG emitting energy sources, our products would become more desirable in the market with more stringent limitations on GHG emissions.

We cannot predict with any certainty at this time how these possibilities may affect our operations.

The majority of scientific studies on climate change suggest that stronger storms may occur in the future in the areas where we operate, although the scientific studies are not unanimous.

Although operators may take steps to mitigate physical risks from storms, no assurance can be given that future storms will not have a material adverse effect on our business.

The majority of scientific studies on climate change suggest that extreme weather conditions and other risks may occur in the future in the areas where we operate, although the scientific studies are not unanimous.

Although operators may take steps to mitigate any such risks, no assurance can be given that they will not have a material adverse effect on our business.

Human Capital Resources

3 unchanged sentences

Office Locations

Our executive offices are located at 601 Carlson Pkwy, Suite 990, Minnetonka, Minnesota 55305.

In November 2021, we relocated our executive offices to 4350 Baker Road, Suite 400, Minnetonka, Minnesota 55343.

Our office space consists of 15,751 square feet of leased space.

9 unchanged sentences

Electronic filings with the SEC are also available on the SEC internet website at www.sec.gov.

We have also posted to our website our Audit Committee Charter, Compensation Committee Charter, Nominating Committee Charter and our Code of Business Conduct and Ethics, in addition to all pertinent company contact information.

We have also posted to our website our Audit Committee Charter, Compensation Committee Charter, Nominating Committee Charter, Corporate Governance Guidelines and Code of Business Conduct and Ethics, in addition to all pertinent company contact information.

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-K

Item 1. Business