What changed in this filing

/stocks — the workspaceLOADING

Item 2. Properties

2022-02-25 compared with 2021-03-12 · 43 added, 34 removed, 255 unchanged (23% of the section changed)

18 unchanged sentences

Under SEC guidelines, these prices represent the average prices per barrel of oil and per Mcf of natural gas at the beginning of each month in the 12-month period prior to the end of the reporting period, after adjustment to reflect applicable transportation and quality differentials.

Estimated net proved reserves at December 31, 2020 were 122,632 MBoe, a 25% decrease from estimated net proved reserves of 163,307 MBoe at December 31, 2019.

The decrease was primarily due to a 35% reduction in the SEC-prescribed oil price at year-end 2020 as compared to 2019 and a decrease in development activity.

As a result of lower demand caused by the COVID-19 pandemic and the oversupply of crude oil, spot and future prices of crude oil fell to historic lows during the second quarter of 2020, which in turn reduced development activity in the Williston Basin.

The decrease in development activity in 2020 led to a 56% reduction in our developmental capital expenditures compared to 2019 as well as a decrease in the number of undeveloped drilling locations reflected in our 2020 proved reserve estimates.

The number of proved undeveloped wells included in the reserves was reduced from 107.5 net wells in 2019 to 58.8 net wells in 2020.

Estimated net proved reserves at December 31, 2021 were 287,682 MBoe, a 135% increase from estimated net proved reserves of 122,632 MBoe at December 31, 2020.

The increase was primarily due to the impact of our 2021 acquisitions, as well as higher activity levels in 2021 as compared to 2020.

Increased development activity in 2021 led to an increase in our capital spending as well as an increase in the number of undeveloped drilling locations reflected in our 2021 proved reserve estimates.

As a result of the higher activity levels and our 2021 acquisitions, the number of proved undeveloped wells included in the reserves was increased from 58.8 net wells in 2020 to 126.5 net wells in 2021.

The following table sets forth summary information by reserve category with respect to estimated proved reserves at December 31, 2021:

48 unchanged sentences

Added from Extensions and Discoveries 13.3

Purchases of Minerals in Place 60.7

Removed for 5-Year Rule (6.2)

1 unchanged sentence

Estimated Proved Undeveloped Reserves at 12/31/2021 117.1

Our future development drilling program includes the drilling of approximately 58.8 proven undeveloped net wells before the end of 2025 at an estimated cost of $341.0 million.

Our development plan for drilling proved undeveloped wells calls for the drilling of 22.8 net wells during 2021 (includes 13.6 net wells drilled at December 31, 2020, but classified as proved undeveloped due to Cawley’s internal guidelines which require greater than 50% of total costs to be incurred to be classified as developed), 13.3 net wells during 2022, 10.5 net wells during 2023 and 12.2 net wells during 2024 for a total of 58.8 net wells.

Our proved undeveloped locations were reduced from 107.5 net wells at December 31, 2019 to 58.8 net wells at December 31, 2020 due to lower commodity prices and reduced development activity.

Our future development drilling program includes the drilling of approximately 126.5 proved undeveloped net wells before the end of 2026 at an estimated cost of $833.2 million.

Our development plan for drilling proved undeveloped wells calls for the drilling of 62.5 net wells during 2022 (includes 32.0 net wells drilled at December 31, 2021, but classified as proved undeveloped due to Cawley’s internal guidelines which require greater than 50% of total costs to be incurred to be classified as developed), 25.0 net wells during 2023, 25.4 net wells during 2024, 10.7 net wells during 2025, and 2.9 net wells during 2026 for a total of 126.5 net wells.

Our proved undeveloped locations were increased from 58.8 net wells at December 31, 2020 to 126.5 net wells at December 31, 2021 due to our 2021 acquisitions, higher commodity prices, and increased development activity.

We expect that our proved undeveloped reserves will continue to be converted to proved developed producing reserves as additional wells are drilled including our acreage.

3 unchanged sentences

The development of these reserves is dependent upon a number of factors which include, but are not limited to:

financial targets such as drilling within cash flow or reducing debt, drilling of obligatory wells, satisfactory rates of return on proposed drilling projects, and the levels of drilling activities by operators in areas where we hold leasehold interests.

During 2020, we decreased our development capital spending by 56% compared to 2019.

With 72% of the PV-10

value of our total proved reserves supported by producing wells, we believe we will have sufficient cash flows and adequate liquidity to execute our development plan.

financial targets such as drilling within cash flow or reducing debt, drilling of obligatory wells, satisfactory

rates of return on proposed drilling projects, and the levels of drilling activities by operators in areas where we hold leasehold interests.

During 2021, we increased our development capital spending by 12% compared to 2020.

With 70% of the PV-10 value of our total proved reserves supported by producing wells, we believe we will have sufficient cash flows and adequate liquidity to execute our development plan.

At December 31, 2021, we had spent a total of $61.3 million related to the development of proved undeveloped reserves, which resulted in the conversion of 8.7 MMBoe of proved undeveloped reserves as of December 31, 2020 to proved developed reserves as of December 31, 2021.

2 unchanged sentences

In 2021, we also added 13.3 MMBoe of proved undeveloped reserves as a result of our acquisition and development activity.

The SEC-prescribed commodity prices (after adjustment for transportation, quality and basis differentials) were $17.84 lower per barrel of oil and $0.51 lower per Mcf of natural gas at year-end 2020 as compared to year-end 2019.

Additionally, we had negative revisions of 20.6 MMBoe primarily due to the aforementioned lower pricing.

The SEC-prescribed commodity prices (after adjustment for transportation, quality and basis differentials) were $29.56 higher per barrel of oil and $1.76 higher per Mcf of natural gas at year-end 2021 as compared to year-end 2020.

Additionally, we had positive revisions of 19.5 MMBoe primarily due to the aforementioned higher pricing.

We also removed 6.2 MMBoe of proved undeveloped reserves due to the SEC-prescribed 5-year rule.

1 unchanged sentence

The SEC disclosure rules allow for optional reserves sensitivity analysis, such as the sensitivity that oil and natural gas reserves have to price fluctuations.

We have chosen to compare our proved reserves from the 2020 SEC case to two alternate pricing cases.

The first alternate scenario uses a flat pricing deck of $50.00 per Bbl for oil and $2.50 per MMbtu for natural gas (the “$50 Flat Case”).

The second alternate scenario uses a flat pricing deck of $60.00 per Bbl for oil and $2.50 per MMbtu for natural gas (the “$60 Flat Case”).

The sensitivity scenarios were not audited by a third party.

In these sensitivity scenarios, all operating cost assumptions and other factors, other than the commodity price assumptions, have been held constant with the SEC case.

However, the higher pricing in the sensitivity scenarios did result in additional future drilling locations that became economic under the $50 Flat Case and the $60 Flat Case, while they were not economic under the 2020 SEC case.

As a result, the $50 Flat Case and the $60 Flat Case included an additional 24.4 and 44.6 proved undeveloped net wells, respectively, compared to the 58.8 proved undeveloped net wells included in the 2020 SEC case.

These sensitivities are only meant to demonstrate the impact that changing commodity prices may have on estimated proved reserves and PV-10 and there is no assurance these outcomes will be realized.

The table below shows our proved reserves utilizing the 2020 SEC case compared with the two alternate price scenarios.

$50 Flat Case (2)

We have chosen to compare our proved reserves from the 2021 SEC case to one alternate pricing case, which uses a flat pricing deck of $50.00 per Bbl for oil and $3.00 per MMbtu for natural gas (the “$50 Flat Case”).

The sensitivity scenario was not audited by a third-party.

In this sensitivity scenario, all operating cost assumptions and other factors, other than the commodity price assumptions, have been held constant with the SEC case.

However, the lower pricing in the sensitivity scenario did result in fewer future drilling locations that were economic at the $50 Flat Case compared to the 2021 SEC case.

As a result, the $50 Flat Case included 16.6 fewer proved undeveloped net wells compared to the 126.5 proved undeveloped net wells included in the 2021 SEC case.

This sensitivity is only meant to demonstrate the impact that changing commodity prices may have on estimated proved reserves and PV-10 and there is no assurance this outcome will be realized.

The table below shows our proved reserves utilizing the 2021 SEC case compared with the $50 Flat Case.

$50 Flat Case (2)

15 unchanged sentences

(2) Prices based on $50.00 per Bbl for oil and $3.00 per MMbtu for natural gas, which were then adjusted for transportation and quality differentials to arrive at prices of $45.75 per Bbl for oil and $2.74 per Mcf for natural gas.

(3) Prices based on $60.00 per Bbl for oil and $2.50 per MMbtu for natural gas, which were then adjusted for transportation and quality differentials to arrive at prices of $53.04 per Bbl for oil and $1.84 per Mcf for natural gas.

(3) Pre-tax PV10%, or PV-10, may be considered a non-GAAP financial measure.

37 unchanged sentences

We utilize a third-party reservoir engineering firm, as our independent reserves evaluator for 100% of our reserves base.

In addition, we employ an internal reserve engineering department which is led by our Senior Vice President of Engineering, who is responsible for overseeing the preparation of our reserves estimates.

Our senior internal reserve engineer has a B.S.

in petroleum engineering from Montana Tech, has over fifteen years of oil and gas experience on the reservoir side, and has experience working for large independent and financial firms on projects and acquisitions.

In addition, we employ an internal reserve engineering department which is led by our Executive Vice President and Chief Engineer, who is responsible for overseeing the preparation of our reserves estimates.

Our executive internal reserve engineer has a B.S.

in petroleum engineering from Montana Tech, has over fifteen years of oil and gas experience on the reservoir side, and has experience working for large independents and financial firms on projects and acquisitions.

Our technical team meets with our independent third-party engineering firm to review properties and discuss evaluation methods and assumptions used in the proved reserves estimates, in accordance with our prescribed internal control procedures.

23 unchanged sentences

Total (Boe) 19,634,015 12,106,686 14,090,547

Oil (Bbl) per day 33,667 25,577 31,029

Mcf per day 120,751 45,009 45,454

Total (Boe) per day 53,792 33,078 38,604

Average Sales Prices:

28 unchanged sentences

(1) Net Well totals in 2021, 2020 and 2019 do not include an additional 169.4, 1.0 and 90.1 net wells, respectively, from acquisitions which were already producing when acquired.

The following table summarizes our cumulative gross and net productive oil wells by geographic area within the United States at each of December 31, 2020, 2019 and 2018.

The following table summarizes our cumulative gross and net productive oil and natural gas wells by geographic area within the United States at each of December 31, 2021, 2020 and 2019.

Wells are classified as oil or natural gas wells according to the predominant production stream.

All of our wells in the Williston and Permian Basins are classified as oil wells, although they also produce natural gas and condensate.

All of our wells in the Appalachian Basin are classified as natural gas wells.

2021 2020 2019

2 unchanged sentences

Permian Basin 83 11.6 7 0.6 — —

Appalachian Basin 357 97.5 — — — —

Total 7,436 680.8 6,640 475.1 6,156 458.7

7 unchanged sentences

Permian Basin 9,194 2,927 1,438 536 10,632 3,463

Appalachian Basin 202,888 47,388 93,390 14,197 296,278 61,585

806,750 213,746 127,252 31,685 934,002 245,431

7 unchanged sentences

In those instances, we still review each lease on a lease-by-lease basis to ensure that the package as a whole meets our acquisition criteria and drilling expectations.

See Note 3 to our financial statements regarding our recent acquisition activity.

See Note 3 and Note 14 to our financial statements regarding our recent acquisition activity.

Acreage Expirations

22 unchanged sentences

During any period in which these factors indicate an impairment, the cumulative drilling costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and amortization.

We historically have acquired our properties by purchasing individual or small groups of leases directly from mineral owners or from landmen or lease brokers, which leases generally have not been subject to specified drilling projects, and by purchasing lease packages in identified project areas controlled by specific operators.

We generally participate in drilling activities on a proportionate basis by electing whether to participate in each well on a well-by-well basis at the time wells are proposed for drilling.

We believe that the majority of our unproved costs will become subject to depletion within the next five years by proving up reserves relating to its acreage through exploration and development activities, by impairing the acreage that will expire before we can explore or develop it further or by determining that further exploration and development activity will not occur.

We historically have acquired our unproved properties by purchasing individual or small groups of leases directly from mineral owners, landmen, or lease brokers, which leases historically have not been subject to specified drilling projects, and by purchasing lease packages in identified project areas controlled by specific operators.

We generally participate in drilling activities on a heads up basis by electing whether to participate in each well on a well-by-well basis at the time wells are proposed for drilling.

We believe that the majority of our unproved costs will become subject to depletion within the next five years by proving up reserves relating to our acreage through exploration and development activities, by impairing the acreage that will

expire before we can explore or develop it further or by determining that further exploration and development activity will not occur.

The timing by which all other properties will become subject to depletion will be dependent upon the timing of future drilling activities and delineation of our reserves.

9 unchanged sentences

Delivery Commitments

We do not currently have any delivery commitments for product obtained from our wells.

For our properties in the Appalachian Basin, we have contractually agreed to deliver firm quantities of natural gas to certain third parties, which we seek to fulfill with production from existing reserves.

In the event we are not able to meet these firm commitments, we are subject to deficiency payments.

As a non-operator, we have limited control over the drilling of new wells and primarily rely on our third-party operating partners in this regard.

The following table summarizes our total net commitments as of December 31, 2021.

(in Bcf) Commitment Volumes

Legal Proceedings

2 unchanged sentences

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 2. Properties