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Item 1A. Risk Factors

2025-02-20 compared with 2024-02-23 · 113 added, 116 removed, 550 unchanged (29% of the section changed)

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If any of the events or circumstances described below actually occurs, our business, financial condition or results of operations could suffer and the trading price of our common stock could decline.

Summary of Risk Factors

We believe that the risks associated with our business, and consequently the risks associated with an investment in our equity or debt securities, fall within the following categories:

Risks Related to Our Business and the Oil, Natural Gas and NGL Industry

◦ As a producer of oil and natural gas, there are many risks inherent in our primary business operations.

These risks are not necessarily unique to us.

Rather, these are risks that most participants in our industry have at least some exposure to and relate to matters such as:

drilling and completion operations;

reserves estimates;

gathering, processing, marketing and transportation;

weather and seasonality, including the physical effects of climate change;

hedging and commodity price derivatives;

and information technology and cybersecurity.

◦ Given that our primary source of revenue is the sale of oil, natural gas and NGLs, one of our most material risks is the commodity market and the prices of oil, natural gas and NGLs, which are often volatile.

◦ As a non-operator, we have only participated in wells operated by third parties, and thus rely extensively on third parties for the success of our business.

◦ Our acquisition strategy subjects us to risks relating to evaluation, integration and growth in connection with past and potential future acquisitions.

• Risks Related to Our Financing and Indebtedness

◦ Our operations are capital intensive.

Pressures on the market as a whole, or our specific financial position – whether due to depressed commodity prices, our leverage, our credit ratings or otherwise – could make it difficult for us to obtain the funding necessary to conduct our operations.

◦ Our existing and future debt obligations carry risks related to liquidity, operating and financial restrictions, debt service obligations, and related matters.

◦ The capped call transactions may affect the value of the Convertible Notes and our common stock.

◦ We are subject to counterparty performance risk with respect to the capped call transactions.

◦ The Convertible Notes may have a material effect on our reported financial results.

◦ The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

• Risks Related to Legal, Regulatory and Environmental Matters

◦ There are many environmental, energy, financial, real property and other regulations that we and/or third-party operators of our wells are required to comply with in the context of conducting our operations, otherwise, we may be exposed to fines, penalties, investigations, litigation or other legal proceedings.

◦ Negative public perception of the oil and natural gas industry, future climate change legislation or regulation, increasing consumer demand for alternatives to oil and natural gas, or other climate-related transition risks could adversely impact our earnings, cash flows and financial position.

• Risks Related to Our Common Stock

◦ Our capital structure, as well as our certificate of incorporation, bylaws, and Delaware state law, subject our stockholders to risk of ownership dilution, loss of market value, and other risks.

◦ Any payment of future dividends will be at the discretion of our board of directors and will depend on, among other things, our earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applying to the payment of dividends and other considerations.

Investors may be forced to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize a return on their investment.

We describe these and other risks in much greater detail below.

Risks Related to Our Business and the Oil, Natural Gas and NGL Industry

Oil and natural gas prices are volatile.

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As a result, estimated quantities of proved reserves and projections of future production rates and the timing of development expenditures may prove to be inaccurate.

We routinely make estimates of oil and natural gas reserves in connection with managing our business and preparing reports to our lenders and investors, including in some cases estimates prepared by our internal reserve engineers and professionals that are not reviewed or audited by an independent reserve engineering firm.

professionals that are not reviewed or audited by an independent reserve engineering firm.

We make these reserve estimates using various assumptions, including assumptions as to oil and natural gas prices, development schedules, drilling and operating expenses, capital expenditures, taxes and availability of funds.

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Numerous changes over time to the assumptions on which our reserve estimates are based result in the actual quantities of oil, natural gas and NGLs we ultimately recover being different from our reserve estimates.

Any significant variance could

materially affect the estimated quantities and present value of reserves shown in this Annual Report on Form 10-K, subsequent reports we file with the SEC or other company materials.

Any significant variance could materially affect the estimated quantities and present value of reserves shown in this Annual Report on Form 10-K, subsequent reports we file with the SEC or other company materials.

Our future success depends on our ability to replace reserves that our operators produce.

Because the rate of production from oil and natural gas properties generally declines as reserves are depleted, our future success depends upon our ability to economically find or acquire and produce additional oil and natural gas reserves.

Except to the extent that we acquire additional properties containing proved reserves, conduct successful exploration and development activities or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves, our proved reserves will decline as our reserves are produced.

Except to the extent that we acquire additional properties containing proved reserves, participate in successful exploration and development activities or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves, our proved reserves will decline as our reserves are produced.

We have added significant net wells and production from wellbore-only acquisitions, where we don’t hold the underlying leasehold interest that would entitle us to participate in future wells.

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In many cases, operators are provided only with limited, if any, notice as to when these circumstances will arise and their duration.

In addition, our wells may be drilled in locations that are serviced to a limited extent, if at all, by gathering and transportation pipelines, which may or may not have sufficient capacity to transport production from all of the wells in the area.

In addition, our wells may be drilled in locations that are serviced to a limited extent, if at all, by gathering and transportation pipelines, which may or may not have sufficient capacity to

transport production from all of the wells in the area.

As a result, we rely on third-party oil trucking to transport a significant portion of our production to third-party transportation pipelines, rail loading facilities and other market access points.

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The Dakota Access Pipeline (“DAPL”), a major pipeline transporting crude oil from the Williston Basin, is subject to ongoing litigation (the “DAPL Litigation”) that could threaten its continued operation.

In July 2020, a federal district court ordered DAPL to be shut down pending the completion of an environmental impact statement (“EIS”) to determine whether the

DAPL poses a threat to the Missouri River and drinking water supply of the Standing Rock Sioux Reservation.

In July 2020, a federal district court ordered DAPL to be shut down pending the completion of an environmental impact statement (“EIS”) to determine whether the DAPL poses a threat to the Missouri River and drinking water supply of the Standing Rock Sioux Reservation.

The temporary shutdown order was overturned by the U.S.

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Army Corps of Engineers (“USACE”) conducts the EIS, which was released in draft form in September 2023 and was open for public comment until mid-December 2023.

The date that the final EIS will be published is not yet known.

The USACE received over 200,000 public comments.

The date that the final EIS will be published is not yet known, although according to statements from the USACE the final EIS may be published in 2025.

Following completion of the EIS, the USACE will determine whether to grant DAPL an easement to cross the Missouri River or to shut down the pipeline, unless the U.S.

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To the extent the frequency of extreme weather events increases, this could impact our business in various ways, including damage to operators’ facilities at our properties or increased insurance premiums.

Potential adverse effects on our third party operators could also include disruption of their production activities and supply chain.

Potential adverse effects on our third party operators could also

include disruption of their production activities and supply chain.

Any of these effects could have an adverse effect on our business, results of operations and financial condition.

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Sustained levels of high inflation caused the U.S.

Federal Reserve to increase the federal funds interest rate by 5.25% between March 2022 and December 2023 in an effort to curb inflationary pressure on the costs of goods and services.

While inflationary pressures in the United States’ economy have begun to subside, we continue to be impacted by the increased federal funds interest rate, which could additionally have the effects of raising the cost of capital and depressing economic growth, either of which (or the combination thereof) could hurt the financial and operating results of our business.

Federal Reserve to increase the federal funds interest rate by 5.25% to a high of 5.375% between March 2022 and July 2023 in an effort to curb inflationary pressure on the costs of goods and services.

While inflationary pressures in the United States’ economy have begun to subside, inflation is still holding above the U.S.

Federal Reserve’s target level.

Further, despite the U.S.

Federal Reserve decreasing the federal funds interest rate to 4.375% between September 2024 and December 2024, we continue to be impacted by the elevated federal funds interest rate, which could additionally have the effects of raising the cost of capital and depressing economic growth, either of which (or the combination thereof) could hurt the financial and operating results of our business.

To the extent elevated inflation remains, we may experience further cost increases for our operations.

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Any delay in the drilling of new wells or significant increase in drilling costs could reduce our revenues and cash flows.

We depend on computer and telecommunications systems, and failures in our systems or cybersecurity attacks could significantly disrupt our business operations.

We have entered into agreements with third parties for hardware, software, telecommunications and other information technology services in connection with our business.

In addition, we have developed or may develop proprietary software systems, management techniques and other information technologies incorporating software licensed from third parties.

It is possible that we, or these third parties, could incur interruptions from cybersecurity attacks, computer viruses or malware, or that third-party service providers could cause a breach of our data.

We believe that we have positive relations with our related vendors and maintain adequate anti-virus and malware software and controls;

however, any interruptions to our arrangements with third parties for our computing and communications infrastructure or any other interruptions to, or breaches of, our information systems could lead to data corruption, communication interruption, loss of sensitive or confidential information or otherwise significantly disrupt our business operations.

Although we utilize various procedures and controls to monitor these threats and mitigate our exposure to such threats, there can be no assurance that these procedures and controls will be sufficient in preventing security threats from materializing.

Furthermore, various third-party resources that we rely on, directly or indirectly, in the operation of our business (such as pipelines and other infrastructure) could suffer interruptions or breaches from cyber-attacks or similar events that are entirely outside our control, and any such events could significantly disrupt our business operations and/or have a material adverse effect on our results of operations.

To our knowledge we have not experienced any material losses relating to cyber-attacks;

however, there can be no assurance that we will not suffer material losses in the future.

The development of our proved undeveloped reserves may take longer and may require higher levels of capital expenditures than we currently anticipate.

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Inspections will not always be performed on every well, and environmental problems are not necessarily observable even when an inspection is undertaken.

Even when problems are identified, the seller may be unwilling or unable to

provide effective contractual protection against all or a portion of the underlying deficiencies.

Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all or a portion of the underlying deficiencies.

We are often not entitled to contractual indemnification for environmental liabilities and acquire properties on an “as is” basis, and, as is the case with certain liabilities associated with the assets acquired in our recent acquisitions, we are entitled to indemnification for only certain environmental liabilities.

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In addition, our ability to select and evaluate suitable properties and to consummate transactions in a highly competitive environment is dependent on our management team’s knowledge and expertise in the industry.

To continue to develop our business, we rely on our management team’s knowledge and expertise in the industry and will use our management team’s relationships with industry participants to enter into strategic relationships.

To continue to develop our business, we rely on our management team’s knowledge and expertise in the industry and

will use our management team’s relationships with industry participants to enter into strategic relationships.

The members of our management team may terminate their employment with our company at any time.

If we were to lose members of our management team, we may not be able to replace the knowledge or relationships that they possess and our ability to execute our business plan could be materially harmed.

Our ability to operate our business effectively could be impaired if we fail to attract and retain key personnel, which could have a material adverse effect on our business and results of operations.

Our ability to operate our business and implement our strategies depends on our continued ability to attract and retain highly skilled personnel with oil and natural gas industry experience and competition for these persons in the oil and gas industry is intense.

Given our size and location, we may be at a disadvantage, relative to our competitors, in the competition for these personnel.

We may not be able to continue to employ key personnel or attract and retain qualified personnel in the future, and our failure to retain or attract key personnel could have a material adverse effect on our ability to effectively operate our business.

Deficiencies of title to our leased interests could significantly affect our financial condition.

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Prior to drilling an oil or natural gas well, however, it is the normal practice in the oil and natural gas industry for the person or company acting as the operator of the well to obtain a preliminary title review of the spacing unit within which the proposed oil or natural gas well is to be drilled to ensure there are no obvious deficiencies in title to the well.

Frequently, as a result of such examinations, certain curative work must be done to correct deficiencies in the marketability of the title, such as obtaining affidavits of heirship or causing an estate to be administered.

Such curative work entails expense, and the operator may elect to proceed with a well despite defects to the title identified in the preliminary title opinion.

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acquisition of assets offered for sale by other companies;

access to capital (debt and equity) for financing and operational

access to capital (debt and equity) for financing and operational purposes;

purchasing, leasing, hiring, chartering or other procuring of equipment by our operators that may be scarce;

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The use of other funds to satisfy such decommissioning costs could impair our ability to focus capital investment in other areas of our business.

We depend on computer and telecommunications systems, and failures in our systems or cyber security attacks could significantly disrupt our business operations.

We have entered into agreements with third parties for hardware, software, telecommunications and other information technology services in connection with our business.

In addition, we have developed or may develop proprietary software systems, management techniques and other information technologies incorporating software licensed from third parties.

It is possible that we, or these third parties, could incur interruptions from cyber security attacks, computer viruses or malware, or that third-party service providers could cause a breach of our data.

We believe that we have positive relations with our related vendors and maintain adequate anti-virus and malware software and controls;

Although we utilize various procedures and controls to monitor these

threats and mitigate our exposure to such threats, there can be no assurance that these procedures and controls will be sufficient in preventing security threats from materializing.

To our knowledge we have not experienced any material losses relating to cyber-attacks;

however, there can be no assurance that we will not suffer material losses in the future.

Our business is subject to climate-related transition risks, including evolving climate change legislation, fuel conservation measures, technological advances and negative shift in market perception towards the oil and natural gas industry could result in increased operating expenses and capital costs, financial risks and potential reduction in demand for oil and natural gas.

Combating the effects of climate change continues to attract considerable attention in the United States and internationally, including from regulators, legislators, companies in a variety of industries, financial market participants and other stakeholders.

This focus, together with changes in consumer and industrial/commercial behavior, preferences and attitudes with respect to the generation and consumption of energy, petroleum products and the use of products manufactured with, or powered by, petroleum products, may in the long-term result in (i) the enactment of climate change-related regulations, policies and initiatives (at the government, regulator, corporate and/or investor community levels), including alternative energy requirements, new fuel consumption standards, energy conservation and emissions reductions measures and responsible energy development, (ii) technological advances with respect to the generation, transmission, storage and consumption of energy ( e.g.

This focus, together with changes in consumer and industrial/commercial behavior, preferences and attitudes with respect to the generation and consumption of energy, petroleum products and the use of products manufactured with, or powered by, petroleum products, may in the long-term result in (i) the enactment of climate change-related regulations, policies and initiatives (at the government, regulator, corporate and/or investor community levels), including alternative energy requirements, new fuel consumption standards, energy conservation, enhanced disclosure obligations and emissions reductions measures and responsible energy development, (ii) technological advances with respect to the generation, transmission, storage and consumption of energy ( e.g.

, wind, solar and hydrogen power, smart grid technology and battery technology, increasing efficiency) and (iii) increased availability of, and increased consumer and industrial/commercial demand for, alternative energy sources and products manufactured with, or powered by, alternative energy sources ( e.g.

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Such developments may also adversely impact, among other things, the availability to operators at our properties of necessary third-party services and facilities that they rely on or impact the market prices of or our operating partners’ access to raw materials, which may adversely affect our ability to successfully carry out our business strategy.

Additionally, certain segments of the investor community have recently expressed negative sentiment towards investing in the oil and natural gas industry.

Additionally, certain segments of the investor community have expressed negative sentiment towards investing in the oil and natural gas industry.

Climate change-related developments in particular may result in negative perceptions of the traditional oil and gas industry and, in turn, reputational risks associated with exploration and production activities.

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Increased scrutiny and changing stakeholder expectations with respect to environmental, social and governance (“ESG”) matters may impact our business and expose us to additional risks.

In recent years, companies across all industries are facing increasing scrutiny from stakeholders related to their ESG and sustainability practices.

Failure or a perception (whether or not valid) of failure to implement our ESG strategy or achieve sustainability goals we have set could damage our reputation, causing our investors or other stakeholders to lose confidence in our company, and negatively impact our operations.

Companies across all industries continue to face increasing scrutiny from stakeholders related to their ESG and sustainability practices.

Failure or a perception (whether or not valid) of failure to implement our ESG strategy or achieve sustainability goals we may set could damage our reputation, causing our investors or other stakeholders to lose confidence in our company, and negatively impact our operations.

There can be no assurance that we will be able to accomplish any announced goals, initiatives, commitments or objectives related to our ESG strategy, as statements regarding the same reflect our current plans and aspirations and are not guarantees that we will be able to achieve them within the timelines we announce, or at all.

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Our continuing efforts to research, establish, accomplish and accurately report on the implementation of our ESG strategy, including any ESG goals, may also create additional operational risks and expenses and expose us to reputational, legal and other risks.

Moreover, while we create and publish voluntary disclosures regarding ESG matters from time to time, some of the statements in those voluntary disclosures may be based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith.

actual risks or events or forecasts of expected risks or events, including the costs associated therewith.

Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters.

The occurrence of any of the foregoing could have a material adverse effect on our business and financial condition.

Further, our business and growth opportunities require us to have strong relationships with various key stakeholders, including our stockholders, employees, suppliers, customers, local communities and others.

We may face pressures from stakeholders, many of whom are increasingly focused on climate change, to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability while at the same time remaining a successfully operating public company.

Further, our business and growth opportunities require us to have strong relationships with various key stakeholders, including our stockholders, lenders, employees, suppliers, customers, local communities and others.

We may face pressures from stakeholders to prioritize sustainable energy practices, reduce our carbon footprint and promote sustainability, or with respect to other ESG matters, while at the same time remaining a successfully operating public company.

If we do not successfully manage expectations across these varied stakeholder interests, it could erode our stakeholder trust and thereby affect our brand and reputation.

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Our Revolving Credit Facility and other agreements governing indebtedness contain operating and financial restrictions that may restrict our business and financing activities.

Our Revolving Credit Facility, the indenture the “2028 Notes Indenture” governing our 8.125% senior notes due 2028 (the “Senior Notes due 2028”), and the indenture the “2031 Notes Indenture” and, together with the 2028 Notes Indenture, the “Senior Notes Indentures”) governing our 8.750% senior notes due 2031 (the “Senior Notes due 2031” and, together with the Senior Notes due 2028, the “Senior Notes”), and any future indebtedness we incur may contain a number of restrictive covenants that will impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

Our Revolving Credit Facility, and the Senior Notes Indentures (as defined herein), and any future indebtedness we incur may contain a number of restrictive covenants that will impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things:

declare or pay any dividend or make any other distributions on, purchase or redeem our equity interests or purchase or redeem certain debt;

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and engage in transactions with our affiliates.

In addition, the Revolving Credit Facility requires us to maintain compliance with certain financial covenants and other covenants.

As a result of these covenants, we could be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.

In addition, the Revolving Credit Facility requires us to maintain compliance with certain financial covenants and other covenants, including, among others, (i) maintaining a minimum current ratio (defined as consolidated current assets including unused amounts of the total commitments, but excluding non-cash assets under FASB Accounting Standards Codification (“ASC”) Topic 815, Derivatives and Hedging (“ASC 815”), divided by consolidated current liabilities excluding current non-cash obligations under ASC 815, current maturities under the Revolving Credit Facility and current maturities of any long-term debt (the “Current Ratio”)) of no less than 1.00 to 1.00 and (ii) maintaining a maximum net leverage ratio (defined as, as of the date of determination, the ratio of total net debt to EBITDAX (as defined in the Revolving Credit Facility) measured on a rolling four quarter basis (the “Net Leverage Ratio”)) of 3.50 to 1.00.

EBITDAX, as defined in the Revolving Credit Facility, excludes, among other things, the effects of interest expense, depreciation, depletion and

amortization, income tax, certain non-cash gains and impairments, and certain restructuring costs.

As a result of the financial covenants and other covenants, we could be limited in the manner in which we conduct our business, and we may be unable to engage in favorable business activities or finance future operations or capital needs.

Our ability to comply with some of the covenants and restrictions may be affected by events beyond our control.

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Any insufficiency could negatively impact our business.

A range of economic, competitive, business and industry factors will affect our future financial

performance, and, as a result, our ability to generate cash flow from operations and to pay our debt.

A range of economic, competitive, business and industry factors will affect our future financial performance, and, as a result, our ability to generate cash flow from operations and to pay our debt.

Many of these factors, such as oil and natural gas prices, economic and financial conditions in our industry and the global economy or competitive initiatives of our competitors, are beyond our control.

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Holders of our common stock are only entitled to receive such cash dividends as our board of directors, in its sole discretion, may declare out of funds legally available for such payments.

On August 1, 2023, our board of directors declared a cash dividend on our common stock in the amount of $0.38 per share.

The dividend was paid on October 31, 2023 to stockholders of record as of the close of business on September 28, 2023.

On October 30, 2023, our board of directors declared a cash dividend on our common stock in the amount of $0.40 per share.

The dividend was paid on January 31, 2024 to stockholders of record as of the close of business on December 28, 2023.

On February 5, 2024, our board of directors declared a cash dividend on our common stock in the amount of $0.40 per share.

The dividend is payable on April 30, 2024 to stockholders of record as of the close of business on March 28, 2024.

We have paid quarterly dividends since 2021.

We cannot assure you, however, that we will pay dividends in the future in the current amounts or at all.

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If interest rates increase and we are unable to effectively hedge our interest rate risk, our debt service obligations on the variable rate indebtedness would increase even if the amount borrowed remained the same, and our net income and cash available for servicing our indebtedness would decrease.

A downgrade in our credit rating could negatively impact our cost of and ability to access capital and our liquidity.

Actual or anticipated changes or downgrades in our credit ratings, including any announcement that our ratings are under review for a downgrade, could impact our ability to access debt markets in the future to refinance existing debt or obtain additional funds and affect the market value of the Senior Notes (as defined herein).

Such ratings are limited in scope, and do not address all material risks relating to us, but rather reflect only the view of each rating agency of the likelihood we will be able to repay our debt at the time the rating is issued.

An explanation of the significance of each rating may be obtained from the applicable rating agency.

There can be no assurance that such credit ratings will remain in effect for any given period of time or that such ratings will not be lowered, suspended or withdrawn entirely by the rating agencies, if, in each rating agency’s judgment, circumstances so warrant.

We may be able to incur substantially more debt.

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The capped call transactions are expected generally to reduce the potential dilution to our common stock upon any conversion of the Convertible Notes and/or offset any potential cash payments we are required to make in excess of the principal amount of converted notes, as the case may be, with such reduction and/or offset subject to a cap.

The option counterparties and/or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock and/or purchasing or selling our common stock or other securities of ours in secondary market transactions prior to the maturity of the Convertible Notes (and are likely to do so during any observation period related to a conversion of such notes).

securities of ours in secondary market transactions prior to the maturity of the Convertible Notes (and are likely to do so during any observation period related to a conversion of such notes).

This activity could also cause or avoid an increase or a decrease in the market price of our common stock or the Convertible Notes, which could affect a holder’s ability to convert their Convertible Notes and, to the extent the activity occurs following conversion or during any observation period related to a conversion of the Convertible Notes, it could affect the amount and value of the consideration that a holder will receive upon conversion of such notes.

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We are subject to counterparty risk with respect to the capped call transactions, and the capped call may not operate as planned.

The option counterparties to the capped call transactions are financial institutions, and we will be subject to the risk that one or more of the option counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate their obligations, under the capped call transactions.

Our exposure to the credit risk of the option counterparties will not be secured by any collateral.

The option counterparties to the capped call transactions are financial institutions, and we are subject to the risk that one or more of the option counterparties may default or otherwise fail to perform, or may exercise certain rights to terminate their obligations, under the capped call transactions.

Our exposure to the credit risk of the option counterparties is not secured by any collateral.

Global economic conditions have from time to time resulted in the actual or perceived failure or financial difficulties of many financial institutions.

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Our exposure will depend on many factors but, generally, the increase in our exposure will be correlated with increases in the market price or the volatility of our common stock.

In addition, upon a default or other failure to perform, or a termination of obligations, by an option counterparty, we may

suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock.

In addition, upon a default or other failure to perform, or a termination of obligations, by an option counterparty, we may suffer adverse tax consequences and more dilution than we currently anticipate with respect to our common stock.

We can provide no assurances as to the financial stability or viability of any option counterparty.

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Risks Related to Legal and Regulatory Matters

The current presidential administration, acting through the executive branch and/or in coordination with Congress, already has ordered or proposed, and could enact additional rules and regulations that restrict our ability to acquire federal leases in the future and/or impose more onerous permitting and other costly environmental, health and safety requirements.

The executive branch and/or Congress could enact additional rules and regulations that restrict our ability to acquire federal leases in the future and/or impose more onerous permitting and other costly environmental, health and safety requirements.

We are affected by the adoption of laws, regulations and policy directives that, for economic, environmental protection or other policy reasons, could curtail exploration and development drilling for oil and gas.

For example, in January 2021, President Biden signed an Executive Order directing the U.S.

For example, in January 2021, the Biden Administration directed the U.S.

Department of the Interior (“DOI”) to temporarily pause new oil and gas leases on federal lands and waters pending completion of a comprehensive review of the federal government’s existing oil and gas leasing and permitting program.

In June 2021, a federal district court enjoined the DOI from implementing the pause and leasing resumed subject to certain limitations.

In August 2022, the U.S.

Court of Appeals vacated and remanded the federal district court’s decision to block the pause on new oil and gas leasing, and the federal district court shortly thereafter enjoined the DOI from implementing the pause in the thirteen states that had challenged the pause.

Litigation over leasing remains ongoing.

Additionally, in July 2023, DOI announced a proposed rule to revise outdated fiscal terms of the onshore federal oil and gas leasing program, including for bonding requirements, royalty rates and minimum bids, with a final rule expected in April 2024.

As a result, it is difficult to predict if and when such areas may be made available for future exploration activities.

In addition, in November 2021, the EPA proposed a new rule that would impose more stringent methane emissions standards for new and modified sources in the oil and gas industry, and to regulate existing sources in the oil and gas industry for the first time.

In November, 2022, the EPA issued the proposed rule supplementing the November 2021 proposed rule.

Among other things, the November 2022 supplemental proposed rule removes an emissions monitoring exemption for small wellhead-only sites and creates a new third-party monitoring program to flag large emissions events, referred to in the proposed rule as “super emitters.” In December 2023, the EPA announced a final rule, which, among other things, requires the phase out of routine flaring of natural gas from newly constructed wells (with some exceptions) and routine leak monitoring at all well sites and compressor stations.

Further, in September 2021, President Biden publicly announced the Global Methane Pledge, an international pact that aims to reduce global methane emissions to at least 30% below 2020 levels by 2030.

These efforts, among others, are intended to support the Biden Administration’s stated goal of addressing climate change.

Potential actions of Congress include imposing more restrictive laws and regulations pertaining to permitting, limitations on GHG emissions, increased requirements for financial assurance and bonding for decommissioning liabilities, and carbon taxes.

Any of these executive, administrative or Congressional actions could adversely affect our financial condition and results of operations by restricting the lands available for development and/or access to permits required for such development, or by imposing additional and costly environmental, health and safety requirements.

Litigation over the leasing pause remains ongoing.

Additionally, in April 2024, DOI finalized a rule to revise outdated fiscal terms of the onshore federal oil and gas leasing program, including for bonding requirements, royalty rates and minimum bids.

However, in January 2025, President Trump issued executive orders (i) reversing the Biden Administration’s leasing pause and executive orders withdrawing certain lands and waters from federal oil and gas leasing, (ii) directing the heads of all federal agencies to facilitate the leasing, siting, and generation of domestic energy resources, including on federal lands and waters, and (iii) directing the heads of federal agencies to begin the processes to suspend, revise, or rescind all agency actions that impose an undue burden on the identification, development, or use of domestic energy resources.

As a result, future implementation and enforcement of these rules and policies remains uncertain.

In addition, the EPA has adopted regulations that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the U.S., and together with the DOT, implement GHG emissions limits on vehicles manufactured for operation in the U.S.

For example, in June 2016, the EPA published NSPS, known as Subpart OOOOa, that require certain new, modified or reconstructed facilities in the natural gas and oil sector to reduce methane gas and VOC emissions.

In December 2023, the EPA finalized more stringent methane rules for new, modified, and reconstructed facilities, known as OOOOb, as well as standards for existing sources for the first time ever, known as OOOOc.

Notably, the EPA updated the applicability date for certain requirements to a construction date of December 6, 2022, meaning that sources constructed prior to that date will be considered existing sources with later compliance deadlines under state plans.

Under the final rules, which went into effect in May 2024, states have until March 2026 to prepare and submit their plans to impose methane emission controls on existing sources and those existing sources themselves have until 2029 to comply.

The presumptive standards established under the final rule are generally the same for both new and existing sources.

The requirements include enhanced leak detection survey requirements using optical gas imaging and other advanced monitoring to encourage the deployment of innovative technologies to detect and reduce methane emissions, reduction of emissions by 95% through capture and control systems and zero-emission requirements for certain devices.

The rule also establishes a “super emitter” response program that would allow third parties to make reports to EPA of large methane emission events, triggering certain investigation and repair requirements.

Fines and penalties for violation of these rules can be substantial.

However, the final rule and its requirements are currently subject to legal challenges but remain in effect.

Further, in September 2021, the Biden Administration publicly announced the Global Methane Pledge, an international pact that aims to reduce global methane emissions by at least 30% below 2020 levels by 2030.

However, in January 2025, President Trump issued executive orders directing (i) the heads of all federal agencies to identify and begin the processes to suspend, revise, or rescind all agency actions that are unduly burdensome on the identification, development, or use of domestic energy resources

and (ii) the immediate notice to the United Nations of the United States’ withdrawal from the Paris Agreement and all other agreements made under the United Nations Framework Convention on Climate Change, including the Global Methane Pledge.

Consequently, future implementation and enforcement of the final methane rule remains uncertain at this time.

To the extent that future legislative or regulatory impose more restrictive requirements pertaining to permitting, GHG emissions, financial assurance and bonding for decommissioning liabilities, or carbon taxes, such actions could adversely affect our financial condition and results of operations by restricting the lands available for development and/or access to permits required for such development, or by imposing additional and costly environmental, health and safety requirements.

While the Supreme Court’s decision in Loper Bright Enterprises v.

Raimondo to overrule Chevron U.S.A.

Natural Resources Defense Council, Inc.

and end the concept of general deference to regulatory agency interpretations of laws introduces new complexity for federal agencies and administration of climate change policy and regulatory programs, many of these initiatives are expected to continue.

Consequently, legislation and regulatory programs to address climate change or reduce emissions of GHGs could have a material adverse effect on our business, financial condition or results of operations.

Our ability to use net operating loss carryforwards to offset future taxable income may be subject to certain limitations.

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The passage of any legislation as a result of these proposals or any similar changes in U.S.

federal income tax laws could

eliminate or postpone certain tax deductions that currently are available with respect to oil and gas development or increase costs, and any such changes could have an adverse effect on our financial position, results of operations and cash flows.

federal income tax laws could eliminate or postpone certain tax deductions that currently are available with respect to oil and gas development or increase costs, and any such changes could have an adverse effect on our financial position, results of operations and cash flows.

The enactment of new or increased severance taxes and impact fees on natural gas production could negatively impact our assets in the Marcellus Shale formation.

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In addition, we may be subject to audits of our income, sales and other transaction taxes by U.S.

federal, state and local taxing authorities.

state and local taxing authorities.

Outcomes from these audits could have an adverse effect on our financial condition and results of operations.

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The Company is not subject to CAMT in 2023 but once we reach the applicable financial statement income thresholds, which we expect to occur no earlier than 2025, the CAMT rules could increase tax compliance complexity and uncertainty and result in additional administrative costs and income tax liabilities.

A new 1% U.S.

federal excise tax could be imposed on us in connection with repurchases of our shares by us.

We are subject to a 1% U.S.

federal excise tax in connection with repurchases of our shares by us.

On August 16, 2022, the IRA was signed into federal law.

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To provide taxpayers with interim guidance, the Notice describes certain rules upon which taxpayers are generally entitled to rely until publication of the proposed regulations.

Whether and to what extent we could be subject to the excise tax in connection with repurchases of our shares will depend on a number of factors, including (i) the fair market value of the repurchase, (ii) the nature and amount of any equity issuances within the same taxable year of the repurchase, and (iii) the content of any future regulations and other guidance issued from the Treasury.

The excise tax would cause a reduction in our cash available on hand, which could have a negative impact on our business and operations.

Whether and to what extent we are subject to the excise tax in connection with repurchases of our shares depends on a number of factors, including (i) the fair market value of the repurchase, (ii) the nature and amount of any equity issuances within the same taxable year of the repurchase, and (iii) the content of any future regulations and other guidance issued from the Treasury.

Any excise tax will cause a reduction in our cash available on hand, which could have a negative impact on our business and operations.

Our business involves the selling and shipping by rail of crude oil, which involves risks of derailment, accidents and liabilities associated with cleanup and damages, as well as potential regulatory changes that may adversely impact our business, financial condition or results of operations.

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The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) contains measures aimed at increasing the transparency and stability of the over-the-counter derivatives market and preventing excessive speculation.

On January 14, 2021, the CFTC published a final rule imposing position limits for certain futures and options contracts in various commodities (including oil and gas) and for swaps that are their economic equivalents, though certain types of derivative transactions are exempt from these limits, provided that such derivative transactions satisfy the CFTC’s requirements for certain enumerated “bona fide” derivative transactions.

The CFTC has also adopted final rules regarding aggregation of positions, under which a party that controls the trading of, or owns ten percent or more of the equity interests in, another party will have to aggregate the positions of the controlled or owned party with its own positions for purposes of determining compliance with position limits unless an exemption applies.

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Part of the regulatory environment in which we do business includes, in some cases, legal requirements for obtaining environmental assessments, environmental impact studies and/or plans of development before commencing drilling and production activities.

In addition, our activities are subject to the regulations regarding conservation practices and protection of correlative rights.

In addition, our activities are subject to the regulations regarding conservation practices and protection of

correlative rights.

These regulations affect our business and limit the quantity of natural gas we may produce and sell.

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Any federal or state legislative or regulatory changes with respect to hydraulic fracturing could cause us to incur substantial compliance costs or result in operational delays, and the consequences of any failure to comply by us or our third-party operating partners could have a material adverse effect on our financial condition and results of operations.

Hydraulic fracturing typically is regulated by state gas and oil commissions or similar state agencies, but several federal agencies have conducted studies or asserted regulatory authority over certain aspects of the process.

For example, in late 2016, the EPA released its final report on the potential impacts of hydraulic fracturing on drinking water resources, concluding that “water cycle” activities associated with hydraulic fracturing may impact drinking water resources under some circumstances.

The EPA’s report did identify future efforts that could be taken to further understand the potential impacts of hydraulic fracturing to drinking water resources, including groundwater and surface water monitoring in areas with hydraulically fractured natural gas and oil producing wells.

To date, the EPA has taken no further action in response to the 2016 report.

Additionally, the EPA has asserted regulatory authority pursuant to the Safe Drinking Water Act UIC program over hydraulic fracturing activities involving the use of diesel and issued guidance covering such activities as well as published an Advance Notice of Proposed Rulemaking regarding Toxic Substances Control Act reporting of the chemical substances and mixtures used in hydraulic fracturing.

In addition, in response to concerns relating to recent seismic events near underground disposal wells used for the disposal by injection of flowback and produced water or certain other oilfield fluids resulting from oil and natural gas activities (so-called “induced seismicity”), regulators in some states have imposed, or are considering imposing, additional requirements in the permitting of produced water disposal wells or otherwise to assess any relationship between seismicity and the use of such wells.

States may, from time to time, develop and implement plans directing certain wells where seismic incidents have occurred to restrict or suspend disposal well operations.

These developments could result in additional regulation and restrictions on the use of injection wells by our operators to dispose of flowback and produced water and certain other oilfield fluids.

These developments could result in additional regulation and restrictions on the use of injection wells by our operators to dispose of flowback and produced water and certain other oilfield

Increased regulation and attention given to induced seismicity also could lead to greater opposition to, and litigation concerning, oil and natural gas activities utilizing injection wells for waste disposal.

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The adoption of climate change legislation or regulations restricting or relating to emissions of GHGs could result in increased operating costs and reduced demand for the oil and natural gas we produce.

Restrictions on GHG emissions that may be imposed, or the adoption and implementation of regulations that require reporting of GHG emissions or other climate-related information or otherwise seek to limit GHG emissions (including carbon pricing schemes) from our operating partners, could adversely affect our business and the oil and gas industry, including by restricting our ability to execute on our business strategy, requiring additional capital, compliance, operating costs, increasing the cost of oil and natural gas products and services, reducing demand for oil and natural gas products and services, reducing our access to financial markets, or creating greater potential for governmental investigations or litigation.

Restrictions on GHG emissions that may be imposed, or the adoption and implementation of regulations by governmental entities in the U.S.

or other countries that require reporting of GHG emissions or other climate-related information or otherwise seek to limit GHG emissions (including carbon pricing schemes) from our operating partners, could adversely affect our business and the oil and gas industry, including by restricting our ability to execute on our business strategy, requiring additional capital, compliance, operating costs, increasing the cost of oil and natural gas products and services, reducing demand for oil and natural gas products and services, reducing our access to financial markets, or creating greater potential for governmental investigations or litigation.

For example, adoption of legislation or regulatory programs to reduce GHG emissions could require us to incur increased operating costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances or to comply with new regulatory requirements.

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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 GHG emitting energy sources, our products would become more desirable in the market with more stringent limitations on GHG 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 GHG emissions.

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

To the extent that our products are competing with lower GHG emitting energy sources such as solar and wind, our products may become less 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.

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Consequently, legislation and regulatory programs to reduce GHG emissions or that address climate change could have an adverse effect on our business, financial condition and results of operations.

Additionally, the SEC issued a proposed rule in March 2022 that would mandate extensive disclosure of climate-related data, risks and opportunities, including financial impacts, physical and transition risks, related governance and strategy, and GHG emissions, for certain public companies.

In part because the proposed rule’s ultimate date of effectiveness and the final form and substance of these requirements is not yet known, we cannot predict the costs of implementation or any potential adverse impacts resulting from the rulemaking.

To the extent this rulemaking is finalized as proposed, we could incur increased costs relating to the assessment and disclosure of climate-related risks.

Additionally, the SEC finalized a rule in March 2024 intended to enhance and standardize climate-related disclosures, that requires public companies to report on material climate-related risks that affect the company’s strategy, business model and outlook, and, for some larger companies, GHG emissions, if material.

The Climate Disclosure Rule was voluntarily stayed by the SEC in April 2024 pending judicial review of petitions challenging the rule, and additional legal chanllenges are expected going forward.

Accordingly, we cannot predict whether the Climate Disclosure Rule will be implemented as finalized, nor the costs of implementation or any potential resulting adverse impacts.

Compliance with any enhanced climate disclosure obligations, including the Climate Disclosure Rule to the extent it becomes effective as finalized, may result in increased costs relating to the assessment and disclosure of climate-related risks.

We may also face increased litigation risks related to disclosures made pursuant to such obligatoins.

In addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders restricting or seeking more stringent conditions with respect to their investments in certain carbon-intensive sectors.

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We have relied on an exception from the definition of “investment company” under the ICA in order to avoid being subject to the ICA.

To the extent the nature of our business or assets change in the future and we do not qualify for another

exemption or exception under the ICA at such time, we may be required to register as an “investment company” and become subject to regulations thereunder, which would limit our business operations and require us to spend significant resources in order to comply with such regulations.

To the extent the nature of our business or assets change in the future and we do not qualify for another exemption or exception under the ICA at such time, we may be required to register as an “investment company” and become subject to regulations thereunder, which would limit our business operations and require us to spend significant resources in order to comply with such regulations.

To the extent a regulatory agency determines we do not qualify for exception to the ICA on which we currently rely, we may be deemed to have been in violation of the ICA, the consequences of which would be expected to be significant.

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We may also issue securities, including our preferred stock, that are convertible into, exchangeable for, or that represent the right to receive, our common stock.

The occurrence of any of these events or any issuance of common stock upon conversion of our Convertible Notes or upon exercise of our outstanding warrants may dilute your ownership interest in our company, reduce our earnings per share and have an adverse impact on the price of our common stock.

The occurrence of any of these events or any issuance of common stock upon conversion of our Convertible Notes may dilute your ownership interest in our company, reduce our earnings per share and have an adverse impact on the price of our common stock.

Investors in our common stock may be required to look solely to stock appreciation for a return on their investment in us.

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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-K

Item 1A. Risk Factors