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Item 1A. Risk Factors

2023-03-09 compared with 2022-03-16 · 144 added, 124 removed, 234 unchanged (53% of the section changed)

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Risks Relating to Our Business, Operations and Strategy

Part of our strategy involves using some of the latest available horizontal drilling and completion techniques, which involve additional risks and uncertainties in their application as compared to conventional drilling.

Our operations utilize some of the latest horizontal drilling and completion techniques as developed by us, other oil and natural gas exploration and production companies and our service providers.

Our operations use some of the latest horizontal drilling and completion techniques as developed by us, other oil and natural gas exploration and production companies and our service providers.

The additional risks that we face while drilling horizontally include, but are not limited to, the following:

● drilling wells that are significantly longer and/or deeper than conventional wells;

● landing our wellbore in the desired drilling zone;

● staying in the desired drilling zone while drilling horizontally through the formation;

● running our casing the entire length of the wellbore;

● being able to run tools and other equipment consistently through the horizontal wellbore.

• drilling wells that are significantly longer and/or deeper than vertical wells;

• landing our wellbores in the desired drilling zones;

• staying in the desired drilling zones while drilling horizontally through the formations;

• running our casing the entire length of wellbores;

• being able to run tools and other equipment consistently through horizontal wellbores.

Risks that we face while completing our wells include, but are not limited to, the following:

• the ability to fracture or stimulate the planned number of stages in a horizontal or lateral wellbore;

● the ability to run tools the entire length of the wellbore during completion operations;

• the ability to run tools and other equipment the entire length of the wellbore during completion operations;

• the ability to successfully clean out the wellbore after completion of the final fracture stimulation stage.

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• estimates of future development costs;

● estimates of the costs and timing of plugging and abandonment;

• estimates of the costs and timing of plugging and abandonment of wells;

• potential environmental and other liabilities.

Our assessment will not reveal all existing or potential problems, nor will it permit us to become familiar enough with the properties to assess fully their capabilities and deficiencies.

We plan to undertake further development of our properties through the use of cash flow from existing production.

Our assessments will not reveal all existing or potential problems, nor will it permit us to become familiar enough with the properties to assess fully their capabilities and deficiencies.

We plan to undertake further development of our properties generally through the use of cash flow from existing production.

Therefore, a material deviation in our assessments of these factors could result in less cash flow being available for such purposes than we presently anticipate, which could either delay future development operations (and delay the anticipated conversion of reserves into cash) or cause us to seek alternative sources to finance development activities.

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therefore, the risk associated with our success is greater than would be the case if the majority of our properties were categorized as proved developed.

Because a substantial percentage of our proved properties are proved undeveloped (44)%, we will require significant additional capital to develop such properties before they may become productive.

Because a substantial percentage of our proved properties are proved undeveloped (approximately 35%), we will require significant additional capital to develop such properties before they may become productive.

Further, because of the inherent uncertainties associated with drilling for oil and gas, some of these properties may never be developed to the extent that they result in positive cash flow.

Even if we are successful in our development efforts, it could take several years for a significant portion of our undeveloped properties to be converted to positive cash flow.

While our current business plan is to fund the development costs with cash flow from our other producing properties, if such cash flow is not sufficient, we may be forced to seek alternative sources for cash, through the issuance of additional equity or debt securities, increased borrowings or other means.

While our current business plan is to generally fund the development costs with cash flow from our other producing properties, if such cash flow is not sufficient, we may be forced to seek alternative sources for cash, through the issuance of additional equity or debt securities, increased borrowings or other means.

Hedging transactions may limit our potential gains .

To reduce our exposure to commodity price uncertainty and increase cash flow predictability relating to the marketing of our crude oil and natural gas, we have entered into crude oil and natural gas price hedging arrangements with respect to a portion of our expected production in order to economically hedge a portion of our forecasted oil and natural gas production.

Additionally, our credit facility requires us to hedge a portion of our production.

In addition, these derivative contracts may limit the benefit we would otherwise receive from increases in the prices for oil and natural gas.

As of December 31, 2021, the Company has in place derivative contracts covering 3,129 barrels of oil per day for the calendar year 2022.

All of the 3,129 barrels of oil in 2022 are in the form of swaps of WTI Crude Oil prices.

The oil swap prices for 2022 range from $44.22 to $50.05, with a weighted average swap price of $46.60.

To reduce our exposure to commodity price uncertainty and increase cash flow predictability relating to the marketing of our crude oil and natural gas, we have entered into crude oil and natural gas price hedging arrangements with respect to a significant portion of our expected production in order to economically hedge a portion of our forecasted oil and natural gas production.

Additionally, our credit facility requires us to hedge a significant portion of our production.

In addition, these derivative contracts typically limit the benefit we would otherwise receive from increases in the prices for

oil and natural gas.

As part of our hedging strategy, we have in place derivative contracts covering percentages of our future estimated production in accordance with our Credit Agreement.

Hedging transactions may expose us to risk of financial loss.

While intended to reduce the effects of volatile crude oil and natural gas prices, such derivative contracts expose us to risk of financial loss in some circumstances, including when there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received, or when the counterparty to the derivative contract is financially constrained and defaults on its contractual obligations.

While intended to reduce the effects of volatile oil and natural gas prices, derivative contracts designed as hedges expose us to risk of financial loss in some circumstances, including when there is a change in the expected differential between the underlying price in the hedging agreement and actual prices received, or when the counterparty to the derivative contract is financially constrained and defaults on its contractual obligations.

It is also possible that sales volumes fall below the hedged volumes leaving a portion of our position uncovered.

The transition from LIBOR to alternative reference “benchmark” interest rates is uncertain and could adversely affect the value of or the interest rates on our investments and obligations indexed to LIBOR, as well as the revenue and expenses associated with those assets and obligations.

LIBOR is an interest rate benchmark that has been widely used in financial contracts around the world for decades.

In July 2017, the United Kingdom’s Financial Conduct Authority (“FCA”), which regulates the London Interbank Offered Rate (“LIBOR”) announced that it intended to phase out LIBOR by the end of 2021.

Following discussions with the FCA and other official sector bodies, the Intercontinental Exchange Benchmark Administration announced in March 2021 the publication of certain USD LIBOR settings will continue through June 30, 2023.

The Alternative Reference Rates Committee of the Federal Reserve Board (ARRC), a group of market participants convened to help ensure a successful transition away from LIBOR, has recommended the Secured Overnight Financing Rate (SOFR) as its preferred alternative reference rate and has proposed a transition plan and timeline designed to encourage the adoption of SOFR from LIBOR.

We are in the process of analyzing and identifying our population of securities, financial instruments and contracts that utilize LIBOR (collectively “LIBOR Instruments”) to determine if we have any material exposure to the transition from LIBOR.

To the extent we hold LIBOR Instruments, the terms of these instruments may have fallback provisions that provide for an alternative reference rate when LIBOR ceases to exist.

For securities without adequate fallback provisions already in place, legislation governing securities under New York law has been enacted to provide a safe harbor for transition to the recommended alternative reference rate.

In addition, federal legislation has been introduced to provide the same protection for securities not governed by New York law.

Notwithstanding, in preparation for the phase out of LIBOR, we may need to renegotiate our LIBOR Instruments that utilize

However, these efforts may not be successful in mitigating the legal and financial risk from changing the reference rate in our LIBOR Instruments.

Furthermore, the discontinuation of LIBOR may adversely impact our ability to manage and hedge exposures to fluctuations in interest rates using derivative instruments.

As a result, the transition of our LIBOR Instruments to alternative reference rates may result in adverse changes to the net investment income, fair market value and return on those investments.

We intend to continue to evaluate and monitor the risks associated with the LIBOR transition which include identifying and monitoring our exposure to LIBOR, monitoring the market adoption of alternative reference rates and ensuring operational processes are updated to accommodate alternative rates.

Due to uncertainty surrounding alternative rates, we are unable to predict the overall impact of this change at this time.

We may be adversely affected by natural disasters, pandemics (including the recent coronavirus outbreak) and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations.

Natural disasters, adverse weather conditions, floods, pandemics (including the recent coronavirus outbreak), acts of terrorism and other catastrophic or geo-political events may cause damage or disruption to our operations and the global economy, or could result in market disruption, any of which could have an adverse effect on our business, operating results, and financial condition.

The ongoing coronavirus outbreak has impacted various businesses throughout the world, including an impact on the global demand for oil and natural gas, travel restrictions and the extended shutdown of certain businesses in impacted geographic regions.

If the coronavirus outbreak situation should worsen, it could have a material adverse impact on our business operations, operating results and financial condition.

The ongoing COVID-19 pandemic, and the relations of and agreements between OPEC+ producers, could disrupt our operations and adversely impact our business and financial results.

The COVID-19 pandemic has led to worldwide shutdowns, reductions in commercial and interpersonal activity, and changes in consumer behavior.

In attempting to control the spread of COVID-19, governments around the world-imposed regulations such as shelter-in-place orders, quarantines, executive orders and similar restrictions.

As a result, the global economy has been marked by significant slowdown and uncertainty, which has in the past led to a precipitous decline in oil prices in response to decreased demand.

We currently are unable to predict the duration or severity of the spread of COVID-19 or the adverse effects thereof.

We may be adversely affected by natural disasters, pandemics and other catastrophic events, and by man-made problems such as terrorism, that could disrupt our business operations.

Natural disasters, adverse weather conditions (particularly abnormally cold weather and thunderstorms), floods, pandemics, acts of terrorism and other catastrophic or geo-political events may cause damage or disruption to our operations and the global economy, or could result in market disruptions, any of which could have an adverse effect on our business, operating results, and financial condition.

The coronavirus outbreak has impacted various businesses throughout the world, including an impact on the global demand for oil and natural gas, travel restrictions and the extended shutdown of certain businesses in impacted geographic regions.

If other pandemics occur, they could have a material adverse impact on our business operations, operating results and financial condition.

The loss of key members of management or failure to attract and retain other highly qualified personnel could, in the future, affect the Company’s business results.

The Company’s success depends on its ability to attract, retain and motivate a highly-skilled and diverse management team and workforce.

During the latter half of 2020, the Company experienced significant leadership changes, including appointing a new Chief Executive Officer, Executive Vice President of Operations, a new Executive Vice President of Engineering and Corporate Strategy, a new Vice President of Compliance, a new Executive Vice President of Land, Legal, Human Resources and Marketing along with the appointment of new directors to the Board of Directors.

In the first quarter of 2021, the Company appointed a new Chief Financial Officer.

Executive leadership transitions can be difficult to manage and could cause disruption to our business.

Failure to ensure that the Company has the depth and breadth of management and personnel with the necessary skill set and experience could impede its ability to achieve growth objectives and execute its operational strategy.

As the Company continues to expand, it will need to promote or hire additional staff, and, as a result of increased compensation and benefit mandates, it may be difficult to attract or retain such individuals without incurring significant additional costs.

The Company’s success depends on its ability to attract, retain and motivate a highly-skilled management team and workforce.

Failure to ensure that the Company has the depth and breadth of management and personnel with the necessary skill sets and experience could impede its ability to achieve growth objectives and execute its operational strategy.

As the Company continues to expand, it will need to promote or hire additional staff, and, as a result of increased compensation and benefit packages in our industry, as well as inflation pressures, it may be difficult to attract or retain such individuals without incurring significant additional costs.

Risks Relating to the Oil and Natural Gas Industry

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This ruling has cause federal agencies to delay issuing new oil and gas leases and permits on federal lands and waters.

While we do not have a significant federal lands acreage position (240 net acres as of December 31, 2021), these actions could have a material adverse effect on our industry and the Company.

While we do not have a significant federal lands acreage position (240 net acres as of December 31, 2022), these actions could have a material adverse effect on our industry, the public perception of oil and gas companies such as ours and the willingness of the public and financial institutions to provide capital for our industry.

Our decisions to purchase, explore, develop or otherwise exploit prospects or properties will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, the results of which are often inconclusive or subject to varying interpretations.

Please read “—Reserve estimates depend on many assumptions that may turn out to be inaccurate.

.” (below) for a discussion of the uncertainty involved in these processes.

Please read “—Reserve estimates depend on many assumptions that may turn out to be inaccurate.” (below) for a discussion of the uncertainty involved in these processes.

Our cost of drilling, completing and operating wells is often uncertain before drilling commences.

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and limitations in the market for oil and natural gas.

Decreases in oil and natural gas prices may require us to take write-downs of the carrying values of our oil and natural gas properties which could negatively impact the trading value of our common stock.

Accounting rules require that we review periodically the carrying value of our oil and natural gas properties for possible impairment.

Based on specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write-down the carrying value of our oil and natural gas properties.

Decreases in oil and natural gas prices may require us to take write-downs of the financial carrying values of our oil and natural gas properties which could negatively impact the trading value of our common stock.

Accounting rules require that we review periodically the financial carrying value of our oil and natural gas properties for possible impairment.

Based on specific market factors and circumstances at the time of prospective impairment reviews, and the continuing evaluation of development plans, production data, economics and other factors, we may be required to write-down the financial carrying value of our oil and natural gas properties.

A write-down would likely constitute a non-cash charge to earnings.

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Under the full cost method, the net book value of properties, less related deferred income taxes, may not exceed a calculated “ceiling.” The ceiling is the estimated after tax future net revenues from proved oil and natural gas properties, discounted at 10% per year.

Discounted future net revenues are estimated using oil and natural gas spot prices based on the average price during the preceding 12-month period determined as an un-weighted, arithmetic average of the first-day-of-the-month price for each month within such period, except for changes which are fixed and determinable by existing contracts.

month within such period, except for changes which are fixed and determinable by existing contracts.

The net book value is compared to the ceiling on a quarterly basis.

The excess, if any, of the net book value above the ceiling is required to be written off as an impairment expense.

During the years ended December 31, 2022, and 2021, we did not incur any write-downs.

During the year ended December 31, 2020, we recorded a non-cash write-down of $277.5 million.

During the years ended December 31, 2021, and 2019, we did not incur a write-down.

Under SEC full cost accounting rules, any write-off recorded may not be reversed even if higher oil and natural gas prices increase the ceiling applicable to future periods.

Future price decreases could result in reductions in the carrying value of such assets and an equivalent charge to earnings.

Future price decreases could result in reductions in the financial carrying value of such assets and an equivalent charge to earnings.

It is difficult to predict with reasonable certainty the amount of any future impairments given the many factors impacting the ceiling test calculation including, but not limited to, future pricing, operating costs, upward or downward reserve revisions, reserve adds, and tax attributes.

Decreases in oil and natural gas prices may affect our borrowing base, potentially requiring earlier than anticipated debt repayment, which could negatively impact the trading value of our common stock.

Decreases in oil and natural gas prices could also result in reductions in the borrowing base of our Credit Facility, thus requiring earlier than anticipated repayment of debt or possible default under our Credit Facility in the event we are unable to make payments under the Credit Facility on a timely basis.

Decreases in oil and natural gas prices may affect our bank borrowing base, potentially requiring earlier than anticipated debt repayment, which could negatively impact our financial position, results of operations and the trading value of our common stock.

Decreases in oil and natural gas prices could result in reductions in the borrowing base under our Credit Facility, thus requiring earlier than anticipated repayment of debt or trigger a possible default under our Credit Facility in the event we are unable to make payments or repayments under the Credit Facility on a timely basis.

Reserve estimates depend on many assumptions that may turn out to be inaccurate.

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You should not assume that the present value of future net revenues from our reported proved reserves is the current market value of our estimated oil and natural gas reserves.

In accordance with SEC requirements, we generally base the estimated discounted future net cash flows from our proved reserves on prices and costs on the date of the estimate.

In accordance with SEC requirements, we generally base the estimated discounted future net cash flows from our proved reserves on prices and costs calculated on the date of the estimate.

Actual future prices and costs may differ materially from those used in the present value estimate.

If future values decline or costs increase it could negatively impact our ability to finance operations, and individual properties could cease being commercially viable, affecting our decision to continue operations on producing properties or to attempt to develop properties.

If future values decline or costs increase it could negatively impact our ability to finance operations, and individual properties could cease being commercially viable, affecting our decision to continue operations on certain producing properties or to attempt to develop properties.

All of these factors would have a negative impact on earnings and net income, and most likely the trading price of our common stock.

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Losses and liabilities arising from uninsured and underinsured events could materially and adversely affect our business, financial condition and results of operations.

Our oil and natural gas exploration and production activities are subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of:

Our oil and natural gas

exploration and production activities are subject to all of the operating risks associated with drilling for and producing oil and natural gas, including the possibility of:

• environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well fluids, toxic gas or other pollution into the environment, including groundwater and shoreline contamination;

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Unless we replace our oil and natural gas reserves, our reserves and production will decline as reserves are produced.

Unless we conduct successful development, exploitation and exploration activities or acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced.

Unless we conduct successful exploration and development, activities or acquire properties containing proved reserves, our proved reserves will decline as those reserves are produced.

Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors.

Our future oil and natural gas reserves and production, and, therefore, our cash flow and income, are highly dependent on our success in efficiently developing and exploiting our current reserves and economically finding or acquiring additional recoverable reserves.

If we are unable to develop, exploit, find or acquire additional reserves to replace our current and future production, our cash flow and income will decline as production declines, until our existing properties would be incapable of sustaining commercial production.

Our future oil and natural gas reserves and production, and, therefore, our cash flow and income, are highly dependent on our success in efficiently developing and producing our current reserves and economically finding or acquiring additional recoverable reserves.

If we are unable to develop, find or acquire additional reserves to replace our current and future production, our cash flow and income will decline as production declines, until our existing properties would be incapable of sustaining commercial production.

Competition is intense in the oil and natural gas industry.

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The availability of a ready market for our oil and natural gas production depends on a number of factors, including the demand for and supply of oil and natural gas and the proximity of reserves to pipelines and terminal facilities.

Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines

and processing facilities owned and operated by third parties.

Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines and processing facilities owned and operated by third parties.

Our failure to obtain such services on acceptable terms could materially harm our business.

Currently, the majority of our production is sold to marketers and other purchasers that have access to nearby pipeline facilities.

However, as we further develop our properties, we may find production in areas with limited or no access to pipelines, thereby necessitating delivery by other means, such as trucking or requiring compression facilities.

However, as we further develop our properties, we may find production in areas with limited or no

access to pipelines, thereby necessitating delivery by other means, such as trucking or requiring compression facilities.

Such restrictions on our ability to sell our oil or natural gas could have several adverse effects, including higher transportation costs, fewer potential purchasers (thereby potentially resulting in a lower selling price) or, in the event we were unable to market and sustain production from a particular lease for an extended time, possibly causing us to lose a lease due to lack of production.

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As a result, multi-well pad drilling can cause delays in the scheduled commencement of production or interruptions in ongoing production.

Extreme weather conditions, which could become more frequent or severe due to climate change, could adversely affect our ability to conduct drilling, completion and production activities in the areas where we operate.

Our exploitation and development activities and equipment could be adversely affected by extreme weather conditions, such as hurricanes or freezing temperatures, which may cause a loss of production from temporary cessation of activity from regional power outages or lost or damaged facilities and equipment.

Extreme weather conditions, which could become more frequent or severe due to multiple factors, could adversely affect our ability to conduct drilling, completion and production activities in the areas where we operate.

Our exploration and development activities and equipment could be adversely affected by extreme weather conditions, such as abnormally low temperatures, which can cause a loss of production from temporary cessation of activity from regional power outages or lost or damaged facilities and equipment.

Such extreme weather conditions could also impact access to our drilling and production facilities for routine operations, maintenance and repairs and the availability of and our access to, necessary third-party services, such as gathering, processing, compression and transportation services.

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Permanent restrictions imposed to protect endangered species could prohibit drilling in certain areas or require the implementation of expensive mitigation measures.

The designation of previously unprotected species in areas where we operate as threatened or endangered could cause us to incur increased

costs arising from species protection measures or could result in limitations on our exploration, development and production activities that could have an adverse impact on our ability to develop and produce our reserves.

The designation of previously unprotected species in areas where we operate as threatened or endangered could cause us to incur increased costs arising from species protection measures or could result in limitations on our exploration, development and production activities that could have an adverse impact on our ability to develop and produce our reserves.

Our operations are substantially dependent on the availability, use and disposal of water.

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Wastewaters from our operations typically are disposed of via underground injection.

Some studies have linked earthquakes in certain areas to underground injection, which is leading to greater public scrutiny of disposal wells.

Some studies have linked earthquakes in certain areas to underground injection, which has led to greater public scrutiny of disposal wells.

Any new environmental initiatives or regulations that restrict injection of fluids, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and gas, or that limit the withdrawal, storage or use of surface water or ground water necessary for hydraulic fracturing of our wells, could increase our operating costs and cause delays, interruptions or cessation of our operations, the extent of which cannot be predicted, and all of which would have an adverse effect on our business, financial condition, results of operations and cash flows.

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It is not possible to predict how or when regulations affecting our operations might change.

In January 2021, President Biden signed an Executive Order directing the Department of Interior (the “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, although litigation over the leasing pause remains ongoing.

In February 2022, another judge ruled that the Biden Administration’s efforts to raise the cost of climate change in its environmental assessments, would increase energy costs and damage state revenues from energy production.

This ruling has caused federal agencies to delay issuing new oil and gas leases and permits on federal lands and waters.

Similarly, at the state level, New Mexico’s consideration of legislation to prohibit certain uses of freshwater in fracking operations, implement new disclosure requirements, and increase penalties may affect the cost and feasibility of our business.

There is ongoing controversy regarding the leasing of federal lands.

For example, at the state level, New Mexico’s consideration of legislation to prohibit certain uses of freshwater in fracking operations, implement new disclosure requirements, and increase penalties may affect the cost and feasibility of our business.

We may be required to make large expenditures to comply with governmental regulations.

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Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly waste handling, storage, transport, disposal or cleanup requirements could require us to make significant expenditures to maintain compliance and may otherwise have a material adverse effect on our results of operations, competitive position or financial condition as well as the industry in general.

Under these environmental laws and regulations, we could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether we were responsible for the release or if our operations were standard in the industry at the time they were

The amount of additional future costs is not fully determinable due to such factors as the unknown magnitude of possible contamination, the unknown timing and extent of the corrective actions or compliance efforts that may be required, the determination of the Company’s liability in proportion to other responsible parties, and the extent to which such costs are recoverable from third parties.

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In the United States, no comprehensive climate change legislation has been implemented at the federal level.

However, following the U.S.

Supreme Court finding that GHG emissions constitute a pollutant under the CAA, the EPA has adopted regulations that, among other things, establish construction and operating permit reviews for 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 United States, and together with the DOT, implement GHG emissions limits on vehicles manufactured for operation in the United States.

The federal regulation of methane from oil and gas facilities has been subject to uncertainty in recent years.

In September 2020, the Trump Administration revised prior regulations to rescind certain methane standards and remove the transmission and storage segments from the source category for certain regulations.

However, shortly after taking office, President Biden issued an executive order directing all federal agencies to review and take action to address any federal regulations, orders, guidance documents, policies and similar agency actions promulgated during the prior administration that may be inconsistent with the current administration’s policies.

In response, the U.S.

Congress has approved, and President Biden has signed into law, a resolution under the Congressional Review Act to repeal the September 2020 revisions to the methane standards, effectively reinstating the prior standards.

In November 2021, as required by President Biden’s executive order, the EPA proposed new regulations to establish comprehensive standards of performance and emission guidelines for methane and volatile organic compound emissions from existing operations in the oil and gas sector, including the exploration and production, transmission, processing, and storage segments.

The EPA is currently seeking public comments on its proposal, which the EPA hopes to finalize by the end of 2022.

Once finalized, the regulations will also need to be incorporated in state implementation plans and approved by EPA.

However, all of these regulatory actions will likely be subject to legal challenges.

However, President Biden has highlighted addressing climate change as a priority of his administration, which includes certain potential initiatives for climate change legislation to be proposed and passed into law.

Moreover, federal regulators, state and local governments, and private parties have taken (or announced that they plan to take) actions that have or may have a significant influence on our operations.

For example, in response to findings that emissions of carbon dioxide, methane and other GHGs endanger public health and the environment, the EPA has adopted regulations under existing provisions of the CAA that, among other things, establish PSD construction and Title V operating permit reviews for certain large stationary sources that are already potential major sources of certain principal, or criteria, pollutant emissions.

Facilities required to obtain PSD permits for their GHG emissions also will be required to meet “best available control technology” standards that will be established by the states or, in some cases, by the EPA for those emissions.

These EPA rules could adversely affect our operations and restrict or delay our ability to obtain air permits for new or modified sources.

In addition, the EPA has adopted rules requiring the monitoring and reporting of GHG emissions from specified onshore and offshore oil and gas production sources in the United States on an annual basis, which include certain of our operations.

The federal regulation of methane from oil and gas facilities has been subject to substantial uncertainty in recent years.

In June 2016, the EPA finalized NSPS, known as Subpart OOOOa, that establish emission standards for methane and VOCs from new and modified oil and natural gas production and natural gas processing and transmission facilities.

In September 2020, the EPA finalized amendments to the 2016 standards that removed the transmission and storage segment from the oil and natural gas source category and rescinded the methane-specific requirements for production and processing facilities.

However, President Biden signed an executive order on his first day in office calling for the suspension, revision, or rescission of the September 2020 rule and the reinstatement or issuance of methane emission standards for new, modified and existing oil and gas facilities.

Subsequently, the U.S.

Congress approved, and President Biden has signed into law, a resolution under the Congressional Review Act to repeal the September 2020 revisions to the methane standards, effectively reinstating the prior standards.

In response to President Biden’s executive order, in November 2021, the EPA issued a proposed rule that, if finalized, would establish Quad Ob as new source and Quad Oc as first-time existing source standards of performance for methane and VOC emissions for the crude oil and natural gas source category.

Owners or operators of affected emission units or processes would have to comply with specific standards of performance that may include leak detecting using optical gas imaging and subsequent repair requirements, reduction of regulated emissions through capture and control systems, zero-emission requirements for certain equipment or processes and operations and maintenance requirements.

In November 2022, the EPA published a supplemental proposal, which, among other items, would impose expanded inspection, monitoring and emissions control requirement on oil and gas sites, as well as strengthen requirements related to emissions from equipment and routine flaring.

The proposal would also establish a “Super Emitter Response Program” that would require operator response to emissions events exceeding 200 pounds per hour, as detected by regulatory authorities or qualified third-parties.

The proposal is currently subject to public comment and is expected to be finalized in 2023.

Separately, certain provisions of the IRA 2022 address methane regulation by imposing the first federal fee on excess methane emissions.

As a result, we cannot predict the scope of any final methane regulatory requirements or the cost to comply with such requirements.

However, given the long-term trend toward increasing regulation, future federal GHG regulations of the oil and gas industry remain a significant possibility.

Governmental, scientific, and public concern over the threat of climate change arising from GHG emissions has resulted in increasing political risks in the United States, including climate change related pledges made by certain candidates elected to public office.

President Biden has issued several executive orders focused on addressing climate change, including items that may impact our costs to produce, or demand for, oil and gas.

Internationally, the United Nations-sponsored “Paris Agreement” requires member states to individually determine and submit non-binding emissions reduction targets every five years after 2020.

President Biden has recommitted the United States to the Paris Agreement and, in April 2021, announced a goal of reducing the United States’ emissions by 50-52% below 2005 levels by 2030.

In November 2021, the international community gathered again at COP26, during which multiple announcements were made, including a call for parties to eliminate certain oil and natural gas subsidies and pursue further action on non-CO2 GHGs.

These goals were reaffirmed at COP27 in November 2022.

Relatedly, the United States and European Union jointly announced the launch of the “Global Methane Pledge,” which aims to cut global methane pollution at least 30% by 2030 relative to 2020 levels, including “all feasible reductions” in the energy sector.

The impacts of these orders, pledges, agreements and any legislation or regulation promulgated to fulfill the United States’ commitments under the Paris Agreement, COP26 or other international conventions cannot be predicted at this time.

Concern over the threat of climate change has also resulted in increasing political risks in the United States, including climate-change related pledges made by President Biden and other public office representatives.

On January 27, 2021, President Biden signed an executive order calling for substantial action on climate change, including, among other things, the increased use of zero-emissions vehicles by the federal government, the elimination of subsidies provided to the

oil and natural gas industry and increased emphasis on climate-related risks across agencies and economic sectors.

Additionally, in November 2021, the Biden Administration released “The Long-Term Strategy of the United States:

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and reducing non-CO2 GHG emissions, such as methane and nitrous oxide.

The Biden Administration is also considering revisions to the leasing and permitting programs for oil and gas development on federal lands.

Litigation risks are also increasing, as a number of entities have sought to bring suit against oil and natural gas companies in state or federal court, alleging, among other things, that such companies created public nuisances by producing fuels that contributed to climate change.

Suits have also been brought against such companies under shareholder and consumer protection laws, alleging that companies have been aware of the adverse effects of climate change but failed to adequately disclose those impacts.

There are also increasing financial risks for fossil fuel producers as shareholders currently invested in fossil-fuel energy companies may elect in the future to shift some or all of their investments into other sectors.

Institutional lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies.

For example, at COP26, the Glasgow Financial Alliance for Net Zero (“GFANZ”) announced that commitments from over 450 firms across 45 countries had resulted in over $130 trillion in capital committed to net zero goals.

Increasingly, oil and natural gas companies are exposed to litigation risks associated with the threat of climate change.

A number of parties have brought lawsuits against oil and natural gas companies in state or federal court for alleged contributions to, or failures to disclose the impacts of, climate change.

We are not currently party to any such litigation, but could be named in future actions making similar claims of liability.

To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed without regard to our causation of or contribution to the asserted damage, or to other mitigating factors.

Additionally, in response to concerns related to climate change, companies in the oil and natural gas industry may be exposed to increasing financial risks.

Financial institutions, including investment advisors and certain sovereign wealth, pension and endowment funds, may elect in the future to shift some or all of their investments into non-oil and natural gas related sectors.

Institutional lenders who provide financing to fossil-fuel energy companies also have become more attentive to sustainable lending practices, and some of them may elect in the future not to provide funding for oil and natural gas companies.

Many of the largest U.S.

banks have made net zero commitments and have announced that they will be assessing financed emissions across their portfolios and taking steps quantify and reduce those emissions.

In addition, at COP26, the Glasgow Financial Alliance for Net Zero (“GFANZ”) announced that commitments from over 450 firms across 45 countries had resulted in over $130 trillion in capital committed to net zero goals.

The various sub-alliances of GFANZ generally require participants to set short-term, sector-specific targets to transition their financing, investing and/or underwriting activities to net zero emissions by 2050.

There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector.

President Biden signed an executive order calling for the development of a “climate finance plan” and, separately, the Federal Reserve has joined the Network for Greening the Financial System (“NGFS”), a consortium of financial regulators focused on addressing climate-related risks in the financial sector.

More recently, in November 2021, the Federal Reserve issued a statement in support of the efforts of the NGFS to

identify key issues and potential solutions for the climate-related challenges most relevant to central banks and supervisory authorities.

Limitation of investments in and financings for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities.

The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oil and natural gas or generate GHG emissions could result in increased costs of compliance or costs of consuming, and thereby reduce demand for, oil and natural gas.

Additionally, political, litigation and financial risks may result in us restricting or cancelling production activities, incurring liability for infrastructure damages as a result of climatic changes, or having an impaired ability to continue to operate in an economic manner.

These and other developments in the financial sector could lead to some lenders restricting access to capital for or divesting from certain industries or companies, including the oil and natural gas sector, or requiring that borrowers take additional steps to reduce their GHG emissions.

There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the oil and natural gas industry.

For example, the Federal Reserve has joined the Network for Greening the Financial System (“NGFS”), a consortium of financial regulators focused on addressing climate-related risks in the financial sector and, in November 2021, the Federal Reserve issued a statement in support of the efforts of the NGFS to identify key issues and potential solutions for the climate-related challenges most relevant to central banks and supervisory authorities.

A material reduction in the capital available to the oil and natural gas industry could make it more difficult to secure funding for exploration, development, production, transportation and processing activities, which could result in decreased demand for our products or otherwise adversely impact our financial performance.

The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives related to climate change or GHG emissions from oil and natural gas facilities could result in increased costs of compliance or costs of consumption, thereby reducing demand for, oil and natural gas.

Additionally, political, litigation, and financial risks may result in (i) restriction or cancellation of certain oil and natural gas production activities, (ii) incurrence of obligations for alleged damages resulting from climate change, or (iii) impairment of our ability to continue operating in an economic manner.

One or more of these developments could have a material adverse effect on our business, financial condition and results of operations.

As a final note, climate change could have an effect on the severity of weather (including hurricanes, droughts and floods), sea levels, the arability of farmland, water availability and quality, and meteorological patterns.

If such effects were to occur, our development and production operations have the potential to be adversely affected.

Potential adverse effects could include damages to our facilities from powerful winds, extreme temperatures, or rising waters in low lying areas, disruption of our production activities either because of climate related damages to our facilities or in our costs of operation potentially arising from such climatic effects, less efficient or non- routine operating practices necessitated by climate effects or increased costs for insurance coverage in the aftermath of such effects.

Significant physical effects of climate change could also have an indirect effect on our financing and operations by disrupting the transportation or process-related services provided by midstream companies, service companies or suppliers with whom we have a business relationship.

Additionally, changing meteorological conditions, particularly temperature, may result in changes to the amount, timing, or location of demand for energy or the products we produce.

We may not be able to recover through insurance some or any of the damages, losses or costs that may result from potential physical effects of climate change.

At this time, we have not developed a comprehensive plan to address the legal, economic, social or physical impacts of climate change on our operations.

Moreover, climate change may also result in various physical risks such as the increased frequency or intensity of extreme weather events or changes in meteorological and hydrological patterns, that could adversely impact our financial condition and operations, as well as those of our suppliers or customers.

Such physical risks may result in damage to our facilities, or otherwise adversely impact our operations, such as if we become subject to water use curtailments in response to drought, or demand for our products, such as to the extent warmer winters reduce the demand for energy for heating purposes.

Such physical risks may also impact the infrastructure on which we rely to produce or transport our products.

One of more of these developments could have a material adverse effect on our business, financial condition and operations.

In addition, while our consideration of changing weather conditions and inclusion of safety factors in design is intended to reduce the uncertainties that climate change and other events may potentially introduce, our ability to mitigate the adverse impacts of these events depends in part on the effectiveness of our facilities and our disaster preparedness and response and business continuity planning, which may not have considered or be prepared for every eventuality.

Changes in tax laws or the interpretation thereof or the imposition of new or increased taxes or fees may adversely

affect our operations and cash flows.

From time to time, federal and state level legislation has been proposed that would, if enacted into law, make significant changes to tax laws, including to certain key federal and state income tax provisions currently available to oil and natural gas exploration and development companies.

Such legislative changes have included, but have not been limited to, (i) the elimination of the percentage depletion allowance for oil and natural gas properties, (ii) the elimination of current deductions for intangible drilling and development costs, (iii) an extension of the amortization period for certain geological and geophysical expenditures, (iv) the elimination of certain other tax deductions and relief previously available to oil and natural gas companies and (v) an increase in the federal income tax rate applicable to corporations such as us.

It is unclear whether these or similar changes will be enacted and, if enacted, how soon any such changes could take effect.

Additionally, states in which we operate or own assets may impose new or increased taxes or fees on oil and natural gas extraction.

The passage of any legislation as a result of these proposals and other similar changes in federal income tax laws or the imposition of new or increased taxes or fees on oil and natural gas extraction could adversely affect our operations and cash flows.

In addition, on August 16, 2022, President Biden signed into law the IRA, which includes, among other things, a corporate alternative minimum tax (the "CAMT"), provides for an investment tax credit for qualified biomass property and introduces a one percent excise tax on corporate stock repurchases after December 31, 2022.

Under the CAMT, a 15 percent minimum tax will be imposed on certain adjusted financial statement income of "applicable corporations," which is effective beginning January 1, 2023.

The CAMT generally treats a corporation as an applicable corporation in any taxable year in which the "average annual adjusted financial statement income" of the corporation and certain of its subsidiaries and affiliates for a three-taxable-year period ending prior to such taxable year exceeds $1 billion.

We are currently assessing the potential impact of these legislative changes and will continue to evaluate the overall impact of other current, future and proposed regulations and interpretive guidance from tax authorities on our effective tax rate and consolidated balance sheets.

We are unable to predict whether any such changes or other proposals will ultimately be enacted.

New climate disclosure rules proposed by the SEC may increase our costs of compliance and adversely impact our

On March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related risks.

We are currently assessing the proposed rule, but at this time we cannot predict the costs of implementation or any potential adverse impacts resulting from the rule.

According to the SEC’s Fall 2022 regulatory agenda, the proposed climate disclosure rule is scheduled to be finalized in April 2023.

To the extent this rule is finalized as proposed, we could incur increased costs relating to the assessment and disclosure of climate-related risks, including increased legal, accounting and financial compliance costs, as well as making some activities more difficult, time-consuming and costly, and placing strain on our personnel, systems and resources.

We may also face increased litigation risks related to disclosures made pursuant to the rule if finalized as proposed.

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.

The SEC proposes certain phase-in compliance dates for disclosures under the proposed rules, including for GHG emissions metrics.

Risks Relating to Our Capital Structure

If our indebtedness increases, it could reduce our financial flexibility.

We have a credit facility in place with $350 million in commitments for borrowings and letters of credit.

We have significant indebtedness.

We have a Credit Facility in place with $600.0 million in commitments from borrowings and letters of credit under our Second Amended and Restated Credit Agreement dated August 31, 2022 with Truist Bank as Administrative Agent ("Credit Agreement").

As of December 31, 2022, $415.0 million was outstanding on our Credit Facility.

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• a significant portion of our cash flow could be used to service the indebtedness;

• we are required to put into place derivative contracts to hedge a significant portion of our oil and gas production;

• a high level of debt would increase our vulnerability to general adverse economic and industry conditions;

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Any such actions could have a material adverse effect on our business and financial results.

Further, our borrowings under our Credit Facility expose us to interest rate risks, as it bears variable interest based upon a prime rate and is therefore susceptible to interest rate fluctuations.

We may be unable to access the equity or debt capital markets to meet our obligations.

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If those markets are unavailable, or if we are unable to access alternative means of financing on acceptable terms, we may be unable to implement all of our development plans, make acquisitions or otherwise carry out our business strategy, which would have a material adverse effect on our financial condition and results of operations and impair our ability to service our indebtedness.

We continue to be impacted by inflationary pressures on our operating costs and capital expenditures.

Beginning in the second half of 2021 and continuing throughout 2022, we, similar to other companies in our industry, experienced inflationary pressures on our operating costs and capital expenditures - namely the costs of fuel, steel (i.e., wellbore tubulars), labor and drilling and completion services.

Such inflationary pressures on our operating and capital costs, which we currently expect to continue in 2023, have impacted our cash flows and results of operations.

We have undertaken, and plan to continue with, certain initiatives and actions (such as agreements with service providers to secure the costs and availability of services) to mitigate such inflationary pressures.

However, there can be no assurance that such efforts will offset, largely or at all, the impacts of any future inflationary pressures on our operating costs and capital expenditures and, in turn, our cash flows and results of operations.

Risks Relating to Technology and Cybersecurity

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The oil and natural gas industry has become increasingly dependent upon digital technologies to conduct day-to-day operations including certain exploration, development and production activities.

We depend on digital technology to estimate quantities of oil and natural gas reserves, process and record financial and operating data, analyze seismic and drilling information, process and store personally identifiable information on our employees and royalty owners and communicate with our employees and other third parties.

We depend on digital technology to process and record financial and operating data, estimate quantities of oil and natural gas reserves, analyze seismic and drilling information, process and store personally identifiable information on our employees and royalty owners and communicate with our employees and other third parties.

Our business partners, including vendors, service providers, purchasers of our production and financial institutions, are also dependent on digital technology.

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Risks Relating to Our Common Stock

We have recently registered 63,888,878 shares of our common stock for possible resale by certain of our stockholders and have exercisable warrants for 14,590,366 shares of common stock, resulting in significant "market overhang" of our common stock.

In connection with the recently completed Stronghold Acquisition, we registered 63,888,878 shares of our common stock with the SEC for possible resale by Stronghold stockholders.

This represents approximately 35% of our presently outstanding shares of common stock and if the selling stockholders choose to sell all or a large number of their shares, from time to time, it likely would have a depressive effect on the market price of our common stock.

In addition, we

have outstanding warrants with respect to 14,590,366 shares of common stock with an exercise price of $0.80 per share that have been registered for resale.

The holders could choose to sell the shares of common stock acquired upon exercise of their warrants, which could also have a depressive effect on the market price of our common stock.

The market price of our common stock may be volatile, which could cause the value of your investment to decline.

The stock markets have experienced extreme volatility that has often been unrelated to the operating performance of particular companies.

The stock markets have experienced volatility that has often been unrelated to the operating performance of particular companies.

These broad market fluctuations may adversely affect the trading price of our common stock.

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• general financial, domestic, economic and other market conditions.

We have no current plans to pay dividends on our common stock.

We do not currently anticipate paying any cash dividends on our common stock.

We currently intend to retain future earnings, if any, to pay down debt and finance the expansion of our business.

We currently do not pay cash dividends on our common stock.

We currently intend to retain future earnings, if any, to finance the expansion of our business.

Our future dividend policy is within the discretion of our board of directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements, and investment opportunities.

In addition, our credit facility currently prohibits us from paying dividends.

In addition, the terms of our Credit Agreement have restrictions on dividend payments to our equity holders, including our common stockholders.

Our board of directors can, without stockholder approval, cause preferred stock to be issued on terms that could adversely affect common stockholders.

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Provisions under Nevada law could delay or prevent a change in control of our company, which could adversely affect the price of our common stock.

In addition to the ability of the Board of Directors to issue preferred stock, the existence of some provisions under Nevada law could delay or prevent a change in control of the Company, which could adversely affect the price of our common stock.

In addition to the ability of the board of directors to issue preferred stock, the existence of some provisions under Nevada law could delay or prevent a change in control of the Company, which could adversely affect the price of our

common stock.

Nevada law imposes some restrictions on mergers and other business combinations between us and any holder of 10% or more of our outstanding common stock.

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What changed 10-K

Item 1A. Risk Factors