What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-10 compared with 2022-05-11 · 113 added, 115 removed, 180 unchanged (56% of the section changed)

10 unchanged sentences

Financial and operating results reflect the following:

• Increased total net equivalent production by 18% to 9.8 MBoe/d for the three months ended March 31, 2022, as compared to the same period in 2021 and 24% to 9.9 MBoe/d for the six months ended March 31, 2022, as compared to the same period in 2021

• During the three and six months ended March 31, 2022, 2 gross (1.7 net) and 7 gross (5.8 net) horizontal wells brought online to production, respectively

• Realized average combined price on production sold of $75.63 per Boe, before derivative settlements, during the three months ended March 31, 2022, including $92.44 per barrel for oil

• Generated cash flow from operations of $51.7 million for the six months ended March 31, 2022

• Total accrued capital expenditures of $25.3 million and $46.1 million for the three and six months ended March 31, 2022, respectively

• Paid cash dividends on common shares of $6.1 million during the three months ended March 31, 2022, and announced latest dividend of $0.31 per share with a record date of April 21, 2022, which was paid on May 5, 2022, for a total of $6.1 million

• Exited the fiscal second quarter with $19.6 million in cash and $63.0 million drawn on our revolving credit facility

• Increased total net equivalent production by 12% to 10.2 MBoe/d for the three months ended June 30, 2022, as compared to the same period in 2021 and 20% to 10.0 MBoe/d for the nine months ended June 30, 2022, as compared to the same period in 2021

• During the three and nine months ended June 30, 2022, 5 gross (5.0 net) and 12 gross (10.8 net) horizontal wells brought online to production, respectively

• Realized average combined price on production sold of $94.80 per Boe, before derivative settlements, during the three months ended June 30, 2022, including $108.41 per barrel for oil

• Generated cash flow from operations of $97.0 million for the nine months ended June 30, 2022

• Total accrued capital expenditures of $34.4 million and $80.5 million for the three and nine months ended June 30, 2022, respectively

• Paid cash dividends on common shares of $6.1 million during the three months ended June 30, 2022, and announced latest dividend of $0.31 per share with a record date of July 25, 2022, which was paid on August 8, 2022, for a total of $6.1 million

• Exited the fiscal third quarter with $16.8 million in cash and $61.0 million drawn on our revolving credit facility

Recent Developments

Market Conditions and Commodity Prices

and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the start of the military conflict between Russia and Ukraine.

On February 24, 2022, a full-scale military invasion of Ukraine by Russian troops was reported.

and global markets are experiencing heightened volatility following impactful geopolitical events, consistent evidence of widespread inflation, as well as increased fears of an economic recession.

Though less impactful than during 2021, cases of COVID-19 continue to affect global activity and demand for commodity products.

Additionally, the full-scale military invasion of Ukraine by Russian troops has continued unabated since February 2022.

Although the length and impact of the ongoing military conflict is highly unpredictable, the conflict in Ukraine has led to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions.

In addition, U.S.

markets are experiencing a volatile inflationary environment attributable to a number of factors including the Russian military conflict with Ukraine.

Certain of our capital expenditures and expenses are affected by general inflation and we expect costs for the remainder of 2022 to continue to be a function of supply and demand.

In addition, global markets are experiencing significant inflation attributable to a number of factors.

Certain of our capital expenditures and expenses are affected by general inflation and we expect costs for the remainder of 2022 to continue to be a

function of supply and demand.

Specifically, costs for oilfield equipment and services continue to experience significant inflation, which we expect to continue for the foreseeable future.

In response to inflation concerns, the U.S.

Federal Reserve initiated a monetary tightening policy in 2022, sharply increasing interest rates in June and July 2022 with public estimates of further increases in the future.

The Company's floating-rate credit facility will be impacted by such rate increases.

The combination of geopolitical events, inflation and the rising rate environment has led to increasing forecasts of a U.S.

or global recession.

Any such recession could prolong market volatility or cause a decline in commodity prices, among other potential impacts.

The Company cannot estimate the length or gravity of the future impact these events will have on the Company's results of operations, financial position, liquidity and the value of oil and natural gas reserves.

Results of Operations

Comparison for the three and six months ended March 31, 2022 and 2021

The following table sets forth selected operating data for the three and six months ended March 31, 2022 and 2021:

Three Months Ended March 31, Six Months Ended March 31,

Comparison for the three and nine months ended June 30, 2022 and 2021

The following table sets forth selected operating data for the three and nine months ended June 30, 2022 and 2021:

Three Months Ended June 30, Nine Months Ended June 30,

2022 2021 2022 2021

22 unchanged sentences

_____________________

(1) The Company's calculation of the effects of derivative settlements includes gains (losses) on the settlement of its commodity derivative contracts.

These gains (losses) are included under other income and expense on the Company’s condensed consolidated statements of operations.

(1) The Company's calculation of the effects of derivative settlements includes losses on the settlement of its commodity derivative contracts.

These losses are included under other income and expense on the Company’s condensed consolidated statements of operations.

Oil and Natural Gas Revenues

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Our revenues may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices.

The Company’s total oil and natural gas revenue, net increased $30.0 million and $64.2 million, or 82% and 109%, for the three and six months ended March 31, 2022 compared to the same periods in 2021.

The Company’s realized average combined price on its production for the three and six months ended March 31, 2022 increased by $26.51 and $27.75, or 54% and 68%, respectively, compared to the same periods in 2021.

• For the three months ended March 31, 2022, oil revenues increased by $31.6 million, or 103%, compared to the same period in 2021.

The Company’s total oil and natural gas revenue, net increased $46.2 million and $110.5 million, or 111% and 110%, for the three and nine months ended June 30, 2022 compared to the same periods in 2021.

The Company’s realized average combined price on its production for the three and nine months ended June 30, 2022 increased by $44.62 and $33.27, or 89% and 75%, respectively, compared to the same periods in 2021.

• For the three months ended June 30, 2022, oil revenues increased by $43.0 million, or 109%, compared to the same period in 2021.

Of the increase, $33.4 million was attributable to an increase in our realized price and $9.6 million was attributable to an increase in volume.

Volumes increased by 24% while prices increased by 63% compared to the same period in 2021.

• For the six months ended March 31, 2022, oil revenues increased by $60.1 million, or 114%, compared to the same period in 2021.

Volumes increased by 24%, while realized prices increased by 68% compared to the same period in 2021.

• For the nine months ended June 30, 2022, oil revenues increased by $103.1 million, or 112%, compared to the same period in 2021.

Of the increase, $81.3 million was attributable to an increase in our realized price and $21.8 million was attributable to an increase in volume.

Volumes increased by 23% while prices increased by 73% compared to the same period in 2021.

• Oil volumes increased during the three and six months ended March 31, 2022 due to production from new wells and workovers performed on existing wells.

During the three and six months ended March 31, 2022, we brought online 2 gross (1.7 net) and 7 gross (5.8 net) horizontal wells, respectively.

• The average WTI price increased by $37.09 and $36.00 per Bbl during the three and six months ended March 31, 2022, respectively, compared to the same periods in 2021.

Volumes increased by 24%, while realized prices increased by 71% compared to the same period in 2021.

• Oil volumes increased during the three and nine months ended June 30, 2022 due to production from new wells and workovers performed on existing wells.

During the three and nine months ended June 30, 2022, we brought online 5 gross (5.0 net) and 12 gross (10.8 net) horizontal wells, respectively.

• The average WTI price increased by $42.65 and $38.12 per Bbl during the three and nine months ended June 30, 2022, respectively, compared to the same periods in 2021.

Natural gas revenues

• For the three months ended March 31, 2022, natural gas revenues decreased by $2.7 million, compared to the same period in 2021, to $1.8 million from $4.5 million.

Volumes increased by 13% and realized prices decreased by 65% compared to the same period in 2021.

• For the six months ended March 31, 2022, natural gas revenues decreased by $0.1 million, compared to the same period in 2021, to $4.5 million from $4.6 million.

Volumes increased by 44% and realized prices decreased by 32% compared to the same period in 2021.

• Natural gas sales volumes increased during the three and six months ended March 31, 2022 due to increased production from new wells and workovers performed on existing wells, partially offset by curtailed volume capacity by our midstream gas gathering and processing counterparty due to their capacity expansion project.

• The average Henry Hub price increased by $1.17 and $1.70 per Mcf, or 33% and 57%, during the three and six months ended March 31, 2022, respectively, compared to the same periods in 2021.

However, during February 2021, natural gas prices surged due to the effects of Winter Storm Uri.

The Company benefited from the increase in natural gas prices, which in turn led to higher realized average prices for the three and six months ended March 31, 2021, respectively, compared to the same periods in 2022, despite Henry Hub index average prices having increased during 2022.

• For the three months ended June 30, 2022, natural gas revenues increased by $1.9 million, compared to the same period in 2021, to $2.9 million from $1.0 million.

Volumes decreased by 22%, while realized prices increased by $3.67 per Mcf compared to the same period in 2021.

• For the nine months ended June 30, 2022, natural gas revenues increased by $1.8 million, compared to the same period in 2021, to $7.3 million from $5.6 million.

Volumes increased by 17%, while realized prices increased by $0.38 per Mcf compared to the same period in 2021.

• Natural gas sales volumes decreased during the three months ended June 30, 2022 compared to the same period in 2021 due to curtailed volume capacity by our midstream gas gathering and processing counterparty as a result of their capacity expansion project.

For the nine months ended June 30, 2022, natural gas sales volumes increased compared to the same period in 2021 due to increased production from new wells and workovers performed on existing wells, partially offset by curtailed volume capacity as seen in during the period.

• The average Henry Hub price increased by $4.55 and $2.65 per Mcf during the three and nine months ended June 30, 2022, respectively, compared to the same periods in 2021.

Natural gas liquids revenues

• For the three months ended March 31, 2022, NGL revenues increased by $1.1 million, compared to the same period in 2021, to $2.5 million from $1.4 million.

Volumes decreased by 10% and realized prices increased 103% compared to the same period in 2021.

• For the six months ended March 31, 2022, NGL revenues increased by $4.3 million, compared to the same period in 2021, to $5.8 million from $1.5 million.

Volumes increased by 12% and realized prices increased 236% compared to the same period in 2021.

• During the three months ended March 31, 2022, NGL sales volumes decreased due to curtailed volume capacity by our midstream gas gathering and processing counterparty as a result of their capacity expansion project, partially offset by increased production from new wells and workovers performed on existing wells.

During the six months ended March 31, 2022, NGL sales volumes increased due to production from new wells and workovers performed on existing wells, partially offset by curtailed volume capacity by midstream gas gathering and processing counterparty due to capacity expansion project.

• For the three months ended June 30, 2022, NGL revenues increased by $1.3 million, compared to the same period in 2021, to $2.4 million from $1.1 million.

Volumes decreased by 26%, while realized prices increased $23.14 per Bbl compared to the same period in 2021.

• For the nine months ended June 30, 2022, NGL revenues increased by $5.6 million, compared to the same period in 2021, to $8.2 million from $2.6 million.

Volumes remained flat, while realized prices increased $21.02 per Bbl compared to the same period in 2021.

• NGL sales volumes decreased during the three months ended June 30, 2022 compared to the same period in 2021 due to curtailed volume capacity by our midstream gas gathering and processing counterparty as a result of their capacity expansion project.

Contract Services - Related Party Revenue

The following tables present the Company's revenue and costs associated with its related party transactions:

Three Months Ended March 31, Six Months Ended March 31,

The following table presents the Company's revenue and costs associated with its related party transactions:

Three Months Ended June 30, Nine Months Ended June 30,

2022 2021 2022 2021

9 unchanged sentences

The following table presents the Company's operating costs and expenses and other (income) expenses:

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

2022 2021 2022 2021

11 unchanged sentences

Loss on derivatives $ 12,363 $ 35,396 $ 67,188 $ 74,208

Income tax expense (benefit) $ (2,114) $ 14,231 $ 3,755 $ 13,716

Income tax expense $ 10,927 $ 3,245 $ 14,682 $ 16,953

Lease Operating Expenses

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Certain operating cost components, such as compression and saltwater disposal associated with completion water, are variable and increase or decrease as hydrocarbon production levels and the volume of completion water disposal increases or decreases.

The Company’s LOE increased by $0.9 million for the three months ended March 31, 2022 compared to the same period in 2021.

For the three months ended March 31, 2022, this increase was primarily attributable to an increase in variable LOE costs as production volumes increased.

The Company’s LOE increased by $3.7 million for the six months ended March 31, 2022 compared to the same period in 2021.

For the six months ended March 31, 2022, $1.7 million of the increase was attributable to an increase in variable LOE costs as production volumes increased and $1.3 million of the increase was due to higher workover expense based on the number of workovers performed during the period.

The Company’s LOE increased by $2.3 million for the three months ended June 30, 2022 compared to the same period in 2021.

For the three months ended June 30, 2022, $2.1 million of the increase was due to higher workover expense as additional workovers were performed in the 2022 period and $1.6 million of the increase was attributable to costs associated with new wells and additional production volumes, partially offset by a $1.4 million decrease attributable to efficiencies on existing wells.

The Company’s LOE increased by $6.0 million for the nine months ended June 30, 2022 compared to the same period in 2021.

For the nine months ended June 30, 2022, $4.7 million of the increase was attributable to costs associated with new wells and additional production volume and $3.4 million of the increase was due to higher workover expense as additional workovers were performed in the 2022 period, partially offset by a $2.1 million decrease attributable to efficiencies on existing wells.

Production and Ad Valorem Tax Expense

3 unchanged sentences

Ad valorem taxes are generally based on the valuation of our oil and natural gas properties, which also trend with oil and natural gas prices and vary across the different counties in which we operate.

Production and ad valorem taxes increased by $0.7 million and $2.5 million for the three and six months ended March 31, 2022, respectively, compared to the same periods in 2021.

Production taxes increased primarily due to increases in our production and significantly higher commodity prices.

Ad valorem taxes decreased for the three and six months ended March 31, 2022 based on slight adjustments to property values during the current period.

Production and ad valorem taxes increased by $3.5 million and $6.0 million for the three and nine months ended June 30, 2022, respectively, compared to the same periods in 2021.

Production taxes increased primarily due to increases in our oil and natural gas sales, net, as discussed above.

Ad valorem taxes increased for the three and nine months ended June 30, 2022 based on higher estimated property values for the current taxable period.

Exploration Expense

Exploration expense consists of expiration of unproved leasehold and geological and geophysical costs which include seismic survey costs.

The following table presents exploration expense by area for the three and six months ended March 31, 2022 and 2021:

Three Months Ended March 31, Six Months Ended March 31,

The following table presents exploration expense by area for the three and nine months ended June 30, 2022 and 2021:

Three Months Ended June 30, Nine Months Ended June 30,

2022 2021 2022 2021

8 unchanged sentences

_____________________

(1) For the three months ended March 31, 2022, exploration expense includes $1.3 million and $0.2 million related to expiration of unproved leasehold costs in Texas and New Mexico, respectively.

For the six months ended March 31, 2022, exploration expense includes $1.5 million and $0.6 million related to expiration of unproved leasehold costs in Texas and New Mexico, respectively.

(2) The Company did not renew any net acreage after expiration in New Mexico during the three and six months ended March 31, 2022 and 2021.

(1) For the nine months ended June 30, 2022, exploration expense includes $1.5 million and $0.6 million related to expiration of unproved leasehold costs in Texas and New Mexico, respectively.

(2) The Company did not renew any net acreage after expiration in New Mexico during the three and nine months ended June 30, 2022 and 2021.

Depletion, Depreciation, Amortization and Accretion Expense

5 unchanged sentences

The liability accretes each period until it is settled or the well is sold, at which time the liability is removed.

Depletion, depreciation, amortization and accretion expense increased by $0.4 million and $1.3 million for the three and six months ended March 31, 2022, respectively, compared to the same periods for 2021.

The increase for the three and six months ended March 31, 2022 was primarily due to higher production, partially offset by a lower depletion rate.

Depletion, depreciation, amortization and accretion expense increased by $0.1 million and $1.4 million for the three and nine months ended June 30, 2022, respectively, compared to the same periods for 2021.

The increase for the three and nine months ended June 30, 2022 was primarily due to higher production, partially offset by a lower depletion rate.

The depletion rate is a function of capitalized cost and related underlying reserves.

3 unchanged sentences

G&A expenses are reported net of overhead recoveries from other owners in properties operated by us.

Total G&A expense decreased by $2.5 million and $0.8 million for the three and six months ended March 31, 2022, respectively, compared to the same periods for 2021.

Administrative costs, which includes payroll, benefits and non-payroll costs, increased by $1.3 million and $2.5 million, respectively, for the three and six months ended March 31, 2022, compared to the same periods for 2021.

The increase in administrative costs was primarily attributable to increased professional services, insurance, technology and investor relations costs based on the Company being a publicly traded company for the full three and six month periods in 2022.

Equity-based compensation expense decreased by $3.8 million and $3.3 million for the three and six months ended March 31, 2022, respectively, compared to the same periods in 2021.

The higher equity-based compensation during the three and six months ended March 31, 2021 relates to restricted shares awarded to certain employees following completion of the Merger that immediately vested.

Total G&A expense increased by $0.1 million and decreased by $0.7 million for the three and nine months ended June 30, 2022, respectively, compared to the same periods for 2021.

Administrative costs, which includes payroll, benefits and non-payroll costs, increased by $0.4 million and $2.9 million, respectively, for the three and nine months ended June 30, 2022, compared to the same periods for 2021.

The increase in administrative costs was primarily attributable to increased professional services, insurance, technology and investor relations costs.

Equity-based compensation expense decreased by $3.5 million for the nine months ended June 30, 2022, respectively, compared to the same periods in 2021.

The higher equity-based compensation during the nine months ended June 30, 2021 relates to restricted shares awarded to certain employees following completion of the Merger that immediately vested.

Transaction Costs

Transaction costs represent costs incurred on successful or unsuccessful business combinations or unsuccessful property acquisitions.

During the three and six months ended March 31, 2021, the transaction costs of $2.2 million and $3.2 million, respectively, primarily relates to costs incurred on the Merger with Tengasco in February 2021.

The transaction costs of $2.6 million and $3.9 million for the three and six months ended March 31, 2022, respectively, primarily relate to a potential business combination and related financing that the Company pursued but ultimately chose not to consummate due to changing market conditions.

During the three and nine months ended June 30, 2021, the transaction costs of $0.3 million and $3.5 million, respectively, primarily relates to costs incurred on the Merger with Tengasco in February 2021.

The Company did not incur any transaction costs during the three months ended June 30, 2022.

The transaction costs of $3.9 million for the nine months ended June 30, 2022 primarily relate to a potential business combination and related financing that the Company pursued but ultimately chose not to consummate due to changing market conditions.

Interest Expense

Interest expense decreased by $0.5 million and $0.8 million during the three and six months ended March 31, 2022, respectively, when compared to the same periods for 2021.

Interest expense decreased due to a lower outstanding average balance on the Company's revolving credit facility and capitalized interest related to the Company's EOR project during the three and six months ended March 31, 2022, respectively, when compared to the same periods for 2021.

Interest expense decreased by $0.5 million and $1.3 million during the three and nine months ended June 30, 2022, respectively, when compared to the same periods for 2021.

Interest expense decreased due to a lower outstanding average balance on the Company's revolving credit facility as well as the capitalized interest related to the Company's EOR project during the three and nine months ended June 30, 2022, respectively, when compared to the same periods for 2021.

Gain/Loss on Derivatives

The Company recognizes settlements and changes in the fair value of its derivative contracts as a single component within other income (expenses) on its condensed consolidated statement of operations.

We have oil and natural gas derivative

contracts, including fixed price swaps, basis swaps and collars, that settle against various indices.

The following table presents the components of the Company's loss on derivatives for the three and six months ended March 31, 2022 and 2021:

Three Months Ended March 31, Six Months Ended March 31,

The Company recognizes settlements and changes in the fair value of its derivative contracts as a single component within other income (expense) on its condensed consolidated statements of operations.

We have oil and natural gas derivative contracts, including fixed price swaps, basis swaps and collars, that settle against various indices.

The following table presents the components of the Company's loss on derivatives for the three and nine months ended June 30, 2022 and 2021:

Three Months Ended June 30, Nine Months Ended June 30,

2022 2021 2022 2021

(In thousands)

Settlements on derivatives $ (18,375) $ (2,594) $ (34,389) $ 2,579

Non-cash loss on derivatives (31,257) (22,309) (20,436) (41,391)

Settlements on derivative contracts $ (25,783) $ (7,712) $ (60,172) $ (5,133)

Non-cash gain (loss) on derivatives 13,420 (27,684) (7,016) (69,075)

Loss on derivatives $ (12,363) $ (35,396) $ (67,188) $ (74,208)

2 unchanged sentences

while future commodity price increases between measurement periods result in mark-to-market losses.

The increase in the loss on derivatives for the three and six months ended March 31, 2022 compared to the same periods in 2021 is due to the increase in commodity prices.

For example, the average WTI price was $95.18 per Bbl for the three months ended March 31, 2022 compared to $58.09 per Bbl for the same period in 2021.

The decrease in the loss on derivatives for the three and nine months ended June 30, 2022 compared to the same periods in 2021 is due to the change in non-cash gain (loss) on derivatives of $41.1 million and $62.1 million, partially offset by the increase in the loss on settlements of $18.1 million and $55.0 million.

The change in non-cash gain (loss) on derivatives for the three and nine months ended June 30, 2022 is due to the decrease in total contract volumes for our open derivative contracts with volumes on our fixed price oil swaps decreasing by 55% as of June 30, 2022 when compared to the same period in 2021.

Additionally, the change in the non-cash gain (loss) on derivatives was impacted by the change in the estimated forward-looking oil and natural gas prices used at the end of the period to calculate the fair value of the open derivative contracts.

The increase in the loss on settlements on derivatives was due to the increase in oil and natural gas prices for the three and nine months ended June 30, 2022 compared to the same periods in 2021.

For example, the average WTI price was $108.83 per Bbl for the three months ended June 30, 2022 compared to $66.19 per Bbl for the same period in 2021.

Income Tax Expense

2 unchanged sentences

While REP LLC was organized as a limited liability company, taxable income passed through to its unit holders.

Accordingly, a provision for federal and state corporate income taxes has been made for the operations of the Company only from February 27, 2021 through March 31, 2022 in the accompanying condensed consolidated financial statements.

Accordingly, a provision for federal and state corporate income taxes has been made for the operations of the Company only from February 27, 2021 through June 30, 2022 in the accompanying condensed consolidated financial statements.

Deferred income taxes are provided to reflect the future tax consequences or benefits of differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using enacted tax rates.

Upon consummation of the Merger, the Company established a $13.6 million provision for deferred income taxes with the conversion to a C-corporation.

Upon consummation of the Merger in February 2021, the Company established a $13.6 million provision for deferred income taxes with the conversion to a C-corporation.

The majority of this deferred tax liability was established by a change in tax status which primarily was attributable to the oil and natural gas properties.

See Note 11 - Income Taxes to the Company's condensed consolidated financial statements included herein for further discussion of income taxes.

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

2022 2021 2022 2021

(In thousands)

Current expense $ 779 $ 1,143 $ 892 $ 778

Deferred expense (benefit) (2,893) 13,088 2,863 12,938

Total expense (benefit) $ (2,114) $ 14,231 $ 3,755 $ 13,716

Current income tax expense (benefit) $ 715 $ (1,009) $ 1,608 $ (232)

Deferred income tax expense 10,212 4,254 13,074 17,185

Total income tax expense $ 10,927 $ 3,245 $ 14,682 $ 16,953

Effective income tax rate 22.0 % (18.8) % 21.8 % (38.0) %

9 unchanged sentences

Likewise, our ability to issue equity and obtain credit facilities on favorable terms may be impacted by a variety of market factors as well as fluctuations in our results of operations.

For instance, during the fiscal third quarter of 2022, the Company is expecting an impact to its natural gas and NGL sales due to its primary midstream gas gathering and processing counterparty curtailing volume capacity as work continues on their overall capacity expansion project.

While the Company expects volumes to be impacted only for the month of April, the Company cannot estimate the full impact this will have on its results of operations.

For more information on conditions impacting our liquidity and capital resources.

During the fiscal third quarter of 2022, the Company's natural gas and NGL sales were negatively impacted due to its primary midstream gas gathering and processing counterparty curtailing volume capacity as work continued on their overall capacity expansion project.

With the expansion project being fully commissioned in July, the Company expects to benefit from an increase in production capacity.

The Company is not currently aware of additional scheduled curtailments;

however, the Company may continue to experience periodic curtailments on natural

gas produced in excess of our contractual processing capacity.

For further discussion of risks related to our liquidity and capital resources, see "Item 1A.

4 unchanged sentences

The change in our working capital requirements is driven generally by changes in accounts receivable, accounts payable, commodity prices, credit extended to, and the timing of collections from customers, the level and timing of spending for expansion activity, and the timing of debt maturities.

As of March 31, 2022, we had a working capital deficit of $62.6 million compared to working capital deficit of $46.9 million as of September 30, 2021.

The working capital deficit at March 31, 2022 reflects $58.3 million in current derivative liabilities compared to $42.1 million in current derivative liabilities at September 30, 2021.

Additionally, we had $7.9 million payable to our counterparties for March 2022 derivative contract settlements.

As of June 30, 2022, we had a working capital deficit of $55.6 million compared to a deficit of $46.9 million as of September 30, 2021.

The working capital deficit at June 30, 2022 reflects $50.3 million in current derivative liabilities compared to $42.1 million in current derivative liabilities at September 30, 2021.

Additionally, we had $8.8 million payable to our counterparties for June 2022 derivative contract settlements, which is included in accounts payable at June 30, 2022.

We utilize our revolving credit facility and cash on hand to manage the timing of cash flows and fund short-term working capital deficits.

Our current derivative assets and liabilities represent the mark-to-market value as of March 31, 2022 of future commodity production which will settle on a monthly basis through the end of their contractual terms.

Our current derivative assets and liabilities represent the mark-to-market value as of June 30, 2022 of future commodity production which will settle on a monthly basis through the end of their contractual terms.

This aligns with the receipt of oil and natural gas revenues on a monthly basis.

Before the impact of derivative assets and liabilities, we have a working capital deficit of $5.1 million as of March 31, 2022.

The following table summarizes the Company’s cash flows from continuing operations:

Six Months Ended March 31,

Nine Months Ended June 30,

(In thousands)

4 unchanged sentences

Operating Activities

The Company’s net cash provided by operating activities increased by $13.6 million or 36% to $51.7 million for the six months ended March 31, 2022 from $38.1 million for the same period in 2021.

The increase was primarily driven by an increase in revenues of $64.2 million, partially offset by cash payments of $34.4 million on settlements for commodity derivative contracts and an increase in operating expenses of $9.4 million, which excludes non-cash expenses such as equity-based compensation, expiration of unproved leasehold costs, and depreciation, depletion, accretion, and amortization expense.

The Company’s net cash provided by operating activities increased by $38.1 million or 65% to $97.0 million for the nine months ended June 30, 2022 from $58.8 million for the same period in 2021.

The increase was primarily driven by an increase in revenues of $110.5 million, partially offset by an increase of $55.0 million on settlements for commodity derivative contracts and an increase in operating expenses of $15.2 million, which excludes non-cash expenses such as equity-based compensation, expiration of unproved leasehold costs, and depreciation, depletion, accretion, and amortization expense.

Investing Activities

The Company's cash flows used in investing activities increased by $22.5 million or 134% to $39.3 million for the six months ended March 31, 2022 from $16.8 million for the same period in 2021.

The increase was primarily due to higher capital spending of $22.0 million primarily related to the Company's increased drilling and completion activity and EOR project during the six months ended March 31, 2022 compared to the same period in 2021.

The Company's cash flows used in investing activities increased by $37.8 million or 96% to $77.2 million for the nine months ended June 30, 2022 from $39.4 million for the same period in 2021.

The increase was primarily due to higher capital spending of $37.2 million related to the Company's increased drilling and completion activity and EOR project during the nine months ended June 30, 2022 compared to the same period in 2021.

Financing Activities

Net cash flow used in financing activities decreased by $3.3 million or 25% to $9.9 million for the six months ended March 31, 2022 from $13.2 million for the same period in 2021.

During the six months ended March 31, 2022, the Company utilized $3.0 million net proceeds from its revolving credit facility to fund capital expenditures and working capital.

Net cash flow used in financing activities increased by $1.9 million or 11% to $20.1 million for the nine months ended June 30, 2022 from $18.2 million for the same period in 2021.

During the nine months ended June 30, 2022, the Company utilized $1.0 million net proceeds from its revolving credit facility to fund capital expenditures and working capital.

For the same period in 2021, the Company had a net paydown on its revolving credit facility of $3.5 million based on decreased drilling and completion activity during this period.

In addition, the Company distributed an additional $4.4 million of dividends on common stock during the six months ended March 31, 2022 compared to the same period in 2021.

In addition, the Company distributed an additional $5.4 million of dividends on common stock during the nine months ended June 30, 2022 compared to the same period in 2021.

Revolving Credit Facility

The Company's borrowing base was $175 million with outstanding borrowings of $63 million on March 31, 2022, representing available borrowing capacity of $112 million.

The Company's borrowing base was $200 million with outstanding borrowings of $61 million on June 30, 2022, representing available borrowing capacity of $139 million.

See further discussion in Note 9 - Revolving Credit Facility to the Company's condensed consolidated financial statements included herein.

On April 29, 2022, the Company amended its Credit Agreement to, among other things, increase the borrowing base from $175 million to $200 million, extend the maturing date to April 2026, replace LIBOR with the SOFR and changed the requirements for hedging to be based on utilization of the borrowing base and the Company's leverage ratio.

On April 29, 2022, the Company amended its Credit Agreement to, among other things, increase the borrowing base from $175 million to $200 million, extend the maturing date to April 2026, replace LIBOR with the SOFR and change the requirements for hedging to be based on utilization of the borrowing base and the Company's leverage ratio.

Distributions

For the three months ended March 31, 2022, the Company authorized and declared a quarterly dividend totaling approximately $6.2 million, with $6.1 million paid in cash and $0.1 million payable to restricted shareholders upon vesting.

For the three months ended June 30, 2022, the Company authorized and declared a quarterly dividend totaling approximately $6.2 million, with $6.1 million paid in cash and $0.1 million payable to restricted shareholders upon vesting.

Contractual Obligations

In July 2021, as part of a planned expansion of the primary gas processing plant owned by the Company's primary midstream counterparty, Stakeholder, the Company committed to annually drill, complete and connect a minimum number of wells or deliver an annual target volume to Stakeholder's gathering system.

While the minimum number of wells is below our planned development activity, there are financial penalties if the minimum activity levels are not met.

The annual well or volume target is for each of five years beginning January 2022.

The additional capacity from the gas processing plant expansion is expected to lead to increased natural gas sales and decreased gas flaring for the Company.

In August 2021, the Company entered into a purchase agreement for supplies for its EOR project.

Under the agreement, the Company has remaining commitments to purchasing supplies totaling approximately $2.6 million by April 2022.

On October 7, 2021, the Company executed two agreements related to its EOR project.

The first agreement is a CO 2 purchase agreement with Kinder Morgan CO 2 Company, LLC and the second agreement is a connection agreement that also established a delivery point for the purchased CO 2 with the Cortez Pipeline Company.

On March 25, 2022, the Company executed a purchase order for facility and support equipment for its EOR project.

Under the order, the Company has remaining commitments totaling approximately $2.1 million, and the equipment will be delivered within 29 weeks of executing the purchase order.

On April 22, 2022, the Company entered into a purchase agreement for pipe related to its fiscal 2023 drilling program.

Under the agreement, the Company has commitments to purchase approximately $10.6 million of pipe by December 2022.

The Company has commitments with its primary midstream counterparty and has entered into purchase commitments throughout the nine months ended June 30, 2022.

See Note 14 - Commitments and Contingencies in our notes to the condensed consolidated financial statements.

Critical Accounting Estimates

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(ii) cash flow estimates used in impairment testing of oil and natural gas properties;

(iii) depreciation, depletion, amortization and

accretion, or DD&A;

(iii) depreciation, depletion, amortization and accretion, or DD&A;

(v) assigning fair value and allocating purchase price in connection with business combinations;

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis