What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-11 compared with 2022-02-14 · 129 added, 80 removed, 166 unchanged (56% of the section changed)

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See "Cautionary Statement Regarding Forward-Looking Statements" and "Part II.

Risk Factors" .

Risk Factors" below and the information set forth in the Risk Factors under Part I, Item 1A of the Company's Annual Report for the fiscal year ended September 30, 2021.

We operate in the upstream segment of the oil and natural gas industry and are focused on steadily growing conventional reserves, production and cash flow through the acquisition, exploration, development and production of oil, natural gas and NGLs primarily in the Permian Basin in West Texas.

The Company’s activities are primarily focused on the San Andres Formation, a shelf margin deposit on the Central Basin Platform and Northwest Shelf.

We intend to continue to develop our reserves and increase production through development drilling and exploration activities on our multi-year inventory of identified potential drilling locations and through acquisitions that meet our strategic and financial objectives.

We intend to continue to develop our reserves and increase production through development drilling and exploration activities and through acquisitions that meet our strategic and financial objectives.

Financial and Operating Highlights

Financial and operating results reflect the following:

• Increased total net equivalent production by 31% to 9.9 MBoe/d for the three months ended December 31, 2021, as compared to the same period in 2020

• During the three months ended December 31, 2021, 5 gross (4.1 net) horizontal wells brought online to production

• Realized average combined price on production sold of $61.94 per Boe, before derivative settlements, during the three months ended December 31, 2021, including $75.67 per barrel for oil

• Generated cash flow from operations of $21.7 million for the three months ended December 31, 2021

• Total accrued capital expenditures of $20.7 million for the three months ended December 31, 2021

• Paid cash dividends on common shares of $6.1 million during the three months ended December 31, 2021, and announced latest dividend of $0.31 per share with a record date of January 26, 2022, which was paid on February 9, 2022, for a total of $6.1 million

• Exited the first quarter with $8.3 million in cash and $65.0 million drawn on our revolving credit facility

• 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

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.

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.

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 months ended December 31, 2021 and 2020

The following table sets forth selected operating data for the three months ended December 31, 2021 and 2020:

Three Months Ended December 31,

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,

2022 2021 2022 2021

Revenues (in thousands):

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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 $34.2 million, or 153%, for the three months ended December 31, 2021 compared to the same period in 2020.

The Company’s realized average combined price on its production for the three months ended December 31, 2021 increased by $29.82 or 93%, respectively, compared to the same period of 2020.

• For the three months ended December 31, 2021, oil revenues increased by $28.5 million, or 129%, compared to the same period in 2020.

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.

Of the increase, $24.1 million was attributable to an increase in our realized price and $7.5 million was attributable to an increase in volume.

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

• Oil volumes increased during the three months ended December 31, 2021 due to production from new wells and workovers performed on existing wells.

During the three months ended December 31, 2021, we brought online 5 new gross (4.1 net) wells.

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

Of the increase, $47.8 million was attributable to an increase in our realized price and $12.3 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.

Natural gas revenues

• For the three months ended December 31, 2021, natural gas revenues increased by $2.6 million, compared to the same period in 2020, to $2.7 million from $0.1 million.

Volumes increased by 83% and realized prices increased by $2.94 per Mcf from realized prices in 2020.

• Natural gas sales volumes increased during the three months ended December 31, 2021 due to increased production from new wells brought online and increased gas processing capacity available from the Company's midstream gathering and processing partner.

• 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.

Natural gas liquids revenues

• For the three months ended December 31, 2021, NGL revenues increased by $3.1 million, compared to the same period in 2020, to $3.3 million from $0.2 million.

Volumes increased by 42% and realized prices increased by $29.10 per Bbl from realized prices in 2020.

• NGL sales volumes increased during the three months ended December 31, 2021 due to increased production from new wells brought online and increased gas processing capacity available from the Company's midstream gathering and processing partner.

• 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.

Contract Services - Related Party Revenue

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

Three Months Ended December 31,

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

2022 2021 2022 2021

(In thousands)

Contract services – related parties (1)

$ 600 $ 600 $ 1,200 $ 1,200

Cost of contract services - related parties (2)

85 91 235 239

Gross profit - related parties $ 515 $ 509 $ 965 $ 961

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

Three Months Ended December 31,

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

2022 2021 2022 2021

Costs and Expenses:

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Transaction costs $ 2,638 $ 2,164 $ 3,896 $ 3,213

Interest expense $ 896 $ 1,235

Interest expense, net $ 678 $ 1,165 $ 1,574 $ 2,400

Loss on derivatives $ 49,632 $ 24,903 $ 54,825 $ 38,812

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For instance, repairs to our pumping equipment or surface facilities or subsurface maintenance result in increased production expenses in periods during which they are performed.

Certain operating cost components, such as compression and salt water 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 $2.9 million for the three months ended December 31, 2021 compared to the same period in 2020.

For the three months ended December 31, 2021, $1.4 million of the increase was attributable to an increase in variable LOE costs as production volumes increased and $1.1 million of the increase was due to higher workover expense.

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.

Production and Ad Valorem Tax Expense

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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 $1.7 million for the three months ended December 31, 2021 compared to the same period in 2020, primarily due to increases in our production sold resulting from additional wells brought online, workovers performed on existing wells that increased production and significantly higher commodity prices.

Also contributing to the increase is higher ad valorem taxes based on the increase in property values during the three months ended December 31, 2021.

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.

Exploration Expense

Exploration expense, which consists of expiration of unproved leasehold and geological and geophysical costs that include seismic survey costs, increased by $0.2 million, or 44%, for the three months ended December 31, 2021, as compared to the same period in 2020.

For the three months ended December 31, 2021, the Company incurred higher exploration expense compared to the same period in 2020 primarily driven by higher acreage expirations in New Mexico.

The following table presents exploration expense by area for the three months ended December 31, 2021 and 2020:

Three Months Ended December 31,

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,

2022 2021 2022 2021

(In thousands, except acreage data)

Exploration expense (1)

$ 1,465 $ 5,403 $ 2,053 $ 5,827

Geological and geophysical costs 33 70 56 70

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_____________________

(1) As of December 31, 2021, exploration expense includes $187 thousand and $401 thousand related to expiration of unproved leasehold costs in Texas and New Mexico, respectively.

As of December 31, 2020, exploration expense includes $225 thousand and $199 thousand 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 months ended December 31, 2021 and 2020.

(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.

Depletion, Depreciation, Amortization and Accretion Expense

Depreciation, depletion, and amortization is the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil, natural gas and NGLs.

Depletion, depreciation and amortization is the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil, natural gas and NGLs.

All costs incurred in the acquisition, exploration and development of properties (excluding costs of surrendered and abandoned leaseholds, delay lease rentals, dry holes and overhead related to exploration activities) are capitalized.

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Accretion expense relates to ARO.

We record the fair value of the legal liability for ARO in the period in which the liability is incurred (at the time the wells are drilled or acquired) at the asset’s inception, with the offsetting increase to property cost.

We record the fair value of the liability for ARO in the period in which the liability is incurred (at the time the wells are drilled or acquired) with the offset to property cost.

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 $0.9 million for the three months ended December 31, 2021, respectively, compared to the same period for 2020.

The increase for the three months ended December 31, 2021 was due to higher production, partially offset by a lower depletion rate.

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.

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

The lower depletion rate was primarily driven by an increase in reserves as a result of improved commodity prices.

The lower depletion rate was primarily driven by an increase in reserves as a result of the Company's drilling activity and improved commodity prices.

General and Administrative Expense ("G&A")

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

Total G&A expense increased by $1.7 million, for the three months ended December 31, 2021, compared to the same period for 2020.

Administrative costs, which includes payroll, benefits and non-payroll costs, increased by $1.2 million, for the three months ended December 31, 2021, compared to the same period for 2020.

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

Equity compensation expense increased by $0.5 million for the three months ended December 31, 2021, compared to the same period in 2020.

The increase is primarily attributable to restricted shares awarded to employees in October 2021 and restricted shares awarded to certain employees following completion of the Merger.

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.

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.

Interest Expense

Interest expense was $0.9 million and $1.2 million for the three months ended December 31, 2021 and 2020, respectively.

Interest expense decreased due to a lower outstanding average balance on the Company's revolving credit facility during the three months ended December 31, 2021 when compared to the same period for 2020.

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.

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 gain (loss) on derivatives for the three months ended December 31, 2021 and 2020:

Three Months Ended December 31,

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,

2022 2021 2022 2021

(In thousands)

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

Non-cash gain (loss) on derivatives 10,821 (19,082)

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

Loss on derivatives $ (49,632) $ (24,903) $ (54,825) $ (38,812)

Our earnings are affected by the changes in value of our derivatives portfolio between periods and the related cash received or paid upon settlement of our derivatives.

Our earnings are affected by the changes in value of our derivative portfolio between periods and the related cash received or paid upon settlement of our derivatives.

To the extent the future commodity price outlook declines between periods, we will have mark-to-market gains;

while to the extent future commodity price outlook increases between measurement periods, we will have mark-to-market losses.

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.

Income Tax Expense

The Company became a taxable entity as a result of its Merger with Tengasco on February 26, 2021.

See further discussion in Note 4 - Acquisitions and Divestitures to the Company's consolidated financial statements included herein.

See further discussion in Note 4 - Acquisitions to the Company's condensed consolidated financial statements included herein.

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 REP LLC only from February 27, 2021 through December 31, 2021 in the accompanying 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 March 31, 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.

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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 consolidated financial statements included herein for further discussion of income taxes.

Three Months Ended December 31,

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,

2022 2021 2022 2021

(In thousands)

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Cash on hand and operating cash flow can be subject to fluctuations due to trends and uncertainties that are beyond our control.

Likewise, our ability to issue equity and our ability to 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 second 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 partner curtailing volume capacity as work continues on their overall capacity expansion project.

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

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.

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Working capital is an indication of liquidity and potential need for short-term funding.

The change in our working capital requirements are 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 December 31, 2021, we had a working capital deficit of $32.8 million compared to working capital deficit of $46.9 million as of September 30, 2021.

The working capital deficit at December 31, 2021 reflects $31.0 million in current derivative liabilities compared to $42.1 million in current derivative liabilities at September 30, 2021.

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.

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.

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:

Three Months Ended December 31,

Six Months Ended March 31,

(In thousands)

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Operating Activities

The Company’s net cash provided by operating activities increased by $4.5 million or 26% to $21.7 million for the three months ended December 31, 2021 from $17.2 million for the same period in 2020.

The increase was primarily driven by an increase in revenues of $34.2 million, partially offset by a $21.2 million decrease in net cash received for settlements of commodity derivative contracts and an increase in operating expenses of $6.0 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 $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.

Investing Activities

The Company's cash flows used in investing activities increased by $19.4 million or 200% to $29.1 million for the three months ended December 31, 2021 from $9.7 million for the same period in 2020.

The increase was primarily due to higher capital spending of $19.6 million primarily related to the Company's drilling and completion activity and EOR project in 2021.

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.

Financing Activities

Net cash flow used in financing activities decreased by $5.9 million or 81% to $1.3 million for the three months ended December 31, 2021 from $7.3 million for the same period in 2020.

During the three months ended December 31, 2021, the Company utilized proceeds from its revolving credit facility to fund capital expenditures.

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.

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 $2.3 million of dividends on common stock during the three months ended December 31, 2021 compared to the same period in 2020.

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.

Revolving Credit Facility

The Company's borrowing base was $175 million with outstanding borrowings of $65 million on December 31, 2021, representing available borrowing capacity of $110 million.

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

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.

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.

Distributions

For the three months ended December 31, 2021, the Company authorized and declared a quarterly dividend totaling approximately $6.1 million, with $6.0 million paid in cash and $0.1 million payable to restricted shareholders upon vesting.

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.

Contractual Obligations

In July 2021, as part of a planned expansion of the primary gas processing plant owned by the Company's primary midstream partner, 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.

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.

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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 $0.8 million and $2.6 million by January 2022 and April 2022, respectively.

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.

Critical Accounting Estimates

9 unchanged sentences

(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