What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-04 · 98 added, 108 removed, 127 unchanged (62% of the section changed)

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• Critical Accounting Policies and Estimates.

The financial information with respect to the three and six-month periods ended June 30, 2022, and 2021, discussed below, is unaudited.

The financial information with respect to the three and nine-month periods ended September 30, 2022 and 2021, discussed below, is unaudited.

In the opinion of management, this information contains all adjustments, which consist only of normal recurring adjustments unless otherwise disclosed, necessary to state fairly the accompanying unaudited condensed consolidated financial statements.

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Prior to February 5, 2021, we held assets in the North Park Basin ("NPB" or “North Park") of Colorado, which have been sold in their entirety.

The chart below shows production by product for the three and six-month periods ended June 30, 2022 and 2021:

The chart below shows production by product for the three and nine-month periods ended September 30, 2022 and 2021:

(1) Excludes 67 MBoe of oil production from North Park Basin, which was sold on February 5, 2021.

Total MBoe production for the three-month period ended June 30, 2022 was comprised of approximately 12.8% oil, 53.8% natural gas and 33.4% NGL compared to 13.1% oil, 51.5% natural gas and 35.4% NGL in 2021.

Total MBoe production for the six-month period ended June 30, 2022 was comprised of approximately 13.1% oil, 53.8% natural gas and 33.1% NGL compared to 15.3% oil, 51.1% natural gas and 33.6% NGL in 2021.

Total MBoe production for the three-month period ended September 30, 2022 was comprised of approximately 15.8% oil, 53.7% natural gas and 30.5% NGL compared to 12.7% oil, 55.2% natural gas and 32.1% NGL in 2021.

Total MBoe production for the nine-month period ended September 30, 2022 was comprised of approximately 14.0% oil, 53.8% natural gas and 32.2% NGL compared to 14.4% oil, 52.5% natural gas and 33.1% NGL in 2021.

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Recent Events

• Consistent with our 2022 Development Program, announced on March 9, 2022, we commenced the drilling of three new wells during the quarter ended June 30, 2022.

• On June 20, 2022 the Audit Committee appointed Moss Adams LLP as our independent registered public accounting firm.

• Consistent with our 2022 capital development program, we drilled three wells and completed three wells during the quarter ended September 30, 2022.

• On October 5, 2022 the Company’s Board of Directors appointed Ms.

Nancy Dunlap to serve as a member of the Board.

Dunlap also joined the Audit Committee.

We will continue to focus on growing the cash value and generation capability of our asset base in a safe, responsible and efficient manner, while exercising prudent capital allocations to projects we believe provide high rates of returns in the current commodity price environment.

These projects include (1) a continuation of our well reactivation program, (2) artificial lift conversions to more efficient and cost effective systems and (3) focused drilling in high-graded areas.

Stabilization of forward looking commodity prices, results, costs and other factors will shape our development decisions in 2022 and beyond.

We will also remain open, patient and maintain optionality for opportunistic, value-accretive acquisitions and business combinations.

Demand for natural gas has increased in the United States with inventory levels falling below the five-year average, coupled with only modest increases in production.

This has resulted in upward pressure on natural gas pricing.

The rising consumption of crude oil, oil supply disruptions due to geopolitical events, and the risk of supply outages amid low global inventory levels have caused oil prices to rise.

An increase in current and future oil supply is needed to meet forecasted demand in order to ease pressure on oil pricing.

Our planned capital expenditure activity in 2022 is expected to add incremental production for 2022.

We will continue to monitor forward-looking commodity prices, results, costs and other factors that could influence returns on investments, which will continue to shape our disciplined development decisions in 2022 and beyond.

We will also continue to maintain optionality to execute on value accretive merger and acquisition opportunities that could bring synergies, leverage our core competencies, compliment our portfolio of assets, further utilize our NOLs or otherwise yield attractive returns for our shareholders.

Consolidated Results of Operations

Our consolidated revenues and cash flow are generated from the production and sale of oil, natural gas and NGL.

Our consolidated revenues and cash flows are generated from the production and sale of oil, natural gas and NGL.

Our revenues, profitability and future growth depend substantially on prevailing prices received for our production, the quantity of oil, natural gas and NGL we produce, and our ability to find and economically develop and produce our reserves.

Prices for oil, natural gas and NGL fluctuate widely and are difficult to predict.

To provide information on the general trend in pricing, the average New York Mercantile Exchange "NYMEX" prices for oil and natural gas are shown in the table below:

To provide information on the general trend in pricing, the average New York Mercantile Exchange ("NYMEX") prices for oil and natural gas are shown in the tables below:

Three-month periods ended

June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021

September 30, 2022 June 30, 2022 March 31, 2022 December 31, 2021 September 30, 2021

NYMEX Oil (per Bbl) $ 93.06 $ 108.83 $ 95.02 $ 77.34 $ 70.59

NYMEX Natural gas (per MMBtu) $ 7.47 $ 4.67 $ 4.76 $ 4.32

NYMEX Natural gas (per Mcf) $ 8.32 $ 7.75 $ 4.84 $ 4.93 $ 4.48

Nine-month periods ended

September 30, 2022 September 30, 2021

NYMEX Oil (per Bbl) $ 98.96 $ 65.06

NYMEX Natural gas (per Mcf) $ 6.99 $ 3.47

In order to reduce our exposure to price fluctuations, from time to time we may enter into commodity derivative contracts for a portion of our anticipated future oil, natural gas and NGL production as discussed in “Item 3.

Quantitative and Qualitative Disclosures About Market Risk.” As of June 30, 2022, we had no open commodity derivative contracts.

However, we had commodity derivative activity during the quarter ended March 31, 2022.

Quantitative and Qualitative Disclosures About Market Risk.” During periods where the strike prices for our commodity derivative contracts are below market prices at the time of settlement, we may not fully benefit from increases in the market price of oil and natural gas.

Conversely, during periods of declining oil and natural gas market prices, our commodity derivative contracts may partially offset declining revenues and cash flows to the extent strike prices for our contracts are above market prices at the time of settlement.

See “Note 3 — Derivatives” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding our commodity derivatives.

Consolidated revenues for the three and six-month periods ended June 30, 2022, and 2021 are presented in the table below (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

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Consolidated revenues for the three and nine-month periods ended September 30, 2022 and 2021 are presented in the table below (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Change % Change 2022 2021 Change % Change

Oil $ 23,855 $ 15,198 $ 8,657 57 % $ 66,238 $ 45,412 $ 20,826 46 %

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Total revenues (1) $ 70,899 $ 46,584 $ 24,315 52 % $ 198,146 $ 114,403 $ 83,743 73 %

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(1) Mid-Continent represented $64.6 million, or 95.3% of total consolidated revenues for the six-months ended June 30, 2021.

NPB represented $3.2 million, or 4.7% of total consolidated revenues for the six-months ended June 30, 2021.

(1) Mid-Continent represented $111.2 million, or 97.2% of total consolidated revenues for the nine-months ended September 30, 2021.

NPB represented $3.2 million, or 2.8% of total consolidated revenues for the nine-months ended September 30, 2021.

Oil, Natural Gas and NGL Production and Pricing

Our production and pricing information for the three and six-month periods ended June 30, 2022, and 2021 is shown in the table below:

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Our production and pricing information for the three and nine-month periods ended September 30, 2022 and 2021 is shown in the table below:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Change % Change 2022 2021 Change % Change

Production data

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__________________

(1) Prices represent actual average sales prices for the periods presented and do not include effects of derivative settlement.

The average NYMEX prices for the three month period ended June 30, 2022 were $108.83 for Oil and $7.47 for Natural Gas.

The average NYMEX prices for the three month period ended June 30, 2021 were $66.18 for Oil and $2.98 for Natural Gas.

The average NYMEX prices for the six month period ended June 30, 2022 were $102.01 for Oil and $6.07 for Natural Gas.

The average NYMEX prices for the six month period ended June 30, 2021 were $62.20 for Oil and $2.85 for Natural Gas.

The table below presents production by area of operation for the three and six-month periods ended June 30, 2022, and 2021:

Three Months Ended June 30, Six Months Ended June 30,

(1) Prices represent actual average sales prices for the periods presented and do not include effects of derivative settlements.

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The table below presents production by area of operation for the three and nine-month periods ended September 30, 2022 and 2021:

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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Total 1,638 100.0 % 1,722 100.0 % 4,864 100.0 % 5,096 100.0 %

Variances in oil, natural gas and NGL revenues attributable to changes in the average prices received for our production and total production volumes sold for the three and six-month periods ended June 30, 2022, and 2021 are shown in the table below (in thousands):

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Three Months Ended June 30, 2022 Six Months Ended June 30, 2022

Variances in oil, natural gas and NGL revenues attributable to changes in the average prices received for our production and total production volumes sold for the three and nine-month periods ended September 30, 2022 are shown in the table below (in thousands):

Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022

2021 oil, natural gas and NGL revenues $ 46,584 $ 114,403

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2022 oil, natural gas and NGL revenues $ 70,899 $ 198,146

Revenues from oil, natural gas and NGL sales increased $35.6 million or 104.0% for the three-months ended June 30, 2022 as compared to the three-months ended June 30, 2021.

Revenues from oil, natural gas and NGL sales increased $59.4 million or 87.6% for the six-months ended June 30, 2022 as compared to the six-months ended June 30, 2021.

Revenue increased primarily due to favorable realized commodity prices offset by a slight decrease in production primarily as a result of the sale of NPB, in addition to natural production declines partially offset by our well reactivation program.

Revenue increased due to favorable realized commodity prices offset by a slight decrease in production primarily as a result of the sale of NPB, in addition to natural production declines partially offset by our well reactivation program and production from new wells.

See "Item 1A—Risk Factors" included in our 2021 Form 10-K and 10-K/A for additional discussion of the potential impact these events may have on our future revenues.

Operating Expenses

Operating expenses for the three and six-month periods ended June 30, 2022, and 2021 consisted of the following (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Operating expenses for the three and nine-month periods ended September 30, 2022 and 2021 consisted of the following (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Change % Change 2022 2021 Change % Change

Lease operating expenses $9,693 $9,080 $613 7% $30,067 $26,266 $3,801 14%

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Production, ad valorem, and other taxes (% of oil, natural gas, and NGL revenue) 6.7% 4.8% 1.9% 40% 6.9% 6.1% 0.8% 13%

Lease operating expenses increased $0.3 million or $0.54/Boe for the three-months ended June 30, 2022, as compared to the three-months ended June 30, 2021 .

Lease operating expenses increased by $3.2 million or $1.23/Boe for the six-months ended June 30, 2022, as compared to the six-months ended June 30, 2021 .

The increase was primarily due to a higher number of producing wells, higher workover expense due to our well reactivation program and inflationary pressures.

Production, ad valorem, and other taxes has increased primarily due to higher commodity prices and related revenues as discussed above for the three-and six-months ended June 30, 2022.

Further, it decreased as a percentage of oil, natural gas, and NGL revenue for the three-months ended June 30, 2022 as compared to the same period in 2021, primarily due to reduced ad valorem taxes as a result of the sale of NPB.

Further, production tax as a percentage of oil, natural gas, and NGL revenue for the six-months ended June 30, 2022 as compared to the same period in 2021, remained flat.

The average depreciation and depletion rate for our oil and natural gas properties for the three-months ended June 30, 2022 increased by $0.47/Boe from the three months ended June 30, 2021.

The average depreciation and depletion rate for our oil and natural gas properties for the six-months ended June 30, 2022 increased by $0.23/Boe from the six-months ended June 30, 2021.

The increases are primarily due to higher capitalized costs due to our well reactivation, drilling and other capital expenditure activities.

The increase in lease operating expenses was primarily due to inflationary pressures, a higher number of producing wells and higher workover expense due to our well reactivation program.

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Production, ad valorem, and other taxes increased primarily due to higher commodity prices and related revenues as discussed above for the three-and nine-months ended September 30, 2022.

Further, it increased as a percentage of oil, natural gas, and NGL revenue for the three and nine-months ended September 30, 2022 as compared to the same periods in 2021.

The increase in production, ad valorem, and other taxes as a percentage of commodity revenues stems primarily from an increase in ad valorem taxes for the three-months ended September 30, 2022.

For the three-months ended September 30, 2021, ad valorem taxes were lower in part due to a change in estimate related to NPB.

For the nine-months ended September 30, 2022, the increase in percentage of commodity revenues related primarily to an increase in production taxes.

The increase in depreciation and depletion for oil and natural gas properties was primarily the result of increased capital expenditures which increased our depletion rate.

A ceiling limitation calculation is performed at the end of each quarter.

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Calculation of the full cost ceiling test is based on, among other factors, trailing twelve-month first-day-of-the-month index prices (“SEC prices”) as adjusted for price differentials and other contractual arrangements.

The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at June 30, 2022 were $85.78 per barrel of oil and $5.13 per Mcf of natural gas, before price differential adjustments.

The ceiling limitation was not exceeded, therefore no full cost ceiling limitation impairments were recorded during the three and six-month periods ended June 30, 2022 or 2021.

During certain periods within the past five years the SEC prices used in the full cost ceiling test have been lower than the SEC prices used for the June 30, 2022 full cost ceiling test and resulted in material ceiling limitation impairments.

The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at September 30, 2022 were $91.71 per barrel of oil and $6.13 per Mcf of natural gas, before price differential adjustments.

The ceiling limitation was not exceeded;

therefore, no full cost ceiling limitation impairments were recorded during the three and nine-month periods ended September 30, 2022 or 2021.

During certain periods within the past five years, the SEC prices used in the full cost ceiling test have been lower than the SEC prices used for the September 30, 2022 full cost ceiling test and resulted in material ceiling limitation impairments.

Full cost pool ceiling limitation impairments have no impact to our cash flow or liquidity.

Based on the SEC prices over the ten months ended July 1, 2022, as well as two month of NYMEX strip pricing for August and September of 2022 as of July 28, 2022, we anticipate the SEC prices utilized in the September 30, 2022 full cost ceiling test may be $92.59 per barrel of oil and $6.09 per Mcf of natural gas, (the "estimated third quarter prices").

Applying these estimated second quarter prices, and holding all other inputs constant to those used in the calculation of our June 30, 2022 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the third quarter of 2022.

Based on the SEC prices over the trailing ten months ended October 1, 2022, as well as two months of NYMEX strip pricing for November and December of 2022 as of October 11, 2022, we estimate the SEC prices utilized in the December 31, 2022 full cost ceiling test may be $94.08 per barrel of oil and $6.49 per Mcf of natural gas (the "estimated year-end prices").

Applying these estimated year-end prices, and holding all other inputs constant to those used in the calculation of our September 30, 2022 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the fourth quarter of 2022.

Any actual full cost ceiling limitation impairment recognized in future quarters may fluctuate significantly from projected amounts based on the outcome of numerous other factors such as declines in the actual trailing twelve-month SEC prices, lower NGL pricing, changes in estimated future development costs and operating expenses, and other adjustments to our levels of proved reserves.

Other Operating Expenses

Other operating expenses for the three and six-month periods ended June 30, 2022, and 2021 consisted of the following (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

2022 2021 2022 2021

Other Operating Expenses (Income)

Other operating expenses (income) for the three and nine-month periods ended September 30, 2022 and 2021 consisted of the following (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 Change % Change 2022 2021 Change % Change

General and administrative $2,382 $2,229 $153 7% $7,083 $6,841 $242 4%

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Employee termination benefits — — — —% — 49 (49) (100)%

Loss on derivative contracts — — 1,064 —

Gain on sale of assets — — — (19,713)

(Gain) loss on derivative contracts (4,258) 4,129 (8,387) (203)% (3,194) 4,129 (7,323) (177)%

(Gain) loss on sale of assets — 761 (761) (100)% — (18,952) 18,952 (100)%

Other operating income (25) (202) 177 (88)% (140) (315) 175 (56)%

Total non-operating expenses $ 2,553 $ 2,713 $ 6,292 $ (12,855)

General and administrative expenses decreased by $0.4 million for the three-months ended June 30, 2022, compared to the same period in 2021.

The decrease primarily relates to a decreases in professional fees and employee compensation.

General and administrative expenses were flat for the six-months ended June 30, 2022, compared to the same period in 2021.

Restructuring expenses represent fees and costs associated with the 2016 bankruptcy and exit from NPB in Colorado.

Restructuring expenses increased by $0.2 million and decreased by $1.7 million for the three and six-month periods ended June 30, 2022, compared to the same period in 2021.

For the six-month period ended June 30, 2022 the decrease primarily relates to payments of $1.3 million, made during the first half of 2021, to settle general unsecured claims related to our 2016 bankruptcy.

Total other operating expenses (income) $(1,825) $5,221 $(7,046) (135)% $4,467 $(7,634) $12,101 (159)%

General and administrative expenses were consistent between the three and nine-month periods ended September 30, 2022 and 2021.

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The following table summarizes derivative activity for the three and six-month periods ended June 30, 2022, and 2021 (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Restructuring expenses for the three-month period ended September 30, 2022 represent fees and costs associated with the 2016 bankruptcy, while restructuring expenses for the nine-month period ended September 30, 2022 represent fees and costs associated with the 2016 bankruptcy and our exit from NPB in Colorado.

The lower restructuring expenses for the three and nine-months ended September 30, 2021 relates primarily to accrued expenses for the 2016 Bankruptcy that were removed as a result of the notice of completion of final distribution being filed in the United States Bankruptcy Court for the Southern District of Texas on July 26, 2021.

The following table summarizes derivative activity for the three and nine-month periods ended September 30, 2022 and 2021 (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

Loss on commodity derivative contracts $ — $ — $ 1,064 $ —

Cash paid on settlements $ — $ — $ (1,085) $ —

(Gain) loss on derivative contracts $ (4,258) $ 4,129 $ (3,194) $ 4,129

Realized settlement gains (losses) on derivative contracts $ 218 $ — $ (867) $ —

As applicable, our derivative contracts were not designated as accounting hedges and, as a result, changes in their fair values were recorded each quarter as a component of operating expenses.

Internally, management has historically viewed the settlement of commodity derivative contracts at contractual maturity as adjustments to the price received for oil, natural gas and NGL production to determine “effective prices.” In general, cash is received on settlement of contracts due to lower oil and natural gas prices at the time of settlement, compared to the contract price for our commodity derivative contracts;

Management views the settlement of commodity derivative contracts at contractual maturity as adjustments to the price received for oil, natural gas and NGL production to determine “effective prices.” In general, cash is received on settlement of contracts due to lower oil and natural gas prices at the time of settlement, compared to the contract price for our commodity derivative contracts;

and, cash is paid on settlement of contracts due to higher oil, natural gas and NGL prices at the time of settlement, compared to the contract price for our commodity derivative contracts.

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Quantitative and Qualitative Disclosures about Market Risk” included in Part I of this Quarterly Report.

(Gain) loss on sale of assets decreased by $19.7 million for the six-month period ended June 30, 2022, compared to the same period in 2021.

The decrease relates to the gain from sale of NPB in February 2021.

See “ Acquisitions and Divestitures ” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding the sale of NPB.

The loss on sale of assets for the three-months ended September 30, 2021 relates to a reduction to the NPB sales price as a result of post-closing adjustments during the third quarter of 2021.

The decreases in gain on sale of assets relate to the gain from sale of NPB in February 2021.

See “Note 5 — Acquisitions and Divestitures” to the accompanying unaudited condensed consolidated financial statements included in this Quarterly Report for additional information regarding the sale of NPB.

Other Income (Expense)

Our other income (expense) for the three and six-month periods ended June 30, 2022, and 2021 are presented in the table below (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Our other income (expense) for the three and nine-month periods ended September 30, 2022 and 2021 are presented in the table below (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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Other income, net 147 2,396 235 2,711

12 287 88 315

Total other income (expense)

$ (15) $ 203 $ (91) $ 184

Interest expense incurred during the three-month period ended June 30, 2022 is primarily comprised of interest related to letters of credit.

Interest expense incurred during the six-month period ended June 30, 2022 is primarily comprised of interest paid on royalty obligations of $0.1 million.

Interest expense incurred during the three and six-month periods ended June 30, 2021 is primarily comprised of interest paid on the prior 2020 Credit Facility as discussed in our 2021 10-K and 10-K/A.

The Other income (expense), net line item for the three and six-month periods ended June 30, 2022, and 2021 primarily relates to a gain on the sale of fleet vehicles.

Total other income $ 135 $ 2,140 $ 44 $ 2,324

Interest expense incurred during the three-month period ended September 30, 2022 is primarily comprised of interest related to vehicle leases and letters of credit.

Interest expense incurred during the nine-month period ended September 30, 2022 is primarily comprised of interest paid on royalty obligations of $0.1 million, interest on vehicle leases and letters of credit.

Interest expense incurred during the three and nine-month periods ended September 30, 2021 is primarily comprised of interest paid on the prior 2020 Credit Facility as discussed in our 2021 10-K and 10-K/A.

The Other income, net line item for the three and nine-months ended September 30, 2022 is primarily comprised of gains on the sale of fleet vehicles and the removal of previously accrued liabilities due to a change in estimate.

The Other income, net line item for the three and nine-month periods ended September 30, 2021 includes the removal of an allowance for doubtful accounts recorded for the year ended December 31, 2020 as a result of management determining the receivable from a government agency is collectible.

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Liquidity and Capital Resources

As of June 30, 2022, our cash and cash equivalents, including restricted cash was $205.2 million.

As of September 30, 2022, our cash and cash equivalents, including restricted cash was $240.6 million.

For the next twelve months, we expect to have ample liquidity with cash on hand and cash from operations.

The Company has no outstanding term or revolving debt obligations.

We had no outstanding term or revolving debt obligations as of September 30, 2022.

Working Capital and Sources and Uses of Cash

Our principal sources of liquidity for the next year include cash flows from operations and cash on hand.

Our working capital increased to $166.1 million at June 30, 2022, compared to $97.7 million at December 31, 2021.

The positive impact on working capital resulted primarily from an increase in cash and cash equivalents at June 30, 2022 as a result of cash flows from operations, partially offset by increased accrued liabilities due to our increased capital expenditure activity in 2022.

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Our working capital increased to $206.6 million at September 30, 2022, compared to $97.7 million at December 31, 2021.

The positive impact on working capital resulted primarily from an increase in cash and cash equivalents at September 30, 2022 as a result of cash flows from operations, partially offset by increased accrued liabilities due to our increased capital expenditure activity in 2022.

Our cash flows from operations are substantially dependent on current and future prices for oil, natural gas and NGL, which historically have been, and may continue to be, volatile.

Cash flows from operations are also affected by timing of cash receipts and disbursements and changes in other working capital assets and liabilities.

Our cash flows for the six-month periods ended June 30, 2022, and 2021 are presented in the following table and discussed below (in thousands):

Six Months Ended June 30,

Our cash flows for the nine-month periods ended September 30, 2022 and 2021 are presented in the following table and discussed below (in thousands):

Nine Months Ended September 30,

Cash flows provided by operating activities $ 134,630 $ 66,315

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Cash Flows from Operating Activities

The $45.9 million increase in cash flow from operations for the six-month period ended June 30, 2022 compared to the same period in 2021, is primarily due to higher revenues as a result of improved commodity prices as discussed above offset by a slight decrease in production.

The $68.3 million increase in cash flows from operations for the nine-month period ended September 30, 2022 compared to the same period in 2021, is primarily due to higher revenues as a result of improved commodity prices as discussed above, offset by a slight decrease in production.

The changes in operating assets and liabilities do not include changes in accounts payable or accrued expenses attributable to capital expenditures noted in the capital expenditure table below.

Cash Flows from Investing Activities

Our cash flows provided from investing activities during the six-month period ended June 30, 2022 reflects capital expenditures of $12.0 million primarily related to capital expenditures made for drilling, capital workovers, well reactivations, inventory purchases and an acreage acquisition for $1.4 million.

The increase was partially offset by $0.3 million of proceeds from the sale of assets.

During the six-month period ended June 30, 2021, cash flows from investing activities primarily reflects $37.9 million of net cash proceeds from the sale of assets offset by capital expenditures of $4.4 million.

See "Note 5 — Acquisitions and Divestitures" to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report for additional information.

Capital expenditures for the six-month periods ended June 30, 2022, and 2021 are summarized below (in thousands):

Six Months Ended June 30,

Our cash flows used in investing activities during the nine-month period ended September 30, 2022 reflects capital expenditures of $31.1 million primarily related to capital expenditures made for drilling, capital workovers, well reactivations, inventory purchases and an acreage acquisition for $1.4 million.

Cash outflows were partially offset by $0.4 million of proceeds from the sale of assets.

During the nine-month period ended September 30, 2021, cash flows from investing activities primarily reflects $38.1 million of net cash proceeds from the sale of assets offset by capital expenditures of $8.6 million and acquisition of overriding royalty interests for $3.6 million.

See "Note 5 — Acquisitions and Di vestitures" to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report for additional information.

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Capital expenditures for the nine-month periods ended September 30, 2022 and 2021 are summarized below (in thousands):

Nine Months Ended September 30,

Capital Expenditures

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Total cash paid for capital expenditures $ 32,560 $ 12,219

(1) The Company capitalized $4.5 million in inventory purchases, net of inventory utilized during 2022 on drilling, completion, capital workover and well reactivation activities.

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(1) We capitalized $4.7 million in inventory purchases, net of inventory utilized during 2022 on drilling, completion, capital workover and well reactivation activities.

Cash Flows from Financing Activities

Cash used in financing activities for the six-month period ended June 30, 2022 consisted primarily of $0.2 million of cash used to pay employee tax obligations, for vested stock awards that were settled by net exercise, and finance lease payments of $0.2 million offset by immaterial proceeds from the exercise of stock options.

Cash used in financing activities for the six-month period ended June 30, 2021 consisted primarily of finance lease payments and cash used to pay employee tax obligations for vested stock awards that were settled by net exercise.

Cash used in financing activities for the nine-month period ended September 30, 2022 consisted primarily of $1.2 million of cash used for tax withholdings paid in exchange for shares withheld on employee vested stock awards that were settled by net exercise, and finance lease payments of $0.3 million offset by immaterial proceeds from the exercise of stock options.

Cash used in financing activities for the nine-month period ended September 30, 2021 consisted primarily of repayments of borrowings under the prior 2020 Credit Facility of $20.0 million, finance lease payments of $0.5 million and cash paid for tax withholdings paid in exchange for shares withheld on employee vested stock awards that were settled by net exercise of $0.9 million.

Net exercises of stock awards allows the holder of a stock award to tender back to us a number of shares at fair value upon the vesting of such stock award, that equals the employee payroll tax obligation due.

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Contractual Obligations and Off-Balance Sheet Arrangements

At June 30, 2022, our contractual obligations included asset retirement obligations, leases and other individually insignificant obligations.

At September 30, 2022, our contractual obligations included asset retirement obligations, leases and other individually insignificant obligations.

Additionally, we have certain financial instruments representing potential commitments that were incurred in the normal course of business to support our operations, including surety bonds.

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For a discussion of recent accounting pronouncements, newly adopted and recent accounting pronouncements not yet adopted, see “Note 1—Basis of Presentation” to the accompanying unaudited condensed consolidated financial statements included in Item 1 of this Quarterly Report.

We did not have any material changes in critical accounting policies, estimates, judgments and assumptions during the first six months of 2022.

We did not have any material changes in critical accounting policies, estimates, judgments and assumptions during the first nine months of 2022.

Tabl e of Contents

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