What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-05 · 86 added, 65 removed, 118 unchanged (56% of the section changed)

6 unchanged sentences

• Critical Accounting Policies and Estimates.

The financial information with respect to the three-month periods ended March 31, 2023 and 2022, discussed below, is unaudited.

The financial information with respect to the three and six-month periods ended June 30, 2023 and 2022, 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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Mid-Continent region (“Mid-Con”).

The chart below shows production by product for the three-month periods ended March 31, 2023 and 2022:

Total MBoe production for the three-month period ended March 31, 2023 was comprised of approximately 17.4% oil, 54.6% natural gas and 28.0% NGL compared to 13.3% oil, 53.9% natural gas and 32.8% NGL in 2022.

The chart below shows production by product for the three and six-month periods ended June 30, 2023 and 2022:

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Total MBoe production for the three-month period ended June 30, 2023 was comprised of approximately 18.1% oil, 54.2% natural gas and 27.7% NGL compared to 12.8% oil, 53.8% natural gas and 33.4% NGL in 2022.

The increase in oil production was primarily driven by the newly drilled wells as part of the Company’s capital development program.

The decrease in total MBoe was primarily driven by a reduction of NGL production, as one of the Company’s purchasers elected to retain more ethane in the natural gas stream, which had more favorable market pricing at the time of sales.

Total MBoe production for the six-month period ended June 30, 2023 was comprised of approximately 17.8% oil, 54.4% natural gas and 27.8% NGL compared to 13.1% oil, 53.8% natural gas and 33.1% NGL in 2022.

Recent Events

• Consistent with our 2023 capital development program announced on March 15, 2023, we drilled two wells and completed two wells during the quarter ended March 31, 2023.

We will continue to focus on growing the cash value allocation 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, (3) focused drilling in high-graded areas and (4) limited opportunistic leasing in proven areas around or adjacent to our area of operations that could further bolster future development.

Given near term commodity price dynamics, and that our Midcon assets are 99% held by production, which preserves the tenor of our development option, we concluded our drilling activity this quarter, with remaining completions to occur in the second quarter.

• In May 2023, the Board approved a one-time cash dividend of $2.00 per share of the Company’s common stock, which was paid on June 7, 2023 to shareholders of record as of the close of business on May 24, 2023.

The aggregate total payout was approximately $73.8 million.

Additionally, in May 2023, the Board announced that it plans a regular quarterly dividend of $0.10 per share of the Company’s common stock, to commence after the second quarter and to be first payable in August 2023, subject to quarterly approval by the Board.

• In May 2023, the Board approved a stock buyback program authorizing the repurchase of up to $75 million of the Company’s outstanding common stock in open market transactions.

• On July 12, 2023, the Company announced the closing of an acquisition which increases its interest in twenty-six producing wells operated by the Company within the Northwest Stack play for approximately $11.3 million, with an effective date of April 1, 2023.

Average net production associated with the acquired interests for the first quarter of 2023 was approximately 500 barrels of oil equivalent per day (~30% oil).

We expect the low decline profile and oilier content associated with these properties and interests further strengthen the Company’s commodity price realizations, operating margins and cash flow.

• On August 1, 2023, the Board declared a cash dividend of $0.10 per share of the Company’s common stock, payable on August 28, 2023 to shareholders of record on August 14, 2023.

We will continue to focus on growing the cash value 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) limited opportunistic leasing in proven areas around or adjacent to our area of operations that could further bolster future development.

Given near term commodity price dynamics, and that our Mid-Con assets are 99% held by production, which preserves the tenor of our development option, we concluded our drilling and completion program in the second quarter of 2023.

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 2023 and beyond.

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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:

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Three-month periods ended

March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022 March 31, 2022

June 30, 2023 March 31, 2023 December 31, 2022 September 30, 2022 June 30, 2022

NYMEX Oil (per Bbl) $ 73.54 $ 75.93 $ 82.79 $ 93.06 $ 108.83

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

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Consolidated revenues for the three-month periods ended March 31, 2023 and 2022 are presented in the table below (in thousands):

Three Months Ended March 31,

2023 2022 Change

Consolidated revenues for the three and six-month periods ended June 30, 2023 and 2022 are presented in the table below (in thousands):

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

2023 2022 Change 2023 2022 Change

Oil $ 19,584 $ 22,602 $ (3,018) $ 38,994 $ 42,383 $ (3,389)

NGL 10,347 17,742 (7,395)

Natural gas 6,805 27,705 (20,900) 20,195 47,669 (27,474)

NGL 7,030 19,453 (12,423) 17,377 37,195 (19,818)

Total revenues $ 33,419 $ 69,760 $ (36,341) $ 76,566 $ 127,247 $ (50,681)

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Oil, Natural Gas and NGL Production and Pricing

Our production and pricing information for the three-month periods ended March 31, 2023 and 2022 is shown in the table below:

Three Months Ended March 31,

2023 2022 Change

Our production and pricing information for the three and six-month periods ended June 30, 2023 and 2022 is shown in the

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

2023 2022 Change 2023 2022 Change

Production data

Oil (MBbls) 288 207 81 549 421 128

NGL (MBbls) 420 526 (106)

Natural gas (MMcf) 5,185 5,231 (46) 10,097 10,426 (329)

NGL (MBbls) 441 541 (100) 861 1,067 (206)

Total volumes (MBoe) 1,593 1,620 (27) 3,093 3,226 (133)

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Oil (per Bbl) $ 68.02 $ 109.06 $ (41.04) $ 70.99 $ 100.57 $ (29.58)

NGL (per Bbl) $ 24.62 $ 33.73 $ (9.11)

Natural gas (per Mcf) $ 1.31 $ 5.30 $ (3.99) $ 2.00 $ 4.57 $ (2.57)

NGL (per Bbl) $ 15.97 $ 35.96 $ (19.99) $ 20.19 $ 34.86 $ (14.67)

Total (per Boe) $ 20.99 $ 43.07 $ (22.08) $ 24.76 $ 39.45 $ (14.69)

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Oil (per Bbl) $ 68.02 $ 109.06 $ (41.04) $ 70.99 $ 100.57 $ (29.58)

NGL (per Bbl) $ 24.62 $ 33.14 $ (8.52)

Natural gas (per Mcf) $ 1.31 $ 5.30 $ (3.99) $ 2.58 $ 4.50 $ (1.92)

NGL (per Bbl) $ 15.97 $ 35.96 $ (19.99) $ 20.19 $ 34.57 $ (14.38)

Total (per Boe) $ 20.99 $ 43.07 $ (22.08) $ 26.66 $ 39.11 $ (12.45)

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

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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-month period ended March 31, 2023 are shown in the table below (in thousands):

Three Months Ended March 31, 2023

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, 2023 are shown in the table below (in thousands):

Three Months Ended June 30, 2023 Six Months Ended June 30, 2023

2022 oil, natural gas and NGL revenues $ 69,760 $ 127,247

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2023 oil, natural gas and NGL revenues $ 33,419 $ 76,566

Revenue decreased due to unfavorable realized commodity prices and a decrease in production.

Revenue for the three and six-month periods ended June 30, 2023 decreased almost entirely due to a reduction in commodity prices.

See "Item 1A—Risk Factors" included in our 2022 Form 10-K for additional discussion of the potential impact these events may have on our future revenues.

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Operating Expenses

Operating expenses for the three-month periods ended March 31, 2023 and 2022 consisted of the following (in thousands):

Three Months Ended March 31,

2023 2022 Change

Operating expenses for the three and six-month periods ended June 30, 2023 and 2022 consisted of the following (in thousands):

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

2023 2022 Change 2023 2022 Change

Lease operating expenses $ 8,802 $ 9,512 $ (710) $ 20,496 $ 20,374 $ 122

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Production, ad valorem, and other taxes (% of oil, natural gas and NGL revenue) 8.2 % 6.9 % 1.3 % 8.5 % 7.0 % 1.5 %

The increase in lease operating expenses was primarily due to inflationary pressures and higher production costs associated with more producing wells driven by our well reactivation and drilling programs.

Production, ad valorem, and other taxes decreased primarily due to lower commodity prices and related revenues.

Production, ad valorem, and other taxes increased as a percentage of oil, natural gas, and NGL revenue due to an increase in ad valorem taxes as a result of increased valuation assessments on our oil and gas properties.

The increase in depreciation and depletion for oil and natural gas properties was primarily the result of capital expenditures for the second quarter of 2022 through the first quarter of 2023 and a decrease in proved reserves at March 31, 2023, primarily as a result of lower SEC prices, which increased our depletion rate.

The decrease in lease operating expenses for the three-month period ended June 30, 2023 was primarily due to a reduction in utility costs and lower workover expenses.

Despite market driven inflationary pressures and higher production costs associated with more producing wells from the Company’s well reactivation and development programs, lease operating expenses for the six-month period ended June 30, 2023 were kept relatively consistent, compared to the same period in 2022.

Production, ad valorem, and other taxes for the three and six-month periods ended June 30, 2023 decreased primarily due to lower commodity prices and related revenues.

Production, ad valorem, and other taxes for the three and six-month periods ended June 30, 2023 increased as a percentage of oil, natural gas and NGL revenue due to an increase in ad valorem taxes as a result of higher oil and gas property valuation assessments by local jurisdictions who use historical commodity price averages that were higher than current commodity prices, when determining ad valorem tax assessments.

The increase in depreciation and depletion for oil and natural gas properties was primarily the result of capital expenditures for the third quarter of 2022 through the second quarter of 2023 and a decrease in proved reserves at June 30, 2023, primarily as a result of lower SEC prices (as defined below), 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 March 31, 2023 were $90.97 per barrel of oil and $5.95 per MMBtu of natural gas, before price differential adjustments.

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The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at June 30, 2023 were $82.82 per barrel of oil and $4.76 per MMBtu 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-month periods ended March 31, 2023 or 2022.

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 March 31, 2023 full cost ceiling test and resulted in material ceiling limitation impairments.

therefore, no full cost ceiling limitation impairments were recorded during the three and six-month periods ended June 30, 2023 or 2022.

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, 2023 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 trailing ten months ended April 30, 2023, as well as two months of NYMEX strip pricing for May and June of 2023 as of April 25, 2023, we estimate the SEC prices utilized in the June 30, 2023 full cost ceiling test may be $83.50 per barrel of oil and $4.79 per MMBtu of natural gas (the "estimated second quarter prices").

Applying these estimated second quarter prices, and holding all other inputs constant to those used in the calculation of our March 31, 2023 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the second quarter of 2023.

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Based on the SEC prices over the trailing ten months ended July 31, 2023, as well as two months of NYMEX strip pricing for August and September of 2023 as of July 18, 2023, we estimate the SEC prices utilized in the September 30, 2023 full cost ceiling test may be $77.22 per barrel of oil and $3.43 per MMBtu of natural gas (the "estimated third quarter prices").

Applying these estimated third quarter prices, and holding all other inputs constant to those used in the calculation of our June 30, 2023 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the third quarter of 2023.

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 (Income)

Other operating expenses (income) for the three-month periods ended March 31, 2023 and 2022 consisted of the following (in thousands):

Three Months Ended March 31,

2023 2022 Change

Other Operating Expenses

Other operating expenses for the three and six-month periods ended June 30, 2023 and 2022 consisted of the following (in thousands):

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

2023 2022 Change 2023 2022 Change

General and administrative $ 2,476 $ 2,171 $ 305 $ 5,385 $ 4,701 $ 684

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(Gain) loss on derivative contracts — — — (1,447) 1,064 (2,511)

Other operating income (94) (64) (30)

Other operating (income) expense (27) (51) 24 (121) (115) (6)

Total other operating expenses $ 2,711 $ 2,553 $ 158 $ 4,137 $ 6,292 $ (2,155)

General and administrative expenses increased primarily due to an increase in professional service fees for the three-month periods ended March 31, 2023 as compared to same period in 2022.

The following table summarizes derivative activity for the three-month periods ended March 31, 2023 and 2022 (in thousands):

Three Months Ended March 31,

The change in general and administrative expenses for the three and six-month periods ended June 30, 2023 is primarily due to a one-time $0.4 million legal retainer refund received in the second quarter of 2022, related to the 2016 bankruptcy, which lowered general and administrative expenses for the three and six-month periods ended June 30, 2022.

The following table summarizes derivative activity for the three and six-month periods ended June 30, 2023 and 2022 (in thousands):

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

2023 2022 2023 2022

(Gain) loss on derivative contracts $ — $ — $ (1,447) $ 1,064

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Other Income (Expense)

Our other income (expense) for the three-month periods ended March 31, 2023 and 2022 are presented in the table below (in thousands):

Three Months Ended March 31,

Our other income (expense) for the three and six-month periods ended June 30, 2023 and 2022 are presented in the table below (in thousands):

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

2023 2022 2023 2022

Other income (expense)

Interest income (expense), net $ 2,828 $ (27) $ 5,327 $ (179)

$ 2,499 $ (152)

Other income, net 2 12 57 88

Total other income (expense) $ 2,830 $ (15) $ 5,384 $ (91)

Interest income incurred during the three-month period ended March 31, 2023 is primarily comprised of interest income received from cash deposits.

Interest expense incurred during the three-month period ended March 31, 2022 is primarily comprised of interest paid on royalty obligations of $0.1 million.

Interest income (expense), net during the three and six-month periods ended June 30, 2023 is primarily comprised of interest income received from cash deposits.

Interest expense incurred during the three and six-month ended June 30, 2022 is primarily comprised of interest related to letters of credit and interest paid on royalty obligations.

Liquidity and Capital Resources

As of March 31, 2023, our cash and cash equivalents, including restricted cash was $287.6 million.

As of June 30, 2023, our cash and cash equivalents, including restricted cash was $224.0 million.

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

We had no outstanding term or revolving debt obligations as of March 31, 2023.

We had no outstanding term or revolving debt obligations as of June 30, 2023.

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 $257.7 million at March 31, 2023, compared to $241.6 million at December 31, 2022.

The positive impact on working capital resulted primarily from an increase in cash and cash equivalents at March 31, 2023 as a result of cash flows from operations.

Our working capital decreased to $198.7 million at June 30, 2023, compared to $241.6 million at December 31, 2022.

The decrease in working capital was primarily the result of a decrease in cash and cash equivalents due to our dividend payment to shareholders of $73.8 million and $24.3 million in capital expenditures, offset by cash flows from operations.

In May 2023, the Board approved a one-time cash dividend of $2.00 per share of the Company’s common stock, which was paid on June 7, 2023 to shareholders of record as of the close of business on May 24, 2023.

The aggregate total payout was approximately $73.8 million.

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 three-month periods ended March 31, 2023 and 2022 are presented in the following table and discussed below (in thousands):

Three Months Ended March 31,

Our cash flows for the six-month periods ended June 30, 2023 and 2022 are presented in the following table and discussed below (in thousands):

Six Months Ended June 30,

Cash flows provided by operating activities $ 63,852 $ 79,156

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Cash flows used in financing activities (74,269) (362)

Net increase in cash and cash equivalents and restricted cash $ 30,096 $ 26,254

Net (decrease) increase in cash and cash equivalents and restricted cash $ (33,441) $ 65,661

Cash Flows from Operating Activities

The $7.7 million increase in cash flows from operations for the three-month period ended March 31, 2023 compared to the same period in 2022 is primarily due to changes in operating assets and liabilities, offset by a decrease in revenues from lower commodity prices and production.

The $15.3 million decrease in cash flows from operations for the six-month period ended June 30, 2023 compared to the same period in 2022 is primarily due to a decrease in revenues from lower commodity prices and production.

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Cash Flows from Investing Activities

Our cash flows used in investing activities during the three-month period ended March 31, 2023 reflects capital expenditures of $9.4 million primarily related to capital expenditures made for drilling, capital workovers, and well reactivations.

Our cash flows used in investing activities during the three-month period ended March 31, 2022 reflects capital expenditures of $5.6 million primarily related to purchases of inventory in preparation of the drilling program and workovers related to the well reactivation program.

Capital expenditures for the three-month periods ended March 31, 2023 and 2022 are summarized below (in thousands):

Three Months Ended March 31,

Our cash flows used in investing activities during the six-month period ended June 30, 2023 reflects capital expenditures of $24.3 million primarily related to capital expenditures made for drilling, capital workovers, and well reactivations.

We received $1.3 million of proceeds from the sale of equipment related to our oil and gas assets.

Our cash flows used in 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 $1.4 million related to an acquisition of proved reserves, which increased interests in properties operated by the Company.

We received $0.3 million of proceeds from the sale of assets.

Capital expenditures for the six-month periods ended June 30, 2023 and 2022 are summarized below (in thousands):

Six Months Ended June 30,

Capital Expenditures

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Capital expenditures (on an accrual basis) 21,156 21,788

Acquisitions — 1,431

Capital expenditures, including acquisitions 21,156 23,219

Changes in accounts payable and accrued expenses 4,376 (9,829)

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Cash Flows from Financing Activities

Cash used in financing activities for the three-month period ended March 31, 2023 consisted primarily of $0.2 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 $0.1 million.

Cash used in financing activities for the three-month period ended March 31, 2022 consisted primarily of cash paid for tax obligations on employee vested stock awards of $0.2 million and finance lease payments of $0.1 million offset by immaterial proceeds from the exercise of stock options.

Cash used in financing activities for the six-month period ended June 30, 2023 consisted primarily of $73.8 million in cash dividends, $0.2 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.

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.

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 March 31, 2023, our contractual obligations included asset retirement obligations, leases and other individually insignificant obligations.

At June 30, 2023, 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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There were no other significant changes in total contractual obligations and off-balance sheet arrangements from those reported in the 2022 Form 10-K.

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Critical Accounting Policies and Estimates

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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 three months of 2023.

We did not have any material changes in critical accounting policies, estimates, judgments and assumptions during the first six months of 2023.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis