What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-05-08 compared with 2023-11-07 · 77 added, 87 removed, 118 unchanged (58% of the section changed)

6 unchanged sentences

• Critical Accounting Policies and Estimates.

The financial information with respect to the three and nine-month periods ended September 30, 2023 and 2022, discussed below, is unaudited.

The financial information with respect to the three-month periods ended March 31, 2024 and 2023, 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 and nine-month periods ended September 30, 2023 and 2022:

The charts below show production by product and percent revenues for the three-month periods ended March 31, 2024 and 2023:

Total MBoe production for the three-month period ended March 31, 2024 was comprised of approximately 15.1% oil, 58.2% natural gas and 26.7% NGL compared to 17.4% oil, 54.6% natural gas and 28.0% NGL in the first quarter of 2023 .

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Total MBoe production for the three-month period ended September 30, 2023 was comprised of approximately 16.8% oil, 55.5% natural gas and 27.7% NGL compared to 15.8% oil, 53.7% natural gas and 30.5% NGL in 2022.

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

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

These factors were partially offset by production added during the third quarter from an acquisition that closed on July 11, 2023, which increased our ownership interest in twenty-six wells we operate.

Total MBoe production for the nine-month period ended September 30, 2023 was comprised of approximately 17.4% oil, 54.8% natural gas and 27.8% NGL compared to 14.0% oil, 53.8% natural gas and 32.2% NGL in 2022.

Recent Events

• On July 11, 2023, we closed an acquisition which increased our ownership interest in twenty-six producing wells operated by the Company within the Northwest Stack play for $10.6 million, after customary post-closing adjustments, with an effective date of April 1, 2023.

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

• In January 2024, the Board approved a one-time cash dividend of $1.50 per share of the Company's common stock, which was paid on February 20, 2024 to shareholders of record as of the close of business on February 5, 2024.

The aggregate total payout was approximately $55.6 million.

Additionally, in March 2024, the Board increased the on-going quarterly dividend to $0.11 per share which was first paid on March 29, 2024, to shareholders of record as of the close of business on March 15, 2024.

The aggregate total payout was $4.1 million.

• On November 2, 2023, the Board declared a cash dividend of $0.10 per share of the Company’s common stock, payable on November 27, 2023 to shareholders of record on November 13, 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) artificial lift conversions to more efficient and cost effective systems, (2) a continuation of our well reactivation program and (3) limited opportunistic leasing in proven areas around or adjacent to our area of operations that could further bolster future development.

Given the commodity price dynamics during the year, 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.

The $0.11 per share dividend is subject to quarterly approval by the Board.

• On May 2, 2024, the Board declared a cash dividend of $0.11 per share of the Company’s common stock, payable on May 31, 2024 to shareholders of record on May 17, 2024.

We will continue to focus on growing the value and cash 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) artificial lift conversions to more efficient and cost effective systems, (2) high-graded re-fracturing and recompletion and (3) limited opportunistic leasing in proven areas around or adjacent to our area of operations that could further bolster future development.

While commodity price futures are not yet at preferred levels to resume drilling or further well reactivations at this time, we retain the development option over a reasonable tenor, since our assets are 99% held by production.

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 2024 and beyond.

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Three-month periods ended

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

March 31, 2024 December 31, 2023 September 30, 2023 June 30, 2023 March 30, 2023

NYMEX Oil (per Bbl) $ 77.50 $ 78.53 $ 82.25 $ 73.54 $ 75.93

NYMEX Natural gas (per Mcf) $ 2.23 $ 2.84 $ 2.69 $ 2.26 $ 2.74

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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.

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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.

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

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

2023 2022 Change 2023 2022 Change

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Consolidated revenues for the three-month periods ended March 31, 2024 and 2023 are presented in the table below (in thousands):

Three Months Ended March 31,

2024 2023 Change

Oil $ 15,599 $ 19,410 $ (3,811)

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Oil, Natural Gas and NGL Production and Pricing

Our production and pricing information for the three and nine-month periods ended September 30, 2023 and 2022 is shown in the table below:

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

2023 2022 Change 2023 2022 Change

Our production and pricing information for the three-month periods ended March 31, 2024 and 2023 is shown in the table below:

Three Months Ended March 31,

2024 2023 Change

Production data

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Tabl e of Contents

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

Three Months Ended September 30, 2023 Nine Months Ended September 30, 2023

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

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, 2024 are shown in the table below (in thousands):

Three Months Ended March 31, 2024

Q1 2023 oil, natural gas and NGL revenues $ 43,147

Change due to production volumes (2,729)

Change due to average prices (10,135)

2023 oil, natural gas and NGL revenues $ 38,149 $ 114,715

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

Q1 2024 oil, natural gas and NGL revenues $ 30,283

Oil, natural gas, and NGL revenues decreased primarily due to lower commodity prices.

Production volumes for the three months ended March 31, 2024 decreased primarily due to the natural declines of our producing wells, as well as an increase in downtime associated with inclement weather for the period.

There were no new wells or completions during the period, as the Company defers higher level of capital investment for higher commodity periods to maximizes returns.

See "Item 1A—Risk Factors" included in our 2023 Form 10-K for additional discussion of the potential impact these events may have on our future revenues.

Operating Expenses

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

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

2023 2022 Change 2023 2022 Change

Operating expenses for the three-month periods ended March 31, 2024 and 2023 consisted of the following (in thousands):

Three Months Ended March 31,

2024 2023 Change

Lease operating expenses $ 10,892 $ 11,694 $ (802)

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Production, ad valorem, and other taxes (% of oil, natural gas and NGL revenue) 6.3 % 8.7 % (2.4) %

The increase in lease operating expenses for the three and nine-month periods ended September 30, 2023 was primarily due to inflationary pressures and higher production costs associated with more producing wells from our well reactivations and prior development program as well as increased ownership interest from our July 2023 acquisition.

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

Production, ad valorem, and other taxes for the three month period ended September 30, 2023 decreased as a percentage of oil, natural gas and NGL revenue primarily due to recovery of ad valorem tax payments from our working interest partners.

Production, ad valorem, and other taxes for the nine-month period ended September 30, 2023 increased as a percentage of oil, natural gas and NGL revenue primarily due to 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 decrease in lease operating expenses for the three-month periods ended March 31, 2024 was primarily due to decreases in utility costs and expense workovers.

Production, ad valorem, and other taxes for the three-month periods ended March 31, 2024 decreased primarily due to lower commodity prices and related revenues.

Production, ad valorem, and other taxes for the three month period ended March 31, 2024 decreased as a percentage of oil, natural gas and NGL revenue primarily due to a decrease in ad valorem taxes as a result of decreased valuation assessments on our oil and gas properties.

The increase in depreciation and depletion for oil and natural gas properties was primarily the result a decrease in proved reserves at March 31, 2024, driven by lower SEC prices (as defined below), which increased our depletion rate.

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The increase in depreciation and depletion for oil and natural gas properties was primarily the result of capital expenditures for the fourth quarter of 2022 through the third quarter of 2023 and a decrease in proved reserves at September 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 September 30, 2023 were $78.54 per barrel of oil and $3.42 per MMBtu of natural gas, before price differential adjustments.

The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at March 31, 2024 were $77.48 per barrel of oil and $2.45 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 and nine-month periods ended September 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 September 30, 2023 full cost ceiling test and resulted in material ceiling limitation impairments.

therefore, no full cost ceiling limitation impairments were recorded during the three-month periods ended March 31, 2024 or 2023.

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, 2024 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 October 1, 2023, as well as two months of NYMEX strip pricing for November and December of 2023 as of October 25, 2023, we estimate the SEC prices utilized in the December 31, 2023 full cost ceiling test may be $79.52 per barrel of oil and $2.66 per MMBtu 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, 2023 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the fourth quarter of 2023.

Based on the SEC prices over the trailing ten months ended April 30, 2024, as well as two months of NYMEX strip pricing for May and June of 2024 as of April 30, 2024, we estimate the SEC prices utilized in the June 30, 2024 full cost ceiling test may be $79.60 per barrel of oil and $2.34 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, 2024 ceiling test, we expect that no full cost ceiling limitation impairment is indicated for the second quarter of 2024.

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 nine-month periods ended September 30, 2023 and 2022 consisted of the following (in thousands):

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

2023 2022 Change 2023 2022 Change

Other operating expenses for the three-month periods ended March 31, 2024 and 2023 consisted of the following (in thousands):

Three Months Ended March 31,

2024 2023 Change

General and administrative $ 3,332 $ 2,909 $ 423

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Employee termination benefits — 19 (19)

Gain on derivative contracts — (4,258) 4,258 (1,447) (3,194) 1,747

Other operating (income) expense (31) (25) (6) (152) (140) (12)

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

Other operating (income) expense, net (9) (94) 85

Total other operating expenses $ 3,323 $ 1,426 $ 1,897

The increase in general and administrative expenses for the three months ended September 30, 2023 was primarily the result of an increase in computer software upgrades.

The nine months ended September 30, 2022 benefited from 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.

Other increases in general and administrative expenses for the nine months ended September 30, 2023 included higher technology, service and personnel costs.

The increase in general and administrative expenses for the three months ended March 31, 2024 was primarily the result of an increase in service and personnel costs.

The following table summarizes derivative activity for the three-month periods ended March 31, 2024 and 2023 (in thousands):

Three Months Ended March 31,

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

Settlement gains (losses) on derivative contracts $ — $ 5,876

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

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

2023 2022 2023 2022

Gain on derivative contracts $ — $ (4,258) $ (1,447) $ (3,194)

Realized settlement gains (losses) on derivative contracts $ — $ 218 $ 5,876 $ (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.

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;

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Other Income (Expense)

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

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

2023 2022 2023 2022

Our other income (expense) for the three-month periods ended March 31, 2024 and 2023 are presented in the table below (in thousands):

Three Months Ended March 31,

Other income (expense)

Interest income (expense), net $ 2,698 $ 2,499

Other income, net 31 147 88 235

Other income (expense), net 9 55

Total other income $ 2,707 $ 2,554

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

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

Interest income, net during the three-month periods ended March 31, 2024 and 2023 is primarily comprised of interest income on cash deposits.

Liquidity and Capital Resources

As of September 30, 2023, our cash and cash equivalents, including restricted cash was $232.2 million.

As of March 31, 2024, our cash and cash equivalents, including restricted cash was $208.5 million.

We expect our cash on hand and cash from operations to be adequate to meet our short and long-term liquidity needs.

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

We had no outstanding term or revolving debt obligations as of March 31, 2024.

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.

Dividend payments to shareholders of $77.8 million, $25.7 million in capital expenditures, and $11.2 million related to an acquisition of proved reserves were the primary drivers in the reduction of working capital to $205.1 million at September 30, 2023 compared to $241.6 million at December 31, 2022.

Dividend payments to shareholders of $59.7 million were the primary drivers in the reduction of working capital to $184.5 million at March 31, 2024 compared to $228.5 million at December 31, 2023.

This activity was partially 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 $73.8 million.

Additionally, in May 2023, the Board announced plans for a regular quarterly dividend of $0.10 per share, subject to quarterly approval by the Board.

In August 2023, the Board declared a cash dividend of $0.10 per share of the Company’s common stock, which was paid on August 28, 2023 to shareholders of record as of the close of business on August 14, 2023.

In January 2024, the Board approved a one-time cash dividend of $1.50 per share of the Company's common stock, which was paid on February 20, 2024 to shareholders of record as of the close of business on February 5, 2024.

The aggregate total payout was approximately $55.6 million.

The aggregate total payout was $4.1 million.

In addition to the quarterly dividend payments, the Company paid $0.3 million in cash dividends on vested stock awards during the three and nine-month periods ended September 30, 2023.

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The $0.11 per share dividend is subject to quarterly approval by the Board.

Dividend payments for the three-month period ended March 31, 2024 totaled $59.7 million, which included $0.1 million in dividends on vested stock awards.

See Note 8 for further discussion of the Company’s dividends.

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 nine-month periods ended September 30, 2023 and 2022 are presented in the following table and discussed below (in thousands):

Nine Months Ended September 30,

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Our cash flows for the three-month periods ended March 31, 2024 and 2023 are presented in the following table and discussed below (in thousands):

Three Months Ended March 31,

Cash flows provided by operating activities $ 15,681 $ 39,847

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Cash Flows from Operating Activities

The $45.3 million decrease in cash flows from operations for the nine-month period ended September 30, 2023 compared to the same period in 2022 is primarily due to a decrease in revenues from lower commodity prices.

The $24.2 million decrease in cash flows from operations for the three-month period ended March 31, 2024 compared to the same period in 2023 is primarily due to a decrease in revenues from lower commodity prices.

Cash Flows from Investing Activities

Our cash flows used in investing activities during the nine-month period ended September 30, 2023 reflects capital expenditures of $25.7 million primarily related to capital expenditures made for drilling, capital workovers, and well reactivations and $11.2 million related to an acquisition of proved reserves, which increased ownership interests in properties operated by the Company.

We received $1.4 million of proceeds from the sale of equipment related to our oil and gas assets.

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

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

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

Nine Months Ended September 30,

Our cash flows used in investing activities during the three-month periods ended March 31, 2024 and 2023 reflect capital expenditures of $1.1 million and $9.4 million, respectively, primarily related to capital expenditures made for capital workovers, well reactivation and drilling in 2023.

Given the decline in natural gas prices, we have prudently elected to defer our drilling option for higher commodity price environments to maximize returns.

Capital expenditures for the three-month periods ended March 31, 2024 and 2023 are summarized below (in thousands):

Three Months Ended March 31,

Capital Expenditures

Drilling and completion $ 18,181 $ 29,705

Capital workovers 3,592 7,951

Drilling, completion, and capital workovers $ 745 $ 12,079

Leasehold and geophysical 84 141

Capital expenditures (on an accrual basis) 829 12,220

Acquisitions 11,232 1,431

Capital expenditures, including acquisitions 32,896 39,684

Changes in accounts payable and accrued expenses 314 (2,753)

Inventory material transfers to oil and natural gas properties (19) (75)

Total cash paid for capital expenditures, including acquisitions $ 36,913 $ 32,560

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Total cash paid for capital expenditures $ 1,124 $ 9,392

Cash Flows from Financing Activities

Cash used in financing activities for the nine-month period ended September 30, 2023 consisted primarily of $77.8 million in cash dividends, $0.9 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 $0.4 million.

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

Cash used in financing activities for the three-month period ended March 31, 2024 consisted primarily of $59.7 million in cash dividends, $0.1 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 $0.2 million.

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.

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 September 30, 2023, our contractual obligations included asset retirement obligations, leases and other individually insignificant obligations.

At March 31, 2024, 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 2023 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 nine months of 2023.

We did not have any material changes in critical accounting policies, estimates, judgments and assumptions during the first three months of 2024.

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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