What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-11 compared with 2024-03-07 · 61 added, 60 removed, 238 unchanged (34% of the section changed)

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Operational Activities

For the year ended December 31, 2024, there were no operated wells drilled, with three operated and one non-operated wells completed.

For the year ended December 31, 2023 there were two operated wells drilled and four wells completed.

For the year ended December 31, 2022 there were eight operated wells drilled, six wells completed, and 50 wells reactivated.

The charts below show production and percent revenues by product for the years ended December 31, 2024 and 2023:

Total production for the years ended December 31, 2023 and 2022 was composed of the following:

The Company's production last year benefited from our previous drilling program that concluded in 2023.

Production in 2024 decreased slightly due to the natural decline of our producing assets, but benefited by our newly acquired wells beginning in September 2024, as well as periods of ethane recovery.

Total production by volume on a Boe basis for the years ended December 31, 2024 and 2023 was composed of the following:

Year Ended December 31,

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Total 100.0 % 100.0 %

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.

Highlighted Events

• 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 January 2024, the Board announced that it plans to increase its on-going quarterly dividend to $0.11 per share starting with the next quarterly payout, estimated to be first paid in March 2024, continuing every quarter thereafter until noticed, subject to quarterly approval by the Board.

• On July 11, 2023, the Company closed an acquisition that increased its 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.

The Company used its cash on hand to fund the acquisition.

• 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.

Additionally, in May 2023, the Board announced a regular quarterly dividend of $0.10 per share of the Company’s common stock, subject to quarterly approval by the Board.

Our dividend payment in May was $73.8 million and the $0.10 dividend payments made in August 2023 and November 2023 totaled $7.4 million.

• 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.

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.

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.

• On August 30, 2024, the Company closed on its previously announced acquisition of certain producing oil and natural gas properties in the Cherokee Play of the Western Anadarko Basin for $121.9 million, after customary post-closing adjustments.

On December 13, 2024, the Company closed a subsequent acquisition that exchanged and increased its ownership interest in certain proved and unproved oil and gas properties within the same area for $5.2 million, before customary post-closing adjustments of $0.5 million, paid in January 2025, and terminated the previously announced joint development agreement.

The Company will operate the majority of its planned development in 2025.

• On September 30, 2024, and effective October 1, 2024, the Company announced the following changes (i) Jonathan Frates was appointed to serve as the Company's Executive Vice President and Chief Financial Officer and resigned as Chairman of the Board, (ii) the Board appointed Mr.

Vincent Intrieri to serve as a Board member and as the Company’s Chairman of the Board to fill the vacancy following Jonathan Frates’ resignation from the Board;

Intrieri also joined the Board’s Compensation and Nominating and Governance Committees, and (iii) Mr.

Brandon Brown to serve as the Company’s Senior Vice President and Chief Accounting Officer, effective October 21, 2024.

Brown no longer serves as Chief Financial Officer upon the commencement of Mr.

Frates’ role as Chief Financial Officer on October 21, 2024.

• On April 3, 2024, the Company announced that the Board had appointed Mr.

Dean Parrish, Senior Vice President, Operations, to serve as the Company’s Senior Vice President and Chief Operating Officer, effective April 1, 2024.

We remain committed to growing the value of our asset base in a safe, responsible and efficient manner, while prudently allocating capital to high-return, organic growth projects.

Currently, these projects include (1) One rig development in the Cherokee Shale Play, which consists of 9 wells to be spud, 8 wells to be drilled and 6 wells to be completed in 2025 (2) Production Optimization program through artificial lift conversions to more efficient and cost-effective systems and high-graded recompletions (3) leasing program that will bolster future development and extend development in our Cherokee assets.

Our legacy non-Cherokee leasehold remains approximately 99% held by production, which cost-effectively maintains our development option over a reasonable tenor.

We will continue to monitor forward-looking commodity prices, project results, costs and other factors that could influence returns and adjust capital allocations accordingly.

These and other factors, to include reasonable reinvestment rates, sustaining our cash flows and prioritizing our regular-way dividend, will continue to shape our development decisions for the remainder of the year and beyond.

We also remain vigilant in evaluating further merger and acquisition opportunities, with consideration of our strong balance sheet and commitment to our capital return program.

Consolidated Results of Operations

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(1) Prices represent actual average prices for the periods presented and do not include the impact of derivative transactions.

(1) Prices represent actual average realized prices for the periods presented and do not include the impact of derivative transactions.

Consolidated revenues for the years ended December 31, 2024 and 2023 are presented in the table below (in

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

Production volumes for the year ended December 31, 2023 decreased slightly due to the natural declines of our producing wells, which were partially offset from the production from our new wells and increased ownership interest from our July 2023 acquisition.

The Company's production benefited from its prior drilling program, concluded in 2023, as well as production from our newly acquired wells beginning in September 2024, offset by the natural decline of our producing assets.

Operating Expenses

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Production, ad valorem, and other taxes (% of oil, natural gas, and NGL revenue) 5.4 % 7.3 % (1.9) %

The increase in lease operating expenses was primarily due to inflationary pressures and higher production costs associated with more producing wells from our prior well reactivations and development program as well as increased ownership interest from our July 2023 acquisition during the year ended December 31, 2023.

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

However, production, ad valorem, and other taxes 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 included prior periods 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 2023 and a decrease in proved reserves at December 31, 2023, primarily as a result of lower SEC prices (as defined below), which increased our depletion rate.

The decrease in lease operating expenses was primarily due to a decrease in workover expense.

Production, ad valorem, and other taxes decreased primarily due to a $1.4 million ad valorem tax refund received in the fourth quarter of 2024 combined with a decrease in production taxes due to lower commodity prices and related revenues.

The increase in depreciation and depletion for oil and natural gas properties was primarily the result of our acquisition in the Cherokee Play of the Western Anadarko Basin in the third quarter of 2024, which increased the book value of our proved properties and subsequently our depletion rate.

Full cost pool impairment.

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The SEC prices utilized in the calculation of proved reserves included in the full cost ceiling test at December 31, 2024 were $75.48 per barrel of oil and $2.13 per MMBtu of natural gas, before price differential adjustments.

Based on the SEC prices over the eleven months ended February 1, 2024 and NYMEX strip pricing for March 2024 as of March 1, 2024, we anticipate the SEC prices utilized in the March 31, 2024 full cost ceiling test may be $77.48 per barrel of oil and $2.44 per MMBtu of natural gas, (the "estimated first quarter prices").

Based on the SEC prices over the eleven months ended February 1, 2025 and NYMEX strip pricing for March 2025 as of February 28, 2025, we anticipate the SEC prices utilized in the March 31, 2025 full cost ceiling test may be $74.52 per barrel of oil and $2.44 per MMBtu of natural gas, (the "estimated first quarter prices").

Applying these estimated first quarter prices, and holding all other inputs constant to those used in the calculation of our December 31, 2024 ceiling test, no full cost ceiling limitation impairment is indicated for the first quarter of 2025.

However, a full cost ceiling limitation impairment may still be realized in the future based on the outcome of numerous other factors such as additional declines in the actual trailing twelve-month SEC prices, production, lower commodity prices, changes in estimated future development costs and operating expenses, and other revisions to our proved reserves.

Any such ceiling test impairments in 2024 could be material to our net earnings.

However, a full cost ceiling limitation impairment may still be realized in the future based on the outcome of numerous other factors such as declines in the actual trailing twelve-month SEC prices, production, lower commodity prices, changes in estimated future development costs and operating expenses, and other revisions to our proved reserves.

Any such ceiling test impairments in the future could be material to our net earnings.

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

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Total other operating expenses $ 12,793 $ 9,556 $ 3,237

General and administrative expenses increased for the year ended December 31, 2023 primarily due to higher technology, service and personnel costs.

General and administrative expenses increased for the year ended December 31, 2024 primarily due to higher personnel and other costs.

Restructuring expenses represent fees and costs associated with our predecessor company's 2016 bankruptcy filing and our exit from NPB in Colorado.

Other operating expense (income) increased for the year ended December 31, 2024 primarily due to a $1.3 million impairment on our equipment inventory.

The following table summarizes derivative activity for the years ended December 31, 2024 and 2023 (in thousands):

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Total interest income (expense), net $ 7,744 $ 10,552

Interest (income) expense, net during the year ended December 31, 2023 is primarily comprised of interest income received from cash deposits.

Interest (income) expense, net during the year ended December 31, 2022 is primarily comprised of interest income received from cash deposits partially offset by interest paid on royalty obligations of $0.1 million, interest on vehicle leases and letters of credit.

Other income (expense), net

The Other income (expense), net line item was not significant for the year ended December 31, 2023.

For the year ended December 31, 2022, Other income (expense), net of $0.4 million is primarily comprised of gains on the sale of fleet vehicles and the removal of previously accrued liabilities due to a change in estimate.

Interest (income) expense, net during the years ended December 31, 2024 and 2023 is primarily comprised of interest income received from cash deposits.

The decrease in interest income, net is due to the Company’s lower cash balance primarily as a result of our acquisitions, and to a lesser extent, capital expenditures and dividend payments.

Income tax (benefit)

We recorded income tax expense and benefit of $14.0 million and $64.5 million for the years ended December 31, 2023 and 2022, respectively, which directly relates to our partial valuation allowance release.

As the partial valuation allowance release as of December 31, 2023 was lower than the partial valuation allowance release as of December 31, 2022 of $64.5 million, we recognized $14.0 million of deferred federal and state income tax expense for the year ended December 31, 2023.

We recorded income tax benefit and expense of $22.2 million and $14.0 million for the years ended December 31, 2024 and 2023, respectively, which directly relates to movement in our valuation allowance against our deferred tax assets.

As the partial valuation allowance release as of December 31, 2024 was higher than the partial valuation allowance release as of December 31, 2023 of $50.6 million, we recognized $22.2 million of deferred federal and state income tax benefit for the year ended December 31, 2024.

Liquidity and Capital Resources

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Our working capital decreased to $67.1 million at December 31, 2024, compared to $228.5 million at December 31, 2023.

Dividend payments to shareholders of $81.5 million, $26.4 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.

Cash paid for oil and gas property acquisitions of $129.7 million, dividend payments to shareholders of $72.3 million, and $26.4 million in capital expenditures were the primary drivers in the reduction of working capital.

These cash outflows were offset by $73.9 million in cash provided by operating activities.

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.

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 paid in March, May, August, and November 2024.

The aggregate total payout was $16.3 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.

The Company paid quarterly dividends of $3.7 million each on August 28, 2023 and November 27, 2023, totaling $7.4 million, as well as dividends on vested stock awards of $0.3 million for the year.

Total special and regular dividends for the year ended December 31, 2023 were $81.5 million.

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

Dividend payments for the year ended December 31, 2024 totaled $72.3 million, which included $0.5 million of dividends on vested stock awards.

See Note 13 for further discussion of the Company’s dividends.

Excluding any expenditures for acquisitions which may arise, we intend to spend between $66 million and $85 million in our 2025 capital budget plan.

We intend to fund capital expenditures and other commitments for the next 12 months using cash flows from our operations and cash on hand.

We will endeavor to keep our capital spending within or very close to our projected cash flows from operations subject to changing industry conditions or events.

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.

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Cash flows used in financing activities (1)

(73,670) (82,938)

Net (decrease) increase in cash, cash equivalents and restricted cash $ (154,433) $ (3,524)

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(1) Includes $72.3 million and $81.5 million in dividend payments for the year ended December 31, 2024 and 2023, respectively.

Cash Flows from Operating Activities

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Cash Flows from Investing Activities

During the year ended December 31, 2024, cash flows used in investing activities primarily reflects $129.7 million in cash paid for oil and gas property acquisitions and capital expenditures of $26.4 million.

Cash outflows were partially offset by $1.4 million of proceeds from the sale of equipment related to our oil and gas assets.

During the year ended December 31, 2023, cash flows used in investing activities primarily reflects capital expenditures of $26.4 million made for drilling and completions, 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.

Cash outflows were partially offset by $1.5 million of proceeds from the sale of equipment related to our oil and gas assets.

During the year ended December 31, 2022, cash flows used in investing activities primarily reflects capital expenditures of $44.1 million related to drilling and completions, capital workovers, well reactivations, and inventory purchases and $1.4 million related to an acquisition of proved reserves.

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

See "Note 3 — Acquisitions and Divestitures of Assets and Oil and Gas Properties" to the accompanying consolidated financial statements included in Item 8 of this report for additional information.

See "Note 3 — Acquisitions of Assets and Oil and Gas Properties" to the accompanying consolidated financial statements included in Item 8 of this report for additional information.

Capital Expenditures.

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Capital Expenditures

Drilling and completions $ 18,132 $ 38,077

Capital workovers 4,346 10,322

Drilling, completion, and capital workovers $ 15,562 $ 22,478

Leasehold and geophysical 11,246 (46)

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Total cash paid for capital expenditures, including acquisitions $ 156,068 $ 37,607

Capital expenditures, excluding acquisitions, for development activities decreased for the year ended December 31, 2023 compared to 2022, primarily due to the conclusion of our drilling program in the second quarter of 2023.

Cash Flows from Financing Activities

Our financing activities used $82.9 million of cash for the year ended December 31, 2023, consisting primarily of $81.5 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 $0.6 million offset by $0.1 million of 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, t

hat equals the employee payroll tax obligation due.

Our financing activities used $73.7 million of cash for the year ended December 31, 2024, consisting primarily of $72.3 million in cash dividends, finance lease payments of $0.7 million, $0.4 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 $0.2 million in common stock repurchases.

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.

We then remit a cash payment to the relevant taxing authority on behalf of the employee for their payroll tax obligations resulting from the vesting of their stock award.

Our financing activities used $1.6 million of cash for the year ended December 31, 2022, consisting 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 $0.5 million offset by $0.1 million of proceeds from the exercise of stock options.

See discussion in above paragraph for additional information on net exercises of stock awards.

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The Program does not require any specific number of shares to be acquired, and can be modified or discontinued by the Board at any time.

The Company did not repurchase any common stock under the existing or prior Program during the years ended December 31, 2023 and 2022.

For the year ended December 31, 2024, the Company repurchased 21,308 shares for $0.2 million.

The Company did not repurchase any common stock under the existing or prior Program during the year ended December 31, 2023.

Contractual Obligations and Off-Balance Sheet Arrangements

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As of December 31, 2024, we had future contractual commitments under various agreements, which are summarized below.

The short-term leases and operating lease are not recorded in the accompanying consolidated balance sheets.

The short-term leases are not recorded in the accompanying consolidated balance sheets.

Payments Due by Period

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These estimates and assumptions can be inherently unpredictable and may differ from actual results given the uncertainty of when we may be required to plug and abandon a well or retire an asset.

As a result, we may not incur all of the estimated costs for the current asset retirement obligation as depicted above.

As a result, we may not incur all or may incur more than the estimated costs for the current asset retirement obligation as depicted above.

During the year ended December 31, 2024, plugging and abandonment costs incurred were $0.9 million.

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In addition, as a result of volatility and changing market conditions, commodity prices and future development costs will change from period to period, causing estimates of proved reserves to change, as well as causing estimates of future net revenues to change.

When excluding the effects of pricing, the Company revised its proved reserves an average of approximately 5% over the past five years and the revisions for the year ended December 31, 2023 were less than 3%.

When excluding the effects of pricing and other commercial assumptions, the Company revised its proved reserves an average of approximately 5% over the past five years and the revisions for the year ended December 31, 2024 were approximately 3%.

In the future, estimates of proved reserves could also be influenced by production performance indicating more (or less) reserves in place, larger (or smaller) reservoir size than initially estimated or additional proved reserve bookings within the original field boundaries among other factors.

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Changes in timing or to the original estimate of cash flows will result in changes to the carrying amount of the liability.

For the years ended December 31, 2023 and 2022, the Company revised its asset retirement obligations by approximately $0.9 million downwards and $2.7 million upwards, respectively, due primarily to changes in working interest and estimated well lives.

The Company did not have significant revisions to its asset retirement obligations for the years ended December 31, 2024 or 2023.

Income Taxes.

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In prior years, we determined that the deferred tax assets did not meet the more likely than not threshold of being utilized and thus recorded a valuation allowance.

Our partial valuation release of $64.5 million as of December 31, 2022 was partially offset by $14.0 million due to changes in expected future income, resulting in net deferred tax assets of $50.6 million as of December 31, 2023.

Our partial valuation allowance release of $50.6 million as of December 31, 2023 was increased by $22.2 million due to changes in expected future income, resulting in net deferred tax assets of $72.8 million as of December 31, 2024.

We anticipate being able to utilize these deferred tax assets based on the generation of future income.

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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-K

Item 7. Management’s Discussion and Analysis