What changed in this filing

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Item 1. Financial Statements

2023-04-28 compared with 2022-11-04 · 147 added, 382 removed, 299 unchanged (64% of the section changed)

3 unchanged sentences

(in thousands, except share data)

September 30,

2023 December 31,

8 unchanged sentences

Accumulated depletion, depreciation, and amortization ( 6,339,303 ) ( 6,188,147 )

Unproved oil and gas properties 579,261 629,098

Unproved oil and gas properties, net of valuation allowance of $ 37,904 and $ 38,008 , respectively

497,127 487,192

Wells in progress 342,875 287,267

37 unchanged sentences

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Operating revenues and other income:

6 unchanged sentences

Exploration 18,428 9,046

Impairment 1,077 8,750 6,466 26,250

General and administrative 27,669 24,996

2 unchanged sentences

Total operating expenses 301,458 758,040

Income (loss) from operations 622,281 126,257 1,236,823 ( 265,288 )

Income from operations 272,047 101,736

Interest expense ( 22,459 ) ( 39,387 )

Gain (loss) on extinguishment of debt — 5 ( 67,605 ) ( 2,139 )

Other non-operating income (expense), net 4,470 ( 724 )

Income (loss) before income taxes 600,619 85,554 1,072,440 ( 388,766 )

Income tax (expense) benefit ( 119,379 ) 39 ( 218,951 ) 95

Net income (loss) $ 481,240 $ 85,593 $ 853,489 $ ( 388,671 )

Income before income taxes 254,058 61,625

Income tax expense ( 55,506 ) ( 12,861 )

Net income $ 198,552 $ 48,764

Basic weighted-average common shares outstanding 121,671 121,907

Diluted weighted-average common shares outstanding 122,294 124,179

Basic net income (loss) per common share $ 3.91 $ 0.70 $ 6.98 $ ( 3.29 )

Diluted net income (loss) per common share $ 3.87 $ 0.69 $ 6.87 $ ( 3.29 )

Basic net income per common share $ 1.63 $ 0.40

Diluted net income per common share $ 1.62 $ 0.39

Dividends per common share $ 0.15 $ 0.01

1 unchanged sentence

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

Net income (loss) $ 481,240 $ 85,593 $ 853,489 $ ( 388,671 )

Net income $ 198,552 $ 48,764

Other comprehensive income, net of tax:

1 unchanged sentence

Total other comprehensive income, net of tax 13 182

Total comprehensive income (loss) $ 481,422 $ 85,839 $ 854,035 $ ( 387,642 )

Total comprehensive income $ 198,565 $ 48,946

The accompanying notes are an integral part of these condensed consolidated financial statements.

10 unchanged sentences

— — — ( 18,078 ) — ( 18,078 )

Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings 1,929 — ( 24 ) — — ( 24 )

Stock-based compensation expense — — 4,318 — — 4,318

Balances, March 31, 2022 121,864,177 $ 1,219 $ 1,844,478 $ 282,079 $ ( 12,667 ) $ 2,115,109

Net income — — — 323,485 — 323,485

Other comprehensive income — — — — 182 182

Issuance of common stock under Employee Stock Purchase Plan 65,634 1 1,644 — — 1,645

Stock-based compensation expense 29,471 — 4,479 — — 4,479

Balances, June 30, 2022 121,959,282 $ 1,220 $ 1,850,601 $ 605,564 $ ( 12,485 ) $ 2,444,900

Net income — — — 481,240 — 481,240

Other comprehensive income — — — — 182 182

Cash dividends declared, $ 0.15 per share

— — — ( 18,419 ) — ( 18,419 )

Issuance of common stock upon vesting of RSUs and settlement of PSUs, net of shares used for tax withholdings 1,289,498 13 ( 25,118 ) — — ( 25,105 )

Stock-based compensation expense — — 5,105 — — 5,105

Purchase of shares under Stock Repurchase Program ( 1,413,758 ) ( 14 ) ( 40,454 ) — — ( 40,468 )

Balances, September 30, 2022 122,796,046 $ 1,228 $ 1,810,352 $ 1,068,385 $ ( 12,303 ) $ 2,867,662

The accompanying notes are an integral part of these condensed consolidated financial statements.

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Continued)

(in thousands, except share data and dividends per share)

Balances, March 31, 2023 120,517,918 $ 1,205 $ 1,743,567 $ 1,489,032 $ ( 4,009 ) $ 3,229,795

Additional Paid-in Capital Accumulated Other Comprehensive Loss Total Stockholders’ Equity

Common Stock Retained Earnings (Deficit)

Common Stock Retained Earnings

Shares Amount

Balances, December 31, 2021 121,862,248 $ 1,219 $ 1,840,228 $ 234,533 $ ( 12,849 ) $ 2,063,131

Net loss — — — ( 251,269 ) — ( 251,269 )

Other comprehensive income — — — — 191 191

Cash dividends declared, $ 0.01 per share

— — — ( 1,147 ) — ( 1,147 )

Stock-based compensation expense — — 5,737 — — 5,737

Balances, March 31, 2021 114,742,304 $ 1,147 $ 1,833,651 $ ( 51,719 ) $ ( 13,407 ) $ 1,769,672

Net loss — — — ( 222,995 ) — ( 222,995 )

Other comprehensive income — — — — 592 592

Cash dividends, $ 0.01 per share

— — — ( 31 ) — ( 31 )

Issuance of common stock under Employee Stock Purchase Plan 252,665 3 1,312 — — 1,315

Stock-based compensation expense 57,795 1 3,955 — — 3,956

Issuance of common stock through cashless exercise of Warrants 5,918,089 59 ( 59 ) — — —

Balances, June 30, 2021 120,970,853 $ 1,210 $ 1,838,859 $ ( 274,745 ) $ ( 12,815 ) $ 1,552,509

Net income — — — 48,764 — 48,764

2 unchanged sentences

— — — ( 1,218 ) — ( 1,218 )

Issuance of common stock upon vesting of RSUs and settlement of PSUs, net of shares used for tax withholdings 502,937 5 ( 4,737 ) — — ( 4,732 )

Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings 1,929 — ( 24 ) — — ( 24 )

Stock-based compensation expense — — 4,274 — — 4,274

Balances, September 30, 2021 121,473,790 $ 1,215 $ 1,838,620 $ ( 190,367 ) $ ( 12,569 ) $ 1,636,899

Balances, March 31, 2022 121,864,177 $ 1,219 $ 1,844,478 $ 282,079 $ ( 12,667 ) $ 2,115,109

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from operating activities:

Net income (loss) $ 853,489 $ ( 388,671 )

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 198,552 $ 48,764

Adjustments to reconcile net income to net cash provided by operating activities:

Depletion, depreciation, amortization, and asset retirement obligation liability accretion 154,189 159,481

Impairment 6,466 26,250

Stock-based compensation expense 4,318 4,274

Net derivative loss 385,180 924,183

Derivative settlement loss ( 595,080 ) ( 480,262 )

Net derivative (gain) loss ( 51,329 ) 418,521

Derivative settlement gain (loss) 5,076 ( 168,183 )

Amortization of debt discount and deferred financing costs 1,371 4,010

Loss on extinguishment of debt 67,605 2,139

Deferred income taxes 49,968 11,948

7 unchanged sentences

Cash flows from financing activities:

Proceeds from revolving credit facility — 1,649,500

Repayment of revolving credit facility — ( 1,742,500 )

Net proceeds from Senior Notes — 392,771

Cash paid to repurchase Senior Notes — ( 104,770 )

Repurchase of common stock ( 40,068 ) —

Net proceeds from sale of common stock 1,645 1,315

Dividends paid ( 18,290 ) —

4 unchanged sentences

Cash, cash equivalents, and restricted cash at end of period $ 477,869 $ 419,887

Supplemental schedule of additional cash flow information and non-cash activities:

Supplemental schedule of additional cash flow information:

Operating activities:

2 unchanged sentences

Increase in capital expenditure accruals and other $ 66,873 $ 15,627

Non-cash financing activities (1)

____________________________________________

(1) Please refer to Note 5 - Long-Term Debt for discussion of the debt transactions executed during the nine months ended September 30, 2022, and 2021.

The accompanying notes are an integral part of these condensed consolidated financial statements.

10 unchanged sentences

Operating results for the periods presented are not necessarily indicative of expected results for the full year.

In connection with the preparation of the Company’s unaudited condensed consolidated financial statements, the Company evaluated events subsequent to the balance sheet date of September 30, 2022, and through the filing of this report.

In connection with the preparation of the Company’s unaudited condensed consolidated financial statements, the Company evaluated events subsequent to the balance sheet date of March 31, 2023, and through the filing of this report.

Additionally, certain prior period amounts have been reclassified to conform to current period presentation in the accompanying unaudited condensed consolidated financial statements.

3 unchanged sentences

Recently Issued Accounting Standards

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No.

2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations (“ASU 2022-04”) .

ASU 2022-04 was issued to enhance the transparency of supplier finance programs and implement explicit GAAP disclosure requirements for those programs.

The guidance is to be applied retrospectively to each period in which a balance sheet is presented, except for the amendment on rollforward information, which is to be applied prospectively.

ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the amendment on rollforward information, which is effective for fiscal years beginning after December 15, 2023.

Early adoption is permitted.

The Company is evaluating the impact of ASU 2022-04 on its disclosures.

As of September 30, 2022, and through the filing of this report, no other ASUs have been issued and not yet adopted that are applicable to the Company and that would have a material effect on the Company’s unaudited condensed consolidated financial statements and related disclosures.

As of March 31, 2023, and through the filing of this report, no Accounting Standards Updates have been issued and not yet adopted that are applicable to the Company and that would have a material effect on the Company’s unaudited condensed consolidated financial statements and related disclosures.

Note 2 - Revenue from Contracts with Customers

1 unchanged sentence

Oil, gas, and NGL production revenue presented within the accompanying unaudited condensed consolidated statements of operations (“accompanying statements of operations”) is reflective of the revenue generated from contracts with customers.

The tables below present oil, gas, and NGL production revenue by product type for each of the Company’s operating areas for the three and nine months ended September 30, 2022, and 2021:

The table below presents oil, gas, and NGL production revenue by product type for each of the Company’s operating areas for the three months ended March 31, 2023, and 2022:

Midland Basin South Texas Total

Three Months Ended

September 30, Three Months Ended

September 30,

2022 2021 2022 2021 2022 2021

(in thousands)

Oil production revenue $ 420,838 $ 501,071 $ 105,095 $ 57,323 $ 525,933 $ 558,394

Gas production revenue 123,912 96,082 110,641 52,878 234,553 148,960

NGL production revenue 315 103 66,757 52,356 67,072 52,459

Total $ 545,065 $ 597,256 $ 282,493 $ 162,557 $ 827,558 $ 759,813

Relative percentage 66 % 79 % 34 % 21 % 100 % 100 %

Midland Basin South Texas Total

Nine Months Ended

September 30, Nine Months Ended

September 30,

March 31, Three Months Ended

2023 2022 2023 2022 2023 2022

6 unchanged sentences

The Company recognizes oil, gas, and NGL production revenue at the point in time when custody and title (“control”) of the product transfers to the purchaser, which differs depending on the applicable contractual terms.

Transfer of control drives the presentation of transportation, gathering, processing, and other post-production expenses (“fees and other deductions”) within the accompanying statements of operations.

Transfer of control drives the

presentation of transportation, gathering, processing, and other post-production expenses (“fees and other deductions”) within the accompanying statements of operations.

Fees and other deductions incurred by the Company prior to control transfer are recorded within the oil, gas, and NGL production expense line item on the accompanying statements of operations.

When control is transferred at or near the wellhead, sales are based on a wellhead market price that is impacted by fees and other deductions incurred by the purchaser subsequent to the transfer of control.

Please refer to Note 2 - Revenue from Contracts with Customers in the 2021 Form 10-K for more information regarding the types of contracts under which oil, gas, and NGL production revenue is generated.

Significant judgments made in applying the guidance in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, relate to the point in time when control transfers to purchasers in gas processing arrangements with midstream processors.

The Company does not believe that significant judgments are required with respect to the determination of the transaction price, including amounts that represent variable consideration, as volume and price carry a low level of estimation uncertainty given the precision of volumetric measurements and the use of index pricing with generally predictable differentials.

Accordingly, the Company does not consider estimates of variable consideration to be constrained.

The Company’s performance obligations arise upon the production of hydrocarbons from wells in which the Company has an ownership interest.

The performance obligations are considered satisfied upon control transferring to a purchaser at the wellhead, inlet, or tailgate of the midstream processor’s processing facility, or other contractually specified delivery point.

The time period between production and satisfaction of performance obligations is generally less than one day, therefore there are no material unsatisfied or partially unsatisfied performance obligations at the end of the reporting period.

Revenue is recorded in the month when performance obligations are satisfied.

2 unchanged sentences

Estimated revenue due to the Company is recorded within the accounts receivable line item on the accompanying unaudited condensed consolidated balance sheets (“accompanying balance sheets”) until payment is received.

The accounts receivable balances from contracts with customers within the accompanying balance sheets as of September 30, 2022, and December 31, 2021, were $ 220.0 million and $ 215.6 million, respectively.

The accounts receivable balances from contracts with customers within the accompanying balance sheets as of March 31, 2023, and December 31, 2022, were $ 146.2 million and $ 184.5 million, respectively.

To estimate accounts receivable from contracts with customers, the Company uses knowledge of its properties, historical performance, contractual arrangements, index pricing, quality and transportation differentials, and other factors as the basis for these estimates.

Differences between estimates and actual amounts received for product sales are recorded in the month that payment is received from the purchaser.

Please refer to Note 1 - Summary of Significant Accounting Policies and Note 2 - Revenue from Contracts with Customers in the 2022 Form 10-K for more information regarding the Company’s revenue recognition policy and the application of the guidance in Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, and for more information regarding the types of contracts under which oil, gas, and NGL production revenue is generated.

Note 3 - Equity

Stock Repurchase Program

On September 7, 2022, the Company announced that its Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $ 500.0 million in aggregate value of its common stock through December 31, 2024 (“Stock Repurchase Program”).

During 2022, the Company’s Board of Directors approved a stock repurchase program authorizing the Company to repurchase up to $ 500.0 million in aggregate value of its common stock through December 31, 2024 (“Stock Repurchase Program”).

The Stock Repurchase Program permits the Company to repurchase shares of its common stock from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws and subject to certain provisions of the Credit Agreement and the indentures governing the Senior Notes, as defined in Note 5 - Long-Term Debt .

The Company intends to fund repurchases from available working capital and cash provided by operating activities.

Stock repurchases may also be funded with borrowings under the Credit Agreement.

The timing, as well as the number and value of shares repurchased under the Stock Repurchase Program, will be determined by certain authorized officers of the Company at their discretion and will depend on a variety of factors, including the market price of the Company’s common stock, general market and economic conditions and applicable legal requirements.

The value of shares authorized for repurchase by the Board of Directors does not require the Company to repurchase such shares or guarantee that such shares will be repurchased, and the Stock Repurchase Program may be suspended, modified, or discontinued at any time without prior notice.

No assurance can be given that any particular number or dollar value of its shares will be repurchased by the Company.

The Stock Repurchase Program terminates and supersedes the August 1998 authorization to repurchase common stock, under which 3,072,184 shares remained available for repurchase prior to termination.

During the three months ended September 30, 2022, the Company repurchased and subsequently retired 452,734 shares of its common stock at a weighted-average share price of $ 44.69 for a total cost of $ 20.2 million, excluding commissions and fees.

As of September 30, 2022, $ 479.8 million remained available for repurchases of the Company’s outstanding common stock under the Stock Repurchase Program.

On June 17, 2020, the Company issued warrants to purchase up to an aggregate of approximately 5.9 million shares, or approximately five percent of its then outstanding common stock, at an exercise price of $ 0.01 per share (“Warrants”).

The Warrants became exercisable at the election of the holders on January 15, 2021 , pursuant to the terms of the Warrant Agreement, dated June 17, 2020 (“Warrant Agreement”).

The Warrants are indexed to the Company’s common stock and are required to be settled through physical settlement or net share settlement, if exercised.

Upon issuance, the $ 21.5 million fair value of the Warrants was recorded in additional paid-in capital on the accompanying balance sheets, and was determined using a stochastic Monte Carlo simulation using geometric Brownian motion (“GBM Model”).

The Company evaluated the Warrants under authoritative accounting guidance and determined that they should be classified as equity instruments, with no recurring fair value measurement required.

There have been no changes to the initial carrying amount of the Warrants since issuance.

No Warrants were exercised during the nine months ended September 30, 2022.

During the second quarter of 2021, the Company issued 5,918,089 shares of common stock as a result of the cashless exercise of 5,922,260 Warrants at a weighted-average share price of $ 15.45 per share, as determined under the terms of the Warrant Agreement.

At the request of stockholders and pursuant to the Company’s obligations under the Warrant Agreement, a registration statement covering the resale of a majority of these shares was filed with the U.S.

Securities and Exchange Commission (“SEC”) on June 11, 2021.

During the third quarter of 2022, the Company’s Board of Directors approved an increase to the Company’s fixed dividend to $ 0.60 per share annually, to be paid in quarterly increments of $ 0.15 per share.

During the three months ended September 30, 2022, cash dividends declared totaled $ 18.4 million, and will be paid on November 7, 2022, to stockholders of record at the close of business on October 25, 2022 .

Please refer to Note 3 - Equity in the 2022 Form 10-K for additional information regarding the Company’s Stock Repurchase Program.

During the three months ended March 31, 2023, the Company utilized net cash provided by operating activities to repurchase and subsequently retire 1,413,758 shares of its common stock at a weighted-average share price of $ 28.32 for a total cost of $ 40.0 million, excluding taxes, commissions, and fees.

As of March 31, 2023, $ 402.8 million remained available for repurchases of the Company’s outstanding common stock under the Stock Repurchase Program.

Note 4 - Income Taxes

The provision for income taxes for the three and nine months ended September 30, 2022, and 2021, consists of the following:

The provision for income taxes for the three months ended March 31, 2023, and 2022, consists of the following:

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

(in thousands)

2 unchanged sentences

State ( 540 ) ( 304 )

Deferred portion of income tax (expense) benefit ( 110,048 ) 68 ( 202,996 ) 282

Income tax (expense) benefit $ ( 119,379 ) $ 39 $ ( 218,951 ) $ 95

Deferred portion of income tax expense ( 49,968 ) ( 11,948 )

Income tax expense $ ( 55,506 ) $ ( 12,861 )

Effective tax rate 21.8 % 20.9 %

Recorded income tax expense or benefit differs from the amount that would be provided by applying the statutory United States federal income tax rate to income or loss before income taxes.

These differences primarily relate to the effect of state income taxes, excess tax benefits and deficiencies from stock-based compensation awards, tax deduction limitations on the compensation of covered individuals, changes in valuation allowances, the cumulative effect of other smaller permanent differences, and can also reflect the cumulative effect of an enacted tax rate change, in the period of enactment, on the Company’s net deferred tax asset and liability balances.

The quarterly rate and the resulting income tax (expense) benefit can also be affected by the proportional effects of forecast net income or loss and the correlative effect on the valuation allowance for each period presented, as reflected in the table above.

Forecast net income had a larger impact on the effective tax rate for the three and nine months ended September 30, 2022, compared with the same periods in 2021, and valuation allowance adjustments had a larger impact on the effective tax rate for the three and nine months ended September 30, 2021, compared with the same periods in 2022.

the cumulative effect of an enacted tax rate change, in the period of enactment, on the Company’s net deferred tax asset and liability balances.

The Company commissioned a multi-year research and development (“R&D”) credit study in 2022, which is expected to be completed in late 2023, and is expected to favorably impact the Company’s effective tax rate and future tax obligations when the results are recorded.

The Company’s policy is to not record an R&D credit until it is claimed on a filed tax return, which had not occurred as of the filing of this report.

For all years before 2019, the Company is generally no longer subject to United States federal or state income tax examinations by tax authorities.

1 unchanged sentence

Credit Agreement

On August 2, 2022, the Company entered into a Seventh Amended and Restated Credit Agreement by and among the Company, Wells Fargo Bank, National Association, as Administrative Agent and Swingline Lender (“Agent”), and the institutions named therein as lenders.

The Credit Agreement provides for a senior secured revolving credit facility with a maximum loan amount of $ 3.0 billion, an initial borrowing base of $ 2.5 billion, and initial aggregate lender commitments totaling $ 1.25 billion.

As of September 30, 2022, the borrowing base and aggregate lender commitments under the Credit Agreement remained unchanged.

The revolving credit facility is secured by substantially all of the Company’s proved oil and gas properties.

The borrowing base is subject to regular, semi-annual redetermination, and considers the value of both the Company’s (a) proved oil and gas properties reflected in the Company’s most recent reserve report;

and (b) commodity derivative contracts, each as determined by the Company’s lender group.

The next scheduled borrowing base redetermination date is April 1, 2023.

The Company’s Credit Agreement provides for a senior secured revolving credit facility with a maximum loan amount of $ 3.0 billion.

As of March 31, 2023, the borrowing base and aggregate lender commitments under the Credit Agreement were $ 2.5 billion and $ 1.25 billion, respectively.

Subsequent to March 31, 2023, the semi-annual borrowing base redetermination was completed, which reaffirmed both the Company’s borrowing base and aggregate lender commitments at existing amounts.

The next scheduled borrowing base redetermination date is October 1, 2023.

The Credit Agreement is scheduled to mature on the earlier of (a) August 2, 2027 (“Stated Maturity Date”), or (b) 91 days prior to the maturity date of any of the Company’s outstanding Senior Notes, as defined below, to the extent that, on or before such date, the respective Senior Notes have not been repaid, exchanged, repurchased, refinanced, or otherwise redeemed in full, and, if refinanced or exchanged, with a scheduled maturity date that is not earlier than at least 180 days after the Stated Maturity Date.

In addition to other terms, conditions, agreements, and provisions, the Credit Agreement establishes the Secured Overnight Financing Rate (“SOFR”) as the benchmark for determining interest rates in replacement of the London Interbank Offered Rate (“LIBOR”).

LIBOR was discontinued as a global reference rate for new loans and contracts after December 31, 2021.

The financial covenants under the Credit Agreement require, among other customary covenants, that the Company’s (a) total funded debt, as defined by the Credit Agreement, to 12-month trailing adjusted EBITDAX ratio cannot be greater than 3.50 to 1.00 on the last day of each fiscal quarter;

and (b) adjusted current ratio, as defined in the Credit Agreement, cannot be less than 1.00 to 1.00 as of the last day of any fiscal quarter .

Interest and commitment fees associated with the revolving credit facility are accrued based on a borrowing base utilization grid set forth in the Credit Agreement, as presented in the table below.

At the Company’s election, borrowings under the Credit Agreement may be in the form of SOFR, Alternate Base Rate (“ABR”), or Swingline loans.

SOFR loans accrue interest at SOFR plus the applicable margin from the utilization grid, and ABR and Swingline loans accrue interest at a market-based floating rate, plus the

applicable margin from the utilization grid.

Interest and commitment fees associated with the revolving credit facility are accrued based on a borrowing base utilization grid set forth in the Credit Agreement, as presented in Note 5 - Long-Term Debt in the 2022 Form 10-K .

At the Company’s election, borrowings under the Credit Agreement may be in the form of Secured Overnight Financing Rate (“SOFR”), Alternate Base Rate (“ABR”), or Swingline loans.

SOFR loans accrue interest at SOFR plus the applicable margin from the utilization grid, and ABR and Swingline loans accrue interest at a market-based floating rate, plus the applicable margin from the utilization grid.

Commitment fees are accrued on the unused portion of the aggregate lender commitment amount at rates from the utilization grid.

Borrowing Base Utilization Percentage <25% ≥25% <50% ≥50% <75% ≥75% <90% ≥90%

SOFR Loans 2.000 % 2.250 % 2.500 % 2.750 % 3.000 %

ABR Loans or Swingline Loans 1.000 % 1.250 % 1.500 % 1.750 % 2.000 %

Commitment Fee Rate 0.375 % 0.375 % 0.500 % 0.500 % 0.500 %

The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Agreement as of October 27, 2022, September 30, 2022, and December 31, 2021:

As of October 27, 2022 As of September 30, 2022 As of December 31, 2021

The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Agreement as of April 21, 2023, March 31, 2023, and December 31, 2022:

As of April 21, 2023 As of March 31, 2023 As of December 31, 2022

(in thousands)

5 unchanged sentences

____________________________________________

(1) Unamortized deferred financing costs attributable to the revolving credit facility are presented as a component of the other noncurrent assets line item on the accompanying balance sheets and totaled $ 11.4 million and $ 2.7 million as of September 30, 2022, and December 31, 2021, respectively.

(1) Unamortized deferred financing costs attributable to the revolving credit facility are presented as a component of the other noncurrent assets line item on the accompanying balance sheets and totaled $ 10.2 million and $ 10.8 million as of March 31, 2023, and December 31, 2022, respectively.

These costs are being amortized over the term of the revolving credit facility on a straight-line basis.

(2) Letters of credit outstanding reduce the amount available under the revolving credit facility on a dollar-for-dollar basis.

Senior Secured Notes

On June 17, 2022, the Company redeemed all of the $ 446.7 million of aggregate principal amount outstanding of its 10.0 % Senior Secured Notes due 2025 (“2025 Senior Secured Notes” or “Senior Secured Notes”).

The 2025 Senior Secured Notes were redeemed with cash on hand, at a redemption price equal to 107.5 percent of the principal amount outstanding on the date of the redemption, plus accrued and unpaid interest.

Upon redemption, the Company recorded a net loss on extinguishment of debt of $ 67.2 million which included $ 33.5 million of premium paid, $ 26.3 million of accelerated unamortized debt discount, and $ 7.4 million of accelerated unamortized deferred financing costs.

The Company canceled all redeemed 2025 Senior Secured Notes upon settlement.

The 1.50 % Senior Secured Convertible Notes due 2021 (“2021 Senior Secured Convertible Notes”) matured on July 1, 2021, and on that day, the Company used borrowings under its revolving credit facility to retire at par the outstanding principal amount of $ 65.5 million.

Interest expense recognized on the 2021 Senior Secured Convertible Notes related to the stated interest rate and amortization of the debt discount.

No interest expense was recognized for the three months ended September 30, 2021, and $ 2.3 million of interest expense was recognized for the nine months ended September 30, 2021.

Senior Secured Notes, net of unamortized discount and deferred financing costs, included within the Senior Notes, net line item on the accompanying balance sheets, as of December 31, 2021, consist of the following:

As of December 31, 2021

(in thousands)

Principal amount of 10.0 % Senior Secured Notes due 2025

Unamortized debt discount 30,236

Unamortized deferred financing costs 8,727

10.0 % Senior Secured Notes due 2025, net of unamortized debt discount and deferred financing costs

Senior Unsecured Notes

Senior Unsecured Notes, net of unamortized deferred financing costs, included within the Senior Notes, net line item on the accompanying balance sheets as of September 30, 2022, and December 31, 2021, consist of the following (collectively referred to as “Senior Unsecured Notes,” and together with the 2025 Senior Secured Notes, “Senior Notes”):

As of September 30, 2022 As of December 31, 2021

The Company’s Senior Notes, net line item on the accompanying balance sheets as of March 31, 2023, and December 31, 2022, consists of the following (collectively referred to as “Senior Notes”):

As of March 31, 2023 As of December 31, 2022

Principal Amount Unamortized Deferred Financing Costs Principal Amount, Net Principal Amount Unamortized Deferred Financing Costs Principal Amount, Net

8 unchanged sentences

400,000 5,412 394,588 400,000 5,665 394,335

6.5 % Senior Notes due 2028

400,000 5,919 394,081 400,000 6,679 393,321

Total $ 1,585,144 $ 12,153 $ 1,572,991 $ 1,585,144 $ 12,934 $ 1,572,210

The Senior Unsecured Notes are unsecured senior obligations and rank equal in right of payment with all of the Company’s existing and any future unsecured senior debt and are senior in right of payment to any future subordinated debt.

The Company may redeem some or all of its Senior Unsecured Notes prior to their maturity at redemption prices based on a premium, plus accrued and unpaid interest as described in the indentures governing the Senior Unsecured Notes.

On February 14, 2022, the Company redeemed all of the $ 104.8 million of aggregate principal amount outstanding of its 5.0 % Senior Notes due 2024 (“2024 Senior Notes”), with cash on hand, pursuant to the terms of the indenture governing the 2024 Senior Notes which provided for a redemption price equal to 100 percent of the principal amount of the 2024 Senior Notes on the date of redemption, plus accrued and unpaid interest.

The Senior Notes are unsecured senior obligations and rank equal in right of payment with all of the Company’s existing and any future unsecured senior debt and are senior in right of payment to any future subordinated debt.

The Company may redeem some or all of its Senior Notes prior to their maturity at redemption prices based on a premium, plus accrued and unpaid interest as described in the indentures governing the Senior Notes.

On February 14, 2022, the Company redeemed the remaining $ 104.8 million of aggregate principal amount outstanding of its 5.0 % Senior Notes due 2024 (“2024 Senior Notes”), with cash on hand, pursuant to the terms of the indenture governing the 2024 Senior Notes which provided for a redemption price equal to 100 percent of the principal amount of the 2024 Senior Notes on the date of redemption, plus accrued and unpaid interest.

The Company canceled all redeemed 2024 Senior Notes upon settlement.

On June 23, 2021, the Company issued $ 400.0 million in aggregate principal amount of its 6.5 % Senior Notes at par with a maturity date of July 15, 2028 (“2028 Senior Notes”).

The Company received net proceeds of $ 392.8 million after deducting fees of $ 7.2 million, which are being amortized as deferred financing costs over the life of the 2028 Senior Notes.

The net proceeds were used to repurchase $ 193.1 million and $ 172.3 million of outstanding principal amount of the Company’s 6.125 % Senior Notes due 2022 (“2022 Senior Notes”) and 2024 Senior Notes, respectively, through a cash tender offer (“Tender Offer”), and to redeem the remaining $ 19.3 million of 2022 Senior Notes not repurchased as part of the Tender Offer (“2022 Senior Notes Redemption”).

The Company paid total consideration, excluding accrued interest, of $ 385.3 million, and recorded a net loss on extinguishment of debt of $ 2.1 million for the three months ended June 30, 2021, which included $ 1.5 million of accelerated unamortized deferred financing costs and $ 0.6 million of net premiums.

The Company canceled all repurchased and redeemed 2022 Senior Notes and 2024 Senior Notes upon settlement.

Please refer to Note 5 - Long-Term Debt in the 2022 Form 10-K for additional detail on the Company’s Senior Notes.

As discussed above, the Company is subject to certain financial and non-financial covenants under the Credit Agreement and under the indentures governing the Senior Notes that, among other terms, limit the Company’s ability to incur additional indebtedness, make restricted payments including dividends and common stock repurchases, sell assets, create liens that secure debt, enter into transactions with affiliates, merge or consolidate with other entities, and with respect to the Company’s restricted subsidiaries, permit the consensual restriction on the ability of such restricted subsidiaries to pay dividends or indebtedness owing to the Company or to any other restricted subsidiaries.

The Company was in compliance with all financial and non-financial covenants as of September 30, 2022, and through the filing of this report.

Please refer to Note 5 - Long-Term Debt in the 2021 Form 10-K for additional detail on the Company’s covenants under the indentures governing the Senior Notes.

The Company is subject to certain financial and non-financial covenants under the Credit Agreement and the indentures governing the Senior Notes that, among other terms, limit the Company’s ability to incur additional indebtedness, make restricted payments including dividends, sell assets, create liens that secure debt, enter into transactions with affiliates, and merge or consolidate with other entities.

The Company was in compliance with all financial and non-financial covenants as of March 31, 2023, and through the filing of this report.

Please refer to Note 5 - Long-Term Debt in the 2022 Form 10-K for additional detail on the Company’s covenants under the Credit Agreement and indentures governing the Senior Notes.

Capitalized Interest

Capitalized interest costs for the three months ended September 30, 2022, and 2021, totaled $ 5.1 million and $ 3.5 million, respectively, and totaled $ 12.3 million and $ 12.5 million for the nine months ended September 30, 2022, and 2021, respectively.

Capitalized interest costs for the three months ended March 31, 2023, and 2022, totaled $ 5.5 million and $ 3.0 million, respectively.

The amount of interest the Company capitalizes generally fluctuates based on the amount borrowed, the Company’s capital program, and the timing and amount of costs associated with capital projects that are considered in progress.

4 unchanged sentences

Drilling Rig Service Contracts .

During the nine months ended September 30, 2022, and through the filing of this report, the Company amended certain of its drilling rig contracts resulting in the increase of day rates and potential early termination fees, and the extension of contract terms.

As of the filing of this report, the Company’s drilling rig commitments totaled $ 32.8 million under contract terms extending through the third quarter of 2023.

During the three months ended March 31, 2023, and through the filing of this report, the Company amended certain of its drilling rig contracts resulting in the increase of day rates and potential early termination fees, and the extension of contract terms.

As of the filing of this report, the Company’s drilling rig commitments totaled $ 30.3 million under contract terms extending through the second quarter of 2024.

If all of these contracts were terminated as of the filing of this report, the Company would avoid a portion of the contractual service commitments;

however, the Company would be required to pay $ 18.8 million in early termination fees.

No early termination penalties or standby fees were incurred by the Company during the nine months ended September 30, 2022, and the Company does not expect to incur material penalties with regard to its drilling rig contracts during the remainder of 2022.

Drilling and Completion Commitments .

During the nine months ended September 30, 2022, the Company entered into an agreement that includes minimum drilling and completion footage requirements on certain existing leases.

If these minimum requirements are not satisfied by March 31, 2024, the Company will be required to pay liquidated damages based on the difference between the actual footage drilled and completed and the minimum requirements.

As of September 30, 2022, the liquidated damages could range from zero to a maximum of $ 74.5 million, with the maximum exposure assuming no additional development activity occurred prior to March 31, 2024.

As of the filing of this report, the Company expects to meet its obligations under this agreement.

No early termination penalties or standby fees were incurred by the Company during the three months ended

March 31, 2023, and the Company does not expect to incur material penalties with regard to its drilling rig contracts during the remainder of 2023.

Contingencies

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In the opinion of management, the anticipated results of any pending litigation and claims are not expected to have a material effect on the results of operations, the financial position, or the cash flows of the Company.

Note 7 - Compensation Plans

As of September 30, 2022, 3.8 million shares of common stock were available for grant under the Company’s Equity Incentive Compensation Plan (“Equity Plan”).

The Company may also grant other types of long-term incentive-based awards, such as cash awards and performance-based cash awards, to eligible employees.

Performance Share Units

The Company has granted performance share units (“PSU” or “PSUs”) to eligible employees as part of its Equity Plan.

The number of shares of the Company’s common stock issued to settle PSUs ranges from zero to two times the number of PSUs awarded and is determined based on certain criteria over a three -year performance period.

PSUs generally vest on the third anniversary of the date of the grant or upon other triggering events as set forth in the Equity Plan.

For PSUs granted in 2019, which the Company determined to be equity awards, the settlement criteria included a combination of the Company’s Total Shareholder Return (“TSR”) relative to the TSR of certain peer companies and the Company’s cash return on total capital invested (“CRTCI”) relative to the CRTCI of certain peer companies over the associated three -year performance period.

In addition to these performance criteria, the award agreements for these grants also stipulated that if the Company’s absolute TSR was negative over the three -year performance period, the maximum number of shares of common stock that could be issued to settle outstanding PSUs was capped at one times the number of PSUs granted on the award date, regardless of the Company’s TSR and CRTCI performance relative to its peer group.

The fair value of the PSUs granted in 2019 was measured on the grant date using the GBM Model, with the assumption that the associated CRTCI performance condition would be met at the target amount at the end of the performance period.

Compensation expense for PSUs is recognized within general and administrative expense and exploration expense over the vesting periods of the respective awards.

PSUs granted in 2019 vested during the nine months ended September 30, 2022, and earned a 2.0 times multiplier upon settlement.

The Company and all eligible recipients mutually agreed to net share settle a portion of the vested awards to cover income and payroll tax withholdings, as provided for in the Equity Plan and the award agreement.

After withholding 349,487 shares to satisfy income and payroll tax withholding obligations, 654,923 shares of the Company’s common stock were issued in accordance with the terms of the award agreement.

For PSUs granted in 2022, which the Company determined to be equity awards, settlement will be determined based on a combination of the following criteria measured over the three -year performance period:

the Company’s TSR relative to the TSR of certain peer companies, the Company’s absolute TSR, free cash flow (“FCF”) generation, and the achievement of certain ESG targets, in each case as defined by the award agreement.

The absolute and relative TSR portions of the fair value of the PSUs granted in 2022

were measured on the grant date using the GBM Model.

The portion of the awards associated with FCF generation and ESG performance conditions assumes that target amounts will be met at the end of the performance period.

Compensation expense for PSUs is recognized within general and administrative expense and exploration expense over the vesting periods of the respective awards.

The Company initially records compensation expense associated with the issuance of PSUs based on the fair value of the awards as of the date of grant.

As these awards depend on a combination of performance-based settlement criteria and market-based settlement criteria, compensation expense may be adjusted in future periods as the number of units expected to vest increases or decreases based on the Company’s expected FCF generation and achievement of certain ESG targets.

During the nine months ended September 30, 2022, the Company granted a total of 276,010 PSUs with a grant date fair value of $ 7.4 million.

Total compensation expense recorded for PSUs was $ 0.6 million and $ 0.8 million for the three months ended September 30, 2022, and 2021, respectively, and $ 2.0 million and $ 5.3 million for the nine months ended September 30, 2022, and 2021, respectively.

As of September 30, 2022, there was $ 6.8 million of total unrecognized compensation expense related to non-vested PSUs, which is being amortized through mid-2025.

A summary of activity during the nine months ended September 30, 2022, is presented in the following table:

Weighted-Average Grant-Date Fair Value

Non-vested at beginning of year 464,483 $ 12.80

Granted 276,010 $ 26.67

Vested ( 460,928 ) $ 12.80

Forfeited ( 3,555 ) $ 12.80

Non-vested at end of quarter 276,010 $ 26.67

____________________________________________

(1) The number of shares of common stock assumes a multiplier of one .

The actual number of shares of common stock to be issued will range from zero to two times the number of PSUs awarded depending on the three -year performance multiplier.

Employee Restricted Stock Units

The Company has granted restricted stock units (“RSU” or “RSUs”) to eligible employees as part of its Equity Plan.

Each RSU granted represents a right to receive one share of the Company’s common stock upon settlement of the award at the end of the specified vesting period.

RSUs generally vest in one-third increments on each anniversary date of the grant over the applicable vesting period or upon other triggering events as set forth in the Equity Plan.

The Company records compensation expense associated with the issuance of RSUs based on the fair value of the awards as of the date of grant.

The fair value of an RSU is equal to the closing price of the Company’s common stock on the date of the grant.

Compensation expense for RSUs is recognized within general and administrative expense and exploration expense over the vesting periods of the respective awards.

During the nine months ended September 30, 2022, the Company granted to employees a total of 526,776 RSUs with a grant date fair value of $ 18.0 million, and the Company settled RSUs upon the vesting of awards granted in previous years.

After withholding 284,423 shares to satisfy income and payroll tax withholding obligations, 636,504 shares of the Company’s common stock were issued in accordance with the terms of the applicable award agreements during the nine months ended September 30, 2022.

Total compensation expense recorded for RSUs was $ 3.5 million and $ 2.9 million for the three months ended September 30, 2022, and 2021, respectively, and $ 10.0 million and $ 7.2 million for the nine months ended September 30, 2022, and 2021, respectively.

As of September 30, 2022, there was $ 27.8 million of total unrecognized compensation expense related to non-vested RSUs, which is being amortized through mid-2025.

A summary of activity during the nine months ended September 30, 2022, is presented in the following table:

RSUs Weighted-Average Grant-Date Fair Value

Non-vested at beginning of year 1,841,237 $ 13.79

Granted 526,776 $ 34.08

Vested ( 920,927 ) $ 12.17

Forfeited ( 49,704 ) $ 16.62

Non-vested at end of quarter 1,397,382 $ 22.41

Director Shares

During the nine months ended September 30, 2022, and 2021, the Company issued a total of 29,471 and 57,795 shares, respectively, of its common stock as compensation to its non-employee directors under the Equity Plan.

Shares issued during 2022 will fully vest on December 31, 2022, and shares issued during 2021 fully vested on December 31, 2021.

Employee Stock Purchase Plan

Under the Company’s Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to 15 percent of eligible compensation, subject to a maximum of 2,500 shares per offering period and a maximum of $ 25,000 in value related to purchases for each calendar year.

The purchase price of the common stock is 85 percent of the lower of the trading price of the common stock on either the first or last day of the six-month offering period.

The ESPP is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.

There were a total of 65,634 and 252,665 shares issued under the ESPP during the nine months ended September 30, 2022, and 2021, respectively.

Total proceeds to the Company for the issuance of these shares was $ 1.6 million and $ 1.3 million for the nine months ended September 30, 2022, and 2021, respectively.

The fair value of ESPP grants is measured at the date of grant using the Black-Scholes option-pricing model.

Please refer to Note 7 - Compensation Plans in the 2021 Form 10-K for additional detail on the Company’s Equity Plan.

Note 8 - Fair Value Measurements

The Company follows fair value measurement accounting guidance for all assets and liabilities measured at fair value.

This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date.

Market or observable inputs are the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs.

The fair value hierarchy for grouping these assets and liabilities is based on the significance level of the following inputs:

• Level 1 – quoted prices in active markets for identical assets or liabilities

• Level 2 – quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable

• Level 3 – significant inputs to the valuation model are unobservable

The following table is a listing of the Company’s assets and liabilities that are measured at fair value in the accompanying balance sheets and where they are classified within the fair value hierarchy as of September 30, 2022:

Level 1 Level 2 Level 3

(in thousands)

Derivatives (1)

$ — $ 78,255 $ —

Derivatives (1)

$ — $ 189,223 $ —

__________________________________________

(1) This represents a financial asset or liability that is measured at fair value on a recurring basis.

Level 1 Level 2 Level 3

(in thousands)

Derivatives (1)

$ — $ 24,334 $ —

Derivatives (1)

$ — $ 345,202 $ —

____________________________________________

(1) This represents a financial asset or liability that is measured at fair value on a recurring basis.

Both financial and non-financial assets and liabilities are categorized within the above fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.

The following is a description of the valuation methodologies used by the Company as well as the general classification of such instruments pursuant to the above fair value hierarchy.

The Company uses Level 2 inputs to measure the fair value of oil, gas, and NGL commodity derivatives.

Fair values are based upon interpolated data.

The Company derives internal valuation estimates taking into consideration forward commodity price curves, counterparties’ credit ratings, the Company’s credit rating, and the time value of money.

These valuations are then compared to the respective counterparties’ mark-to-market statements.

The considered factors result in an estimated exit price that management believes provides a reasonable and consistent methodology for valuing derivative instruments.

The commodity derivative instruments utilized by the Company are not considered by management to be complex, structured, or illiquid.

The oil, gas, and NGL commodity derivative markets are highly active.

Please refer to Note 10 - Derivative Financial Instruments in this report, and to Note 8 - Fair Value Measurements and Note 10 - Derivative Financial Instruments in the 2021 Form 10-K for more information regarding the Company’s derivative instruments.

Long-Term Debt

The following table reflects the fair value of the Company’s Senior Notes obligations measured using Level 1 inputs based on quoted secondary market trading prices.

These notes were not presented at fair value on the accompanying balance sheets as of September 30, 2022, or December 31, 2021, as they were recorded at carrying value, net of any unamortized discounts and deferred financing costs.

Please refer to Note 5 - Long-Term Debt above for additional information.

As of September 30, 2022 As of December 31, 2021

Principal Amount Fair Value Principal Amount Fair Value

(in thousands)

10.0 % Senior Secured Notes due 2025

$ — $ — $ 446,675 $ 491,628

5.0 % Senior Notes due 2024

$ — $ — $ 104,769 $ 104,583

5.625 % Senior Notes due 2025

$ 349,118 $ 337,073 $ 349,118 $ 353,091

6.75 % Senior Notes due 2026

$ 419,235 $ 401,627 $ 419,235 $ 431,787

6.625 % Senior Notes due 2027

$ 416,791 $ 403,154 $ 416,791 $ 432,783

6.5 % Senior Notes due 2028

$ 400,000 $ 381,456 $ 400,000 $ 417,284

Note 9 - Earnings Per Share

Basic net income or loss per common share is calculated by dividing net income or loss available to common stockholders by the basic weighted-average number of common shares outstanding for the respective period.

Diluted net income or loss per common share is calculated by dividing net income or loss available to common stockholders by the diluted weighted-average number of common shares outstanding, which includes the effect of potentially dilutive securities.

Potentially dilutive securities for this calculation consist primarily of non-vested RSUs, contingent PSUs, and Warrants, all of which were measured using the treasury stock method.

The Warrants became exercisable at the election of the holders on January 15, 2021 , and as a result, they were included as potentially dilutive securities on an adjusted weighted-average basis for the portion of the nine months ended September 30, 2021, for which they were outstanding.

A majority of the Warrants were exercised during the second quarter of 2021, and the remaining outstanding Warrants were dilutive during the three months ended September 30, 2022, and 2021, and the nine months ended September 30, 2022, as presented below.

Please refer to Note 3 - Equity and Note 7 - Compensation Plans in this report, and Note 9 - Earnings Per Share in the 2021 Form 10-K for additional detail on these potentially dilutive securities.

When the Company recognizes a net loss from continuing operations, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted net loss per common share.

The following table details the weighted-average number of anti-dilutive securities for the periods presented:

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

(in thousands)

Anti-dilutive — — — 5,200

The following table sets forth the calculations of basic and diluted net income (loss) per common share:

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2022 2021 2022 2021

(in thousands, except per share data)

Net income (loss) $ 481,240 $ 85,593 $ 853,489 $ ( 388,671 )

Basic weighted-average common shares outstanding 123,195 121,457 122,318 118,224

Dilutive effect of non-vested RSUs and contingent PSUs 1,065 2,375 1,896 —

Dilutive effect of Warrants 19 19 19 —

Diluted weighted-average common shares outstanding 124,279 123,851 124,233 118,224

Basic net income (loss) per common share $ 3.91 $ 0.70 $ 6.98 $ ( 3.29 )

Diluted net income (loss) per common share $ 3.87 $ 0.69 $ 6.87 $ ( 3.29 )

Note 7 - Derivative Financial Instruments

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The Company regularly enters into commodity derivative contracts to mitigate a portion of its exposure to oil, gas, and NGL price volatility and location differentials, and the associated impact on cash flows.

As of September 30, 2022, all contracts were entered into for other-than-trading purposes.

The Company’s commodity derivative contracts consist of price swap and collar arrangements for oil, gas, and NGL production.

As of March 31, 2023, and through the filing of this report, all contracts were entered into for other-than-trading purposes.

The Company’s commodity derivative contracts consist of price swap and collar arrangements for oil and gas production, and price swap arrangements for NGL production.

In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap price, the Company receives the difference between the index price and the agreed upon swap price.

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The Company has entered into fixed price oil and gas basis swaps in order to mitigate exposure to adverse pricing differentials between certain industry benchmark prices and the actual physical pricing points where the Company’s production is sold.

As of September 30, 2022, the Company has basis swap contracts with fixed price differentials between:

• NYMEX WTI and WTI Midland for a portion of its Midland Basin oil production with sales contracts that settle at WTI Midland prices;

• NYMEX WTI and Intercontinental Exchange Brent Crude (“ICE Brent”) for a portion of its Midland Basin oil production with sales contracts that settle at ICE Brent prices;

As of March 31, 2023, the Company had basis swap contracts with fixed price differentials between:

• NYMEX WTI and Argus WTI Midland for a portion of its Midland Basin oil production with sales contracts that settle at Argus WTI Midland prices;

• NYMEX WTI and Argus WTI Houston Magellan East Houston Terminal (“MEH”) for a portion of its South Texas oil production with sales contracts that settle at Argus WTI Houston MEH (“WTI Houston MEH”) prices;

• NYMEX HH and Inside FERC West Texas (“IF Waha”) for a portion of its Midland Basin gas production with sales contracts that settle at IF Waha prices;

• NYMEX HH and Inside FERC Houston Ship Channel (“IF HSC”) for a portion of its South Texas gas production with sales contracts that settle at IF HSC prices;

• NYMEX HH and Inside FERC West Texas (“IF Waha”) for a portion of its Midland Basin gas production with sales contracts that settle at IF Waha prices.

The Company has also entered into oil swap contracts to fix the differential in pricing between the NYMEX calendar month average and the physical crude oil delivery month (“Roll Differential”) in which the Company pays the periodic variable Roll Differential and receives a weighted-average fixed price differential.

The weighted-average fixed price differential represents the amount of net addition (reduction) to delivery month prices for the notional volumes covered by the swap contracts.

As of September 30, 2022, the Company had commodity derivative contracts outstanding through the fourth quarter of 2025 as summarized in the table below:

As of March 31, 2023, the Company had commodity derivative contracts outstanding through the fourth quarter of 2025 as summarized in the table below:

Contract Period

Fourth Quarter 2022 2023 2024 2025

Second Quarter 2023 Third Quarter 2023 Fourth Quarter 2023 2024 2025

Oil Derivatives (volumes in MBbl and prices in $ per Bbl):

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ICE Brent Volumes

910 920 920 910 —

Weighted-Average Contract Price $ 86.50 $ 86.50 $ 86.50 $ 85.50 $ —

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Weighted-Average Contract Price $ 0.99 $ 0.88 $ 0.88 $ 1.17 $ —

ICE Brent-NYMEX WTI Volumes 920 — — —

Weighted-Average Contract Price $ ( 7.78 ) $ — $ — $ —

WTI Houston MEH-NYMEX WTI Volumes

431 361 296 877 —

Weighted-Average Contract Price $ 1.68 $ 1.59 $ 1.53 $ 1.85 $ —

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NYMEX HH Volumes

Weighted-Average Contract Price $ 5.50 $ — $ — $ —

IF HSC Volumes 6,982 — — —

Weighted-Average Contract Price $ 2.47 $ — $ — $ —

IF Waha Volumes 3,067 900 — —

1,420 1,470 — — —

Weighted-Average Contract Price $ 5.05 $ 5.11 $ — $ — $ —

NYMEX HH Volumes

5,181 6,194 8,362 19,457 —

Weighted-Average Floor Price $ 3.83 $ 3.75 $ 3.90 $ 3.71 $ —

1 unchanged sentence

IF HSC Volumes

1,345 1,389 1,451 — —

Weighted-Average Floor Price $ 4.25 $ 4.25 $ 4.25 $ — $ —

Weighted-Average Ceiling Price $ 5.00 $ 4.95 $ 5.55 $ — $ —

Contract Period (continued)

Fourth Quarter 2022 2023 2024 2025

IF Waha-NYMEX HH Volumes

2,462 2,442 2,337 20,958 20,501

Weighted-Average Contract Price $ ( 1.93 ) $ ( 1.05 ) $ ( 1.01 ) $ ( 0.86 ) $ ( 0.66 )

IF HSC-NYMEX HH Volumes

1,774 1,813 2,008 10,208 —

Weighted-Average Contract Price $ ( 0.25 ) $ ( 0.25 ) $ ( 0.25 ) $ ( 0.33 ) $ —

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Weighted-Average Contract Price $ 36.66 $ 36.67 $ 36.66 $ — $ —

OPIS Propane Mont Belvieu Non-TET Volumes 173 — — —

Weighted-Average Floor Price $ 24.11 $ — $ — $ —

Weighted-Average Ceiling Price $ 28.13 $ — $ — $ —

Commodity Derivative Contracts Entered Into Subsequent to September 30, 2022

Subsequent to September 30, 2022, the Company entered into the following commodity derivative contracts:

• WTI Midland-NYMEX WTI basis swap contracts for 2023 for a total of 1.7 MMBbl of oil production at a weighted-average contract price of $ 1.36 per Bbl;

• WTI Houston MEH-NYMEX WTI basis swap contracts for the first and second quarters of 2023 for a total of 0.2 MMBbl of oil production at a weighted-average contract price of $ 2.11 per Bbl;

• NYMEX HH swap contracts for the second and third quarters of 2023 for a total of 2,890 BBtu of gas production at a weighted-average contract price of $ 5.08 per MMBtu;

• NYMEX HH collar contracts for the fourth quarter of 2023 and the first quarter of 2024 for a total of 3,423 BBtu of gas production at a weighted-average floor price of $ 4.27 per MMBtu and a weighted-average ceiling price of $ 8.52 per MMBtu;

• IF HSC-NYMEX HH basis swap contract for the second through fourth quarters of 2023 for a total of 2,750 BBtu of gas production at a contract price of $( 0.30 ) per MMBtu.

Commodity Derivative Contracts Entered Into Subsequent to March 31, 2023

Subsequent to March 31, 2023, the Company entered into NYMEX WTI price swap contracts for the fourth quarter of 2023 for a total of 0.3 MMBbl of oil production at a contract price of $ 77.00 per Bbl and NYMEX HH price swap contracts for 2025 for a total of 5,891 BBtu of gas production at a weighted-average contract price of $ 4.20 per MMBtu.

Derivative Assets and Liabilities Fair Value

1 unchanged sentence

The Company does not designate its commodity derivative contracts as hedging instruments.

The fair value of the commodity derivative contracts was a net liability of $ 111.0 million and $ 320.9 million as of September 30, 2022, and December 31, 2021, respectively.

The fair value of the commodity derivative contracts was a net asset of $ 62.1 million and $ 15.8 million as of March 31, 2023, and December 31, 2022, respectively.

The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:

As of September 30, 2022 As of December 31, 2021

As of March 31, 2023 As of December 31, 2022

(in thousands)

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Offsetting of Derivative Assets and Liabilities

As of September 30, 2022, and December 31, 2021, all derivative instruments held by the Company were subject to master netting arrangements with various financial institutions.

As of March 31, 2023, and December 31, 2022, all derivative instruments held by the Company were subject to master netting arrangements with various financial institutions.

In general, the terms of the Company’s agreements provide for offsetting of amounts payable or receivable between it and the counterparty, at the election of both parties, for transactions that settle on the same date and in the same currency.

3 unchanged sentences

Derivative Assets as of Derivative Liabilities as of

September 30,

2022 December 31, 2021 September 30,

2023 December 31, 2022 March 31,

2023 December 31, 2022

3 unchanged sentences

Net amounts $ 71,142 $ 47,006 $ ( 9,069 ) $ ( 31,187 )

The following table summarizes the commodity components of the derivative settlement loss, and the net derivative (gain) loss line items presented within the accompanying unaudited condensed consolidated statements of cash flows (“accompanying statements of cash flows”) and the accompanying statements of operations, respectively:

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2022 2021 2022 2021

The following table summarizes the commodity components of the derivative settlement (gain) loss, and the net derivative (gain) loss line items presented within the accompanying unaudited condensed consolidated statements of cash flows (“accompanying statements of cash flows”) and the accompanying statements of operations, respectively:

For the Three Months Ended March 31,

(in thousands)

Derivative settlement loss:

Derivative settlement (gain) loss:

Oil contracts $ 6,226 $ 129,168

1 unchanged sentence

NGL contracts — 11,964

Total derivative settlement loss $ 186,299 $ 213,555 $ 595,080 $ 480,262

Total derivative settlement (gain) loss $ ( 5,076 ) $ 168,183

Net derivative (gain) loss:

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Credit Related Contingent Features

As of September 30, 2022, all of the Company’s derivative counterparties were members of the Credit Agreement lender group, with the exception of one counterparty with whom the Company has derivative contracts outstanding through December 31, 2022, that was a part of the lender group under the prior credit agreement.

The contracts with this counterparty were entered into while the counterparty was a member of the prior credit agreement lender group.

As of March 31, 2023, all of the Company’s derivative counterparties were members of the Credit Agreement lender group.

The Company does not enter into derivative contracts with counterparties that are not part of the lender group.

1 unchanged sentence

Collateral securing indebtedness under the Credit Agreement also secures the Company’s derivative agreement obligations.

Note 8 - Fair Value Measurements

The Company follows fair value measurement accounting guidance for all assets and liabilities measured at fair value.

Market or observable inputs are the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs.

The fair value hierarchy for grouping these assets and liabilities is based on the significance level of the following inputs:

• Level 1 – quoted prices in active markets for identical assets or liabilities

• Level 3 – significant inputs to the valuation model are unobservable

As of March 31, 2023 As of December 31, 2022

Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

(in thousands)

Derivatives (1)

$ — $ 96,435 $ — $ — $ 73,142 $ —

Derivatives (1)

$ — $ 34,362 $ — $ — $ 57,323 $ —

__________________________________________

(1) This represents a financial asset or liability that is measured at fair value on a recurring basis.

Both financial and non-financial assets and liabilities are categorized within the above fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.

The following is a description of the valuation methodologies used by the Company as well as the general classification of such instruments pursuant to the above fair value hierarchy.

The Company uses Level 2 inputs to measure the fair value of oil, gas, and NGL commodity derivatives.

Fair values are based upon interpolated data.

These valuations are then compared to the respective counterparties’ mark-to-market statements.

The considered factors result in an estimated exit price that management believes provides a reasonable and consistent methodology for valuing derivative instruments.

The commodity derivative instruments utilized by the Company are not considered by management to be complex, structured, or illiquid.

The oil, gas, and NGL commodity derivative markets are highly active.

Please refer to Note 7 - Derivative Financial Instruments in this report, and to Note 8 - Fair Value Measurements and Note 10 - Derivative Financial Instruments in the 2022 Form 10-K for more information regarding the Company’s derivative instruments.

Long-Term Debt

The following table reflects the fair value of the Company’s Senior Notes obligations measured using Level 1 inputs based on quoted secondary market trading prices.

These notes were not presented at fair value on the accompanying balance sheets as of March 31, 2023, or December 31, 2022, as they were recorded at carrying value, net of any unamortized deferred financing costs.

Please refer to Note 5 - Long-Term Debt above for additional information.

As of March 31, 2023 As of December 31, 2022

Principal Amount Fair Value Principal Amount Fair Value

(in thousands)

5.625 % Senior Notes due 2025

$ 349,118 $ 339,207 $ 349,118 $ 337,821

6.75 % Senior Notes due 2026

$ 419,235 $ 411,898 $ 419,235 $ 409,484

6.625 % Senior Notes due 2027

$ 416,791 $ 404,466 $ 416,791 $ 402,120

6.5 % Senior Notes due 2028

$ 400,000 $ 386,660 $ 400,000 $ 384,520

Note 9 - Earnings Per Share

Potentially dilutive securities for this calculation consist primarily of non-vested restricted stock units (“RSUs”) and contingent performance share units (“PSUs”), which were measured using the treasury stock method.

Please refer to Note 7 - Compensation Plans and Note 9 - Earnings Per Share in the 2022 Form 10-K for additional detail on these potentially dilutive securities.

The following table sets forth the calculations of basic and diluted net income per common share:

For the Three Months Ended

(in thousands, except per share data)

Net income $ 198,552 $ 48,764

Basic weighted-average common shares outstanding 121,671 121,907

Dilutive effect of non-vested RSUs, contingent PSUs, and other

Diluted weighted-average common shares outstanding 122,294 124,179

Basic net income per common share $ 1.63 $ 0.40

Diluted net income per common share $ 1.62 $ 0.39

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 1. Financial Statements