What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-04-28 · 194 added, 174 removed, 324 unchanged (53% of the section changed)

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Please refer to the Cautionary Information about Forward-Looking Statements section of this report for important information about these types of statements.

Throughout the following discussion, we explain changes between the three months ended March 31, 2023, and the three months ended December 31, 2022 (“sequential quarterly” or “sequentially”), as well as the year-to-date (“YTD”) change between the three months ended March 31, 2023, and the three months ended March 31, 2022 (“YTD 2023-over-YTD 2022”).

Additionally, the following discussion includes sequential quarterly comparison to the financial information presented in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 , filed with the Securities and Exchange Commission (“SEC”) on April 28, 2023.

Throughout the following discussion, we explain changes between the three months ended June 30, 2023, and the three months ended March 31, 2023 (“sequential quarterly” or “sequentially”), as well as the year-to-date (“YTD”) change between the six months ended June 30, 2023, and the six months ended June 30, 2022 (“YTD 2023-over-YTD 2022”).

Overview of the Company

General Overview

Our strategy is to be a premier operator of top-tier oil and gas assets.

Our team executes this strategy by prioritizing safety, technological innovation, and stewardship of natural resources, all of which are integral to our corporate culture.

Our purpose is to make people’s lives better by responsibly producing energy supplies, contributing to domestic energy security and prosperity, and having a positive impact in the communities where we live and work.

Our long-term vision is to sustainably grow value for all of our stakeholders by maintaining and optimizing our high-quality asset portfolio, generating cash flows, and maintaining a strong balance sheet.

Our strategy is to be a premier operator of top-tier oil and gas assets.

Our team executes this strategy by prioritizing safety, technological innovation, and stewardship of natural resources, all of which are integral to our corporate culture.

Our near-term goals include returning value to stockholders through our Stock Repurchase Program and fixed dividend payments, and focusing on continued operational excellence.

Our asset portfolio is comprised of high-quality assets in the Midland Basin of West Texas and in the Maverick Basin of South Texas that are capable of generating strong returns in the current macroeconomic environment, and present resilience to commodity price risk and volatility.

We remain focused on maximizing returns and increasing the value of our top-tier assets through continued development and optimization of our Midland Basin assets and through continued development and delineation of the Austin Chalk formation in South Texas.

We remain focused on maximizing returns and increasing the value of our top-tier assets through disciplined capital spending, strategic acreage acquisitions, and continued development and optimization of our existing assets.

We believe that our high-quality asset base provides for a sustainable approach to prioritizing operational execution, maintaining a strong balance sheet, generating cash flows, returning capital to stockholders, and maintaining strong financial flexibility.

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Further demonstrating our commitment to sustainable operations and environmental stewardship, compensation for our executives and eligible employees under our long-term incentive plan, and compensation for all employees under our short-term incentive plan is calculated based on, in part, certain Company-wide, performance-based metrics that include key financial, operational, environmental, health, and safety measures.

Global commodity and financial markets remain subject to heightened levels of uncertainty and volatility as a result of inflation, disruptions resulting from recent bank failures, and the ongoing conflict between Russia and Ukraine and associated economic and trade sanctions on Russia.

These circumstances have driven commodity price volatility and have contributed to increased service provider and other costs, instances of supply chain disruptions, and a rise in interest rates, and could have further industry-specific impacts that may require us to adjust our business plan.

While the United States inflation rate has decreased since the beginning of the year and the average rate of inflation in 2023 is lower than it was in 2022, global commodity and financial markets remain subject to heightened levels of uncertainty and volatility.

Tightening of monetary policy by the United States Federal Reserve, recent oil production curtailment agreements among the Organization of the Petroleum Exporting Countries (“OPEC”) plus other non-OPEC oil producing countries (collectively referred to as “OPEC+”), and the ongoing conflict between Russia and Ukraine and associated economic and trade sanctions have driven commodity price volatility, contributed to instances of supply chain disruptions and a rise in interest rates, and could have further industry-specific impacts that may require us to adjust our business plan.

For additional detail, please refer to the Risk Factors section in Part I, Item 1A of our 2022 Form 10-K .

Despite continuing uncertainty, we expect to maximize the value of our high-quality asset base and sustain strong operational performance and financial stability.

We remain focused on returning capital to stockholders through increased returns and cash flow generation.

We remain focused on returning capital to stockholders through cash flow generation.

Areas of Operations

Our Midland Basin assets are comprised of approximately 110,000 net acres located in the Permian Basin in West Texas (“Midland Basin”).

In the first quarter of 2023, drilling and completion activities within our RockStar and Sweetie Peck positions continued to focus primarily on development optimization of our Midland Basin position.

In the second quarter of 2023, drilling and completion activities within our RockStar and Sweetie Peck positions continued to focus primarily on development optimization of our Midland Basin position.

Our Midland Basin position provides substantial future development opportunities within multiple oil-rich intervals, including the Spraberry and Wolfcamp formations.

Our South Texas assets are comprised of approximately 155,000 net acres located in the Maverick Basin in Dimmit and Webb Counties, Texas (“South Texas”).

In the first quarter of 2023, our operations in South Texas were focused on production from both the Austin Chalk formation and Eagle Ford shale formation, development of the Eagle Ford shale formation, and development and further delineation of the Austin Chalk formation.

In the second quarter of 2023, we focused our operations in South Texas on production from both the Austin Chalk formation and Eagle Ford shale formation, development of the Eagle Ford shale formation, and development and further delineation of the Austin Chalk formation.

Our overlapping acreage position in the Maverick Basin covers a significant portion of the western Eagle Ford shale and Austin Chalk formations, and includes acreage across the oil, gas-condensate, and dry gas windows with gas composition amenable to processing for NGL extraction.

First Quarter 2023 Overview and Outlook for the Remainder of 2023

During the first quarter of 2023, we remained focused on returning value to our stockholders through our Stock Repurchase Program and fixed quarterly dividend payments.

During the three months ended March 31, 2023, we repurchased and subsequently retired 1,413,758 shares of our outstanding common stock at a cost of $40.0 million, excluding taxes, commissions, and fees.

During the first quarter of 2023, we declared quarterly dividends of $0.15 per share totaling $18.1 million.

Please refer to Note 3 - Equity in Part I, Item 1 of this report for additional discussion regarding our Stock Repurchase Program.

Our total 2023 capital program is expected to be approximately $1.1 billion, exclusive of acquisitions, and will remain focused on our highly economic oil development projects in both our Midland Basin and South Texas assets.

Second Quarter 2023 Overview and Outlook for the Remainder of 2023

During the second quarter of 2023, we continued to execute on our goal of sustainably returning capital to our stockholders through our Stock Repurchase Program and fixed quarterly dividend by repurchasing and subsequently retiring approximately 2.6 million shares of our outstanding common stock at a cost of $68.7 million, excluding excise taxes, commissions, and fees, and declaring quarterly dividends of $0.15 per share totaling $17.7 million.

Please refer to Note 3 - Equity in Part I, Item 1 of this report for additional discussion of our Stock Repurchase Program.

Additionally, during the second quarter of 2023, we acquired approximately 20,000 net acres of oil and gas properties in the Midland Basin, and an additional 2,800 net acres through our continued leasing efforts, demonstrating our repeated success in extending inventory life and maintaining a strong balance sheet.

Please refer to Note 11 - Acquisitions in Part I, Item 1 of this report for additional discussion.

Our total 2023 capital program, excluding acquisitions and leasing efforts, is expected to be approximately $1.05 billion.

This reflects a decrease of $50.0 million, as compared to our original expectation, primarily as a result of lower-than-expected costs.

Our capital program remains focused on our highly economic oil development projects in both our Midland Basin and South Texas assets.

During 2023, we expect to repeat our track record of inventory replacement and growth, and to continue applying our strength in geosciences and development optimization.

We believe that our high-quality asset portfolio is capable of generating strong returns in the current macroeconomic environment, which we expect will enable us to maintain cash flows and financial flexibility.

Please refer to Overview of Liquidity and Capital Resources below for discussion of how we expect to fund the remainder of our 2023 capital program.

Financial and Operational Results.

Average net daily equivalent production for the three months ended March 31, 2023, increased two percent sequentially to 146.4 MBOE, consisting of a 10 percent increase from our South Texas assets partially offset by a four percent decrease from our Midland Basin assets.

These changes are a result of the timing of well completions.

Oil and gas realized prices, before the effect of derivative settlements (“realized price” or “realized prices”), decreased sequentially by 10 percent and 36 percent, respectively, as a result of decreases in benchmark commodity prices during the first quarter of 2023.

Realized price for NGLs remained flat sequentially.

Total realized price per BOE decreased 15 percent sequentially, resulting in a 15 percent decrease in oil, gas, and NGL production revenue, which was $570.8 million for the three months ended March 31, 2023, compared with $669.3 million for the three months ended December 31, 2022.

Oil, gas, and NGL production expense of $10.80 per BOE for the three months ended March 31, 2023, decreased six percent sequentially, primarily as a result of decreases in production tax expense per BOE and ad valorem tax expense per BOE.

We recorded a net derivative gain of $51.3 million for the three months ended March 31, 2023, compared with a net derivative gain of $11.2 million for the three months ended December 31, 2022.

Included within these amounts are a derivative settlement gain of $5.1 million for the three months ended March 31, 2023, and a derivative settlement loss of $115.6 million for the three months ended December 31, 2022.

Operational and financial activities during the three months ended March 31, 2023, resulted in the following:

• Net cash provided by operating activities of $331.6 million for the three months ended March 31, 2023, compared with $288.4 million for the three months ended December 31, 2022.

• Net income of $198.6 million, or $1.62 per diluted share, for the three months ended March 31, 2023, compared with net income of $258.5 million, or $2.09 per diluted share, for the three months ended December 31, 2022.

• Adjusted EBITDAX, a non-GAAP financial measure, for the three months ended March 31, 2023, of $401.4 million, compared with $373.9 million for the three months ended December 31, 2022.

Average net daily equivalent production for the three months ended June 30, 2023, increased five percent sequentially to 154.4 MBOE, consisting of a 12 percent increase from our South Texas assets driven by higher oil, gas, and NGL production volumes from both new and existing wells.

This increase was slightly offset by a one percent decrease from our Midland Basin assets resulting from the timing of well completions.

Oil, gas, and NGL realized prices, before the effect of derivative settlements (“realized price” or “realized prices”), decreased sequentially by three percent, 29 percent, and 21 percent, respectively, as a result of decreases in benchmark commodity prices during the second quarter of 2023.

Total realized price per BOE decreased 10 percent sequentially, resulting in a four percent decrease in oil, gas, and NGL production revenue, which was $546.6 million for the three months ended June 30, 2023, compared with $570.8 million for the three months ended March 31, 2023.

Oil, gas, and NGL production expense of $10.36 per BOE for the three months ended June 30, 2023, decreased four percent sequentially, primarily as a result of decreases in production tax expense per BOE and lease operating expense (“LOE”) per BOE.

We recorded net derivative gains of $11.7 million and $51.3 million for the three months ended June 30, 2023, and March 31, 2023, respectively.

Included within these amounts are derivative settlement gains of $15.6 million and $5.1 million for the three months ended June 30, 2023, and March 31, 2023, respectively.

Operational and financial activities during the three months ended June 30, 2023, resulted in the following:

• Net cash provided by operating activities of $383.3 million, compared with $331.6 million for the three months ended March 31, 2023.

• Net income of $149.9 million, or $1.25 per diluted share, compared with net income of $198.6 million, or $1.62 per diluted share, for the three months ended March 31, 2023.

• Adjusted EBITDAX, a non-GAAP financial measure, of $390.2 million, compared with $401.4 million for the three months ended March 31, 2023.

Please refer to the caption Non-GAAP Financial Measures below for additional discussion and our definition of adjusted EBITDAX and reconciliations to net income and net cash provided by operating activities.

Please refer to Overview of Selected Production and Financial Information, Including Trends and Comparison of Financial Results and Trends Between the Three Months Ended March 31, 2023, and December 31, 2022, and Between the Three Months Ended March 31, 2023, and 2022 below for additional discussion.

Please refer to Overview of Selected Production and Financial Information, Including Trends and Comparison of Financial Results and Trends Between the Three Months Ended June 30, 2023, and March 31, 2023, and Between the Six Months Ended June 30, 2023, and 2022 below for additional discussion.

Operational Activities.

In our Midland Basin program, we operated three drilling rigs and averaged two completion crews, drilled eight gross (seven net) wells, and completed 12 gross (10 net) wells during the first quarter of 2023.

Average net daily equivalent production volumes decreased sequentially by four percent to 74.0 MBOE.

Costs incurred in our Midland Basin program during the three months ended March 31, 2023, totaled $174.0 million, or 56 percent of our total costs incurred for the period.

During the remainder of 2023, we anticipate operating three drilling rigs and averaging one completion crew.

We expect our activity to focus primarily on developing the Spraberry and Wolfcamp formations within our RockStar and Sweetie Peck positions.

In our South Texas program, we operated two drilling rigs and one completion crew, drilled seven gross (seven net) wells, and completed 17 gross (16 net) wells during the first quarter of 2023.

In our Midland Basin program, we operated three drilling rigs and one completion crew, drilled 11 gross (five net) wells, and completed 20 gross (16 net) wells during the second quarter of 2023.

Average net daily equivalent production volumes decreased sequentially by one percent to 73.0 MBOE.

Costs incurred in our Midland Basin program during the three months ended June 30, 2023, totaled $261.0 million, or 70 percent of our total costs incurred for the period.

During the remainder of 2023, we anticipate operating one completion crew, and we plan to add an additional drilling rig in the fourth quarter to begin drilling on recently acquired acreage.

We expect our activity to focus primarily on developing formations within our RockStar and Sweetie Peck positions.

In our South Texas program, we operated two drilling rigs and one completion crew, drilled 12 gross (12 net) wells, and completed eight gross (eight net) wells during the second quarter of 2023.

Average net daily equivalent production volumes increased sequentially by 12 percent to 81.4 MBOE.

Costs incurred in our South Texas program during the three months ended March 31, 2023, totaled $125.6 million, or 41 percent of our total costs incurred for the period.

During the remainder of 2023, we anticipate operating two drilling rigs and one completion crew, focused primarily on developing the Austin Chalk formation.

The table below provides a quarterly summary of changes in our drilled but not completed well count and current year drilling and completion activity in our operated programs for the three months ended March 31, 2023:

Costs incurred in our South Texas program during the three months ended June 30, 2023,

totaled $102.6 million, or 27 percent of our total costs incurred for the period.

We anticipate operating two drilling rigs for the remainder of 2023 and one completion crew for a majority of the remainder of 2023, focused primarily on developing the Austin Chalk formation.

Midland Basin South Texas (1)

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45 37 19 19 64 56

Wells drilled 11 5 12 12 23 17

Wells completed (20) (16) (8) (8) (28) (24)

Wells drilled but not completed at June 30, 2023 (2)

36 27 23 23 59 50

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(1) The South Texas drilled but not completed well count as of December 31, 2022, included nine gross (nine net) wells that were not included in our five-year development plan as of December 31, 2022, eight of which were in the Eagle Ford shale formation.

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Costs Incurred.

Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed, totaled $308.7 million for the three months ended March 31, 2023, and were primarily incurred in our Midland Basin and South Texas programs as further detailed in Operational Activities above.

Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed, totaled $373.9 million and $682.6 million for the three and six months ended June 30, 2023, respectively, and were primarily incurred in our Midland Basin and South Texas programs as discussed in Operational Activities above.

Production Results.

The table below presents our production by product type for each of our assets for the three months ended March 31, 2023, December 31, 2022, and March 31, 2022:

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

The table below presents our production by product type for each of our assets for the periods presented:

For the Three Months Ended For the Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022

Midland Basin Production:

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Amounts may not calculate due to rounding.

Oil, Gas, and NGL Prices

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While quoted NYMEX oil and gas and OPIS NGL prices are generally used as a basis for comparison within our industry, the prices we receive are affected by quality, energy content, location and transportation differentials, and contracted pricing benchmarks for these products.

The following table summarizes commodity price data, as well as the effect of derivative settlements, for the three months ended March 31, 2023, December 31, 2022, and March 31, 2022:

The following table summarizes commodity price data, as well as the effect of derivative settlements, for the three months ended June 30, 2023, March 31, 2023, and June 30, 2022:

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

June 30, 2023 March 31, 2023 June 30, 2022

Oil (per Bbl):

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Realized prices reflect our actual product mix.

Given the uncertainty surrounding global financial markets, the ongoing conflict between Russia and Ukraine, the economic and trade sanctions that certain countries have imposed on Russia, production output from the Organization of the Petroleum Exporting Countries (“OPEC”) plus other non-OPEC oil producing countries (collectively referred to as “OPEC+”), and the potential impacts of these issues on global commodity markets, we expect benchmark prices for oil, gas, and NGLs to remain volatile for the foreseeable future, and we cannot reasonably predict the timing or likelihood of any future impacts that may result, which could include further inflation, supply chain disruptions, a continued rise in interest rates, and industry-specific impacts.

Given the uncertainty surrounding global financial markets, production output from OPEC+, the ongoing conflict between Russia and Ukraine and the associated economic and trade sanctions, and the potential impacts of these issues on global commodity markets, we expect benchmark prices for oil, gas, and NGLs to remain volatile for the foreseeable future, and we cannot reasonably predict the timing or likelihood of any future impacts that may result, which could include further inflation, supply chain disruptions, a continued rise in interest rates, and industry-specific impacts.

In addition to supply and demand fundamentals, as global commodities, the prices for oil, gas, and NGLs are affected by real or perceived geopolitical risks in various regions of the world as well as the relative strength of the United States dollar compared to other currencies.

Our realized prices at local sales points may also be affected by infrastructure capacity in the areas of our operations and beyond.

The following table summarizes 12-month strip prices for NYMEX WTI oil, NYMEX Henry Hub gas, and OPIS NGLs as of April 21, 2023, and March 31, 2023:

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

Our realized prices at local sales points may also be affected by infrastructure capacity or outages in the areas of our operations and beyond.

The following table summarizes 12-month strip prices for NYMEX WTI oil, NYMEX Henry Hub gas, and OPIS NGLs as of July 21, 2023, and June 30, 2023:

As of July 21, 2023 As of June 30, 2023

NYMEX WTI oil (per Bbl) $ 75.43 $ 70.13

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We have a financial risk management policy governing our use of derivatives, and decisions regarding entering into commodity derivative contracts are overseen by a financial risk management committee consisting of certain of our senior executive officers and finance personnel.

We make decisions about the amount of our expected production that we cover by derivatives based on the amount of debt on our balance sheet, the level of capital commitments and long-term obligations we have in place, and the terms and futures prices that are made available by our approved counterparties.

With our current commodity derivative contracts, we believe we have partially reduced our

exposure to volatility in commodity prices and basis differentials in the near term.

make decisions about the amount of our expected production that we cover by derivatives based on the amount of debt on our balance sheet, the level of capital commitments and long-term obligations we have in place, and the terms and futures prices that are made available by our approved counterparties.

With our current commodity derivative contracts, we believe we have partially reduced our exposure to volatility in commodity prices and basis differentials in the near term.

Our use of costless collars for a portion of our derivatives allows us to participate in some of the upward movements in oil and gas prices while also setting a price floor below which we are insulated from further price decreases.

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Financial Results of Operations and Additional Comparative Data

The tables below provide information regarding selected production and financial information for the three months ended March 31, 2023, and the preceding three quarters:

The tables below provide information regarding selected production and financial information for the three months ended June 30, 2023, and the preceding three quarters:

For the Three Months Ended

March 31, December 31, September 30, June 30,

June 30, March 31, December 31, September 30,

2023 2023 2022 2022

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Net income $ 149.9 $ 198.6 $ 258.5 $ 481.2

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Amounts may not calculate due to rounding.

Selected Performance Metrics

For the Three Months Ended

March 31, December 31, September 30, June 30,

June 30, March 31, December 31, September 30,

2023 2023 2022 2022

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Overview of Selected Production and Financial Information, Including Trends

For the Three Months Ended Amount Change Between the Three Months Ended Percent Change Between the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022 March 31, 2023 & December 31, 2022 March 31, 2023 & 2022 March 31, 2023 & December 31, 2022 March 31, 2023 & 2022

For the Three Months Ended Amount Change Between Periods Percent Change Between Periods For the Six Months Ended Amount Change Between Periods Percent Change Between Periods

June 30, March 31, June 30, June 30,

2023 2023 2023 2022

Net production volumes:

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(1) Amounts and percentage changes may not calculate due to rounding.

(2) Derivative settlements for the three months ended March 31, 2023, and 2022, are included within the net derivative (gain) loss line item in the accompanying statements of operations.

(2) Derivative settlements for the three months ended June 30, 2023, and for the six months ended June 30, 2023, and 2022, are included within the net derivative (gain) loss line item in the accompanying statements of operations.

(3) Please refer to Note 9 - Earnings Per Share in Part I, Item 1 of this report for additional discussion.

Average net daily equivalent production for the three months ended March 31, 2023, increased two percent sequentially and decreased four percent compared with the same period in 2022.

The YTD 2023-over-YTD 2022 decrease consisted of a 15 percent decrease from our Midland Basin assets, partially offset by a 10 percent increase from our South Texas assets as a result of a shift in capital allocation to our Austin Chalk assets.

Average net daily equivalent production for the three months ended June 30, 2023, increased five percent sequentially, primarily consisting of a 12 percent increase from our South Texas assets, driven by higher oil, gas, and NGL production volumes from both new and existing wells.

The increase from our South Texas assets was slightly offset by a one percent decrease from our Midland Basin assets, which resulted from the timing of well completions.

Average net daily equivalent production remained flat YTD 2023-over-YTD 2022 as a 19 percent increase from our South Texas assets was offset by a 14 percent decrease from our Midland Basin assets.

These changes were primarily the result of the timing of well completions.

We expect a slight increase in total net equivalent production for the full-year 2023, compared with 2022, driven by increased production from both new and existing wells in South Texas and as we benefit from reduced production curtailments because the build-out of South Texas oil handling capacity is expected to meet production volume needs.

We present certain information on a per BOE basis in order to evaluate our performance relative to our peers and to identify and measure trends we believe may require additional analysis and discussion.

Our realized price on a per BOE basis decreased $7.61 sequentially and $18.94 YTD 2023-over-YTD 2022, as a result of decreases in oil and gas benchmark prices.

These decreases were slightly offset by a gain on the settlement of our commodity derivative contracts of $0.39 per BOE for the three months ended March 31, 2023.

For the three months ended December 31, 2022, and March 31, 2022, we had losses on the settlement of our commodity derivative contracts of $8.80 per BOE and $12.19 per BOE, respectively.

Lease operating expense (“LOE”) on a per BOE basis remained flat sequentially and increased 21 percent YTD 2023-over-YTD 2022.

The YTD 2023-over-YTD 2022 increase was a result of increased workover activity and the effects of inflation, both of which we expect will lead to an increase in LOE on a per BOE basis for the full-year 2023, compared with 2022.

Our realized price on a per BOE basis decreased $4.42 sequentially and decreased $27.11 YTD 2023-over-YTD 2022, as a result of decreases in oil, gas, and NGL benchmark prices.

For the three months ended June 30, 2023, and March 31, 2023, we had gains on the settlement of our commodity derivative contracts of $1.11 per BOE and $0.39 per BOE, respectively.

For the six months ended June 30, 2023, we had a gain on the settlement of our commodity derivative contracts of $0.76 per BOE, compared to a loss of $15.06 per BOE for the same period in 2022.

LOE on a per BOE basis decreased three percent sequentially as a result of increases in net equivalent production volumes outpacing increases in recurring LOE and workover expense.

LOE on a per BOE basis increased nine percent YTD 2023-over-YTD 2022 as a result of increased workover activity and increases in labor costs, both of which we expect will lead to an increase in LOE on a per BOE basis for the full-year 2023, compared with 2022.

We anticipate volatility in LOE on a per BOE basis as a result of changes in total production, changes in our overall production mix, timing of workover projects, and industry activity, all of which affect total LOE.

Transportation costs on a per BOE basis decreased two percent sequentially and increased three percent YTD 2023-over-YTD 2022.

Transportation costs on a per BOE basis increased three percent sequentially and increased two percent YTD 2023-over-YTD 2022.

In general, we expect total transportation costs to fluctuate relative to changes in gas and NGL production from our South Texas assets, where we incur a majority of our transportation costs.

For the full-year 2023, we expect transportation costs on a per BOE basis to decrease compared with 2022, as a result of transportation cost reductions in the second half of 2023 resulting from the expiration of a long-term contract in South Texas.

Production tax expense on a per BOE basis decreased 17 percent sequentially and 31 percent YTD 2023-over-YTD 2022, as a result of decreases in realized prices.

Our overall production tax rate for the three months ended March 31, 2023, and 2022, was 4.7 percent, compared with 4.8 percent for the three months ended December 31, 2022.

Production tax expense on a per BOE basis decreased 18 percent sequentially and decreased 45 percent YTD 2023-over-YTD 2022, as a result of decreases in realized prices.

Our overall production tax rate for the three and six months ended June 30, 2023, was 4.3 percent and 4.5 percent, respectively, compared with 4.7 percent for the three months ended March 31, 2023, and 4.9 percent for the six months ended June 30, 2022.

We generally expect production tax expense to correlate with oil, gas, and NGL production revenue on an absolute and per BOE basis.

Product mix, the location of production, and incentives to encourage oil and gas development can also impact the amount of production tax expense that we recognize.

Ad valorem tax expense on a per BOE basis decreased 16 percent sequentially and increased 40 percent YTD 2023-over-YTD 2022 as a result of changes to the expected value assessments of our producing properties, which are driven by fluctuations in commodity prices.

Ad valorem tax expense on a per BOE basis increased two percent sequentially and increased 30 percent YTD 2023-over-YTD 2022 as a result of changes to the expected value assessments of our producing properties, which are driven by fluctuations in commodity prices.

We anticipate volatility in ad valorem tax expense on a per BOE and absolute basis as the valuation of our producing properties changes.

Depletion, depreciation, amortization, and asset retirement obligation liability accretion (“DD&A”) expense on a per BOE basis increased seven percent sequentially and remained flat YTD 2023-over-YTD 2022.

The sequential quarterly increase was a result of an increase in our DD&A rate due to inflation partially offset by a shift in our production mix resulting from increased activity in our South Texas assets which have a lower DD&A rate than our Midland Basin assets.

Depletion, depreciation, amortization, and asset retirement obligation liability accretion (“DD&A”) expense on a per BOE basis decreased four percent sequentially and remained flat YTD 2023-over-YTD 2022.

The sequential quarterly decrease resulted from a shift in our production mix resulting from increased activity in our South Texas assets, which have a lower DD&A rate than our Midland Basin assets.

Our DD&A rate fluctuates as a result of changes in our production mix, changes in our total estimated proved reserve volumes, changes in capital allocation, impairments, divestiture activity, and carrying cost funding and sharing arrangements with third parties.

We expect DD&A expense per BOE and on an absolute basis to increase slightly in 2023, compared with 2022, primarily as a result of inflation, partially offset by increased activity in our Austin Chalk program.

General and administrative (“G&A”) expense on a per BOE basis decreased 16 percent sequentially primarily as a result of decreased compensation expense.

G&A expense recorded during the three months ended December 31, 2022, reflected an increase to compensation expense resulting from the Company’s full-year performance against targets established at the beginning of the year.

G&A expense on a per BOE basis increased 16 percent YTD 2023-over-YTD 2022 as a result of increased compensation expense and inflationary impacts.

We currently expect G&A expense to increase per BOE and on an absolute basis compared with 2022, primarily as a result of expected increases in compensation expense.

Please refer to Comparison of Financial Results and Trends Between the Three Months Ended March 31, 2023, and December 31, 2022, and Between the Three Months Ended March 31, 2023, and 2022 below for additional discussion of operating expenses.

Comparison of Financial Results and Trends Between the Three Months Ended March 31, 2023, and December 31, 2022, and Between the Three Months Ended March 31, 2023, and 2022

We expect DD&A expense per BOE and on an absolute basis to increase in 2023, compared with 2022, primarily as a result of cost increases, partially offset by increased production from our South Texas assets.

General and administrative (“G&A”) expense on a per BOE basis decreased seven percent sequentially as a result of increased net equivalent production volumes and increased four percent YTD 2023-over-YTD 2022 as a result of increased compensation expense.

We currently expect G&A expense to increase per BOE and on an absolute basis for the full-year 2023 compared with 2022, primarily as a result of expected increases in compensation expense.

Please refer to Comparison of Financial Results and Trends Between the Three Months Ended June 30, 2023, and March 31, 2023, and Between the Six Months Ended June 30, 2023, and 2022 below for additional discussion of operating expenses.

Comparison of Financial Results and Trends Between the Three Months Ended June 30, 2023, and March 31, 2023, and Between the Six Months Ended June 30, 2023, and 2022

Average net daily equivalent production, oil, gas, and NGL production revenue, and oil, gas, and NGL production expense

Sequential Quarterly Changes.

The following table presents changes in our average net daily equivalent production, oil, gas, and NGL production revenue, and oil, gas, and NGL production expense, by area, between the three months ended March 31, 2023, and December 31, 2022:

Net Equivalent Production Increase (Decrease) Oil, Gas, and NGL

Production Revenue

Decrease Oil, Gas, and NGL

Increase (Decrease) Oil, Gas, and NGL

Production Expense

Increase (Decrease)

(MBOE per day) (in millions) (in millions)

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Amounts may not calculate due to rounding.

Average net daily equivalent production volumes increased two percent, consisting of a 10 percent increase from our South Texas assets, partially offset by a four percent decrease from our Midland Basin assets.

Our realized oil and gas prices decreased 10 percent and 36 percent, respectively, and our realized price for NGLs remained flat.

As a result of decreases in benchmark commodity prices for oil and gas, total realized price per BOE decreased 15 percent, resulting in a 15 percent decrease in oil, gas, and NGL production revenue.

Oil, gas, and NGL production expense decreased six percent, primarily driven by decreases in production tax expense and ad valorem tax expense.

Average net daily equivalent production volumes increased five percent, consisting of a 12 percent increase from our South Texas assets, slightly offset by a one percent decrease from our Midland Basin assets.

Realized prices for oil, gas, and NGLs decreased three percent, 29 percent, and 21 percent, respectively.

As a result of decreases in benchmark commodity prices for oil, gas, and NGLs, total realized price per BOE decreased 10 percent.

This decrease was partially offset by increased average net daily equivalent production resulting in a four percent decrease in oil, gas, and NGL production revenue.

Oil, gas, and NGL production expense increased two percent, primarily driven by increases in transportation costs and LOE, partially offset by a decrease in production tax expense.

YTD 2023-over-YTD 2022 Changes.

Net Equivalent Production Increase (Decrease) Oil, Gas, and NGL

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Amounts may not calculate due to rounding.

Average net daily equivalent production volumes decreased four percent, consisting of a 15 percent decrease from our Midland Basin assets, partially offset by a 10 percent increase from our South Texas assets.

Average net daily equivalent production volumes remained flat, as a 19 percent increase from our South Texas assets was offset by a 14 percent decrease from our Midland Basin assets.

Realized prices for oil, gas, and NGLs decreased 28 percent, 62 percent, and 42 percent, respectively.

As a result of decreases in benchmark commodity prices, total realized price per BOE decreased 30 percent, and combined with decreased average net daily equivalent production, resulted in a 34 percent decrease in oil, gas, and NGL production revenue.

Oil, gas, and NGL production expense decreased two percent, primarily driven by a decrease in production tax expense which was mostly offset by an increase in LOE.

As a result of decreases in benchmark commodity prices for oil, gas, and NGLs, total realized price per BOE decreased 40 percent, resulting in a 40 percent decrease in oil, gas, and NGL production revenue.

Oil, gas, and NGL production expense decreased seven percent, primarily driven by a decrease in production tax expense, partially offset by an increase in LOE.

Please refer to Overview of Selected Production and Financial Information, Including Trends above for additional discussion, including discussion of trends on a per BOE basis.

Depletion, depreciation, amortization, and asset retirement obligation liability accretion

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022

(in millions)

Depletion, depreciation, amortization, and asset retirement obligation liability accretion $ 157.8 $ 154.2 $ 312.0 $ 314.3

DD&A expense increased seven percent sequentially and decreased three percent YTD 2023-over-YTD 2022.

The sequential quarterly increase was a result of an increase to our DD&A rate due to inflation.

This increase was partially offset by increased activity

in our South Texas assets which have a lower DD&A rate than our Midland Basin assets.

DD&A expense increased two percent sequentially and remained flat YTD 2023-over-YTD 2022.

Please refer to Overview of Selected Production and Financial Information, Including Trends above for discussion of DD&A expense on a per BOE basis.

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022

(in millions)

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Total $ 15.0 $ 18.4 $ 33.4 $ 29.9

__________________________________________

Prior periods have been adjusted to conform to the current period presentation.

Exploration expense increased 70 percent sequentially and 104 percent YTD 2023-over-YTD 2022, primarily as a result of unsuccessful exploration activity related to one well that experienced technical issues during the drilling phase.

Exploration expense decreased 19 percent sequentially and increased 12 percent YTD 2023-over-YTD 2022.

The sequential quarterly decrease was primarily a result of unsuccessful exploration activity related to one well that experienced technical issues during the drilling phase, which affected the three months ended March 31, 2023.

The YTD 2023-over-YTD 2022 increase was primarily due to an increase in geological and geophysical expense.

Exploration expense fluctuates based on actual geological and geophysical studies we perform within an exploratory area, exploratory dry hole expense incurred, and changes in the amount of allocated overhead.

General and administrative

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022

(in millions)

General and administrative $ 27.5 $ 27.7 $ 55.2 $ 53.3

G&A expense decreased 16 percent sequentially primarily as a result of decreased compensation expense.

G&A expense increased 11 percent YTD 2023-over-YTD 2022 as a result of increased compensation expense and inflationary impacts.

G&A expense remained flat sequentially and increased four percent YTD 2023-over-YTD 2022.

The YTD 2023-over-YTD 2022 increase was primarily a result of increased compensation expense.

We currently expect G&A expense to increase on an absolute basis for the full-year 2023 compared with 2022, primarily as a result of expected increases in compensation expense.

Please refer to the section Overview of Selected Production and Financial Information, Including Trends above for discussion of G&A expense on a per BOE basis.

Net derivative (gain) loss

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022

(in millions)

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Net derivative (gain) loss is a result of changes in derivative fair values associated with fluctuations in the forward price curves for the commodities underlying our outstanding derivative contracts and the monthly cash settlements of our derivative positions during the period.

The net derivative gains for the three months ended March 31, 2023, and December 31, 2022, resulted from decreases in benchmark commodity prices during those periods.

The net derivative loss for the three months ended March 31, 2022, resulted from increases in benchmark commodity prices.

The net derivative gains for the three months ended June 30, 2023, and March 31, 2023, and for the six months ended June 30, 2023, resulted from decreases in benchmark commodity prices during those periods.

The net derivative loss for the six months ended June 30, 2022, resulted from increases in benchmark commodity prices.

Please refer to Note 7 - Derivative Financial Instruments in Part I, Item 1 of this report for additional discussion.

Interest expense

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022

(in millions)

Interest expense $ (22.1) $ (22.5) $ (44.6) $ (74.9)

Interest expense remained flat sequentially and decreased 43 percent YTD 2023-over-YTD 2022 as a result of the reduction in the aggregate principal amount of our Senior Notes through various transactions in 2022, including the redemption of our 2024 Senior Notes on February 14, 2022, and the redemption of our 10.0% Senior Secured Notes due 2025 (“2025 Senior Secured Notes”) on June 17, 2022.

Interest expense remained flat sequentially and decreased 40 percent YTD 2023-over-YTD 2022 as a result of the reduction in the aggregate principal amount of our Senior Notes through various transactions in 2022, including the redemption of our 2024 Senior Notes on February 14, 2022, and the redemption of our 2025 Senior Secured Notes on June 17, 2022.

As a result of these transactions, we expect interest expense to decrease for the full-year 2023, compared with 2022.

interest expense can vary based on the timing and amount of borrowings under our revolving credit facility.

Total interest expense can vary

based on the timing and amount of borrowings under our revolving credit facility.

Please refer to Note 5 - Long-Term Debt in Part I, Item 1 of this report and Overview of Liquidity and Capital Resources below for additional discussion.

Loss on extinguishment of debt

For the Three Months Ended For the Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022

(in millions)

Loss on extinguishment of debt $ — $ — $ — $ (67.6)

The redemption of our 2025 Senior Secured Notes on June 17, 2022, resulted in a net loss on extinguishment of debt of $67.2 million for the six months ended June 30, 2022, which included $33.5 million of premium paid, $26.3 million of accelerated expense recognition of the remaining unamortized debt discount, and $7.4 million of accelerated expense recognition of the remaining unamortized deferred financing costs.

Income tax expense

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022

(in millions, except tax rate)

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Effective tax rate 21.9 % 21.8 % 21.9 % 21.1 %

The sequential quarterly and YTD 2023-over-YTD 2022 increases in the effective tax rate are primarily due to a benefit recognized from the release of the valuation allowance during each of the three months ended December 31, 2022, and March 31, 2022, that lowered the effective tax rate for each of those periods.

Our effective tax rate remained flat sequentially and increased YTD 2023-over-YTD 2022 primarily due to a benefit recognized from the release of the valuation allowance during the six months ended June 30, 2022, that lowered the effective tax rate compared to no valuation benefit recognized during the six months ended June 30, 2023.

The tax rates for each period presented reflect the proportional effects of state income taxes, limits on expensing of certain covered individual’s compensation, and the cumulative effect of other small differences.

Based on current projections, we estimate that between eight percent and 10 percent of full-year 2023 income tax expense will be current, however, this could be impacted upon the resolution of the R&D credit study if we benefit from a carryover R&D credit amount.

Changes in federal income tax laws or enactment of proposed legislation to increase the corporate tax rate and eliminate or reduce certain oil and gas industry deductions could have a material impact on our effective tax rate and current tax expense.

Based on current projections, we estimate that between two percent and six percent of full-year 2023 income tax expense will be current, however, this could be impacted by the R&D credit study as further discussed in Note 4 - Income Taxes in Part I, Item 1 of this report.

We made $6.1 million of cash tax payments during the second quarter of 2023, primarily related to Texas franchise taxes.

Changes in federal income tax laws or enactment of proposed legislation to increase the corporate tax rate and eliminate or reduce certain oil and gas industry deductions could have a material effect on our effective tax rate and current tax expense.

Please refer to the Risk Factors section in Part 1, Item 1A of our 2022 Form 10-K for additional discussion.

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Sources of Cash

For the three months ended March 31, 2023, our capital expenditure and return of capital programs were funded with cash flows from operating activities, and we expect that to continue for the remainder of 2023.

As of March 31, 2023, our cash and cash equivalents balance was $477.9 million, which was an increase of $32.9 million from our cash and cash equivalents balance as of December 31, 2022.

Although we expect cash flows from operations to be sufficient to fund our expected 2023 capital expenditure and return of capital programs, we may also use borrowings under our revolving credit facility or raise funds through new debt or equity offerings or from other sources of financing.

For the six months ended June 30, 2023, our capital expenditures, return of capital program, and asset acquisitions were funded with cash flows from operating activities and cash on hand, and we expect that to continue for the remainder of 2023.

However, we may also use borrowings under our revolving credit facility or raise funds through new debt or equity offerings or from other sources of financing.

If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership of our current stockholders could be diluted, and these newly issued securities may have rights, preferences, or privileges senior to those of certain existing stockholders and bondholders.

Additionally, we may enter into carrying cost and sharing arrangements with third parties for certain exploration or development programs.

Our credit ratings affect the availability of, and cost for us to borrow, additional funds, and any future downgrades in our credit ratings could make it more difficult or expensive for us to borrow additional funds.

Our credit ratings affect the availability of, and cost for us to borrow, additional funds.

Two major credit rating agencies upgraded our credit rating during the second quarter of 2023, citing our ability to consistently generate meaningful cash flows, disciplined capital spending, return of capital to stockholders, debt redemptions during 2022, and sustained strong operational performance, including our established inventory of drilling locations in our primary plays, all of which contribute to our strong liquidity

All of our sources of liquidity can be affected by the general conditions of the broader economy, force majeure events, fluctuations in commodity prices, operating costs, interest rate changes, tax law changes, and volumes produced, all of which affect us and our industry.

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Credit Agreement

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

Our Credit Agreement provides for a senior secured revolving credit facility with a maximum loan amount of $3.0 billion.

As of June 30, 2023, the borrowing base and aggregate lender commitments under our Credit Agreement were $2.5 billion and $1.25 billion, respectively.

The borrowing base is subject to regular, semi-annual redetermination, which considers the value of both our proved oil and gas properties reflected in our most recent reserve report and commodity derivative contracts, each as determined by our lender group.

Subsequent to March 31, 2023, the semi-annual

borrowing base redetermination was completed, which reaffirmed both our borrowing base and aggregate lender commitments at existing amounts.

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

1 unchanged sentence

We must comply with certain financial and non-financial covenants under the terms of the Credit Agreement.

We were in compliance with all financial and non-financial covenants under the Credit Agreement as of March 31, 2023, and through the filing of this report.

Please refer to Note 5 - Long-Term Debt in Part I, Item 1 of this report for additional discussion, as well as the presentation of the outstanding balance, total amount of letters of credit, and available borrowing capacity under the Credit Agreement as of April 21, 2023, March 31, 2023, and December 31, 2022.

We had no revolving credit facility borrowings during the three months ended March 31, 2023, and 2022, or December 31, 2022.

We were in compliance with all financial and non-financial covenants under the Credit Agreement as of June 30, 2023, and through the filing of this report.

Please refer to Note 5 - Long-Term Debt in Part I, Item 1 of this report for additional discussion, as well as the presentation of the outstanding balance, total amount of letters of credit, and available borrowing capacity under the Credit Agreement as of July 21, 2023, June 30, 2023, and December 31, 2022.

We had no revolving credit facility borrowings during the six months ended June 30, 2023, and 2022.

Cash flows provided by our operating activities, proceeds received from divestitures of properties, capital markets activities including open market debt repurchases, debt redemptions, repayment of scheduled debt maturities, and our capital expenditures, including acquisitions, all impact the amount we borrow under our revolving credit facility.

3 unchanged sentences

The following table presents our weighted-average interest rates and our weighted-average borrowing rates for the periods presented:

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 March 31, 2023 June 30, 2023 June 30, 2022

Weighted-average interest rate 7.1 % 7.2 % 7.1 % 8.2 %

Weighted-average borrowing rate 6.4 % 6.5 % 6.5 % 7.2 %

Our weighted-average interest rate and our weighted-average borrowing rate each remained relatively flat sequentially, and decreased YTD 2023-over-YTD 2022, primarily due to the redemption of our 2024 Senior Notes and 2025 Senior Secured Notes during 2022.

We expect our weighted-average interest rate and weighted-average borrowing rate to decrease for the full-year 2023 compared with 2022, primarily as a result of the redemption of our 2024 Senior Notes and 2025 Senior Secured Notes.

Our weighted-average interest rate and weighted-average borrowing rate are impacted by the occurrence and timing of long-term debt issuances and redemptions and the average outstanding balance on our revolving credit facility.

Additionally, our weighted-average interest rates are impacted by the fees paid on the unused portion of our aggregate lender commitments.

Our weighted-average interest rate and our weighted-average borrowing rate each remained flat sequentially, and decreased YTD 2023-over-YTD 2022, primarily due to the redemption of our 2024 Senior Notes and 2025 Senior Secured Notes during 2022.

As a result of these redemptions, we expect our weighted-average interest rate and weighted-average borrowing rate to decrease for the full-year 2023 compared with 2022.

Our weighted-average interest rate and weighted-average borrowing rate are affected by the occurrence and timing of long-term debt issuances and redemptions and the average outstanding balance on our revolving credit facility.

Additionally, our weighted-average interest rates are affected by the fees paid on the unused portion of our aggregate lender commitments.

The rates disclosed in the above table do not reflect certain amounts associated with the repurchase or redemption of Senior Notes, such as the acceleration of unamortized deferred financing costs and unamortized discounts, as these amounts are netted against the associated gain or loss on extinguishment of debt.

The 2024 Senior Notes were redeemed on February 14, 2022, and the 2025 Senior Secured Notes were redeemed on June 17, 2022.

After these dates, the weighted-average interest rate was no longer impacted by the non-cash amortization of deferred financing costs or, for the 2025 Senior Secured Notes, the non-cash amortization of the discount.

After these dates, the weighted-average interest rate was no longer affected by the non-cash amortization of deferred financing costs or, for the 2025 Senior Secured Notes, the non-cash amortization of the discount.

We use cash for the development, exploration, and acquisition of oil and gas properties;

for the payment of operating and general and administrative costs, income taxes, dividends, debt obligations, including interest and early repayments or redemptions, and for repurchases of shares of our common stock under the Stock Repurchase Program.

Expenditures for the development, exploration, and acquisition of oil and gas properties are the primary use of our capital resources.

During the three months ended March 31, 2023, we spent approximately $240.7 million on capital expenditures.

This amount differs from the costs incurred amount of $308.7 million for the three months ended March 31, 2023, as costs incurred is an accrual-based amount that also includes asset retirement obligations, geological and geophysical expenses, acquisitions of oil and gas properties, and exploration overhead amounts.

for the payment of operating and general and administrative costs, income taxes, dividends, debt obligations, including interest and early repayments or redemptions;

and for repurchases of shares of our common stock under the Stock Repurchase Program.

Expenditures for the development,

exploration, and acquisition of oil and gas properties are the primary use of our capital resources.

During the six months ended June 30, 2023, we spent approximately $638.9 million on capital expenditures and on acquiring proved and unproved oil and gas properties.

This amount differs from the costs incurred amount of $682.6 million for the six months ended June 30, 2023, as costs incurred is an accrual-based amount that also includes asset retirement obligations, geological and geophysical expenses, and exploration overhead amounts.

The amount and allocation of our future capital expenditures will depend upon a number of factors, including our cash flows from operating, investing, and financing activities, our ability to execute our development program, inflation, and the number and size of acquisitions that we complete.

In addition, the impact of oil, gas, and NGL prices on investment opportunities, the availability of capital, tax law changes, and the timing and results of our exploration and development activities may lead to changes in funding requirements for future development.

In addition, the impact of oil, gas, and NGL prices on investment opportunities, the availability of capital, tax law and other regulatory changes, and the timing and results of our exploration and development activities may lead to changes in funding requirements for future development.

We periodically review our capital expenditure budget and guidance to assess if changes are necessary based on current and projected cash flows, acquisition and divestiture activities, debt requirements, and other factors.

Our total 2023 capital program, which we expect to fund with cash flows from operations, is expected to be approximately $1.1 billion, exclusive of acquisitions.

Our total 2023 capital program, which we expect to fund with cash flows from operations, is expected to be approximately $1.05 billion, excluding acquisitions.

This reflects a decrease of $50.0 million, as compared to our original expectation, primarily as a result of lower-than-expected costs.

We may from time to time repurchase shares of our common stock, or repurchase or redeem all or portions of our outstanding debt securities, for cash, through exchanges for other securities, or a combination of both.

Such repurchases or redemptions may be

made in open market transactions, privately negotiated transactions, tender offers, pursuant to contractual provisions, or otherwise.

Such repurchases or redemptions may be made in open market transactions, privately negotiated transactions, tender offers, pursuant to contractual provisions, or otherwise.

Any such repurchases or redemptions will depend on our business strategy, prevailing market conditions, our liquidity requirements, contractual restrictions or covenants, compliance with securities laws, and other factors.

The amounts involved in any such transaction may be material.

During the three months ended March 31, 2023, we repurchased and subsequently retired 1,413,758 shares of our common stock at a cost of $40.0 million, excluding taxes, commission, and fees.

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

During the three and six months ended June 30, 2023, we repurchased and subsequently retired 2,550,706 and 3,964,464 shares, respectively, of our common stock at a cost of $68.7 million and $108.8 million, respectively, excluding excise taxes, commissions, and fees.

As of June 30, 2023, $334.0 million remained available under the Stock Repurchase Program for repurchases of our common stock.

Please refer to Note 3 - Equity in Part I, Item 1 of this report for additional discussion.

On February 14, 2022, we redeemed all of the $104.8 million of aggregate principal amount outstanding of our 2024 Senior Notes and all redeemed 2024 Senior Notes were canceled upon settlement.

On February 14, 2022, we redeemed all of the $104.8 million of aggregate principal amount outstanding of our 2024 Senior Notes, and on June 17, 2022, we redeemed all of the $446.7 million of aggregate principal amount outstanding of our 2025 Senior Secured Notes.

All redeemed 2024 Senior Notes and 2025 Senior Secured Notes were canceled upon settlement.

Please refer to Note 5 - Long-Term Debt in Part I, Item 1 of this report for additional discussion.

Analysis of Cash Flow Changes Between the Three Months Ended March 31, 2023, and 2022

The following tables present changes in cash flows between the three months ended March 31, 2023, and 2022, for our operating, investing, and financing activities.

Analysis of Cash Flow Changes Between the Six Months Ended June 30, 2023, and 2022

The following tables present changes in cash flows between the six months ended June 30, 2023, and 2022, for our operating, investing, and financing activities.

The analysis following each table should be read in conjunction with our accompanying statements of cash flows in Part I, Item 1 of this report.

Operating activities

For the Three Months Ended March 31, Amount Change Between Periods

For the Six Months Ended June 30, Amount Change Between Periods

(in millions)

Net cash provided by operating activities $ 714.9 $ 884.7 $ (169.8)

Net cash provided by operating activities decreased for the three months ended March 31, 2023, compared with the same period in 2022, primarily as a result of a $160.0 million decrease in cash received from oil, gas, and NGL production revenue net of transportation costs and production taxes and an increase of $33.7 million in cash paid for LOE and ad valorem taxes, mostly offset by a $149.2 million decrease in cash paid on settled derivative trades, a $26.8 million decrease in cash paid for interest, and a $16.1 million decrease in cash paid for G&A expense.

Net cash provided by operating activities decreased for the six months ended June 30, 2023, compared with the same period in 2022, primarily as a result of a $583.5 million decrease in cash received from oil, gas, and NGL production revenue net of transportation costs and production taxes and an increase of $38.5 million in cash paid for LOE and ad valorem taxes, partially offset by a $397.3 million decrease in cash paid on settled derivative trades, a $45.6 million decrease in cash paid for interest, and a $19.0 million decrease in cash paid for G&A expense.

Net cash provided by operating activities is also affected by working capital changes and the timing of cash receipts and disbursements.

Investing activities

For the Three Months Ended March 31, Amount Change Between Periods

For the Six Months Ended June 30, Amount Change Between Periods

(in millions)

Net cash used in investing activities $ (638.2) $ (365.7) $ (272.5)

Net cash used in investing activities increased for the three months ended March 31, 2023, compared with the same period in 2022, primarily as a result of a $90.6 million increase in capital expenditures.

Net cash used in investing activities during the three months ended March 31, 2023, was funded by net cash provided by operating activities.

Net cash used in investing activities increased for the six months ended June 30, 2023, compared with the same period in 2022, as a result of a $184.3 million increase in capital expenditures and $88.8 million of cash paid to acquire proved and unproved oil

and gas properties in the Midland Basin.

Please refer to Note 11 - Acquisitions in Part I, Item 1 of this report for additional discussion of acquisition activity.

Financing activities

For the Three Months Ended March 31, Amount Change Between Periods

For the Six Months Ended June 30, Amount Change Between Periods

(in millions)

Net cash used in financing activities $ (143.4) $ (584.5) $ 441.1

Net cash used in financing activities for the three months ended March 31, 2023, related to $40.1 million of cash paid to repurchase and subsequently retire 1,413,758 shares of our common stock under the Stock Repurchase Program and $18.3 million in dividends paid.

Net cash used in financing activities for the three months ended March 31, 2022, related to $104.8 million of cash paid to redeem our 2024 Senior Notes.

Net cash used in financing activities for the six months ended June 30, 2023, related to $108.9 million of cash paid, including commissions and fees, to repurchase and subsequently retire 3,964,464 shares of our common stock under the Stock Repurchase Program and $36.4 million of dividends paid.

Net cash used in financing activities for the six months ended June 30, 2022, related to $480.2 million of cash paid, including premium, to redeem our 2025 Senior Secured Notes, and $104.8 million of cash paid to redeem our 2024 Senior Notes.

Interest Rate Risk

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Our Credit Agreement allows us to fix the interest rate for all or a portion of the principal balance of our revolving credit facility for a period up to six months.

To the extent that the interest rate is fixed, interest rate changes will affect the revolving

credit facility’s fair value but will not impact results of operations or cash flows.

Conversely, for the portion of the revolving credit facility that has a floating interest rate, interest rate changes will not affect the fair value but will impact future results of operations and cash flows.

Changes in interest rates do not impact the amount of interest we pay on our fixed-rate Senior Notes, but can impact their fair values.

As of March 31, 2023, our outstanding principal amount of fixed-rate debt totaled $1.6 billion and we had no floating-rate debt outstanding.

To the extent that the interest rate is fixed, interest rate changes will affect the revolving credit facility’s fair value but will not affect results of operations or cash flows.

Conversely, for the portion of the revolving credit facility that has a floating interest rate, interest rate changes will not affect the fair value but will affect future results of operations and cash flows.

Changes in interest rates do not affect the amount of interest we pay on our fixed-rate Senior Notes, but can affect their fair values.

As of June 30, 2023, our outstanding principal amount of fixed-rate debt totaled $1.6 billion and we had no floating-rate debt outstanding.

Please refer to Note 8 - Fair Value Measurements in Part I, Item 1 of this report for additional discussion on the fair values of our Senior Notes.

The Federal Reserve has continued to increase short-term interest rates in 2023.

These increases, and any future increases, could impact the cost and our ability to borrow funds.

These increases, and any future increases, could affect the cost and our ability to borrow funds.

Commodity Price Risk

The prices we receive for our oil, gas, and NGL production directly impact our revenue, profitability, access to capital, ability to execute our Stock Repurchase Program and pay dividends, and future rate of growth.

The prices we receive for our oil, gas, and NGL production directly affect our revenue, profitability, access to capital, ability to execute our Stock Repurchase Program and pay dividends, and future rate of growth.

Oil, gas, and NGL prices are subject to unpredictable fluctuations resulting from a variety of factors that are typically beyond our control, including changes in supply and demand associated with the broader macroeconomic environment, constraints on gathering systems, processing facilities, pipelines, and other transportation systems, and weather-related events.

The markets for oil, gas, and NGLs have been volatile, especially over the last decade, and remain subject to high levels of uncertainty and volatility related to the ongoing conflict between Russia and Ukraine, the economic and trade sanctions that certain countries have imposed on Russia, production output from OPEC+, and the associated potential impacts of these issues on global commodity and financial markets.

The markets for oil, gas, and NGLs have been volatile, especially over the last decade, and remain subject to high levels of uncertainty and volatility related to production output from OPEC+, the ongoing conflict between Russia and Ukraine and the associated economic and trade sanctions, and the potential impacts of these issues on global commodity and financial markets.

These circumstances have contributed to inflation, instances of supply chain disruptions, and a rise in interest rates, and could have further industry-specific impacts that may require us to adjust our business plan.

The realized prices we receive for our production also depend on numerous factors that are typically beyond our control.

Based on our production for the three months ended March 31, 2023, a 10 percent decrease in our average realized oil, gas, and NGL prices would have reduced our oil, gas, and NGL production revenue by approximately $42.1 million, $9.4 million, and $5.6 million, respectively.

If commodity prices had been 10 percent lower, our net derivative settlements for the three months ended March 31, 2023, would have offset the declines in oil, gas, and NGL production revenue by approximately $13.0 million.

Based on our production for the six months ended June 30, 2023, a 10 percent decrease in our average realized oil, gas, and NGL prices would have reduced our oil, gas, and NGL production revenue by approximately $84.4 million, $16.3 million, and $11.0 million, respectively.

If commodity prices had been 10 percent lower, our net derivative settlements for the six months ended June 30, 2023, would have offset the declines in oil, gas, and NGL production revenue by approximately $27.0 million.

We enter into commodity derivative contracts in order to reduce the risk of fluctuations in commodity prices.

The fair value of our commodity derivative contracts is largely determined by estimates of the forward curves of the relevant price indices.

As of March 31, 2023, a 10 percent increase or decrease in the forward curves associated with our oil, gas, and NGL commodity derivative instruments would have changed our net derivative positions for these products by approximately $49.9 million, $1.9 million, and $1.8 million, respectively.

As of June 30, 2023, a 10 percent increase or decrease in the forward curves associated with our oil, gas, and NGL commodity derivative instruments would have changed our net derivative positions for these products by approximately $38.6 million, $8.3 million, and $0.9 million, respectively.

Off-Balance Sheet Arrangements

2 unchanged sentences

If we determine that we are the primary beneficiary of a variable interest entity, that entity is consolidated into our consolidated financial statements.

We have not been involved in any unconsolidated SPE transactions during the three months ended March 31, 2023, or through the filing of this report.

We have not been involved in any unconsolidated SPE transactions during the six months ended June 30, 2023, or through the filing of this report.

Critical Accounting Estimates

Please refer to the corresponding section in Part II, Item 7 and to Note 1 - Summary of Accounting Policies included in Part II, Item 8 of our 2022 Form 10-K for discussion of our accounting estimates.

Please refer to the corresponding section in Part II, Item 7 and to Note 1 - Summary of Significant Accounting Policies included in Part II, Item 8 of our 2022 Form 10-K for discussion of our accounting estimates.

Accounting Matters

12 unchanged sentences

The following table provides reconciliations of our net income (GAAP) and net cash provided by operating activities (GAAP) to adjusted EBITDAX (non-GAAP) for the periods presented:

For the Three Months Ended

March 31, 2023 December 31, 2022 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(in thousands)

1 unchanged sentence

Interest expense 22,148 35,496 44,607 74,883

Interest income (1)

(4,994) (496) (9,696) (534)

Income tax expense 42,092 86,711 97,598 99,572

5 unchanged sentences

Derivative settlement gain (loss) 15,636 (240,598) 20,712 (408,781)

Loss on extinguishment of debt — 67,226 — 67,605

Other, net 1,079 4,459 927 5,522

1 unchanged sentence

Interest expense (22,148) (35,496) (44,607) (74,883)

Interest income (1)

4,994 496 9,696 534

Income tax expense (42,092) (86,711) (97,598) (99,572)

7 unchanged sentences

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(1) Interest income is included within the other non-operating income (expense), net line item on the accompanying statements of operations.

(2) Stock-based compensation expense is a component of the exploration expense and general and administrative expense line items on the accompanying statements of operations.

Therefore, the exploration line items shown in the reconciliation above will vary from the amount shown on the accompanying statements of operations for the component of stock-based compensation expense recorded to exploration expense.

(2) For the three months ended March 31, 2023, amount excludes certain capital expenditures related to unsuccessful exploration activity for one well that experienced technical issues during the drilling phase.

For the three months ended December 31, 2022, amount excludes certain capital expenditures related to unsuccessful exploration efforts outside of our core areas of operation.

(3) For the three and six months ended June 30, 2023, amounts exclude certain capital expenditures related to unsuccessful exploration activity for one well that experienced technical issues during the drilling phase.

For the three and six months ended June 30, 2022, amounts exclude certain capital expenditures related to unsuccessful exploration efforts outside of our core areas of operation.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis