What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-11-03 compared with 2023-08-03 · 154 added, 88 removed, 457 unchanged (35% of the section changed)

3 unchanged sentences

(in thousands, except share data)

September 30,

2023 December 31,

49 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

13 unchanged sentences

Interest expense ( 23,106 ) ( 22,825 ) ( 67,713 ) ( 97,708 )

Interest income 4,106 1,546 13,802 2,080

Loss on extinguishment of debt — — — ( 67,605 )

Other non-operating income (expense), net 4,763 112 9,233 ( 233 )

Other non-operating expense, net ( 233 ) ( 383 ) ( 696 ) ( 1,150 )

Income before income taxes 176,364 600,619 622,388 1,072,440

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

Income tax (expense) benefit 45,979 ( 119,379 ) ( 51,619 ) ( 218,951 )

Net income $ 222,343 $ 481,240 $ 570,769 $ 853,489

3 unchanged sentences

Diluted net income per common share $ 1.88 $ 3.87 $ 4.75 $ 6.87

Dividends per common share $ 0.15 $ — $ 0.30 $ 0.01

Dividends declared per common share $ 0.15 $ 0.15 $ 0.45 $ 0.16

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

3 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

14 unchanged sentences

Other comprehensive income — — — — 13 13

Cash dividends declared, $ 0.15 per share

Net cash dividends declared, $ 0.15 per share

— — — ( 18,078 ) — ( 18,078 )

4 unchanged sentences

Other comprehensive income — — — — 13 13

Cash dividends declared, $ 0.15 per share

Net cash dividends declared, $ 0.15 per share

— — — ( 17,704 ) — ( 17,704 )

5 unchanged sentences

Balances, June 30, 2023 118,112,105 $ 1,181 $ 1,680,080 $ 1,621,202 $ ( 3,996 ) $ 3,298,467

Net income — — — 222,343 — 222,343

Other comprehensive income — — — — 14 14

Net cash dividends declared, $ 0.15 per share

— — — ( 17,543 ) — ( 17,543 )

Issuance of common stock under Employee Stock Purchase Plan ( 18 ) — — — — —

Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings 553,442 6 ( 7,881 ) — — ( 7,875 )

Stock-based compensation expense — — 6,038 — — 6,038

Purchase of shares under Stock Repurchase Program ( 2,351,642 ) ( 24 ) ( 97,127 ) — — ( 97,151 )

Balances, September 30, 2023 116,313,887 $ 1,163 $ 1,581,110 $ 1,826,002 $ ( 3,982 ) $ 3,404,293

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)

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

4 unchanged sentences

Other comprehensive income — — — — 182 182

Cash dividends declared, $ 0.01 per share

Net cash dividends declared, $ 0.01 per share

— — — ( 1,218 ) — ( 1,218 )

7 unchanged sentences

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

Net 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 ( 452,734 ) ( 5 ) ( 20,236 ) — — ( 20,241 )

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.

2 unchanged sentences

(in thousands)

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation expense 14,519 13,858

Net derivative (gain) loss ( 63,003 ) 522,757

Net derivative loss 12,352 385,180

Derivative settlement gain (loss) 20,398 ( 595,080 )

25 unchanged sentences

Investing activities:

Increase in capital expenditure accruals and other $ 24,220 $ 37,780

Changes in capital expenditure accruals and other

$ 35,683 $ 50,590

Non-cash financing activities (1)

_______________________________________

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

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

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 June 30, 2023, 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 September 30, 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

As of June 30, 2023, and through the filing of this report, no new accounting standards 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.

In October 2023, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No.

2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative (“ASU 2023-06”) .

ASU 2023-06 was issued to modify the disclosure or presentation requirements of a variety of topics in the codification.

The effective date for each amendment will be the date on which the Securities and Exchange Commission’s (“SEC”) removal of the related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

The Company is evaluating the impact of ASU 2023-06 on its consolidated financial statements and related disclosures but does not expect the impact to be material.

As of September 30, 2023, and through the filing of this report, no other new accounting standards 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”) reflects 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 six months ended June 30, 2023, and 2022:

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, 2023, and 2022:

Midland Basin South Texas Total

Three Months Ended

June 30, Three Months Ended

September 30, Three Months Ended

September 30,

2023 2022 2023 2022 2023 2022

6 unchanged sentences

Midland Basin South Texas Total

Six Months Ended

June 30, Six Months Ended

Nine Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022 2023 2022

8 unchanged sentences

Fees and other deductions incurred by the Company prior to transfer of control 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 affected by fees and other deductions incurred by the purchaser subsequent to the transfer of control.

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

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 June 30, 2023, and December 31, 2022, were $ 162.5 million and $ 184.5 million, respectively.

The accounts receivable balances from contracts with customers within the accompanying balance sheets as of September 30, 2023, and December 31, 2022, were $ 217.3 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.

5 unchanged sentences

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 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 .

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 and six months ended June 30, 2023, the Company repurchased and subsequently retired 2,550,706 and 3,964,464 shares, respectively, of its common stock at a weighted-average share price of $ 26.95 and $ 27.44 , respectively, for a total 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 for repurchases of the Company’s outstanding common stock under the Stock Repurchase Program.

The following table presents the Company’s common stock repurchase activity for the three and nine months ended September 30, 2023, and 2022:

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

(in thousands, except per share data)

Shares of common stock repurchased (1)

2,352 453 6,316 453

Weighted-average price per share (2)

$ 40.97 $ 44.69 $ 32.48 $ 44.69

Cost of shares of common stock repurchased (2) (3)

$ 96,336 $ 20,232 $ 205,120 $ 20,232

____________________________________________

(1) All repurchased shares of the Company’s common stock were retired upon repurchase.

(2) Amounts exclude excise taxes, commissions, and fees.

(3) Amounts may not calculate due to rounding.

As of September 30, 2023, $ 237.7 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 six months ended June 30, 2023, and 2022, consists of the following:

The provision for income taxes for the three and nine months ended September 30, 2023, and 2022, consisted of the following:

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

(in thousands)

Current portion of income tax (expense) benefit:

Current portion of income tax expense:

Federal $ ( 3,923 ) $ ( 7,014 ) $ ( 6,732 ) $ ( 11,287 )

State ( 1,173 ) ( 2,317 ) ( 1,716 ) ( 4,668 )

Deferred portion of income tax expense ( 44,278 ) ( 81,000 ) ( 94,246 ) ( 92,948 )

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

Deferred portion of income tax (expense) benefit 51,075 ( 110,048 ) ( 43,171 ) ( 202,996 )

Income tax (expense) benefit $ 45,979 $ ( 119,379 ) $ ( 51,619 ) $ ( 218,951 )

Effective tax rate ( 26.1 ) % 19.9 % 8.3 % 20.4 %

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.

Income tax expense or benefit differs from the amount that would be calculated 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, benefits from qualifying credits, 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 effective tax rate and the resulting income tax expense or 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 of the periods presented in the table above.

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 has not occurred as of the filing of this report.

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

The Company commissioned a multi-year research and development (“R&D”) credit study in 2022, which was completed during the third quarter of 2023, and resulted in a favorable adjustment to the Company’s effective tax rate and a reduction of the Company’s 2022 and expected 2023 tax obligations.

After utilizing a portion of the credits for the 2022 and 2023 tax years, the recorded net carryover R&D credit, as of September 30, 2023, expected to be utilized in future periods totaled $ 52.3 million.

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

2 unchanged sentences

The Company’s 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 the Credit Agreement were $ 2.5 billion and $ 1.25 billion, respectively.

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

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

Subsequent to September 30, 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 April 1, 2024.

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.

3 unchanged sentences

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

The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Agreement as of July 21, 2023, June 30, 2023, and December 31, 2022:

As of July 21, 2023 As of June 30, 2023 As of December 31, 2022

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 26, 2023, September 30, 2023, and December 31, 2022:

As of October 26, 2023 As of September 30, 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 $ 9.6 million and $ 10.8 million as of June 30, 2023, and December 31, 2022, 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 $ 9.1 million and $ 10.8 million as of September 30, 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.

The Company’s Senior Notes, net line item on the accompanying balance sheets as of June 30, 2023, and December 31, 2022, consists of the following (collectively referred to as “Senior Notes”):

As of June 30, 2023 As of December 31, 2022

The Company’s Senior Notes, net line item on the accompanying balance sheets as of September 30, 2023, and December 31, 2022, consisted of the following (collectively referred to as “Senior Notes”):

As of September 30, 2023 As of December 31, 2022

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

10 unchanged sentences

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.

The Company may redeem some or all of its Senior Notes prior to their maturity at redemption prices that may include 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.

5 unchanged sentences

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

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 June 30, 2023, and through the filing of this report.

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 September 30, 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 June 30, 2023, and 2022, totaled $ 5.9 million and $ 4.2 million, respectively, and totaled $ 11.4 million and $ 7.2 million for the six months ended June 30, 2023, and 2022, respectively.

Capitalized interest costs for the three months ended September 30, 2023, and 2022, totaled $ 4.9 million and $ 5.1 million, respectively, and totaled $ 16.3 million and $ 12.3 million for the nine months ended September 30, 2023, and 2022, 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 six months ended June 30, 2023, and through the filing of this report, the Company amended certain of its drilling rig contracts to extend contract terms, which resulted in changes to day rates and potential early termination fees.

As of the filing of this report, the Company’s drilling rig commitments totaled $ 27.0 million under contract terms extending through the third 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;

During the nine months ended September 30, 2023, the Company entered into a new drilling rig contract, and amended certain of its existing drilling rig contracts to extend contract terms resulting in changes to day rates and potential early termination fees.

As of September 30, 2023, the Company’s drilling rig commitments totaled $ 34.9 million under contract terms extending through the third quarter of 2024.

If all of these contracts were terminated as of September 30, 2023, the Company would avoid a portion of the contractual service commitments;

however, the Company would be required to pay $ 22.0 million in early termination fees.

No early termination penalties or standby fees were incurred by the Company during the six months ended June 30, 2023, and the Company does not expect to incur material penalties with regard to its drilling rig contracts during the remainder of 2023.

No early termination penalties or standby fees were incurred by the Company during the nine months ended September 30, 2023, and the Company does not expect to incur material penalties with regard to its drilling rig contracts during the remainder of 2023.

Electrical Power Purchase Contracts .

During the nine months ended September 30, 2023, the Company amended certain of its fixed price contracts for the purchase of electrical power to extend contract terms through March of 2029, with a total remaining obligation of $ 43.9 million as of September 30, 2023.

Contingencies

13 unchanged sentences

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 June 30, 2023, the Company had basis swap contracts with fixed price differentials between:

As of September 30, 2023, the Company had basis swap contracts with fixed price differentials between:

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

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

• NYMEX Henry Hub (“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 Henry Hub (“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.

1 unchanged sentence

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 June 30, 2023, the Company had commodity derivative contracts outstanding through the fourth quarter of 2025 as summarized in the table below:

As of September 30, 2023, the Company had commodity derivative contracts outstanding through the fourth quarter of 2025 as summarized in the table below:

Contract Period

Third Quarter 2023 Fourth Quarter 2023 2024 2025

Fourth Quarter 2023 2024 2025

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

2 unchanged sentences

ICE Brent Volumes

920 920 910 —

Weighted-Average Contract Price $ 86.50 $ 85.50 $ —

6 unchanged sentences

WTI Houston MEH-NYMEX WTI Volumes

361 296 877 —

Weighted-Average Contract Price $ 1.53 $ 1.82 $ —

11 unchanged sentences

IF HSC Volumes

1,389 1,451 — —

Weighted-Average Floor Price $ 4.25 $ — $ —

9 unchanged sentences

Weighted-Average Contract Price $ 36.66 $ — $ —

Commodity Derivative Contracts Entered Into Subsequent to June 30, 2023

Subsequent to June 30, 2023, and through July 21, 2023, the Company entered into the following commodity derivative contracts:

• NYMEX WTI oil collar contracts for the first and second quarters of 2024 for a total of 0.6 MMBbl of oil production at a weighted-average floor price of $ 62.38 per Bbl and a weighted-average ceiling price of $ 76.51 per Bbl;

• WTI Midland-NYMEX WTI basis swap contracts for 2024 for a total of 0.9 MMBbl of oil production at a contract price of $ 1.35 per Bbl;

• WTI Houston MEH-NYMEX WTI basis swap contract for 2024 for a total of 0.3 MMBbl of oil production at a contract price of $ 1.75 per Bbl;

• IF HSC-NYMEX HH basis swap contracts for 2024 for a total of 4,780 BBtu of gas production at a weighted-average contract price of $( 0.15 ) per MMBtu.

Commodity Derivative Contracts Entered Into Subsequent to September 30, 2023

Subsequent to September 30, 2023, the Company entered into a NYMEX WTI Roll Differential swap contract for the fourth quarter of 2023 for a total of 0.6 MMBbl of oil production at a contract price of $ 1.59 per Bbl.

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 asset of $ 58.1 million and $ 15.8 million as of June 30, 2023, and December 31, 2022, respectively.

The fair value of commodity derivative contracts was a net liability of $ 16.9 million as of September 30, 2023, and a net asset of $ 15.8 million as of December 31, 2022.

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

As of June 30, 2023 As of December 31, 2022

As of September 30, 2023 As of December 31, 2022

(in thousands)

8 unchanged sentences

Offsetting of Derivative Assets and Liabilities

As of June 30, 2023, and December 31, 2022, all derivative instruments held by the Company were subject to master netting arrangements with various financial institutions.

As of September 30, 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

2023 December 31, 2022 June 30,

September 30,

2023 December 31, 2022 September 30,

2023 December 31, 2022

4 unchanged sentences

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 June 30, For the Six Months Ended June 30,

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

11 unchanged sentences

Credit Related Contingent Features

As of June 30, 2023, all of the Company’s derivative counterparties were members of the Credit Agreement lender group.

As of September 30, 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.

10 unchanged sentences

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 June 30, 2023 As of December 31, 2022

As of September 30, 2023 As of December 31, 2022

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

18 unchanged sentences

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 June 30, 2023, or December 31, 2022, as they were recorded at carrying value, net of any unamortized deferred financing costs.

These notes were not presented at fair value on the accompanying balance sheets as of September 30, 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 June 30, 2023 As of December 31, 2022

As of September 30, 2023 As of December 31, 2022

Principal Amount Fair Value Principal Amount Fair Value

15 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

10 unchanged sentences

Additionally, the Company grants stock-based compensation to its Board of Directors and provides an employee stock purchase plan.

As of June 30, 2023, approximately 3.7 million shares of common stock were available for grant under the Company’s Equity Incentive Compensation Plan (“Equity Plan”).

As of September 30, 2023, approximately 2.8 million shares of common stock were available for grant under the Company’s Equity Incentive Compensation Plan (“Equity Plan”).

Performance Share Units

6 unchanged sentences

As a portion of these awards depends on performance-based settlement criteria, compensation expense may be adjusted in future periods as the expected number of shares of the Company’s common stock issued to settle the units increases or decreases based on the Company’s expected FCF generation and achievement of certain ESG targets.

During the nine months ended September 30, 2023, the Company granted a total of 256,633 PSUs with a grant date fair value of $ 7.7 million.

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

Total compensation expense recorded for PSUs was $ 0.2 million and $ 0.7 million for the three months ended June 30, 2023, and 2022, respectively, and $ 0.8 million and $ 1.4 million for the six months ended June 30, 2023, and 2022, respectively.

As of June 30, 2023, there was $ 4.1 million of total unrecognized compensation expense related to non-vested PSUs, which is being amortized through mid-2025.

There were no material changes to the outstanding and non-vested PSUs during the six months ended June 30, 2023.

Subsequent to June 30, 2023, the Company granted a total of 256,633 PSUs with a grant date fair value of $ 7.7 million.

Total compensation expense recorded for PSUs was $ 1.0 million and $ 0.6 million for the three months ended September 30, 2023, and 2022, respectively, and $ 1.8 million and $ 2.0 million for the nine months ended September 30, 2023, and 2022, respectively.

As of September 30, 2023, there was $ 9.9 million of total unrecognized compensation expense related to non-vested PSUs, which is being amortized through mid-2026.

A summary of activity during the nine months ended September 30, 2023, is presented in the following table:

Weighted-Average

Grant-Date Fair Value (2)

Non-vested at beginning of year 273,258 $ 26.67

Granted 256,633 $ 29.93

Forfeited ( 31,918 ) $ 25.99

Non-vested at end of quarter 497,973 $ 27.75

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

The actual final 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.

(2) Amounts represent price per unit.

Restricted Stock Units

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

Total compensation expense recorded for RSUs was $ 3.4 million and $ 3.2 million for the three months ended June 30, 2023, and 2022, respectively, and $ 6.7 million and $ 6.5 million for the six months ended June 30, 2023, and 2022, respectively.

As of June 30, 2023, there was $ 17.4 million of total unrecognized compensation expense related to non-vested RSUs, which is being amortized through January 2026.

There were no material changes to the outstanding and non-vested RSUs during the six months ended June 30, 2023.

Subsequent to June 30, 2023, the Company settled RSUs upon the vesting of awards granted in previous years.

During the nine months ended September 30, 2023, the Company granted to employees a total of 620,420 RSUs with a grant date fair value of $ 19.8 million, and the Company settled RSUs upon vesting of awards granted in previous years.

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

After withholding 248,963 shares to satisfy income and payroll tax withholding obligations, the Company issued 553,442 shares of common stock in accordance with the terms of the applicable award agreements.

Additionally, the Company granted to employees a total of 591,361 RSUs with a grant date fair value of $ 18.7 million.

After withholding 249,233 shares to satisfy income and payroll tax withholding obligations, the Company issued 554,216 shares of common stock in accordance with the terms of the applicable award agreements during the nine months ended September 30, 2023.

Total compensation expense recorded for RSUs was $ 4.1 million and $ 3.5 million for the three months ended September 30, 2023, and 2022, respectively, and $ 10.8 million and $ 10.0 million for the nine months ended September 30, 2023, and 2022, respectively.

As of September 30, 2023, there was $ 30.0 million of total unrecognized compensation expense related to non-vested RSUs, which is being amortized through mid-2026.

A summary of activity during the nine months ended September 30, 2023, is presented in the following table:

RSUs Weighted-Average Grant-Date Fair Value (1)

Non-vested at beginning of year 1,375,052 $ 22.42

Granted 620,420 $ 31.92

Vested ( 803,449 ) $ 16.72

Forfeited ( 98,766 ) $ 28.86

Non-vested at end of quarter 1,093,257 $ 31.42

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(1) Amounts represent price per unit.

Director Shares

During the second quarters of 2023, and 2022, the Company issued a total of 56,872 and 29,471 shares, respectively, of its common stock as compensation to its non-employee directors under the Equity Plan.

During the nine months ended September 30, 2023, and 2022, the Company issued a total of 56,872 and 29,471 shares, respectively, of its common stock as compensation to its non-employee directors under the Equity Plan.

Shares issued during 2023 will fully vest on December 31, 2023, and shares issued during 2022 fully vested on December 31, 2022.

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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 68,210 and 65,634 shares issued under the ESPP during the second quarters of 2023, and 2022, respectively.

Total proceeds to the Company for the issuance of these shares was $ 1.8 million and $ 1.6 million for the six months ended June 30, 2023, and 2022, respectively.

There were a total of 68,192 and 65,634 shares issued under the ESPP during the nine months ended September 30, 2023, and 2022, respectively.

Total proceeds to the Company for the issuance of these shares was $ 1.8 million and $ 1.6 million for the nine months ended September 30, 2023, and 2022, respectively.

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

6 unchanged sentences

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