What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-05-03 compared with 2023-11-03 · 110 added, 235 removed, 376 unchanged (48% of the section changed)

3 unchanged sentences

(in thousands, except share data)

September 30,

2024 December 31,

29 unchanged sentences

Asset retirement obligations 124,085 118,774

Deferred income taxes 324,440 280,811

Net deferred tax liabilities 397,296 369,903

Derivative liabilities 1,369 1,273

17 unchanged sentences

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

Operating revenues and other income:

13 unchanged sentences

Interest income 6,770 4,702

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

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

Other non-operating expense ( 24 ) ( 232 )

Income before income taxes 163,268 254,058

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

Income tax expense ( 32,069 ) ( 55,506 )

Net income $ 131,199 $ 198,552

3 unchanged sentences

Diluted net income per common share $ 1.13 $ 1.62

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

Net dividends declared per common share $ 0.18 $ 0.15

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

3 unchanged sentences

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

Net income $ 131,199 $ 198,552

15 unchanged sentences

— — — ( 20,707 ) — ( 20,707 )

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

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

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

Net income — — — 149,874 — 149,874

Other comprehensive income — — — — 13 13

Net cash dividends declared, $ 0.15 per share

— — — ( 17,704 ) — ( 17,704 )

Issuance of common stock under Employee Stock Purchase Plan 68,210 1 1,815 — — 1,816

Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings 1,147 — ( 22 ) — — ( 22 )

1 unchanged sentence

Purchase of shares under Stock Repurchase Program ( 712,235 ) ( 7 ) ( 33,088 ) — — ( 33,095 )

Other 19,037 — — — — —

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)

Balances, March 31, 2024 115,036,144 $ 1,150 $ 1,536,929 $ 2,162,771 $ ( 2,599 ) $ 3,698,251

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

6 unchanged sentences

— — — ( 18,078 ) — ( 18,078 )

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

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

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

Net income — — — 323,485 — 323,485

Other comprehensive income — — — — 182 182

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

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

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

Net income — — — 481,240 — 481,240

Other comprehensive income — — — — 182 182

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 ( 1,413,758 ) ( 14 ) ( 40,454 ) — — ( 40,468 )

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

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

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

2 unchanged sentences

(in thousands)

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Cash flows from operating activities:

3 unchanged sentences

Stock-based compensation expense 5,018 4,318

Net derivative loss 12,352 385,180

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

Amortization of debt discount and deferred financing costs 4,114 8,910

Loss on extinguishment of debt — 67,605

Net derivative (gain) loss 28,145 ( 51,329 )

Net derivative settlement gain 13,274 5,076

Amortization of deferred financing costs 1,371 1,371

Deferred income taxes 27,391 49,968

4 unchanged sentences

Capital expenditures ( 332,365 ) ( 240,712 )

Acquisition of proved and unproved oil and gas properties ( 109,318 ) ( 7 )

Other, net 77 307

1 unchanged sentence

Cash flows from financing activities:

Cash paid to repurchase Senior Notes — ( 584,946 )

Repurchase of common stock ( 32,768 ) ( 40,068 )

Net proceeds from sale of common stock 1,815 1,645

Dividends paid ( 20,834 ) ( 18,290 )

Other, net ( 7,882 ) ( 35,110 )

Net share settlement from issuance of stock awards ( 22 ) —

Net cash used in financing activities ( 53,624 ) ( 58,358 )

2 unchanged sentences

Cash, cash equivalents, and restricted cash at end of period $ 506,252 $ 477,869

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

Supplemental schedule of additional cash flow information:

Operating activities:

Cash paid for interest, net of capitalized interest $ ( 32,986 ) $ ( 33,882 )

Net cash paid for income taxes $ ( 6,176 ) $ ( 10,506 )

Net cash refunded (paid) for income taxes $ 3,292 $ ( 50 )

Investing activities:

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 nine months ended September 30, 2022.

Changes in capital expenditure accruals $ ( 26,569 ) $ 66,873

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

10 unchanged sentences

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

In connection with the preparation of the Company’s unaudited condensed consolidated financial statements, the Company evaluated events subsequent to the balance sheet date of September 30, 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 March 31, 2024, 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.

2 unchanged sentences

These unaudited condensed consolidated financial statements should be read in conjunction with the 2023 Form 10-K .

Recently Issued Accounting Standards

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.

Recently Issued Accounting Guidance

Accounting Standards Updates.

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

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”) .

ASU 2023-07 was issued to improve the disclosures about a public entity’s reportable segments and to provide additional, more detailed information about a reportable segment’s expenses.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The guidance is to be applied on a retrospective basis to all prior periods presented in the financial statements.

The Company is within the scope of this ASU and expects to adopt ASU 2023-07 and related guidance on December 31, 2024.

Adoption of ASU 2023-07 is not expected to have a material impact on the Company’s consolidated financial statements or related disclosures.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (“ASU 2023-09”) .

ASU 2023-09 was issued to improve the disclosures related to rate reconciliations and income taxes paid.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted.

The guidance is to be applied on a prospective basis, however, retrospective application is permitted.

The Company is within the scope of this ASU and expects to adopt ASU 2023-09 on January 1, 2025, on a prospective basis.

Adoption of ASU 2023-09 is not expected to have a material impact on the Company’s consolidated financial statements or related disclosures.

SEC Final Rule to Enhance and Standardize Climate-Related Disclosures.

On March 6, 2024, the Securities and Exchange Commission (“SEC”) adopted final rules to require registrants to disclose certain climate-related information in registration statements and annual reports.

On April 4, 2024, the SEC issued an order staying the final rules pending completion of judicial review of the petitions challenging the final rules.

The order does not amend the compliance dates contemplated by the final rules, which are applicable to the Company for fiscal years beginning with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2025.

The Company is currently evaluating the potential impact of the final rules on its financial statements and related disclosures.

As of March 31, 2024, and through the filing of this report, no other accounting guidance has been issued and not yet adopted that is 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 nine months ended September 30, 2023, and 2022:

The table below presents oil, gas, and NGL production revenue by product type for each of the Company’s operating areas:

Midland Basin South Texas Total

Three Months Ended

September 30, Three Months Ended

September 30,

2023 2022 2023 2022 2023 2022

(in thousands)

Oil production revenue $ 369,858 $ 420,838 $ 129,376 $ 105,095 $ 499,234 $ 525,933

Gas production revenue 45,215 123,912 36,592 110,641 81,807 234,553

NGL production revenue 175 315 58,483 66,757 58,658 67,072

Total $ 415,248 $ 545,065 $ 224,451 $ 282,493 $ 639,699 $ 827,558

Relative percentage 65 % 66 % 35 % 34 % 100 % 100 %

Midland Basin South Texas Total

Nine Months Ended

September 30, Nine Months Ended

September 30,

March 31, Three Months Ended

2024 2023 2024 2023 2024 2023

5 unchanged sentences

Relative percentage 67 % 65 % 33 % 35 % 100 % 100 %

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

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

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

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

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

4 unchanged sentences

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

The accounts receivable balances from contracts with customers within the accompanying balance sheets as of September 30, 2023, and December 31, 2022, were $ 217.3 million and $ 184.5 million, respectively.

The accounts receivable balances from contracts with customers within the accompanying balance sheets as of March 31, 2024, and December 31, 2023, were $ 184.2 million and $ 175.3 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.

1 unchanged sentence

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

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

Note 3 - Equity

Stock Repurchase Program

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

The Stock Repurchase Program permits the Company to repurchase shares of its common stock from time to time in open market transactions,

through privately negotiated transactions or by other means in accordance with federal securities laws and subject to certain provisions of the Credit Agreement and the indentures governing the Senior Notes, as defined in Note 5 - Long-Term Debt .

The Company’s current stock repurchase program authorizes 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 .

Please refer to Note 3 - Equity in the 2023 Form 10-K for additional information regarding the Company’s 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:

The following table presents activity under the Company’s Stock Repurchase Program during the three months ended March 31, 2024, and 2023:

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)

6 unchanged sentences

(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.

Since the inception of the Stock Repurchase Program in 2022, the Company has repurchased and subsequently retired approximately 9.0 million shares of the Company’s outstanding common stock at a cost of $ 317.9 million, excluding excise taxes, commissions, and fees.

As of March 31, 2024, $ 182.1 million remained available for repurchases of the Company’s outstanding common stock through December 31, 2024 , under the Stock Repurchase Program.

Note 4 - Income Taxes

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

The provision for income taxes consisted of the following:

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

(in thousands)

2 unchanged sentences

State ( 424 ) ( 540 )

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 )

Deferred portion of income tax expense ( 27,391 ) ( 49,968 )

Income tax expense $ ( 32,069 ) $ ( 55,506 )

Effective tax rate 19.6 % 21.8 %

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.

These differences primarily relate to the effect of federal tax credits, state income taxes, changes in valuation allowances, excess tax benefits and deficiencies from stock-based compensation awards, tax deduction limitations on compensation of covered individuals, 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 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.

The Company completed a multi-year research and development (“R&D”) credit study in 2023, which resulted in a favorable adjustment to the Company’s effective tax rate in both the third and fourth quarters of 2023 and a reduction of the Company’s tax obligation.

Favorable adjustments to the Company’s effective tax rate are expected to continue in 2024 resulting from qualifying R&D activity and anticipated credit claims.

The Company complies with authoritative accounting guidance regarding uncertain tax positions.

The entire amount of unrecognized tax benefit reported by the Company would affect its effective tax rate if recognized.

The Company does not expect a significant change to the recorded unrecognized tax benefits in 2024, except for any potential changes related to the Company’s 2024 R&D credit claims.

For all years before 2020, 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 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.

As of March 31, 2024, the borrowing base and aggregate lender commitments under the Credit Agreement were $ 2.5 billion and $ 1.25 billion, respectively.

Subsequent to March 31, 2024, the semi-annual borrowing base redetermination was completed, which reaffirmed both the Company’s borrowing base and aggregate lender commitments at existing amounts.

The next scheduled borrowing base redetermination date is October 1, 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 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

The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Agreement as of April 25, 2024, March 31, 2024, and December 31, 2023:

As of April 25, 2024 As of March 31, 2024 As of December 31, 2023

(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 $ 9.1 million and $ 10.8 million as of September 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 $ 7.9 million and $ 8.5 million as of March 31, 2024, and December 31, 2023, 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 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

The Company’s Senior Notes, net line item on the accompanying balance sheets as of March 31, 2024, and December 31, 2023, consisted of the following (collectively referred to as “Senior Notes”):

As of March 31, 2024 As of December 31, 2023

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

11 unchanged sentences

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.

The Company canceled all redeemed 2024 Senior Notes upon settlement.

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

Senior Secured Notes

On June 17, 2022, the Company redeemed all of the $ 446.7 million of aggregate principal amount outstanding of its 10.0 % Senior Secured Notes due 2025 (“2025 Senior Secured Notes”), with cash on hand, at a redemption price equal to 107.5 percent of the principal amount outstanding on the date of the redemption, plus accrued and unpaid interest.

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

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

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.

The Company was in compliance with all financial and non-financial covenants as of March 31, 2024, and through the filing of this report.

Capitalized Interest

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.

Capitalized interest costs for the three months ended March 31, 2024, and 2023, totaled $ 6.1 million and $ 5.5 million, respectively.

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

2 unchanged sentences

Other than those items discussed below, there have been no changes in commitments through the filing of this report that differ materially from those disclosed in the 2023 Form 10-K .

Please refer to Note 6 - Commitments and Contingencies in the 2022 Form 10-K for additional discussion of the Company’s commitments.

Drilling Rig Service Contracts .

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;

During the three months ended March 31, 2024, the Company entered into new drilling rig contracts.

As of March 31, 2024, the Company’s drilling rig commitments totaled $ 31.3 million under contract terms extending through the first quarter of 2025.

If all of the drilling rig contracts were terminated as of March 31, 2024, the Company would avoid a portion of the contractual service commitments;

however, the Company would be required to pay $ 19.6 million in early termination fees.

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.

No early termination penalties or standby fees were incurred by the Company during the three months ended March 31, 2024, and the Company does not expect to incur material penalties with regard to its drilling rig contracts during the remainder of 2024.

Drilling and Completion Commitments .

During the three months ended March 31, 2024, the Company entered into an agreement that includes minimum drilling and completion footage requirements on certain existing leases.

If these minimum requirements are not satisfied by March 31, 2026, the Company will be required to pay liquidated damages based on the difference between the actual footage drilled and completed and the minimum requirements.

As of March 31, 2024, the liquidated damages could range from zero to a maximum of $ 96.0 million, with the maximum exposure assuming no additional development activity occurs prior to March 31, 2026.

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

Contingencies

1 unchanged sentence

The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated.

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

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

Note 7 - Derivative Financial Instruments

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

As of March 31, 2024, 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;

4 unchanged sentences

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

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

As of March 31, 2024, the Company had commodity derivative contracts outstanding through the fourth quarter of 2026 as summarized in the table below:

Contract Period

Second Quarter 2024

Third Quarter 2024

Fourth Quarter 2024

2 unchanged sentences

Weighted-Average Contract Price $ — $ — $ 73.24 $ 75.00 $ —

ICE Brent Volumes

Weighted-Average Contract Price $ 86.50 $ 85.50 $ —

NYMEX WTI Volumes 1,846 2,003 900 323 —

5 unchanged sentences

WTI Houston MEH-NYMEX WTI Volumes

293 332 309 1,413 816

Weighted-Average Contract Price $ 1.82 $ 1.82 $ 1.82 $ 1.90 $ 2.10

10 unchanged sentences

Weighted-Average Ceiling Price $ 4.00 $ 4.21 $ 4.97 $ 4.67 $ —

IF HSC Volumes

Weighted-Average Floor Price $ 4.25 $ — $ —

Weighted-Average Ceiling Price $ 5.55 $ — $ —

IF Waha-NYMEX HH Volumes

7 unchanged sentences

Weighted-Average Contract Price $ 31.90 $ 31.87 $ 31.85 $ 32.86 $ —

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.

OPIS Normal Butane Mont Belvieu Non-TET Volumes 44 46 49 45 —

Weighted-Average Contract Price $ 39.48 $ 39.48 $ 39.48 $ 39.48 $ —

OPIS Isobutane Mont Belvieu Non-TET Volumes 24 25 28 25 —

Weighted-Average Contract Price $ 41.58 $ 41.58 $ 41.58 $ 41.58 $ —

Commodity Derivative Contracts Entered Into Subsequent to March 31, 2024

Subsequent to March 31, 2024, and through the filing of this report, the Company entered into the following commodity derivative contracts:

• NYMEX WTI collar contracts for the fourth quarter of 2024 through the second quarter of 2025 for a total of 1.0 MMBbl of oil production at a weighted-average floor price of $ 71.77 per Bbl and a weighted-average ceiling price of $ 82.74 per Bbl;

• NYMEX WTI Roll Differential swap contract for the second through fourth quarters of 2024 for a total of 1.8 MMBbl of oil production at a weighted-average contract price of $ 1.02 per Bbl;

• NYMEX HH collar contracts for 2026 for a total of 13,438 BBtu of gas production at a weighted-average floor price of $ 3.25 per MMBtu and a weighted-average ceiling price of $ 4.90 per MMBtu;

• IF Waha swap contracts for the first, third, and fourth quarters of 2026 for a total of 1,548 BBtu of gas production at a weighted-average contract price of $ 3.26 per MMBtu.

Derivative Assets and Liabilities Fair Value

1 unchanged sentence

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

The fair value of 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 fair value of commodity derivative contracts at March 31, 2024, and December 31, 2023, was a net asset of $ 15.6 million and $ 57.1 million, respectively.

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

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

As of March 31, 2024 As of December 31, 2023

(in thousands)

8 unchanged sentences

Offsetting of Derivative Assets and Liabilities

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.

As of March 31, 2024, and December 31, 2023, all derivative instruments held by the Company were subject to master netting arrangements with various financial institutions.

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

3 unchanged sentences

Derivative Assets as of Derivative Liabilities as of

September 30,

2023 December 31, 2022 September 30,

2024 December 31, 2023 March 31,

2024 December 31, 2023

3 unchanged sentences

Net amounts $ 19,592 $ 57,752 $ ( 3,958 ) $ ( 700 )

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:

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

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

(in thousands)

Derivative settlement (gain) loss:

Net derivative settlement (gain) loss:

Oil contracts $ ( 2,525 ) $ 6,226

1 unchanged sentence

NGL contracts 1,471 —

Total derivative settlement (gain) loss $ 314 $ 186,299 $ ( 20,398 ) $ 595,080

Total net derivative settlement gain $ ( 13,274 ) $ ( 5,076 )

Net derivative (gain) loss:

4 unchanged sentences

Credit Related Contingent Features

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

As of March 31, 2024, all of the Company’s derivative counterparties were members of the Company’s 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 September 30, 2023 As of December 31, 2022

As of March 31, 2024 As of December 31, 2023

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

8 unchanged sentences

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

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

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

Fair values are based upon interpolated data.

4 unchanged sentences

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

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

Please refer to Note 7 - Derivative Financial Instruments for more information regarding the Company’s derivative instruments.

Long-Term Debt

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

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

These notes were not presented at fair value on the accompanying balance sheets as of March 31, 2024, or December 31, 2023, as they were recorded at carrying value, net of any unamortized deferred financing costs.

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

As of March 31, 2024 As of December 31, 2023

Principal Amount Fair Value Principal Amount Fair Value

12 unchanged sentences

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

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

Please refer to Note 9 - Earnings Per Share and Note 10 - Compensation Plans in the 2023 Form 10-K for additional detail on these potentially dilutive securities.

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

For the Three Months Ended

September 30, For the Nine Months Ended

September 30,

2023 2022 2023 2022

(in thousands, except per share data)

2 unchanged sentences

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

505 1,084 576 1,915

Diluted weighted-average common shares outstanding 116,456 122,294

1 unchanged sentence

Diluted net income per common share $ 1.13 $ 1.62

Note 10 - Compensation Plans

The Company may grant various types of both short-term and long-term incentive-based awards under its compensation plans, such as cash awards, performance-based cash awards, and equity awards to eligible employees.

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

The Company has granted PSUs to eligible employees as part of its Equity Plan.

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

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

For PSUs granted in 2022 and 2023, which the Company determined to be equity awards, settlement will be determined based on a combination of the following criteria measured over the three -year performance period:

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

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

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 $ 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

____________________________________________

(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

The Company has granted RSUs to eligible employees as part of its Equity Plan.

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

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

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

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

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

During the nine months ended September 30, 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 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

____________________________________________

(1) Amounts represent price per unit.

Director Shares

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.

Employee Stock Purchase Plan

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

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

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

There were a total of 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.

Please refer to Note 7 - Compensation Plans in the 2022 Form 10-K for additional detail on the Company’s compensation plans.

Note 11 - Acquisitions

On June 30, 2023 , the Company acquired approximately 20,000 net acres of oil and gas properties located in Dawson and northern Martin Counties, Texas.

Total consideration paid after purchase price adjustments was $ 88.9 million.

Under authoritative accounting guidance, this transaction was considered to be an asset acquisition.

Therefore, the properties were recorded based on the total consideration paid after purchase price adjustments and the transaction costs were capitalized as a component of the cost of the assets acquired.

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