What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2023-11-03 · 206 added, 242 removed, 297 unchanged (60% 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.

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 June 30, 2023 , filed with the SEC on August 3, 2023.

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

Throughout the following discussion, we explain changes between the three months ended March 31, 2024, and the three months ended December 31, 2023 (“sequential quarterly” or “sequentially”), as well as the year-to-date (“YTD”) change between the three months ended March 31, 2024, and the three months ended March 31, 2023 (“YTD 2024-over-YTD 2023”).

Overview of the Company

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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 long-term vision and strategy is to sustainably grow value for all of our stakeholders as a premier operator of top-tier assets by maintaining and optimizing our high-quality asset portfolio, generating cash flows, and maintaining a strong balance sheet.

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 provide resilience to commodity price risk and volatility.

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.

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

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 we believe are capable of generating strong returns in the current macroeconomic environment and provide resilience to commodity price risk and volatility.

We seek to maximize returns and increase the value of our top-tier assets through disciplined capital spending, strategic acquisitions, and continued development and optimization of our existing assets.

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

We are committed to exceptional safety, health, and environmental stewardship;

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and transparency in reporting on our progress in these areas.

The Environmental, Social and Governance Committee of our Board of Directors oversees, among other things, the development and implementation of the Company’s ESG policies, programs, and initiatives, and together with management reports to our Board of Directors regarding such matters.

The Environmental, Social and Governance Committee of our Board of Directors oversees, among other things, the effectiveness of our ESG policies, programs and initiatives, monitors and responds to emerging trends, issues, and associated risks, and, together with management, reports to our Board of Directors regarding such matters.

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.

We are impacted by global commodity and financial markets that remain subject to heightened levels of uncertainty and volatility.

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, inflation continues to impact certain aspects of our business.

Tightening of monetary policy by the United States Federal Reserve, declining global oil inventory in storage, continued 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+”), instability in the Middle East, and economic and trade sanctions associated with the war between Russia and Ukraine 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.

While inflation continues to affect certain aspects of our business, the extent of its impact decreased in the first quarter of 2024 compared to 2023.

Continued 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+”), instability in the Middle East, economic and trade sanctions associated with the wars between Russia and Ukraine and Israel and Hamas, United States Federal Reserve monetary policy, shipping channel constraints and disruptions, and changes in global oil inventory in storage have driven commodity price volatility, contributed to instances of supply chain disruptions and fluctuations 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 2023 Form 10-K .

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

In the third 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 first quarter of 2024, our drilling and completion activities focused on development optimization of our RockStar and Sweetie Peck assets, and delineation and development of our Klondike assets.

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 Dimmit and Webb Counties, Texas (“South Texas”).

In the third 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.

In the first quarter of 2024, we focused our operations on development and further delineation of the Austin Chalk formation, and on production from both the Austin Chalk formation and Eagle Ford shale formation.

Our overlapping acreage position in the Maverick Basin in South Texas 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.

Third Quarter 2023 Overview and Outlook for the Remainder of 2023

During the third 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 2.4 million shares of our outstanding common stock at a cost of $96.3 million, excluding excise taxes, commissions, and fees, and paying quarterly dividends of $0.15 per share totaling $17.8 million.

In September 2023, we declared a quarterly cash dividend of $0.15 per share of common stock outstanding to be paid on November 6, 2023.

Additionally, our Board of Directors approved an increase to our fixed dividend policy, pursuant to which we intend to pay $0.18 per share per quarter, beginning in the first quarter of 2024.

First Quarter 2024 Overview and Outlook for the Remainder of 2024

During the first quarter of 2024, 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 0.7 million shares of our outstanding common stock at a cost of $32.8 million, excluding excise taxes, commissions, and fees, and paying a quarterly dividend of $0.18 per share totaling $20.8 million.

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

We expect our total 2023 capital program, excluding acquisitions and certain leasing efforts, to be approximately $1.1 billion.

This reflects an increase from our previous expectation for capital expenditures related to additional working interests acquired in certain wells in the Midland Basin during the third quarter of 2023.

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.

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 September 30, 2023, remained flat sequentially at 153.7 MBOE, as a six percent increase from our Midland Basin assets was offset by a six percent decrease from our South Texas assets.

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

Oil, gas, and NGL realized prices, before the effect of derivative settlements (“realized price” or “realized prices”), increased sequentially by 12 percent, 20 percent, and 13 percent, respectively, as a result of increases in benchmark commodity prices during the third quarter of 2023.

Total realized price per BOE increased 16 percent sequentially, resulting in a 17 percent increase in oil, gas, and NGL production revenue, which was $639.7 million for the three months ended September 30, 2023, compared with $546.6 million for the three months ended June 30, 2023.

Oil, gas, and NGL production expense of $9.78 per BOE for the three months ended September 30, 2023, decreased six percent sequentially, primarily as a result of a decrease in transportation costs per BOE partially offset by an increase in production tax expense per BOE.

We recorded a net derivative loss of $75.4 million and a net derivative gain of $11.7 million for the three months ended September 30, 2023, and June 30, 2023, respectively.

Included within these amounts is a derivative settlement loss of $0.3 million for the three months ended September 30, 2023, and a derivative settlement gain of $15.6 million for the three months ended June 30, 2023.

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

• Net cash provided by operating activities of $383.0 million, compared with $383.3 million for the three months ended June 30, 2023.

• Net income of $222.3 million, or $1.88 per diluted share, compared with net income of $149.9 million, or $1.25 per diluted share, for the three months ended June 30, 2023.

• Adjusted EBITDAX, a non-GAAP financial measure, of $475.6 million, compared with $390.2 million for the three months ended June 30, 2023.

Average net daily equivalent production for the three months ended March 31, 2024, decreased five percent sequentially to 145.1 MBOE, consisting of an eight percent decrease from our South Texas assets and a three percent decrease from our Midland Basin assets, resulting from the timing of well completions.

Realized price per BOE, before the effect of net derivative settlements (“realized price” or “realized prices”), remained flat sequentially.

During the first quarter of 2024, oil and gas benchmark prices decreased and the NGL benchmark price increased.

These changes resulted in sequential quarterly decreases in oil and gas realized prices of two percent and 12 percent, respectively, offset by an increase in NGL realized price of five percent.

As a result of the decrease in average net daily equivalent production volumes, oil, gas, and NGL production revenue decreased eight percent to $559.6 million for the three months ended March 31, 2024, from $606.9 million for the three months ended December 31, 2023.

Oil, gas, and NGL production expense of $10.41 per BOE for the three months ended March 31, 2024, increased seven percent sequentially, primarily as a result of increases in ad valorem tax expense per BOE and lease operating expense (“LOE”) per BOE, partially offset by a decrease in production tax expense per BOE.

We recorded a net derivative loss of $28.1 million and a net derivative gain of $80.5 million for the three months ended March 31, 2024, and December 31, 2023, respectively.

Included within these amounts are net derivative settlement gains of $13.3 million and $6.5 million for the three months ended March 31, 2024, and December 31, 2023, respectively.

Operational and financial activities during the three months ended March 31, 2024, resulted in the following:

• Net cash provided by operating activities of $276.0 million, compared with $476.5 million for the three months ended December 31, 2023.

• Net income of $131.2 million, or $1.13 per diluted share, compared with net income of $247.1 million, or $2.12 per diluted share, for the three months ended December 31, 2023.

• Adjusted EBITDAX, a non-GAAP financial measure, of $409.0 million, compared with $445.1 million for the three months ended December 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 September 30, 2023, and June 30, 2023, and Between the Nine Months Ended September 30, 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 March 31, 2024, and December 31, 2023, and Between the Three Months Ended March 31, 2024, and 2023 below for additional discussion.

Operational Activities.

In our Midland Basin program, we operated three drilling rigs and one completion crew, drilled 19 gross (11 net) wells, completed 20 gross (17 net) wells, and acquired five net wells during the third quarter of 2023.

Average net daily equivalent production volumes increased sequentially by six percent to 77.4 MBOE.

Costs incurred in our Midland Basin program during the three months ended September 30, 2023, totaled $161.3 million, or 62 percent of our total costs incurred for the period.

During the remainder of 2023, we expect our activity to focus on developing formations within our RockStar and Sweetie Peck positions, and on developing our recently acquired acreage.

We added a fourth drilling rig at the end of the third quarter of 2023 and we anticipate operating four drilling rigs for the remainder of 2023.

Subsequent to September 30, 2023, we added a second completion crew and we anticipate operating between one and two completion crews for the remainder of 2023.

In our South Texas program, we operated two drilling rigs and one completion crew for a portion of the quarter, drilled 13 gross (13 net) wells, and completed 13 gross (13 net) wells during the third quarter of 2023.

Average net daily equivalent production volumes decreased sequentially by six percent to 76.3 MBOE.

Costs incurred in our South Texas program during the three months ended September 30, 2023, totaled $90.7 million, or 35 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.

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 and nine months ended September 30, 2023:

We expect our total 2024 capital program to be between $1.14 billion and $1.18 billion, excluding acquisitions.

This reflects a decrease from our original expectation primarily as a result of capital efficiencies and lower-than-expected costs.

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

During 2024, we expect to continue our focus on strategic inventory replacement and growth by applying our strength in geosciences and development optimization.

Please refer to Overview of Liquidity and Capital Resources below for discussion of how we expect to fund the remainder of our 2024 capital program.

In our Midland Basin program, we operated four drilling rigs and two completion crews, drilled 19 gross (17 net) wells, and completed 16 gross (11 net) wells during the first quarter of 2024.

Average net daily equivalent production volumes decreased sequentially by three percent to 74.5 MBOE.

Costs incurred during the three months ended March 31, 2024, totaled $182.4 million, or 57 percent of our total costs incurred for the period.

We anticipate operating four drilling rigs and between one and two completion crews for the remainder of 2024, focused on developing formations within our RockStar, Sweetie Peck, and Klondike assets.

In our South Texas program, we operated two drilling rigs and one completion crew, drilled 12 gross (12 net) wells, and completed 16 gross (16 net) wells during the first quarter of 2024.

Average net daily equivalent production volumes decreased sequentially by eight percent to 70.6 MBOE.

Costs incurred during the three months ended March 31, 2024, totaled $129.0 million, or 40 percent of our total costs incurred for the period.

We anticipate operating two drilling rigs and averaging one completion crew for the remainder of 2024, focused primarily on developing the Austin Chalk formation.

Midland Basin South Texas (1)

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42 35 33 33 75 68

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

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Wells drilled 19 11 13 13 32 24

Wells completed (20) (17) (13) (13) (33) (30)

Wells acquired (2)

Wells drilled but not completed at September 30, 2023 35 25 23 23 58 48

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Amounts may not calculate due to rounding.

(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.

(2) Amount relates to additional working interests acquired during the three months ended September 30, 2023, on wells drilled during the first half of 2023, that were not completed as of September 30, 2023.

(1) As of December 31, 2023, the drilled but not completed well count included nine gross (nine net) wells that were not included in our five-year development plan as of December 31, 2023, eight of which were in the Eagle Ford shale.

Costs Incurred.

Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed, totaled $260.6 million and $943.2 million for the three and nine months ended September 30, 2023, respectively, and were primarily incurred in our Midland Basin and South Texas programs as discussed in Operational Activities above.

Of our total costs incurred for the three and nine months ended September 30, 2023, $20.6 million and $111.9 million, respectively, related to proved and unproved property acquisitions in the Midland Basin, including the acquisition of additional working interests in certain wells.

Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed, totaled $320.2 million for the three months ended March 31, 2024, 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 periods presented:

For the Three Months Ended For the Nine Months Ended

September 30, 2023 June 30,

2023 September 30, 2023 September 30, 2022

Midland Basin Production:

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

For the Three Months Ended

March 31, 2024 December 31, 2023 March 31, 2023

Midland Basin Net Production:

Oil (MMBbl) 4.4 4.6 4.2

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Relative percentage 51 % 50 % 51 %

South Texas Production:

South Texas Net Production:

Oil (MMBbl) 1.4 1.5 1.4

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Relative percentage 49 % 50 % 49 %

Total Production:

Total Net Production:

Oil (MMBbl) 5.8 6.1 5.7

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Amounts may not calculate due to rounding.

Oil, Gas, and NGL Prices

Our financial condition and the results of our operations are significantly affected by the prices we receive for our oil, gas, and NGL production, which can fluctuate dramatically.

When we refer to realized oil, gas, and NGL prices below, the disclosed price represents the average price for the respective period before the effect of derivative settlements.

When we refer to realized oil, gas, and NGL prices below, the disclosed price represents the average price for the respective period, before the effect of net derivative settlements.

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 September 30, 2023, June 30, 2023, and September 30, 2022:

The following table summarizes commodity price data, as well as the effect of net derivative settlements, for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023:

For the Three Months Ended

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

March 31, 2024 December 31, 2023 March 31, 2023

Oil (per Bbl):

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Realized price $ 76.09 $ 77.41 $ 74.31

Effect of oil derivative settlements $ (2.18) $ (0.08) $ (21.22)

Effect of oil net derivative settlements $ 0.44 $ (1.11) $ (1.10)

Average NYMEX monthly settle price (per MMBtu) $ 2.24 $ 2.88 $ 3.42

Realized price (per Mcf) $ 2.18 $ 2.47 $ 2.91

Effect of gas derivative settlements (per Mcf) $ 0.35 $ 0.43 $ (2.00)

Effect of gas net derivative settlements (per Mcf) $ 0.39 $ 0.35 $ 0.35

NGLs (per Bbl):

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Realized price $ 22.94 $ 21.92 $ 26.24

Effect of NGL derivative settlements $ 0.60 $ 0.61 $ (2.11)

Effect of NGL net derivative settlements $ (0.66) $ 0.65 $ —

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(1) Effective January 1, 2023, average OPIS price per barrel of NGL, historical or strip, assumes a composite barrel product mix of 42% Ethane, 28% Propane, 6% Isobutane, 11% Normal Butane, and 13% Natural Gasoline.

For periods prior to 2023, average OPIS price per barrel of NGL, historical or strip, assumed a composite barrel product mix of 37% Ethane, 32% Propane, 6% Isobutane, 11% Normal Butane, and 14% Natural Gasoline.

These product mixes represent the industry standard composite barrel for the respective periods presented and do not necessarily represent our product mix for NGL production.

(1) Average OPIS price per barrel of NGL, historical or strip, assumes a composite barrel product mix of 42% Ethane, 28% Propane, 6% Isobutane, 11% Normal Butane, and 13% Natural Gasoline.

This product mix represents the industry standard composite barrel and does not necessarily represent our product mix for NGL production.

Realized prices reflect our actual product mix.

Given the uncertainty surrounding global financial markets, production output from OPEC+, instability in the Middle East, economic and trade sanctions associated with the war between Russia and Ukraine, 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+, global shipping channel constraints and disruptions, instability in the Middle East, economic and trade sanctions associated with the wars between Russia and Ukraine and Israel and Hamas, changes in global oil inventory in storage, 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, fluctuations 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 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 October 26, 2023, and September 30, 2023:

As of October 26, 2023 As of September 30, 2023

We expect the realized price for our Midland Basin gas production during the second and third quarters of 2024 to be impacted by residue pipeline capacity constraints;

however, a portion of any negative impact to the realized price would be mitigated by our commodity derivative contracts, which are discussed below.

The following table summarizes 12-month strip prices for NYMEX WTI oil, NYMEX Henry Hub gas, and OPIS NGLs as of April 25, 2024, and March 31, 2024:

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

NYMEX WTI oil (per Bbl) $ 80.03 $ 79.72

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We use financial derivative instruments as part of our financial risk management program.

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.

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 September 30, 2023, and the preceding three quarters:

The tables below provide information regarding selected production and financial information for the three months ended March 31, 2024, and the preceding three quarters:

For the Three Months Ended

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

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

2024 2023 2023 2023

(in millions)

Production (MMBOE) 14.1 14.1 13.2 13.1

Net production (MMBOE)

13.2 14.1 14.1 14.1

Oil, gas, and NGL production revenue $ 559.6 $ 606.9 $ 639.7 $ 546.6

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For the Three Months Ended

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

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

2024 2023 2023 2023

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Overview of Selected Production and Financial Information, Including Trends

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

September 30, June 30, September 30, September 30,

2023 2023 2023 2022

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

March 31, 2024 December 31, 2023 March 31, 2023 March 31, 2024 & December 31, 2023

March 31, 2024 & 2023

March 31, 2024 & December 31, 2023

March 31, 2024 & 2023

Net production volumes:

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General and administrative $ 2.29 $ 2.60 $ 2.10 $ (0.31) $ 0.19 (12) % 9 %

Derivative settlement gain (loss) (2)

Net derivative settlement gain (2)

$ 1.01 $ 0.46 $ 0.39 $ 0.55 $ 0.62 120 % 159 %

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

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

(2) Net derivative settlements for the three months ended March 31, 2024, and 2023, 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 September 30, 2023, remained flat sequentially as a six percent increase from our Midland Basin assets was offset by a six percent decrease from our South Texas assets, resulting from the timing of well completions.

Average net daily equivalent production increased four percent YTD 2023-over-YTD 2022 as a result of an increase in well completions.

The total YTD 2023-over-YTD 2022 increase in average net daily equivalent production consisted of a 22 percent increase from our South Texas assets partially offset by a 10 percent decrease from our Midland Basin assets, resulting from the timing of well completions, and the timing of capital expenditures during 2022 and 2023.

We expect a slight increase in total net equivalent production for the full-year 2023, compared with 2022, primarily driven by an increase in well completions and increased production from our South Texas assets as we benefit from reduced production curtailments attributable to the build-out of South Texas oil handling capacity.

Average net daily equivalent production for the three months ended March 31, 2024, decreased five percent sequentially, consisting of an eight percent decrease from our South Texas assets and a three percent decrease from our Midland Basin assets, resulting from the timing of well completions.

Average net daily equivalent production remained flat YTD 2024-over-YTD 2023.

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 increased $6.35 sequentially as a result of increases in oil, gas, and NGL benchmark prices.

For the three months ended September 30, 2023, we recognized a loss on the settlement of our commodity derivative contracts of $0.02 per BOE, compared to a gain on the settlement of our commodity derivative contracts of $1.11 per BOE for the three months ended June 30, 2023.

Our realized price on a per BOE basis decreased $24.76 YTD 2023-over-YTD 2022 as a result of decreases in oil, gas, and NGL benchmark prices.

For the nine months ended September 30, 2023, we recognized a gain on the settlement of our commodity derivative contracts of $0.49 per BOE, compared to a loss of $14.95 per BOE for the same period in 2022.

LOE on a per BOE basis increased two percent both sequentially and YTD 2023-over-YTD 2022.

The sequential quarterly increase was a result of a shift in our production mix from our South Texas assets to our Midland Basin assets, which have higher unit operating costs, partially offset by a decrease in workover expense.

The YTD 2023-over-YTD 2022 increase was 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.

Our realized price on a per BOE basis decreased $0.60 sequentially, primarily as a result of decreases in oil and gas benchmark prices, and decreased $0.92 YTD 2024-over-YTD 2023, primarily as a result of decreases in gas and NGL benchmark prices.

For the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, we recognized net gains on the settlement of our commodity derivative contracts of $1.01 per BOE, $0.46 per BOE, and $0.39 per BOE, respectively.

LOE on a per BOE basis increased four percent sequentially and seven percent YTD 2024-over-YTD 2023.

The sequential quarterly increase was a result of decreased average net daily equivalent production and a slight shift in our production mix from our South Texas assets to our Midland Basin assets, which have higher unit operating costs.

The YTD 2024-over-YTD 2023 increase was primarily driven by increases in labor costs.

For the full-year 2024, we expect LOE on a per BOE basis to increase, compared with 2023, primarily as a result of expected increases in labor costs and certain other operating costs associated with both our Midland Basin and South Texas assets.

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 28 percent sequentially and decreased nine percent YTD 2023-over-YTD 2022 as a result of the expiration of a long-term contract in South Texas on June 30, 2023.

Transportation costs on a per BOE basis remained flat sequentially and decreased 26 percent YTD 2024-over-YTD 2023 as a result of the expiration of a long-term contract in South Texas on June 30, 2023.

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 the expiration of the long-term contract discussed above.

Production tax expense on a per BOE basis increased 16 percent sequentially as a result of increases in realized prices, and decreased 43 percent YTD 2023-over-YTD 2022, as a result of decreases in realized prices.

Our overall production tax rate for the three and nine months ended September 30, 2023, was 4.3 percent and 4.4 percent, respectively, compared with 4.3 percent for the three months ended June 30, 2023, and 4.9 percent for the nine months ended September 30, 2022.

For the full-year 2024, we expect transportation costs on a per BOE basis to decrease compared with 2023, as a result of the expiration of the long-term contract in South Texas previously discussed.

Production tax expense on a per BOE basis decreased four percent sequentially and six percent YTD 2024-over-YTD 2023, primarily as a result of decreases in total realized price per BOE.

Our overall production tax rate for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, was 4.5 percent, 4.6 percent, and 4.7 percent, respectively.

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 seven percent YTD 2023-over-YTD 2022 as a result of changes to the assessed values of our producing properties.

Ad valorem tax expense on a per BOE basis increased 141 percent sequentially as ad valorem tax expense recorded during the three months ended December 31, 2023, reflected the positive impact of a property tax relief bill that provided for a one-time benefit during 2023.

Ad valorem tax expense on a per BOE basis increased 10 percent YTD 2024-over-YTD 2023 as a result of changes to the assessed values of our producing properties.

We anticipate volatility in ad valorem tax expense on a per BOE and absolute basis as the valuation of our producing properties changes, which is generally driven by fluctuations in commodity prices.

Depletion, depreciation, amortization, and asset retirement obligation liability accretion (“DD&A”) expense on a per BOE basis increased 19 percent sequentially due to inflation, and an increase in production from our Midland Basin assets, which have a higher DD&A rate than our South Texas assets.

DD&A expense on a per BOE basis increased five percent YTD 2023-over-YTD 2022 due to inflation, partially offset by a shift in production mix due to higher 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, acquisition and 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 in 2023, compared with 2022, primarily as a result of cost increases, partially offset by a shift in production mix to our South Texas assets.

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

G&A expense on a per BOE basis remained flat YTD 2023-over-YTD 2022.

We currently expect G&A expense to remain relatively flat per BOE and on an absolute basis for the full-year 2023 compared with 2022.

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

Comparison of Financial Results and Trends Between the Three Months Ended September 30, 2023, and June 30, 2023, and Between the Nine Months Ended September 30, 2023, and 2022

Depletion, depreciation, amortization, and asset retirement obligation liability accretion (“DD&A”) expense on a per BOE basis decreased six percent sequentially primarily as a result of a decrease in our DD&A rate due to increased estimated net proved reserves at year-end 2023.

DD&A expense on a per BOE basis increased eight percent YTD 2024-over-YTD 2023 due to inflation and a slight shift in production mix resulting from higher activity in our Midland Basin assets, which have a higher DD&A rate than our South Texas assets.

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

For the full-year 2024, we expect DD&A expense per BOE to remain flat and DD&A expense on an absolute basis to increase slightly, compared with 2023, primarily as a result of expected increased production.

General and administrative (“G&A”) expense on a per BOE basis decreased 12 percent sequentially primarily as a result of decreased compensation expense.

G&A expense on a per BOE basis increased nine percent YTD 2024-over-YTD 2023 as a result of increased compensation expense due to inflation.

For the full-year 2024, we expect G&A expense to remain relatively flat per BOE, and G&A expense on an absolute basis to increase compared with 2023, primarily as a result of increases in compensation expense due to inflation.

Please refer to Comparison of Financial Results and Trends Between the Three Months Ended March 31, 2024, and December 31, 2023, and Between the Three Months Ended March 31, 2024, and 2023 below for additional discussion of operating expenses.

Comparison of Financial Results and Trends Between the Three Months Ended March 31, 2024, and December 31, 2023, and Between the Three Months Ended March 31, 2024, and 2023

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 September 30, 2023, and June 30, 2023:

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

Average Net Equivalent Production

Decrease Oil, Gas, and NGL

Production Revenue

Increase Oil, Gas, and NGL

Decrease Oil, Gas, and NGL

Production Expense

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Amounts may not calculate due to rounding.

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

As a result of increases in benchmark commodity prices, realized prices for oil, gas, and NGLs increased 12 percent, 20 percent, and 13 percent, respectively, resulting in a 17 percent increase in oil, gas, and NGL production revenue.

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

Average net daily equivalent production volumes decreased five percent, consisting of an eight percent decrease from our South Texas assets and a three percent decrease from our Midland Basin assets.

Total realized price per BOE remained flat.

As a result of the decrease in average net daily equivalent production volumes, oil, gas, and NGL production revenue decreased eight percent.

Oil, gas, and NGL production expense remained flat, as an increase in ad valorem tax expense was offset by decreases in production tax expense, transportation costs, and LOE.

YTD 2024-over-YTD 2023 Changes.

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

Average 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 four percent, consisting of a 22 percent increase from our South Texas assets, partially offset by a 10 percent decrease from our Midland Basin assets.

As a result of decreases in benchmark commodity prices, realized prices for oil, gas, and NGLs decreased 23 percent, 64 percent, and 40 percent, respectively.

These decreases were partially offset by increased average net daily equivalent production resulting in a 34 percent decrease in oil, gas, and NGL production revenue.

Oil, gas, and NGL production expense decreased nine percent, primarily driven by decreases in production tax expense and transportation costs, partially offset by increases in LOE and ad valorem tax expense.

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

Total realized price per BOE decreased slightly, and combined with flat average net daily equivalent production volumes, resulted in oil, gas, and NGL production revenue remaining flat.

Oil, gas, and NGL production expense decreased three percent, primarily driven by a decrease in transportation costs, 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 For the Nine Months Ended

September 30, 2023 June 30,

2023 September 30, 2023 September 30, 2022

For the Three Months Ended

March 31, 2024 December 31, 2023 March 31, 2023

(in millions)

Depletion, depreciation, amortization, and asset retirement obligation liability accretion $ 166.2 $ 189.1 $ 154.2

DD&A expense increased 20 percent sequentially and increased nine percent YTD 2023-over-YTD 2022.

The sequential quarterly increase primarily resulted from inflation and an increase in production from our Midland Basin assets, which have a higher DD&A rate than our South Texas assets.

The YTD 2023-over-YTD 2022 increase resulted from a combination of inflation and a four percent increase in average net daily equivalent production.

These increases were partially offset by a shift in production mix due to higher activity in our South Texas assets, which have a lower DD&A rate than our Midland Basin assets.

DD&A expense decreased 12 percent sequentially and increased eight percent YTD 2024-over-YTD 2023.

The sequential quarterly decrease was primarily driven by a decrease in our DD&A rate and a decrease in average net daily equivalent production.

The YTD 2024-over-YTD 2023 increase resulted from inflation and a slight shift in production mix resulting from higher activity in our

Midland Basin assets, which have a higher DD&A rate than our South Texas assets.

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 For the Nine Months Ended

September 30, 2023 June 30,

2023 September 30, 2023 September 30, 2022

For the Three Months Ended

March 31, 2024 December 31, 2023 March 31, 2023

(in millions)

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Total $ 18.6 $ 15.8 $ 18.4

Exploration expense decreased 32 percent sequentially primarily due to a decrease in geological and geophysical expense.

Exploration expense increased 17 percent sequentially primarily as a result of expenses incurred related to one well deemed non-commercial, partially offset by a decrease in exploration overhead expense.

Exploration expense remained flat YTD 2024-over-YTD 2023.

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General and administrative

For the Three Months Ended For the Nine Months Ended

September 30, 2023 June 30,

2023 September 30, 2023 September 30, 2022

For the Three Months Ended

March 31, 2024 December 31, 2023 March 31, 2023

(in millions)

General and administrative $ 30.2 $ 36.6 $ 27.7

G&A expense increased six percent sequentially and increased three percent YTD 2023-over-YTD 2022, primarily as a result of increased compensation expense.

We currently expect G&A expense to remain relatively flat on an absolute basis for the full-year 2023 compared with 2022, but G&A expense can be impacted by full-year financial and operational results.

G&A expense decreased 18 percent sequentially primarily as a result of decreased compensation expense.

G&A expense recorded during the three months ended December 31, 2023, 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 increased nine percent YTD 2024-over-YTD 2023 primarily as a result of increased compensation expense due to inflation.

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 For the Nine Months Ended

September 30, 2023 June 30,

2023 September 30, 2023 September 30, 2022

For the Three Months Ended

March 31, 2024 December 31, 2023 March 31, 2023

(in millions)

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Net derivative (gain) loss is a result of changes in 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.

Compared to our derivative contract prices, we expect increases in benchmark commodity prices to result in net derivative losses, and decreases in benchmark commodity prices to result in net derivative gains.

We expect increases in benchmark commodity prices to result in net derivative losses, and decreases in benchmark commodity prices to result in net derivative gains, as measured against our derivative contract 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 For the Nine Months Ended

September 30, 2023 June 30,

2023 September 30, 2023 September 30, 2022

For the Three Months Ended

March 31, 2024 December 31, 2023 March 31, 2023

(in millions)

Interest expense $ (21.9) $ (23.9) $ (22.5)

Interest expense increased four percent sequentially and decreased 31 percent YTD 2023-over-YTD 2022.

The sequential quarterly increase was primarily driven by a decrease in capitalized interest as a result of the timing of the development of our wells in progress.

The YTD 2023-over-YTD 2022 decrease was 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.

Additionally, 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 Nine Months Ended

September 30, 2023 June 30,

2023 September 30, 2023 September 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 nine months ended September 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) benefit

For the Three Months Ended For the Nine Months Ended

September 30, 2023 June 30,

2023 September 30, 2023 September 30, 2022

Interest expense decreased nine percent sequentially and three percent YTD 2024-over-YTD 2023 primarily driven by an increase in capitalized interest as a result of the timing of the development of our wells in progress.

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

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

Income tax expense

For the Three Months Ended

March 31, 2024 December 31, 2023 March 31, 2023

(in millions, except tax rate)

Income tax (expense) benefit $ 46.0 $ (42.1) $ (51.6) $ (219.0)

Income tax expense $ (32.1) $ (44.7) $ (55.5)

Effective tax rate 19.6 % 15.3 % 21.8 %

Our effective tax rate decreased both sequentially and YTD 2023-over-YTD 2022 primarily due to benefits recognized from the result of the multi-year R&D credit study completed during the third quarter of 2023, which were partially offset by a release of the valuation allowance during the nine months ended September 30, 2022, that lowered the effective tax rate compared to no valuation benefit recognized during the nine months ended September 30, 2023.

Our effective tax rate increased sequentially as the positive impact of the R&D credit claimed during the three months ended December 31, 2023, was higher than for the three months ended March 31, 2024.

Our effective tax rate decreased YTD 2024-over-YTD 2023 primarily due to the benefit recognized from anticipated qualified R&D credit claims in 2024.

The tax rates for each period presented also 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 after utilization of a portion of the R&D credits, between $15.0 million and $25.0 million of full-year 2024 income tax expense will be current.

We made $6.2 million of cash tax payments during the nine months ended September 30, 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.

Please refer to Note 4 - Income Taxes in Part I, Item 1 of this report for additional discussion.

Effective for tax years beginning after December 31, 2022, the Inflation Reduction Act of 2022 provides for a 15 percent corporate alternative minimum tax (“CAMT”) on corporations with average adjusted financial statement income over $1.0 billion for any three-year period preceding the tax year.

Please refer to Overview of Liquidity and Capital Resources below and to the Risk Factors section in Part 1, Item 1A of our 2023 Form 10-K for additional discussion.

Overview of Liquidity and Capital Resources

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Sources of Cash

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

For the three months ended March 31, 2024, we funded our capital expenditures and return of capital program with cash flows from operating activities and cash on hand, and we expect that to continue for the remainder of 2024.

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.

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.

Two major credit rating agencies upgraded our credit rating during 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 profile.

Any future downgrades in our credit ratings could make it more difficult or expensive for us to borrow additional funds.

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.

We have no control over the market prices for oil, gas, or NGLs, although we may be able to influence the amount of our realized revenues from our oil, gas, and NGL sales through the use of commodity derivative contracts as part of our commodity price risk management program.

Commodity derivative contracts may limit the prices we receive for our oil, gas, and NGL sales if oil, gas, or NGL prices rise substantially over the price established by the commodity derivative contract.

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Our 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 our Credit Agreement were $2.5 billion and $1.25 billion, respectively.

As of March 31, 2024, 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 September 30, 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 April 1, 2024.

Subsequent to March 31, 2024, 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, 2024.

No individual bank participating in the Credit Agreement represents more than 10 percent of the aggregate lender commitment.

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 September 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 October 26, 2023, September 30, 2023, and December 31, 2022.

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

We were in compliance with all financial and non-financial covenants under the Credit Agreement as of March 31, 2024, 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 25, 2024, March 31, 2024, and December 31, 2023.

We had no revolving credit facility borrowings during the three months ended March 31, 2024, or at any time during 2023.

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, other financing activities, and our capital expenditures, including acquisitions, all impact the amount we borrow under our revolving credit facility.

Weighted-Average Interest and Weighted-Average Borrowing Rates

Our weighted-average interest rate includes paid and accrued interest, fees on the unused portion of the aggregate commitment amount under the Credit Agreement, letter of credit fees, the non-cash amortization of deferred financing costs, and for the periods during which the 2025 Senior Secured Notes were outstanding, the non-cash amortization of the related discount.

Our weighted-average borrowing rate includes paid and accrued interest only.

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

For the Three Months Ended For the Nine Months Ended

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

For the Three Months Ended

March 31, 2024 December 31, 2023 March 31, 2023

Weighted-average interest rate 7.1 % 7.0 % 7.2 %

Weighted-average borrowing rate 6.4 % 6.4 % 6.5 %

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 our weighted-average borrowing rate each remained flat both sequentially and YTD 2024-over-YTD 2023.

We expect our weighted-average interest rate and weighted-average borrowing rate to remain relatively flat for the full-year 2024 compared with 2023.

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 affected by the non-cash amortization of deferred financing costs or, for the 2025 Senior Secured Notes, the non-cash amortization of the discount.

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

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.

for the payment of operating and general and administrative costs, income taxes, debt obligations, including interest and early repayments or redemptions, dividends, and for repurchases of shares of our outstanding 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 nine months ended September 30, 2023, we spent $876.1 million on capital expenditures and on acquisitions of proved and unproved oil and gas properties, including the acquisition of additional working interests in certain wells.

This amount differs from the costs incurred amount of $943.2 million for the nine months ended September 30, 2023, as costs incurred is an accrual-based amount that also includes asset retirement obligations, geological and geophysical expenses, and exploration overhead amounts.

During the three months ended March 31, 2024, we spent $332.4 million on capital expenditures.

This amount differs from the costs incurred amount of $320.2 million for the three months ended March 31, 2024, 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.

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.

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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 and excludes acquisitions and certain leasing efforts.

This amount reflects an increase from our previous expectation for capital expenditures related to additional working interests acquired in certain wells in the Midland Basin during the third quarter of 2023.

Our total 2024 capital program, which we expect to fund with cash flows from operations, is expected to be between $1.14 billion and $1.18 billion, excluding acquisitions.

This reflects a decrease from our original expectation primarily as a result of capital efficiencies and 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.

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The amounts involved in any such transaction may be material.

During the nine months ended September 30, 2023, and 2022, we repurchased and subsequently retired 6.3 million and 0.5 million shares, respectively, of our common stock at a cost of $205.1 million and $20.2 million, respectively, excluding excise taxes, commissions, and fees.

As of September 30, 2023, $237.7 million remained available under the Stock Repurchase Program for repurchases of our common stock.

During the three months ended March 31, 2024, and 2023, we repurchased and subsequently retired 0.7 million and 1.4 million shares, respectively, of our common stock at a cost of $32.8 million and $40.0 million, respectively, excluding excise taxes, commissions, and fees.

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

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 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.

During the nine months ended September 30, 2023, and 2022, we paid $54.2 million and $1.2 million, respectively, in dividends to our stockholders.

In September 2023, we declared a quarterly cash dividend of $0.15 per share of common stock outstanding to be paid on November 6, 2023.

Additionally, our Board of Directors approved an increase to our quarterly fixed dividend policy, pursuant to which we intend to pay $0.18 per share per quarter, beginning in the first quarter of 2024.

During the three months ended March 31, 2024, and 2023, we paid $20.8 million and $18.3 million, respectively, in dividends to our stockholders.

We currently intend to continue paying dividends to our stockholders for the foreseeable future, subject to our future earnings, our financial condition, covenants under our Credit Agreement and indentures governing each series of our outstanding Senior Notes, and other factors that could arise.

The payment and amount of future dividends remains at the discretion of our Board of Directors.

Analysis of Cash Flow Changes Between the Nine Months Ended September 30, 2023, and 2022

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

The payment and amount of future dividends remain at the discretion of our Board of Directors.

Changes in federal income tax laws, specifically the CAMT, could increase our corporate income tax rate and could eliminate or reduce current tax deductions.

While the CAMT is not currently applicable to us, it and other possible future legislation could reduce our net cash provided by operating activities over time, which could result in a reduction of available funding.

Analysis of Cash Flow Changes Between the Three Months Ended March 31, 2024, and 2023

The following tables present changes in cash flows between the three months ended March 31, 2024, and 2023, 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 Nine Months Ended September 30, Amount Change Between Periods

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

(in millions)

Net cash provided by operating activities $ 276.0 $ 331.6 $ (55.6)

Net cash provided by operating activities decreased for the nine months ended September 30, 2023, compared with the same period in 2022, primarily as a result of an $893.4 million decrease in cash received from oil, gas, and NGL production revenue net of transportation costs and production taxes and an increase of $44.3 million in cash paid for LOE and ad valorem taxes, partially offset by a $626.7 million decrease in cash paid on settled derivative trades and a $45.9 million decrease in cash paid for interest.

Net cash provided by operating activities decreased for the three months ended March 31, 2024, compared with the same period in 2023, primarily as a result of a $46.8 million decrease in cash received from oil, gas, and NGL production revenue net of transportation costs and production taxes and an increase of $17.5 million in cash paid for G&A expense, partially offset by a $31.3 million decrease in cash paid on settled derivative trades.

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 Nine Months Ended September 30, Amount Change Between Periods

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

(in millions)

Net cash used in investing activities $ (332.3) $ (240.4) $ (91.9)

Net cash used in investing activities increased for the nine months ended September 30, 2023, compared with the same period in 2022, as a result of a $174.9 million increase in capital expenditures and $109.3 million of cash paid to acquire proved and unproved oil and gas properties in the Midland Basin, including the acquisition of additional working interests in certain wells.

Please refer to Note 11 - Acquisitions in Part I, Item 1 of this report for additional discussion of acquisition of proved and unproved oil and gas properties.

Net cash used in investing activities increased for the three months ended March 31, 2024, compared with the same period in 2023, as a result of a $91.7 million increase in capital expenditures.

Net cash used in investing activities during the three months ended March 31, 2024, was funded by net cash provided by operating activities and cash on hand.

Financing activities

For the Nine Months Ended September 30, Amount Change Between Periods

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

(in millions)

Net cash used in financing activities $ (53.6) $ (58.4) $ 4.8

Net cash used in financing activities for the nine months ended September 30, 2023, primarily related to $205.2 million of cash paid, including commissions and fees, to repurchase and subsequently retire 6.3 million shares of our common stock under the Stock Repurchase Program and $54.2 million of dividends paid.

Net cash used in financing activities for the nine months ended September 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.

Additionally, we paid $25.1 million for the net share settlement of employee stock awards and $20.2 million, including commissions and fees, to repurchase and subsequently retire 0.5 million shares of our common stock under the Stock Repurchase Program.

Net cash used in financing activities for the three months ended March 31, 2024, primarily related to $32.8 million of cash paid, including commissions and fees, to repurchase and subsequently retire 0.7 million shares of our common stock under the Stock Repurchase Program and $20.8 million of dividends paid to our stockholders.

Net cash used in financing activities for the three months ended March 31, 2023, related to $40.1 million of cash paid, including commissions and fees, to repurchase and subsequently retire 1.4 million shares of our common stock under the Stock Repurchase Program and $18.3 million of dividends paid to our stockholders.

Interest Rate Risk

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

As of March 31, 2024, 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, are likely to increase the cost of and affect our ability to borrow funds.

As a result of the United States Federal Reserve’s current monetary policy, short-term interest rates could remain elevated longer than expected, which could increase the cost of and affect our ability to borrow funds.

Commodity Price Risk

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.

The prices we receive for our oil, gas, and NGL production directly affect our revenue, profitability, access to capital, ability to return capital to our stockholders, 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 production output from OPEC+, instability in the Middle East, economic and trade sanctions associated with the war between Russia and Ukraine, 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 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+, global shipping channel constraints and disruptions, instability in the Middle East, economic and trade sanctions associated with the wars between Russia and Ukraine and Israel and Hamas, 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 fluctuations 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 nine months ended September 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 $134.3 million, $24.5 million, and $16.8 million, respectively.

If commodity prices had been 10 percent lower, our net derivative settlements for the nine months ended September 30, 2023, would have offset the declines in oil, gas, and NGL production revenue by approximately $43.7 million.

Based on our production for the three months ended March 31, 2024, 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 $44.1 million, $6.8 million, and $5.1 million, respectively.

If commodity prices had been 10 percent lower, our net derivative settlements for the three months ended March 31, 2024, would have offset the declines in oil, gas, and NGL production revenue by approximately $11.9 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 September 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 $48.0 million, $8.2 million, and $0.6 million, respectively.

As of March 31, 2024, 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 $34.4 million, $6.4 million, and $6.6 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 nine months ended September 30, 2023, or through the filing of this report.

We have not been involved in any unconsolidated SPE transactions during the three months ended March 31, 2024, or through the filing of this report.

Critical Accounting Estimates

3 unchanged sentences

Non-GAAP Financial Measures

Adjusted EBITDAX represents net income (loss) before interest expense, interest income, income taxes, depletion, depreciation, amortization and asset retirement obligation liability accretion expense, exploration expense, property abandonment and impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains and losses on extinguishment of debt, and certain other items.

impairment expense, non-cash stock-based compensation expense, derivative gains and losses net of settlements, gains and losses on divestitures, gains and losses on extinguishment of debt, and certain other items.

Adjusted EBITDAX excludes certain items that we believe affect the comparability of operating results and can exclude items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated.

5 unchanged sentences

Our revolving credit facility provides a material source of liquidity for us.

Under the terms of our Credit Agreement, if we failed to comply with the covenants that establish a maximum permitted ratio of total funded debt, as defined in the Credit Agreement, to adjusted EBITDAX, we would be in default, an event that would prevent us from borrowing under our revolving credit facility and would therefore materially limit a significant

source of our liquidity.

In addition, if we are in default under our revolving credit facility and are unable to obtain a waiver of that default from our lenders, lenders under that facility and under the indentures governing each series of our outstanding Senior Notes would be entitled to exercise all of their remedies for default.

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 For the Nine Months Ended

September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022

For the Three Months Ended

2024 December 31, 2023 March 31,

(in thousands)

2 unchanged sentences

Interest income (6,770) (6,052) (4,702)

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

Income tax expense 32,069 44,703 55,506

Depletion, depreciation, amortization, and asset retirement obligation liability accretion 166,188 189,107 154,189

3 unchanged sentences

Net derivative (gain) loss 28,145 (80,506) (51,329)

Derivative settlement gain (loss) (314) (186,299) 20,398 (595,080)

Loss on extinguishment of debt — — — 67,605

Net derivative settlement gain 13,274 6,523 5,076

Other, net 597 (128) (152)

2 unchanged sentences

Interest income 6,770 6,052 4,702

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

Income tax expense (32,069) (44,703) (55,506)

Exploration (1) (2)

(9,539) (14,901)

Amortization of debt discount and deferred financing costs 1,371 1,303 4,114 8,910

Amortization of deferred financing costs 1,371 1,372 1,371

Deferred income taxes 27,391 45,085 49,968

5 unchanged sentences

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 and nine months ended September 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 nine months ended September 30, 2022, amounts exclude certain capital expenditures related to unsuccessful exploration efforts outside of our core areas of operation.

(2) For the three months ended March 31, 2024, amount excludes certain capital expenditures primarily related to one well deemed non-commercial.

For three months ended December 31, 2023, amount excludes immaterial non-cash adjustments.

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

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