What changed in this filing

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Item 1. Financial Statements

2024-08-08 compared with 2024-05-03 · 190 added, 54 removed, 432 unchanged (36% of the section changed)

20 unchanged sentences

Noncurrent assets:

Acquisition deposit held in escrow

Derivative assets 7,878 8,672

32 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

2024 2023 2024 2023

Operating revenues and other income:

27 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

2024 2023 2024 2023

Net income $ 210,293 $ 149,874 $ 341,492 $ 348,426

19 unchanged sentences

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

Net income — — — 210,293 — 210,293

Other comprehensive income — — — — 7 7

Net cash dividends declared, $ 0.18 per share

— — — ( 20,532 ) — ( 20,532 )

Issuance of common stock under Employee Stock Purchase Plan 56,006 1 1,843 — — 1,844

Stock-based compensation expense 35,691 1 5,787 — — 5,788

Purchase of shares under Stock Repurchase Program ( 1,058,956 ) ( 11 ) ( 51,700 ) — — ( 51,711 )

Balances, June 30, 2024 114,068,885 $ 1,141 $ 1,492,859 $ 2,352,532 $ ( 2,592 ) $ 3,843,940

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

9 unchanged sentences

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 774 — ( 7 ) — — ( 7 )

Stock-based compensation expense 56,872 1 4,162 — — 4,163

Purchase of shares under Stock Repurchase Program ( 2,550,706 ) ( 26 ) ( 69,457 ) — — ( 69,483 )

Other 19,037 — — — — —

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

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

2 unchanged sentences

(in thousands)

For the Three Months Ended March 31,

For the Six Months Ended June 30,

Cash flows from operating activities:

12 unchanged sentences

Capital expenditures ( 655,049 ) ( 550,046 )

Acquisition of proved and unproved oil and gas properties 2 ( 88,834 )

Other, net 80 657

3 unchanged sentences

Dividends paid ( 41,541 ) ( 36,367 )

Net proceeds from sale of common stock 1,844 1,815

Net share settlement from issuance of stock awards ( 22 ) ( 7 )

6 unchanged sentences

Cash paid for interest, net of capitalized interest $ ( 41,559 ) $ ( 42,680 )

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

Net cash paid for income taxes $ ( 7,429 ) $ ( 6,137 )

Investing activities:

Changes in capital expenditure accruals $ ( 21,491 ) $ 24,220

Reconciliation of cash, cash equivalents, and restricted cash:

Cash and cash equivalents $ 487,869 $ 378,238

Restricted cash (1)

Cash, cash equivalents, and restricted cash at end of period $ 589,869 $ 378,238

____________________________________________

(1) Represents a deposit held in a third-party escrow account related to the XCL Acquisition, as defined in Note 11 - Acquisitions, and is included in the acquisition deposit held in escrow line item on the accompanying unaudited condensed consolidated balance sheets (“accompanying balance sheets”).

Please refer to Note 11 - Acquisitions for additional discussion.

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

3 unchanged sentences

Description of Operations

SM Energy Company, together with its consolidated subsidiaries (“SM Energy” or the “Company”), is an independent energy company engaged in the acquisition, exploration, development, and production of oil, gas, and NGLs in the state of Texas.

Please refer to Note 11 - Acquisitions for discussion and definitions related to the XCL Acquisition.

Basis of Presentation

4 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 March 31, 2024, 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 June 30, 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.

17 unchanged sentences

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 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.

1 unchanged sentence

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 March 6, 2024, the 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.

1 unchanged sentence

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.

As of June 30, 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 table below presents oil, gas, and NGL production revenue by product type for each of the Company’s operating areas:

The tables below present 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

March 31, Three Months Ended

June 30, Three Months Ended

2024 2023 2024 2023 2024 2023

5 unchanged sentences

Relative percentage 63 % 62 % 37 % 38 % 100 % 100 %

Midland Basin South Texas Total

Six Months Ended

June 30, Six Months Ended

2024 2023 2024 2023 2024 2023

(in thousands)

Oil production revenue $ 711,021 $ 623,009 $ 262,427 $ 221,222 $ 973,448 $ 844,231

Gas production revenue 63,371 86,589 49,658 76,869 113,029 163,458

NGL production revenue 218 388 106,352 109,256 106,570 109,644

Total $ 774,610 $ 709,986 $ 418,437 $ 407,347 $ 1,193,047 $ 1,117,333

Relative percentage 65 % 64 % 35 % 36 % 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 may differ depending on the applicable contractual terms.

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As a result, the Company must estimate the amount of production delivered to the customer and the consideration that will ultimately be received for sale of the product.

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 March 31, 2024, and December 31, 2023, were $ 184.2 million and $ 175.3 million, respectively.

Estimated revenue due to the Company is recorded within the accounts receivable line item on the accompanying balance sheets until payment is received.

The accounts receivable balances from contracts with customers within the accompanying balance sheets as of June 30, 2024, and December 31, 2023, were $ 198.2 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.

3 unchanged sentences

Stock Repurchase Program

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 .

During the second quarter of 2024, the Company’s Board of Directors re-authorized the Company’s existing stock repurchase program to re-establish the Company’s authorization to repurchase up to $ 500.0 million in aggregate value of its common stock through December 31, 2027 (“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 activity under the Company’s Stock Repurchase Program during the three months ended March 31, 2024, and 2023:

The following table presents activity under the Company’s Stock Repurchase Program:

For the Three Months Ended

June 30, For the Six Months Ended

2024 2023 2024 2023

(in thousands, except per share data)

Shares of common stock repurchased (1)

1,059 2,551 1,771 3,964

Weighted-average price per share (2)

6 unchanged sentences

(3) Amounts may not calculate due to rounding.

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.

As of June 30, 2024, following the re-authorization of our existing Stock Repurchase Program, $ 500.0 million was available for repurchases of the Company’s outstanding common stock through December 31, 2027 , under the Stock Repurchase Program.

During the second quarter of 2024, the Company’s Board of Directors approved an increase to the Company’s fixed dividend policy to $ 0.80 per share annually, to be paid in quarterly increments of $ 0.20 per share, beginning in the fourth quarter of 2024.

Note 4 - Income Taxes

1 unchanged sentence

For the Three Months Ended

June 30, For the Six Months Ended

2024 2023 2024 2023

(in thousands)

Current portion of income tax expense:

Current portion of income tax (expense) benefit:

Federal $ ( 9,220 ) $ 2,189 $ ( 13,474 ) $ ( 2,809 )

4 unchanged sentences

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 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.

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

The quarterly 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 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.

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 for the three and six months ended June 30, 2024, compared with the same periods in 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.

6 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 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.

As of June 30, 2024, the borrowing base and aggregate lender commitments under the Credit Agreement were $ 2.5 billion and $ 1.25 billion, respectively.

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

On July 2, 2024, the Company entered into the First Amendment to the Credit Agreement (“First Amendment”) with its lenders.

The First Amendment amended certain provisions of the Credit Agreement in order to facilitate financing for the pending XCL Acquisition, as defined in Note 11 - Acquisitions .

On July 8, 2024, the Company, certain lenders under the revolving credit facility, and Wells Fargo Bank, National Association, administrative agent and swingline lender, began the process of seeking a second amendment to the Company’s Credit Agreement to, among other amendments, increase the revolving commitments available under the Credit Agreement from $ 1.25 billion to $ 2.0 billion and to extend the maturity of the Credit Agreement to five years beyond the effective date of such amendment.

There can be no assurance that the second amendment to the Credit Agreement, including increases to the commitments or extension of the maturity date, will be obtained.

Interest and commitment fees associated with the revolving credit facility are accrued based on a borrowing base utilization grid set forth in the Credit Agreement, as presented in Note 5 - Long-Term Debt in the 2023 Form 10-K .

2 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 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

The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Agreement as of July 31, 2024, June 30, 2024, and December 31, 2023:

As of July 31, 2024 As of June 30, 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 $ 7.9 million and $ 8.5 million as of March 31, 2024, and December 31, 2023, 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 $ 7.3 million and $ 8.5 million as of June 30, 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 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

The Company’s Senior Notes, net line item on the accompanying balance sheets as of June 30, 2024, and December 31, 2023, consisted of the following (collectively referred to as “Senior Notes”):

As of June 30, 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.

As of June 30, 2024, the 5.625 % Senior Notes due June 1, 2025 (“2025 Senior Notes”) were classified as a noncurrent liability included in the Senior Notes, net line item on the accompanying balance sheets, as the Company intends to redeem all of the outstanding 2025 Senior Notes using proceeds from the notes offering discussed below.

On July 25, 2024 , the Company issued $ 750.0 million in aggregate principal amount of 6.750 % Senior Notes due 2029 (“2029 Senior Notes”) and $ 750.0 million in aggregate principal amount of 7.000 % Senior Notes due 2032 (“2032 Senior Notes”, and together with the 2029 Senior Notes, “New Senior Notes”).

The New Senior Notes were issued at par.

The Company intends to use the net proceeds from the New Senior Notes, together with cash on hand and borrowings under its Credit Agreement, to fund the Company’s share of the purchase price for the pending XCL Acquisition, to redeem all of its outstanding 2025 Senior Notes, and to pay related fees and expenses.

The 2029 Senior Notes are subject to a special mandatory redemption if the consummation of the XCL Acquisition does not occur on or before July 1, 2025, or if the Company notifies the trustee of the 2029 Senior Notes that it will not pursue the XCL Acquisition.

Also, on July 25, 2024, the Company issued a notice of redemption to the holders of the 2025 Senior Notes notifying such holders that the Company intends to redeem the $ 349.1 million aggregate principal amount outstanding of its 2025 Senior Notes on August 26, 2024 (“Redemption Date”).

In accordance with the terms of the indenture governing the 2025 Senior Notes, the redemption price will be equal to 100 percent of the principal amount outstanding of the 2025 Senior Notes on the Redemption Date, plus accrued and unpaid interest.

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, make certain investments, or merge or consolidate with other entities.

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

The Company was in compliance with all financial and non-financial covenants as of June 30, 2024, and through the filing of this report.

Please refer to Note 5 - Long-Term Debt in the 2023 Form 10-K for additional detail on the Company’s covenants under the Credit Agreement and indentures governing the Senior Notes.

Capitalized Interest

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

Capitalized interest costs for the three months ended June 30, 2024, and 2023, totaled $ 6.1 million and $ 5.9 million, respectively, and totaled $ 12.2 million and $ 11.4 million for the six months ended June 30, 2024, and 2023, 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.

1 unchanged sentence

Note 6 - Commitments and Contingencies

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 .

Other than those items discussed below and the XCL Acquisition Agreement discussed in Note 11 - Acquisitions , 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 .

Drilling Rig Service Contracts .

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;

During the six months ended June 30, 2024, the Company entered into new drilling rig contracts.

As of June 30, 2024, the Company’s drilling rig commitments totaled $ 26.4 million under contract terms extending through the second quarter of 2025.

If all of the drilling rig contracts were terminated as of June 30, 2024, the Company would avoid a portion of the contractual service commitments;

however, the Company would be required to pay $ 14.8 million in early termination fees.

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.

No early termination penalties or standby fees were incurred by the Company during the six months ended June 30, 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.

During the six months ended June 30, 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 June 30, 2024, the liquidated damages could range from zero to a maximum of $ 77.2 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.

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

As of March 31, 2024, the Company had basis swap contracts with fixed price differentials between:

As of June 30, 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 March 31, 2024, the Company had commodity derivative contracts outstanding through the fourth quarter of 2026 as summarized in the table below:

As of June 30, 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

19 unchanged sentences

Weighted-Average Contract Price $ 3.18 $ 3.03 $ 4.20 $ 3.96

IF Waha Volumes

Weighted-Average Contract Price $ — $ — $ — $ 3.26

NYMEX HH Volumes

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Weighted-Average Contract Price $ 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.

Commodity Derivative Contracts Entered Into Subsequent to June 30, 2024

Subsequent to June 30, 2024, and through the filing of this report, the Company entered into the following commodity derivative contracts:

• NYMEX WTI price swap contracts for the fourth quarter of 2024 for a total of 1.1 MMBbl of oil production at a weighted-average contract price of $ 74.95 per Bbl and for the second and third quarters of 2025 for a total of 0.7 MMBbl of oil production at a weighted-average contract price of $ 75.00 per Bbl;

• NYMEX WTI collar contracts for the third quarter of 2025 for a total of 0.1 MMBbl of oil production at a weighted-average floor price of $ 70.00 per Bbl and a weighted-average ceiling price of $ 80.00 per Bbl;

• NYMEX HH price swap contracts for the second quarters of 2025 and 2026 for a total of 1,430 BBtu and 1,472 BBtu of gas production, respectively, at a weighted-average contract price of $ 3.00 per MMBtu and $ 3.26 per MMBtu, respectively.

Derivative Assets and Liabilities Fair Value

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

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 fair value of commodity derivative contracts at June 30, 2024, and December 31, 2023, was a net asset of $ 11.2 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 March 31, 2024 As of December 31, 2023

As of June 30, 2024 As of December 31, 2023

(in thousands)

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Offsetting of Derivative Assets and Liabilities

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.

As of June 30, 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

2024 December 31, 2023 March 31,

2024 December 31, 2023 June 30,

2024 December 31, 2023

5 unchanged sentences

For the Three Months Ended

June 30, For the Six Months Ended

2024 2023 2024 2023

(in thousands)

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Credit Related Contingent Features

As of March 31, 2024, all of the Company’s derivative counterparties were members of the Company’s Credit Agreement lender group.

As of June 30, 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 March 31, 2024 As of December 31, 2023

As of June 30, 2024 As of December 31, 2023

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

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

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

These notes were not presented at fair value on the accompanying balance sheets as of June 30, 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

As of June 30, 2024 As of December 31, 2023

Principal Amount Fair Value Principal Amount Fair Value

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

Please refer to Note 10 - Compensation Plans in this report and Note 9 - Earnings Per Share 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

June 30, For the Six Months Ended

2024 2023 2024 2023

(in thousands, except per share data)

2 unchanged sentences

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

1,081 666 954 642

Diluted weighted-average common shares outstanding 115,715 120,074 116,092 121,175

1 unchanged sentence

Diluted net income per common share $ 1.82 $ 1.25 $ 2.94 $ 2.88

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 June 30, 2024, 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 grant date or upon other triggering events as set forth in the Equity Plan.

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

the Company’s 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.

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 $ 1.4 million and $ 0.2 million for the three months ended June 30, 2024, and 2023, respectively, and $ 2.4 million and $ 0.8 million for the six months ended June 30, 2024, and 2023, respectively.

As of June 30, 2024, there was $ 7.1 million of total unrecognized compensation expense related to non-vested PSUs, which is being amortized through mid-2026.

There were no material changes to the outstanding and non-vested PSUs during the six months ended June 30, 2024.

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 of the applicable grant date 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 grant date.

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

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

Total compensation expense recorded for RSUs was $ 3.8 million and $ 3.4 million for the three months ended June 30, 2024, and 2023, respectively, and $ 7.5 million and $ 6.7 million for the six months ended June 30, 2024, and 2023, respectively.

As of June 30, 2024, there was $ 17.3 million of total unrecognized compensation expense related to non-vested RSUs, which is being amortized through mid-2026.

There were no material changes to the outstanding and non-vested RSUs during the six months ended June 30, 2024.

Subsequent to June 30, 2024, the Company settled RSUs upon the vesting of awards granted in previous years.

The Company and all 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 157,643 shares to satisfy income and payroll tax withholding obligations, the Company issued 349,528 shares of common stock in accordance with the terms of the applicable award agreements.

Additionally, the Company granted to employees a total of 461,411 RSUs with a grant date fair value of $ 20.1 million.

Director Shares

During the six months ended June 30, 2024, and 2023, the Company issued a total of 37,530 and 56,872 shares, respectively, of its common stock to its non-employee directors under the Equity Plan.

Shares issued to non-employee directors that were elected at the Company’s 2024 annual meeting of stockholders will fully vest on December 31, 2024, and shares issued to non-employee directors that were elected at the Company’s 2023 annual meeting of stockholders fully vested on December 31, 2023.

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 their 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 56,006 and 68,210 shares issued under the ESPP during the second quarters of 2024 and 2023, respectively.

Total proceeds to the Company for the issuance of these shares was $ 1.8 million during each of the six months ended June 30, 2024, and 2023.

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

Please refer to Note 10 - Compensation Plans in the 2023 Form 10-K for additional detail on the Company’s compensation plans.

Note 11 - Acquisitions

2024 Acquisition Activity

On June 27, 2024 , the Company entered into a Purchase and Sale Agreement (“XCL Acquisition Agreement”) with XCL AssetCo, LLC, XCL Marketing, LLC, Wasatch Water Logistics, LLC, XCL Resources, LLC, and XCL SandCo, LLC, (collectively referred to as the “XCL Sellers”) and, solely for purposes of ratifying certain representations and warranties, interim covenants and interpretative provisions, Northern Oil and Gas, Inc.

(“NOG”), pursuant to which the Company agreed to purchase all of the rights, titles and interests in the Uinta Basin oil and gas assets owned by the XCL Sellers (“Uinta Basin Assets”).

Pursuant to the terms of the XCL Acquisition Agreement and the Cooperation Agreement, as defined below, the Company expects to, immediately prior to the closing of the transactions contemplated by the XCL Acquisition Agreement, assign an undivided 20 percent interest in the XCL Acquisition Agreement to NOG and, at the closing, cause the XCL Sellers to directly assign an undivided 20 percent interest in certain of the Uinta Basin Assets to NOG.

The Company’s undivided 80 percent in the Uinta Basin Assets consists of approximately 37,200 net acres, and first quarter 2024 production of approximately 38,200 BOE per day.

Upon the closing of the transactions contemplated by the XCL Acquisition Agreement, (collectively, the “XCL Acquisition”), the XCL Sellers will receive aggregate consideration of $ 2.55 billion in cash (“XCL Purchase Price”), subject to certain customary purchase price adjustments set forth in the XCL Acquisition Agreement.

After the anticipated assignment to NOG of an undivided 20 percent interest in the XCL Acquisition Agreement, the Company’s proportionate share of the unadjusted XCL Purchase Price will be $ 2.04 billion.

Concurrently with the execution of the XCL Acquisition Agreement, the Company entered into an Acquisition and Cooperation Agreement (“Cooperation Agreement”) with NOG.

Pursuant to the terms of the Cooperation Agreement, the Company and NOG will cooperate in connection with the XCL Acquisition Agreement, the Company and NOG agree to certain interim covenants, NOG will pay for its proportionate share of the cash deposit and the XCL Purchase Price, and NOG will become party to, and take a 20 percent undivided interest in, the XCL Acquisition Agreement.

The XCL Acquisition is expected to close on October 1, 2024 , with an effective date of May 1, 2024 .

There can be no assurance that the XCL Acquisition will close on the expected closing date or at all.

The Company is currently evaluating the XCL Acquisition to determine if it meets the criteria of a business combination under Accounting Standards Codification Topic 805, Business Combinations .

Upon execution of the XCL Acquisition Agreement, the Company deposited with an escrow agent a cash deposit of $ 102.0 million equal to five percent of the Company’s undivided 80 percent of the XCL Purchase Price, which is presented in the acquisition deposit held in escrow line item on the accompanying balance sheets.

The Company expects to fund the balance of the XCL Purchase Price through a combination of cash on hand, borrowings under the revolving credit facility, and the issuance of the New Senior Notes discussed in Note 5 - Long-Term Debt.

In connection with entry into the XCL Acquisition Agreement, on June 27, 2024, the Company obtained firm commitments for up to $ 1.2 billion of senior unsecured 364-day bridge term loans (“Bridge Facility”) and a backstop to proposed amendments to the Credit Agreement for the purpose of financing a portion of the XCL Purchase Price and/or otherwise paying related fees, costs and expenses associated with the XCL Acquisition.

The Company paid $ 9.0 million in fees to secure the Bridge Facility, which are recorded in the prepaid expenses and other line item on the accompanying balance sheets as of June 30, 2024.

The Company did not draw on the Bridge Facility, and after issuance of the New Senior Notes on July 25, 2024 , the Company terminated the Bridge Facility.

The $ 9.0 million in fees previously paid will be recognized as interest expense during the third quarter of 2024.

Pursuant to the terms of the XCL Acquisition Agreement, the Company had the option to acquire certain additional assets adjacent to the Uinta Basin Assets (“Option Assets”) from the XCL Sellers for a purchase price equal to the XCL Sellers’ cost to acquire such assets plus the XCL Sellers’ related out of pocket expenses.

On August 5, 2024 , the Company exercised its option to acquire 80

percent of the Option Assets and NOG exercised its option to acquire the remaining 20 percent.

The Company’s 80 percent share of the total acquisition cost of the Option Assets is approximately $ 70.0 million and consists of approximately 26,100 net acres, and as of May 1, 2024 , approximately 1,360 BOE per day of production.

2023 Acquisition Activity

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 during the six months ended June 30, 2023, was $ 88.8 million.

Under authoritative accounting guidance, this transaction was accounted for as 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