Henry Hub—— 位於路易斯安那州南部的一個天然氣管道交割點，是作爲nyex天然氣期貨合同基準天然氣價格的地點。
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"初始生產"—油氣井投產時的產量測量。通常以最初三十天的產量來說明。
"—描述石油、凝析油和天然氣液體。
"MBbl一千桶wti原油、凝析油或天然氣液體。
"MBOE"—One thousand BOE.
"Mcf"—One thousand cubic feet of natural gas.
"MMBtu"—One million Btu.
"MMcf"—One million cubic feet of natural gas.
"Natural gas liquids"or"NGL"—Components of natural gas that are separated from the gas state in the form of liquids, which include propane, butanes and ethane, among others.
iii
"Net acres"—The percentage of gross acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100 acres owns 50 net acres.
"NYMEX"—The New York Mercantile Exchange.
"OPEC"—The Organization of the Petroleum Exporting Countries.
"Proved reserves"—The estimated quantities of oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.
"Realized prices"—Prices which reflect adjustments to the Benchmark Prices for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the delivery point without giving effect to our commodity derivative transactions.
"Reservoir"—A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is separate from other reservoirs.
"SEC" — The U.S. Securities and Exchange Commission.
"Securities Act" — The Securities Act of 1933, as amended.
"Senior Secured Credit Facility" — The Fifth Amended and Restated Credit Agreement among Vital Energy, Inc., as borrower, Wells Fargo Bank, N.A., as administrative agent, Vital Midstream Services, LLC, as guarantor, and the banks signatory thereto.
"Spacing"—The distance between wells producing from the same reservoir.
"Standardized measure"—Discounted future net cash flows estimated by applying realized prices to the estimated future production of year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period end costs to determine pre-tax cash inflows. Future income taxes, if applicable, are computed by applying the statutory tax rate to the excess of pre-tax cash inflows over our tax basis in the oil and natural gas properties. Future net cash inflows after income taxes are discounted using a 10% annual discount rate.
"WAHA"—Waha West Texas Natural Gas Index price as quoted in Platt's Inside FERC.
"Working interest"—The right granted to the lessee of a property to explore for and to produce and own crude oil, natural gas liquids, natural gas or other minerals. The working interest owners bear the exploration, development and operating costs on either a cash, penalty or carried basis.
"WTI"—West Texas Intermediate grade crude oil. A light (low density) and sweet (low sulfur) crude oil, used as a pricing benchmark for NYMEX oil futures contracts.
Various statements contained in or incorporated by reference into this Quarterly Report are forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Exchange Act. These forward-looking statements include statements, projections and estimates concerning our operations, performance, business strategy, oil, NGL and natural gas reserves, drilling program capital expenditures, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, derivative activities and potential financing. Forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "could," "may," "will," "foresee," "plan," "goal," "should," "intend," "pursue," "target," "continue," "suggest" or the negative thereof or other variations thereof or other words that convey the uncertainty of future events or outcomes. Forward-looking statements are not guarantees of performance. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Among the factors that significantly impact our business and could impact our business in the future are:
•the volatility of oil, NGL and natural gas prices, including our area of operation in the Permian Basin;
•continuing and/or worsening inflationary pressures and associated changes in monetary policy that may cause costs to rise;
•changes in domestic and global production, supply and demand for oil, NGL and natural gas, and actions by the Organization of the Petroleum Exporting Countries members and other oil exporting nations ("OPEC+");
•our ability to execute our strategies, including our ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to our financial results and to successfully integrate acquired businesses, assets and properties;
•our ability to realize the anticipated benefits of acquisitions, including effectively managing our expanded acreage;
•reduced demand due to shifting market perception towards the oil and gas industry;
•our ability to optimize spacing, drilling and completions techniques in order to maximize our rate of return, cash flows from operations and stockholder value;
•the ongoing instability and uncertainty in the United States ("U.S.") and international energy, financial and consumer markets that could adversely affect the liquidity available to us and our customers and the demand for commodities, including oil, NGL and natural gas;
•competition in the oil and gas industry;
•our ability to discover, estimate, develop and replace oil, NGL and natural gas reserves and inventory;
•insufficient transportation capacity in the Permian Basin and challenges associated with such constraint, and the availability and costs of sufficient gathering, processing, storage and export capacity;
•a decrease in production levels which may impair our ability to meet our contractual obligations and ability to retain our leases;
•risks associated with the uncertainty of potential drilling locations and plans to drill in the future;
•the inability of significant customers to meet their obligations;
•revisions to our reserve estimates as a result of changes in commodity prices, decline curves and other uncertainties;
•the availability and costs of drilling and production equipment, supplies, labor and oil and natural gas processing and other services;
•the effects, duration and other implications of, including government response to, widespread epidemic or pandemic diseases;
•ongoing war and political instability in Ukraine, Israel and the Middle East and the effects of such conflicts on the global hydrocarbon market and supply chains;
•loss of senior management or other key personnel;
•risks related to the geographic concentration of our assets;
•capital requirements for our operations and projects;
•our ability to hedge commercial risk, including commodity price volatility, and regulations that affect our ability to hedge such risks;
•our ability to continue to maintain the borrowing capacity under our Senior Secured Credit Facility (as defined herein) or access other means of obtaining capital and liquidity, especially during periods of sustained low commodity prices;
•our ability to comply with restrictions contained in our debt agreements, including our Senior Secured Credit Facility and the indentures governing our senior unsecured notes, as well as debt that could be incurred in the future;
•our ability to generate sufficient cash to service our indebtedness, fund our capital requirements and generate future profits;
•drilling and operating risks, including risks related to hydraulic fracturing activities and those related to inclement or extreme weather, impacting our ability to produce existing wells and/or drill and complete new wells over an extended period of time;
•the impact of legislation or regulatory initiatives intended to address induced seismicity on our ability to conduct our operations;
•U.S. and international economic conditions and legal, tax, political and administrative developments, including the effects of energy, trade and environmental policies and existing and future laws and government regulations as well as volatility in the political, legal and regulatory environments as a result of the U.S. presidential election;
•our ability to comply with federal, state and local regulatory requirements;
•the impact of repurchases, if any, of securities from time to time;
•our ability to maintain the health and safety of, as well as recruit and retain, qualified personnel necessary to operate our business;
•evolving cybersecurity risks such as those involving unauthorized access, denial-of-service attacks, third-party service provider failures, malicious software, data privacy breaches by employees, insiders or others with authorized access, cyber or phishing attacks, ransomware, social engineering, physical breaches or other actions;
•our ability to secure or generate sufficient electricity to produce our wells without limitations; and
•our belief that the outcome of any legal proceedings will not materially affect our financial results and operations.
Reserve engineering is a process of estimating underground accumulations of oil, NGL and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify upward or downward revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil, NGL and natural gas that are ultimately recovered.
These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should therefore be considered in light of various factors, including those set forth under "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report, and under "Item 1A. Risk Factors," in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the "2023 Annual Report") and those set forth from time to time in our other filings with the SEC. These documents are available through our website or through the SEC's Electronic Data
Gathering and Analysis Retrieval system at https://www.sec.gov. In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report, or if earlier, as of the date they were made.
Should one or more of the risks or uncertainties described herein occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Quarterly Report.
Preferred stock, $0.01 par value, 50,000,000 shares authorized, and zero and 595,104 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively
—
6
Common stock, $0.01 par value, 80,000,000 shares authorized, and 38,168,725 and 35,413,551 issued and outstanding as of September 30, 2024 and December 31, 2023, respectively
382
354
Additional paid-in capital
3,819,118
3,733,775
Accumulated deficit
(763,659)
(948,878)
Total stockholders' equity
3,055,841
2,785,257
Total liabilities and stockholders' equity
$
6,251,011
$
5,149,581
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 1—Organization and basis of presentation
Organization
Vital Energy, Inc. ("Vital Energy" or the "Company"), together with its wholly-owned subsidiaries, is an independent energy company focused on the acquisition, exploration and development of oil and natural gas properties in the Permian Basin of West Texas. The Company has identified one operating segment: exploration and production. In these notes, the "Company" refers to Vital Energy and its subsidiaries collectively, unless the context indicates otherwise. All amounts, dollars and percentages presented in these unaudited consolidated financial statements and the related notes are rounded and, therefore, approximate.
Basis of presentation
The unaudited consolidated financial statements were derived from the historical accounting records of the Company and reflect the historical financial position, results of operations and cash flows for the periods described herein. The unaudited consolidated financial statements have been prepared in accordance with GAAP. All material intercompany transactions and account balances have been eliminated in the consolidation of accounts.
The unaudited consolidated financial statements have not been audited by the Company's independent registered public accounting firm, except that the consolidated balance sheet as of December 31, 2023 is derived from the Company's audited consolidated financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all necessary adjustments to present fairly the Company's interim financial position, results of operations and cash flows. All adjustments are of a recurring nature unless otherwise disclosed herein.
Certain disclosures have been condensed or omitted from the unaudited consolidated financial statements. Accordingly, the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2023 Annual Report.
Significant accounting policies
There have been no material changes in the Company's significant accounting policies during the nine months ended September 30, 2024.
As discussed in Note 2 in the 2023 Annual Report, the Company uses the full cost method of accounting for its oil and natural gas properties. This accounting method requires a quarterly full cost ceiling test. The full cost ceiling is based principally on the estimated future net cash flows from proved oil, NGL and natural gas reserves, which exclude the effect of the Company's commodity derivative transactions, discounted at 10%. The SEC guidelines require companies to use the unweighted arithmetic average first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period, which are then adjusted for quality, certain transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the delivery point without giving effect to the Company's commodity derivative transactions. These prices are utilized to calculate the estimated future net cash flows in the full cost ceiling calculation. Additional significant inputs included in the calculation of discounted cash flows used in the full cost ceiling calculation include the Company's estimate of operating and development costs, anticipated production of proved reserves and other relevant data. In the event the unamortized cost of evaluated oil and natural gas properties being depleted exceeds the full cost ceiling, as defined by the SEC, the excess is expensed in the period such excess occurs. Once incurred, a write-down of oil and natural gas properties is not reversible.
The unamortized cost of evaluated oil and natural gas properties being depleted did not exceed the full cost ceiling as of September 30, 2024 or September 30, 2023. As such, no full cost ceiling impairments were recorded during the nine months ending September 30, 2024 and September 30, 2023. There are numerous uncertainties inherent in the estimation of proved reserves and accounting for oil and natural gas properties in future periods. In addition to commodity prices, our production rates, levels of proved reserves, future development costs, changes in oilfield service costs, potential recognition of additional proved undeveloped reserves, transfers of unevaluated properties and other factors will determine the Company's actual ceiling test calculation and impairment analysis in future periods. As a result, the Company could incur a material non-cash full cost ceiling impairment in future quarters, which would have an adverse effect on its statement of operations.
See Note 2 in the 2023 Annual Report for further discussion of significant accounting policies.
Condensed notes to the consolidated financial statements
(Unaudited)
Use of estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ.
See Note 2 in the 2023 Annual Report for further information regarding the use of estimates and assumptions.
Note 2—New accounting standards
The Company considered the applicability and impact of all Accounting Standards Updates ("ASU") issued by the Financial Accounting Standards Board ("FASB") to the Accounting Standards Codification. ASUs not discussed were assessed and determined to be either not applicable, the effects of adoption are not expected to be material or are clarifications of ASUs previously disclosed. There were no new material ASUs adopted during the nine months ended September 30, 2024. See below for discussion of ASUs not yet adopted.
Accounting pronouncements not yet adopted
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which sets forth improvements to the current segment disclosure requirements in accordance with Topic 280 "Segment Reporting," including clarifying that entities with a single reportable segment are subject to both new and existing segment reporting requirements. ASU 2023-07 will be effective retrospectively for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. Early adoption is permitted. Adoption of this ASU will result in additional disclosure, but will not impact the Company’s consolidated financial position, results of operations or cash flows.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires more detailed tax disclosures, including disaggregated information about an entity's effective tax rate reconciliation as well as expanded information on income taxes paid by jurisdiction. The amendments in this accounting standard are effective for fiscal years beginning after December 15, 2024, on a prospective basis. Early adoption is permitted. Adoption of this ASU will result in additional disclosure, but will not impact the Company’s consolidated financial position, results of operations or cash flows.
Note 3—Acquisitions
2024 acquisitions
Point Acquisition
On September 20, 2024 (the "Point Closing Date"), the Company, together with Northern Oil and Gas, Inc. ("NOG"), purchased certain oil and natural gas properties located in the Delaware Basin with an effective date of April 1, 2024 from Point Energy Partners Petroleum, LLC, Point Energy Partners Operating, LLC, Point Energy Partners Water, LLC and Point Energy Partners Royalty, LLC (collectively, “Point”) for an aggregate purchase price of $1.0 billion in cash, including closing adjustments (the "Point Acquisition"). The Company agreed to purchase 80% of the acquired assets, consisting of approximately 16,300 net acres in Ward and Winkler Counties, and will operate the assets, and NOG agreed to purchase the remaining 20% of the assets. The Company's portion of the aggregate preliminary purchase price was $833.8 million, which consisted of (i) $816.1 million in cash and (ii) $17.7 million of estimated transaction-related expenses. The purchase price is subject to additional post-closing adjustments. Based on the relative fair values on the Point Closing Date, the acquired assets and liabilities assumed were allocated as follows: (i) $791.7 million to evaluated properties, (ii) $52.7 million to unevaluated properties, (iii) $5.2 million to revenue suspense liabilities, (iv) $2.9 million to asset retirement obligation liabilities and (v) $2.5 million to property tax liabilities. The Point Acquisition was accounted for as an asset acquisition, as substantially all the gross assets acquired are concentrated in a group of similar identifiable assets.
PEP Acquisition
On February 2, 2024 (the "PEP Closing Date"), the Company purchased additional working interests in producing properties associated with the Henry Acquisition (as defined herein), with an effective date of August 1, 2023 (the "PEP Acquisition")
Condensed notes to the consolidated financial statements
(Unaudited)
through PEP Henry Production Partners LP, PEP HPP Jubilee SPV LP, PEP PEOF Dropkick SPV, LLC, PEP HPP Dropkick SPV LP and HPP Acorn SPV LP. The aggregate purchase price of $77.6 million consisted of (i) 878,690 shares of the Company's common stock, par value $0.01 per share ("Common Stock") based upon the share price as of the PEP Closing Date, (ii) 980,272 shares of the Company's 2.0% Cumulative Mandatorily Convertible Series A Preferred Stock, par value $0.01 per share ("Preferred Stock") based upon the share price as of the PEP Closing Date, (iii) $1.8 million cash consideration received for closing adjustments and (iv) $0.6 million in transaction-related expenses, inclusive of post-closing adjustments. The PEP Acquisition was accounted for as an asset acquisition, as substantially all the gross assets acquired are concentrated in a group of similar identifiable assets. The 980,272 shares of Preferred Stock were subsequently converted to an equal number of shares of Common Stock on May 23, 2024. See Note 5 for further discussion of the Preferred Stock conversion.
The "Henry Acquisition," which closed on November 5, 2023, consisted of the purchase of certain oil and natural gas properties in the Midland and Delaware basins, and was accounted for as a business combination. See Note 4 in the 2023 Annual Report for additional discussion of the Henry Acquisition and the Company's 2023 asset acquisitions.
2023 acquisitions
Forge Acquisition
On June 30, 2023, the Company purchased certain oil and natural gas properties located in the Delaware Basin, including approximately 24,000 net acres in Pecos, Reeves and Ward Counties, and related assets and contracts, with an effective date of March 1, 2023 from Forge Energy II Delaware, LLC. The aggregate purchase price of $397.5 million consisted of (i) $389.9 million in cash and (ii) $7.6 million in transaction-related expenses.
Driftwood Acquisition
On April 3, 2023 (the "Driftwood Closing Date"), the Company purchased certain oil and natural gas properties in the Midland Basin, including approximately 11,200 net acres located in Upton and Reagan Counties and related assets and contracts, inclusive of derivatives, with an effective date of January 1, 2023 (the "Driftwood Acquisition") from Driftwood Energy Operating, LLC. The aggregate purchase price of $201.7 million consisted of (i) $117.4 million of cash, (ii) 1,578,948 shares of Common Stock based upon the share price as of the Driftwood Closing Date and (iii) $4.2 million in transaction-related expenses.
During the second quarter of 2023, the Company acquired additional interests in producing properties associated with the Driftwood Acquisition through additional sellers that exercised their "tag-along" sales rights, for total cash consideration of $8.6 million, excluding customary purchase price adjustments.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 4—Debt
Long-term debt, net
The following table presents the Company's long-term debt and unamortized debt issuance costs, discounts and premiums included in "Long-term debt, net" on the consolidated balance sheets as of the dates presented:
(1)Unamortized debt issuance costs related to the Senior Secured Credit Facility of $13.3 million and $14.1 million as of September 30, 2024 and December 31, 2023, respectively, are included in "Other noncurrent assets, net" on the consolidated balance sheets.
Senior Secured Credit Facility
On September 20, 2024, in connection with the closing of the Point Acquisition, the Company entered into the Thirteenth Amendment to the Senior Secured Credit Facility (the "Thirteenth Amendment"). The Thirteenth Amendment, among other things, increased the aggregate elected commitment to $1.5 billion under the Senior Secured Credit Facility. See Note 3 for additional discussion of the Point Acquisition.
As of September 30, 2024, the Senior Secured Credit Facility, which matures on September 13, 2027, had a maximum credit amount of $3.0 billion, a borrowing base and an aggregate elected commitment of $1.5 billion, and an outstanding balance of $860.0 million subject to a weighted-average interest rate of 8.093%. The Senior Secured Credit Facility contains both financial and non-financial covenants, all of which the Company was in compliance with for all periods presented. Additionally, the Senior Secured Credit Facility provides for the issuance of letters of credit, limited to the lesser of total capacity or $80.0 million. As of September 30, 2024 and December 31, 2023, the Company had no letters of credit outstanding under the Senior Secured Credit Facility. For additional information see Note 7 in the 2023 Annual Report. See Note 14 for discussion of additional borrowings and repayments on the Senior Secured Credit Facility subsequent to September 30, 2024.
March 2032 Notes
On March 28, 2024, the Company completed an offering of $800.0 million in aggregate principal amount of 7.875% senior unsecured notes due 2032 (the "Initial March 2032 Notes") for net proceeds of $784.8 million. The net proceeds from this offering and the Tack-On March 2032 Notes (defined below) were used to (i) extinguish in full the Company's outstanding 10.125% senior unsecured notes due 2028 (the "January 2028 Notes"), (ii) reduce the outstanding principal amount of the 9.750% senior unsecured notes due 2030 (the "September 2030 Notes") and (iii) repay a portion of the outstanding borrowings on the Senior Secured Credit Facility. On March 29, 2024, the Company settled a cash tender offer on the January 2028 Notes for an aggregate principal amount outstanding of $431.2 million.
On April 3, 2024, the Company completed an offering of an additional $200.0 million in aggregate principal amount of 7.875% senior unsecured notes due 2032 (the "Tack-On March 2032 Notes," and, together with the Initial March 2032 Notes, the "March 2032 Notes"), at 100.750% of par, under the same indenture dated as of March 28, 2024 for net proceeds of approximately $198.7 million. On April 3, 2024, the Company settled a cash tender offer on the September 2030 Notes of
Condensed notes to the consolidated financial statements
(Unaudited)
$197.6 million and on April 29, 2024, the Company redeemed the remaining principal amount outstanding on the January 2028 Notes of $269.2 million at a redemption price of 105.063%.
Interest for the March 2032 Notes is payable semi-annually, in cash in arrears on April 15 and October 15 of each year, commencing October 15, 2024 with interest from closing to that date. The terms of the Company's March 2032 Notes include covenants, which are in addition to covenants in the Senior Secured Credit Facility that limit the Company's ability to incur indebtedness, make restricted payments, grant liens and dispose of assets. The March 2032 Notes are fully and unconditionally guaranteed on a senior unsecured basis by Vital Midstream Services, LLC and certain of the Company's future restricted subsidiaries, subject to certain automatic customary releases, including the sale, disposition or transfer of all of the capital stock or of all or substantially all of the assets of a subsidiary guarantor to one or more persons that are not the Company or a restricted subsidiary, exercise of legal defeasance or covenant defeasance options or satisfaction and discharge of the applicable indenture, designation of a subsidiary guarantor as a non-guarantor restricted subsidiary or as an unrestricted subsidiary in accordance with the applicable indenture, release from guarantee under the Senior Secured Credit Facility, or liquidation or dissolution.
The following table presents the components of the Company's loss on extinguishment of debt during the period presented:
(1)Amounts are included in "Extinguishment of debt" in cash flows from financing activities on the consolidated statements of cash flows.
(2)Amounts are included in "Loss on extinguishment of debt, net" on the consolidated statements of operations.
No loss on extinguishment of debt was recorded during the three months ended September 30, 2024.
Note 5—Stockholders' equity
Equity offering
On September 19, 2023, the Company completed the sale of 2,750,000 shares of its common stock for net proceeds of $140.0 million, after underwriting discounts, commissions and offering expenses. On September 29, 2023, the underwriters exercised their option to purchase an additional 412,500 shares of common stock, which resulted in net proceeds to the Company of $21.0 million, after underwriting discounts, commissions and offering expenses.
Equity transactions related to acquisitions of oil and natural gas properties
On May 22, 2024, in connection with the final settlement of the Maple Acquisition (as defined herein), 76,166 shares of the Company's common stock held in escrow were cancelled and returned to the Company's pool of authorized and unissued common stock. The "Maple Acquisition," which closed on October 31, 2023, consisted of the purchase of certain oil and natural gas properties in the Delaware Basin. See Note 4 in the 2023 Annual Report for additional discussion of the Maple Acquisition.
Preferred Stock
On May 23, 2024, upon recommendation of the Company's board of directors, stockholders approved the conversion of the remaining 1,575,376 outstanding shares of Preferred Stock to an equal number of shares of common stock. The conversion occurred on June 4, 2024. As a result of the conversion, the Company paid a dividend of $0.3 million for the period the Preferred Stock was outstanding during the second quarter of 2024.
Condensed notes to the consolidated financial statements
(Unaudited)
Share repurchase program
On May 31, 2022, the Company's board of directors authorized a $200.0 million share repurchase program. The repurchase program commenced in May 2022 and was originally set to expire in May 2024. On May 23, 2024, the board of directors approved an amendment to the share repurchase program to (i) increase the shares of Common Stock which the Company may purchase to a total aggregate authorization of $237.3 million, and (ii) extend the expiration date to May 22, 2026. Share repurchases under the program may be made through a variety of methods, which may include open market purchases, including under plans complying with Rule 10b5-1 of the Exchange Act, and privately negotiated transactions. The timing and actual number of share repurchases will depend upon several factors, including market conditions, business conditions, the trading price of the Company's common stock and the nature of other investment opportunities available to the Company. No shares were repurchased during the nine months ended September 30, 2024 and 2023.
Note 6—Equity Incentive Plan
The Vital Energy, Inc. Omnibus Equity Incentive Plan (the "Equity Incentive Plan") provides for the granting of incentive awards in the form of restricted stock awards, stock option awards, performance share awards, performance unit awards, phantom unit awards and other awards. On May 23, 2024, the Company's stockholders approved an amendment and restatement to the Equity Incentive Plan, which increased the maximum number of shares of the Company's common stock issuable under the Equity Incentive Plan from 2,432,500 to 3,332,500 shares.
See Note 9 in the 2023 Annual Report for additional discussion of the Company's equity-based compensation awards.
The following table presents activity for equity-based compensation awards for the nine months ended September 30, 2024:
(1)The performance unit awards granted on March 9, 2021 had a performance period of January 1, 2021 to December 31, 2023 and, as their market and performance criteria were satisfied, resulted in a 145.83% payout, or 120,297 units. As such, the granted awards vested and were paid out in cash on March 8, 2024 at $50.38 per unit based on the Company's closing stock price on the vesting date.
(2)On February 20, 2024 and April 1, 2024, the Company granted performance unit awards with a performance period of January 1, 2024 through December 31, 2026. The market criteria consists of: (i) relative total shareholder return comparing the Company's shareholder return to the shareholder return of the exploration and production companies listed in the Russell 2000 Index and (ii) absolute shareholder return. The performance criteria for these awards consists of: (i) earnings before interest, taxes, depreciation, amortization and exploration expense and three-year total debt reduction, (ii) growth in inventory and (iii) emissions reductions. Any units earned are expected to be paid in cash during the first quarter following the completion of the requisite service period, based on the achievement of market and performance criteria, and the payout can range from 0% to 225%.
As of September 30, 2024, total unrecognized cost related to equity-based compensation awards was $28.5 million, of which $4.0 million was attributable to liability awards which will be settled in cash rather than shares. Such cost will be recognized on a straight-line basis over an expected weighted-average period of 1.95 years.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 7—Net income per common share
Basic net income per common share is computed by first subtracting preferred stock dividends from net income to arrive at net income available to common stockholders, and then dividing net income available to common stockholders by the basic weighted-average common shares outstanding for the period. Diluted net income per common share is computed by dividing net income by the diluted weighted average common shares outstanding for the period, which reflects the potential dilution of preferred stock and non-vested equity-based compensation awards. See Notes 8 and 9 in the 2023 Annual Report for additional discussion of the Company's preferred stock and equity-based compensation awards, respectively.
The following table reflects the calculations of basic and diluted (i) weighted-average common shares outstanding and (ii) net income per common share for the periods presented:
Three months ended September 30,
Nine months ended September 30,
(in thousands, except for per share data)
2024
2023
2024
2023
Net income
$
215,300
$
4,893
$
185,871
$
413,644
Less: Preferred Stock dividends
—
—
(652)
—
Net income available to common stockholders
$
215,300
$
4,893
$
185,219
$
413,644
Weighted-average common shares outstanding:
Basic
37,459
18,455
36,472
17,646
Dilutive non-vested restricted stock awards
102
112
108
93
Dilutive non-vested performance share awards(1)
19
2
13
1
Dilutive preferred stock
—
—
777
—
Diluted
37,580
18,569
37,370
17,740
Net income per common share:
Basic
$
5.75
$
0.27
$
5.08
$
23.44
Diluted
$
5.73
$
0.26
$
4.97
$
23.32
Anti-dilutive weighted-average common shares outstanding(2):
(1)The dilutive effect of the non-vested performance shares for the three and nine months ended September 30, 2023 and 2024 were calculated assuming each respective performance period ended on September 30, 2023 and 2024.
(2)Shares excluded from the diluted net income per common share calculation because their effect would be anti-dilutive.
Note 8—Derivatives
The Company has two types of derivative instruments as of September 30, 2024: (i) commodity derivatives and (ii) a contingent consideration derivative. See Note 9 for discussion of fair value measurement of derivatives on a recurring basis and Note 14 for discussion of derivatives subsequent events. The Company's derivatives were not designated as hedges for accounting purposes, and the Company does not enter into such instruments for speculative trading purposes. Accordingly, the changes in derivative fair values are recognized in "Gain (loss) on derivatives, net" under "Non-operating income (expense)" on the consolidated statements of operations.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table summarizes components of the Company's gain (loss) on derivatives, net by type of derivative instrument for the periods presented:
Three months ended September 30,
Nine months ended September 30,
(in thousands)
2024
2023
2024
2023
Commodity
$
237,103
$
(138,946)
$
90,693
$
(137,554)
Contingent consideration
(10,550)
3,625
(8,629)
4,679
Gain (loss) on derivatives, net
$
226,553
$
(135,321)
$
82,064
$
(132,875)
Commodity
Due to the inherent volatility in oil, NGL and natural gas prices and the sometimes wide pricing differentials between where the Company produces and where the Company sells such commodities, the Company engages in commodity derivative transactions, such as puts, swaps, collars and basis swaps, to hedge price risk associated with a portion of the Company's anticipated sales volumes. By removing a portion of the price volatility associated with future sales volumes, the Company expects to mitigate, but not eliminate, the potential effects of variability in cash flows from operations. During the nine months ended September 30, 2024, the Company’s derivatives were settled based on reported prices on commodity exchanges, with (i) oil derivatives settled based on WTI NYMEX, Argus WTI Midland and Argus WTI Formula Basis pricing, (ii) NGL derivatives settled based on Mont Belvieu OPIS pricing and (iii) natural gas derivatives settled based on Henry Hub NYMEX and Waha Inside FERC pricing.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table summarizes open commodity derivative positions as of September 30, 2024, for commodity derivatives that were entered into through September 30, 2024, for the settlement periods presented:
Remaining Year 2024
Year 2025
Year 2026
Oil:
WTI NYMEX - Swaps:
Volume (Bbl)
4,957,200
15,410,000
4,005,000
Weighted-average price ($/Bbl)
$
76.71
$
74.85
$
71.42
WTI NYMEX - Three-way Collars:
Volume (Bbl)
48,500
—
—
Weighted-average sold put price ($/Bbl)
$
50.00
$
—
$
—
Weighted-average floor price ($/Bbl)
$
66.45
$
—
$
—
Weighted-average ceiling price ($/Bbl)
$
87.05
$
—
$
—
Argus WTI Midland to Argus WTI Formula Basis - Basis Swaps:
Volume (Bbl)
65,700
—
—
Weighted-average differential ($/Bbl)
$
0.12
$
—
$
—
Natural gas:
Henry Hub NYMEX - Swaps:
Volume (MMBtu)
6,558,250
—
—
Weighted-average price ($/MMBtu)
$
3.47
$
—
$
—
Waha Inside FERC - Swaps:
Volume (MMBtu)
—
35,405,000
33,580,000
Weighted-average price ($/MMBtu)
$
—
$
2.34
$
2.53
Henry Hub NYMEX - Collars:
Volume (MMBtu)
149,511
—
—
Weighted-average floor price ($/MMBtu)
$
3.40
$
—
$
—
Weighted-average ceiling price ($/MMBtu)
$
6.12
$
—
$
—
Waha Inside FERC to Henry Hub NYMEX - Basis Swaps:
Volume (MMBtu)
6,707,761
—
—
Weighted-average differential ($/MMBtu)
$
(0.74)
$
—
$
—
Contingent consideration
On May 7, 2021, the Company entered into a purchase and sale agreement (the "Sixth Street PSA"), to sell 37.5% of the Company's working interest in certain producing wellbores and the related properties primarily located within Glasscock and Reagan Counties, Texas. The Sixth Street PSA provides for potential contingent payments to be paid to the Company if certain cash flow targets are met related to divested oil and natural gas property operations (the "Sixth Street Contingent Consideration"). The Sixth Street Contingent Consideration provides the Company with the right to receive up to a maximum of $93.7 million in additional cash consideration, comprised of potential quarterly payments through June 2027 totaling up to $38.7 million and a potential balloon payment of $55.0 million in June 2027. As of September 30, 2024, the Company had received life-to-date contingent consideration payments of $4.3 million, with maximum remaining potential cash consideration totaling $80.4 million. The estimated fair value of the Sixth Street Contingent Consideration was $22.5 million as of September 30, 2024 and $31.1 million as of December 31, 2023.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 9—Fair value measurements
See the beginning of Note 12 in the 2023 Annual Report for information about the fair value hierarchy levels.
Fair value measurement on a recurring basis
See Note 8 for further discussion of the Company's derivatives.
Balance sheet presentation
The following tables present the Company's derivatives by (i) balance sheet classification, (ii) derivative type and (iii) fair value hierarchy level, and provide a total, on a gross basis and a net basis reflected in "Derivatives" on the consolidated balance sheets as of the dates presented:
September 30, 2024
(in thousands)
Level 1
Level 2
Level 3
Total gross fair value
Amounts offset
Net fair value presented on the consolidated balance sheets
Assets:
Current:
Commodity
$
—
$
147,720
$
—
$
147,720
$
(2,461)
$
145,259
Contingent consideration
—
—
815
815
—
815
Noncurrent:
Commodity
—
54,514
—
54,514
(531)
53,983
Contingent consideration
—
—
21,662
21,662
—
21,662
Liabilities:
Current:
Commodity
—
(2,461)
—
(2,461)
2,461
—
Noncurrent:
Commodity
—
(531)
—
(531)
531
—
Net derivative asset positions
$
—
$
199,242
$
22,477
$
221,719
$
—
$
221,719
December 31, 2023
(in thousands)
Level 1
Level 2
Level 3
Total gross fair value
Amounts offset
Net fair value presented on the consolidated balance sheets
Assets:
Current:
Commodity
$
—
$
106,067
$
—
$
106,067
$
(9,032)
$
97,035
Contingent consideration
—
—
2,301
2,301
—
2,301
Noncurrent:
Commodity
—
22,266
—
22,266
—
22,266
Contingent consideration
—
—
28,805
28,805
—
28,805
Liabilities:
Current:
Commodity
—
(9,032)
—
(9,032)
9,032
—
Net derivative asset positions
$
—
$
119,301
$
31,106
$
150,407
$
—
$
150,407
See Note 12 in the 2023 Annual Report for discussion of the significant Level 2 inputs used in the fair value mark-to-market analysis of commodity and contingent consideration derivatives. The Company reviewed the third-party specialist's valuations
Condensed notes to the consolidated financial statements
(Unaudited)
of commodity and contingent consideration derivatives, including the related inputs, and analyzed changes in fair values between reporting dates.
The Sixth Street Contingent Consideration was categorized as Level 3 of the fair value hierarchy, as the Company utilized its own cash flow projections along with a risk-adjusted discount rate generated by a third-party valuation specialist to determine the valuation. The Company reviewed the third-party specialist's valuation, including the related inputs, and analyzed changes in fair values between the divestiture closing date and the reporting dates. The fair value of the Sixth Street Contingent Consideration was recorded as part of the basis in the oil and natural gas properties divested and as a contingent consideration asset. At each quarterly reporting period, the Company remeasures contingent consideration with the change in fair values recognized in "Gain (loss) on derivatives, net" under "Non-operating income (expense)" on the consolidated statement of operations. See Note 8 for additional discussion of the Sixth Street Contingent Consideration.
The following table summarizes the changes in contingent consideration derivatives classified as Level 3 measurements for the periods presented:
Three months ended September 30,
Nine months ended September 30,
(in thousands)
2024
2023
2024
2023
Balance of Level 3 at beginning of period
$
33,027
$
26,239
$
31,106
$
26,640
Change in Sixth Street Contingent Consideration fair value
(1)For the nine months ended September 30, 2024 and 2023, any settlements are included in "Other, net" in cash flows from investing activities on the consolidated statements of cash flows.
Items not accounted for at fair value
The carrying amounts reported on the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued capital expenditures, undistributed revenue and royalties and other accrued assets and liabilities approximate their fair values.
The Company has not elected to account for its debt instruments at fair value. The following table presents the carrying amounts and fair values of the Company's debt as of the dates presented:
(1)Amounts presented do not include issuance premiums or discounts.
(2)The fair values of the outstanding notes were determined using the Level 2 fair value hierarchy quoted market prices for each respective instrument as of September 30, 2024 and December 31, 2023. The fair values of the outstanding debt under the Senior Secured Credit Facility approximated their carrying value based on short-term floating interest rates available to the Company at the time.
Note 10—Commitments and contingencies
From time to time, the Company is subject to various legal proceedings arising in the ordinary course of business, including those that arise from interpretation of federal, state and local laws and regulations affecting the oil and natural gas industry, personal injury claims, title disputes, royalty disputes, contract claims, contamination claims relating to oil and natural gas exploration and development and environmental claims, including claims involving assets previously sold to third parties and no longer part of the Company's current operations. The Company may not have insurance coverage for some of these proceedings and failure to comply with applicable laws and regulations can result in substantial penalties. While many of these matters involve inherent uncertainty, as of the date hereof, the Company believes that any such legal proceedings, if ultimately decided adversely, will not have a material adverse effect on the Company's business, financial position, results of operations or liquidity.
Condensed notes to the consolidated financial statements
(Unaudited)
The Company has committed to deliver, for sale or transportation, fixed volumes of product under certain contractual arrangements that specify the delivery of a fixed and determinable quantity. If not fulfilled, the Company is subject to firm transportation payments on excess pipeline capacity and other contractual penalties. These commitments are normal and customary for the Company's business. In certain instances, the Company has used spot market purchases to meet its commitments in certain locations or due to favorable pricing. As of September 30, 2024, future firm sale and transportation commitments of $99.3 million are expected to be satisfied and, as such, are not recorded as a liability on the consolidated balance sheet.
The Company has committed to take delivery of processed sand, which is utilized in the Company's completions activities, at specified prices through 2026. As of September 30, 2024, future purchase commitments under the terms of these agreements are estimated to be $42.3 million,
Note 11—Supplemental cash flow and non-cash information
The following table presents supplemental cash flow and non-cash information for the periods presented:
Nine months ended September 30,
(in thousands)
2024
2023
Supplemental cash flow information:
Cash paid for interest, net of $1,181 and $1,827 of capitalized interest, respectively
$
111,798
$
109,795
Supplemental non-cash operating information:
Right-of-use assets obtained in exchange for operating lease liabilities(1)
$
47,693
$
125,940
Supplemental non-cash investing information:
Change in accrued capital expenditures
$
17,040
$
25,771
Equity issued for acquisition of oil and natural gas properties(2)
$
74,928
$
80,068
Liabilities assumed in acquisitions of oil and natural gas properties(2)
(1)See Note 5 in the 2023 Annual Report for additional discussion of the Company's leases.
(2)See Note 3 for additional discussion of the Company's acquisitions.
Note 12—Income taxes
The following table presents income tax benefit (expense) for the periods presented:
Three months ended September 30,
Nine months ended September 30,
(in thousands)
2024
2023
2024
2023
Current
$
(469)
$
(464)
$
(2,706)
$
(2,298)
Deferred
(59,855)
(1,909)
(52,278)
220,149
Income tax benefit (expense)
$
(60,324)
$
(2,373)
$
(54,984)
$
217,851
The Company estimates its annual effective tax rate (“AETR”) in recording its interim quarterly income tax provision for the various jurisdictions in which it operates. The tax effects of statutory rate changes, significant unusual or infrequently occurring items, and certain changes in the assessment of the realizability of deferred tax assets are excluded from the determination of its estimated AETR and are recognized as discrete items in the quarter in which they occur. The Company's effective tax rate during the three and nine months ended September 30, 2024 was 21.89% and 22.83%, respectively, and is the result of projecting current and deferred U.S. income and Texas Franchise taxes, including the impact of discrete items and permanent differences. Current income tax expense is primarily attributable to Texas Franchise tax.
During the nine months ended September 30, 2023, the Company determined there was sufficient positive evidence to conclude that it is more likely than not its federal deferred tax assets are realizable. Therefore, the Company reduced its valuation allowance accordingly and recorded a discrete quarterly benefit of $222.2 million during the second quarter of 2023. The balance of the valuation allowance reversal was reflected as part of the Company's estimated annualized effective tax rate with respect to prior year projected earnings.
Condensed notes to the consolidated financial statements
(Unaudited)
The Company’s deferred tax assets are primarily the result of U.S. net operating loss carryforwards. As of September 30, 2024, the Company had U.S. net operating loss carryforwards totaling $843.4 million, of which $476.6 million will begin to expire in 2035 and $366.8 million will not expire but may be limited in future periods, and state of Oklahoma net operating loss carryforwards totaling $507.9 million, of which $18.8 million is subject to expiration beginning in 2033. As of September 30, 2024, the Company continues to maintain a full valuation allowance against its state of Oklahoma deferred tax assets.
If the Company were to experience an "ownership change," as determined under Section 382 of the Internal Revenue Code, the Company's ability to offset taxable income, arising after the ownership change with net operating losses and interest expense carryforwards arising prior to the ownership change, could be significantly limited. Based on information available as of September 30, 2024, no such ownership change has occurred.
The Company has closed two acquisitions during 2024. For income tax purposes, both the PEP Acquisition and the Point Acquisition will be treated as asset purchases. As such, the tax basis in the assets and liabilities will generally reflect the allocated fair value at closing. Therefore, the Company does not anticipate recording any deferred income taxes as part of the purchase consideration. See Note 3 for additional information regarding the Company's acquisitions.
Note 13—Related parties
Halliburton
The Chairman of the Company's board of directors is on the board of directors of Halliburton Company ("Halliburton"). The Company has a lease agreement with Halliburton, which extends through 2025, to provide an electric fracture stimulation crew and the related services. Under the agreement, the Company had a lease liability of $38.4 million as of September 30, 2024 and $59.7 million as of December 31, 2023, which is included in both current and noncurrent "Operating lease liabilities" on the consolidated balance sheets. Payments to Halliburton are included in capital expenditures for oil and natural gas properties in cash flows from investing activities on the consolidated statements of cash flows.
The following table presents the capital expenditures for oil and natural gas properties paid to Halliburton included in the consolidated statements of cash flows for the periods presented:
Nine months ended September 30,
(in thousands)
2024
2023
Capital expenditures for oil and natural gas properties
Condensed notes to the consolidated financial statements
(Unaudited)
Note 14—Subsequent events
Senior Secured Credit Facility
Subsequent to September 30, 2024, the Company borrowed $190.0 million and repaid $100.0 million on the Senior Secured Credit Facility. As a result, the outstanding balance under the Senior Secured Credit Facility was $950.0 million as of November 5, 2024.
Commodity derivatives
The following table summarizes the Company's open oil and natural gas derivative positions as of September 30, 2024, updated for the derivative transactions entered into from September 30, 2024 through November 5, 2024, for the settlement periods presented:
Remaining Year 2024
Year 2025
Year 2026
Year 2027
Oil:
WTI NYMEX - Swaps:
Volume (Bbl)
5,490,200
16,074,000
4,005,000
—
Weighted-average price ($/Bbl)
$
76.49
$
74.79
$
71.42
$
—
WTI NYMEX - Three-way Collars:
Volume (Bbl)
48,500
—
—
—
Weighted-average sold put price ($/Bbl)
$
50.00
$
—
$
—
$
—
Weighted-average floor price ($/Bbl)
$
66.45
$
—
$
—
$
—
Weighted-average ceiling price ($/Bbl)
$
87.05
$
—
$
—
$
—
Argus WTI Midland to Argus WTI Formula Basis - Basis Swaps:
Volume (Bbl)
65,700
—
—
—
Weighted-average differential ($/Bbl)
$
0.12
$
—
$
—
$
—
Natural gas:
Henry Hub NYMEX - Swaps:
Volume (MMBtu)
6,558,250
—
—
—
Weighted-average price ($/MMBtu)
$
3.47
$
—
$
—
$
—
Waha Inside FERC - Swaps:
Volume (MMBtu)
—
35,405,000
33,580,000
7,300,000
Weighted-average price ($/MMBtu)
$
—
$
2.34
$
2.53
$
2.79
Henry Hub NYMEX - Collars:
Volume (MMBtu)
149,511
—
—
—
Weighted-average floor price ($/MMBtu)
$
3.40
$
—
$
—
$
—
Weighted-average ceiling price ($/MMBtu)
$
6.12
$
—
$
—
$
—
Waha Inside FERC to Henry Hub NYMEX - Basis Swaps:
Volume (MMBtu)
6,707,761
—
—
—
Weighted-average differential ($/MMBtu)
$
(0.74)
$
—
$
—
$
—
See Note 8 for additional discussion regarding the Company's derivatives. There has been no other derivative activity subsequent to September 30, 2024.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations is for the three and nine months ended September 30, 2024 and 2023, and should be read in conjunction with our unaudited consolidated financial statements and condensed notes thereto included elsewhere in this Quarterly Report as well as our audited consolidated financial statements and notes thereto included in our 2023 Annual Report. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. We caution that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. Please see "Cautionary Statement Regarding Forward-Looking Statements" and "Part II, Item 1A. Risk Factors." Except for purposes of the unaudited consolidated financial statements and condensed notes thereto included elsewhere in this Quarterly Report, references in this Quarterly Report to "Vital Energy," "we," "us," "our" or similar terms refer to Vital Energy and its subsidiaries, collectively, unless the context otherwise indicates or requires. Unless otherwise specified, references to "average sales price" refer to average sales price excluding the effects of our derivative transactions. All amounts, dollars and percentages presented in this Quarterly Report are rounded and therefore approximate.
Executive overview
We are an independent energy company focused on the acquisition, exploration and development of oil and natural gas properties in the Permian Basin of West Texas. The oil and liquids-rich Permian Basin is characterized by multiple target horizons, extensive production histories, long-lived reserves, high drilling success rates and high initial production rates. During 2023 and 2024, we added approximately 104,400 net acres through multiple acquisitions. As of September 30, 2024, we had assembled 290,945 net acres in the Permian Basin.
Throughout most of the third quarter of 2024, we were operating four drilling rigs and two completions crews, with one additional drilling rig added in connection with the closing of the Point Acquisition on September 20, 2024. We expect to operate five drilling rigs and one to two completions crews during the fourth quarter of 2024. Our planned capital expenditures for full-year 2024 are expected to be between $845.0 million and $870.0 million. However, we will continue to monitor commodity prices and service costs and adjust activity levels in order to proactively manage our cash flows and preserve liquidity. Below is a summary of our financial and operating performance for the third quarter of 2024:
•Net income of $215.3 million, which includes a non-cash gain on derivatives of $197.5 million
•Oil, NGL, and natural gas sales of $448.8 million
•Oil sales volumes of 5,446 MBbl and oil production of 59,198 Bbl/d
•Oil equivalent sales volumes of 12,267 MBOE and total production of 133,339 BOE/d
•Capital investments of $241.9 million, excluding non-budgeted acquisition costs
Recent developments
Point Acquisition
On September 20, 2024, we, together with Northern Oil and Gas, Inc. ("NOG"), purchased certain oil and natural gas properties located in the Delaware Basin with an effective date of April 1, 2024 from Point Energy Partners Petroleum, LLC, Point Energy Partners Operating, LLC, Point Energy Partners Water, LLC and Point Energy Partners Royalty, LLC (collectively, “Point”) for an aggregate purchase price of $1.0 billion in cash, including closing adjustments (the "Point Acquisition"). We agreed to purchase 80% of the acquired assets, consisting of approximately 16,300 net acres in Ward and Winkler Counties, and will operate the assets, and NOG agreed to purchase the remaining 20% of the assets. Our portion of the aggregate preliminary purchase price was $833.8 million, which consisted of (i) $816.1 million in cash and (ii) $17.7 million in estimated transaction-related expenses. The purchase price is subject to additional post-closing adjustments, and was funded entirely with borrowings under our Senior Secured Credit Facility. Upon closing of the Point Acquisition, we entered into the Thirteenth Amendment to our Senior Secured Credit Facility, which, among other things, increased our aggregate elected commitment to $1.5 billion. See Notes 3 and 4 to our consolidated financial statements included elsewhere in this Quarterly Report for further discussion of the Point Acquisition and our Senior Secured Credit Facility, respectively.
Commodity prices, reserves and full cost ceiling test
Commodity prices
Commodity prices have historically been volatile. While general economic concerns continue to place some downward pressure on commodity prices, worldwide commodity demand continues to rise. Although supply has increased, it has been constrained and pricing has been affected, in part, by the impact of the world political and economic environment. Any of the above factors could change or reverse, and global commodity and financial markets remain subject to heightened levels of uncertainty and volatility.
With natural gas production in the Permian Basin at all-time highs, transportation capacity to market hubs for our natural gas production provided by existing natural gas pipelines has been generally constrained. During this time of natural gas pipeline capacity constraint, our sales price for natural gas is lower than historical trends and may, at times, be negative.
Our results of operations are heavily influenced by oil, NGL and natural gas prices. We maintain an active commodity derivatives program to minimize commodity price volatility and support cash flows for operations. We have entered into a number of commodity derivative contracts that have enabled us to offset a portion of the changes in our cash flow caused by fluctuations in price and basis differentials for our sales of oil, NGL and natural gas, as discussed in "Part I, Item 3. Quantitative and Qualitative Disclosures About Market Risk." See Notes 8 and 9 to our consolidated financial statements included elsewhere in this Quarterly Report for additional discussion of our commodity derivatives. Notwithstanding our derivatives strategy, a collapse in commodity prices may affect the economic viability of, and our ability to fund, our drilling and completions programs, as well as the economic recovery of oil, NGL and natural gas reserves.
Reserves and full cost ceiling test
We use the full cost method of accounting for our oil and natural gas properties, with the full cost ceiling based principally on the estimated future net cash flows from our proved oil, NGL and natural gas reserves, which exclude the effect of our commodity derivative transactions, discounted at 10% under required SEC guidelines for pricing methodology. We review the carrying value of our oil and natural gas properties under the full cost accounting rules of the SEC on a quarterly basis. In the event the unamortized cost, or net book value, of our evaluated oil and natural gas properties being depleted exceeds the full cost ceiling, the excess is expensed in the period such excess occurs. Once incurred, a write-down of evaluated oil and natural gas properties is not reversible.
Our reserves are reported in three product streams: oil, NGL and natural gas. The realized prices, which are utilized to value our proved reserves and calculated using the average first-day-of-the-month prices for each month within the 12-month period prior to the end of the reporting period, adjusted for factors affecting price received at the delivery point, as of September 30, 2024 were $79.92 for oil, $14.06 for NGL and $0.81 for natural gas. The unamortized cost of evaluated oil and natural gas properties being depleted did not exceed the full cost ceiling as of September 30, 2024 or September 30, 2023. As such, no full cost ceiling impairments were recorded during the nine months ended September 30, 2024 and September 30, 2023.
If prices remain at or below the current levels, subject to numerous factors and inherent limitations, some of which are discussed below, and all other factors remain constant, we could incur a material non-cash full cost ceiling impairment in future quarters, which would have an adverse effect on our statement of operations.
There are numerous uncertainties inherent in the estimation of proved reserves and accounting for oil and natural gas properties in future periods. In addition to commodity prices, our production rates, levels of proved reserves, future development costs, changes in oilfield service costs, potential recognition of additional proved undeveloped reserves, transfers of unevaluated properties and other factors will determine our actual ceiling test calculation and impairment analysis in future periods. Also, purchases of proved properties may be recorded at a cost that exceeds a related increase in the full cost ceiling calculation as acquisitions are generally recorded at fair value based on expected future prices and other factors that may differ from historical prices used in the full cost ceiling test, among other factors.
In our upcoming fourth-quarter calculation to value our proved reserves, the October 2023 first-day-of-the-month oil price of $90.79 per Bbl will be replaced by the October 2024 first-day-of-the-month oil price of $69.83 per Bbl. If the October 2024 commodity prices are applied to November 2024 and December 2024 as well, the projected commodity prices for the period beginning January 1, 2024 and ending December 31, 2024 would be $76.71 per Bbl for oil, $13.72 per Bbl for NGL and $0.75 per Mcf for natural gas under SEC guidelines for pricing methodology. Utilizing these prices, with all other factors remaining
constant with our third-quarter calculation, we would have an implied impairment of our oil and natural gas properties of approximately $325.0 million in the fourth quarter of 2024. See Notes 2 and 6 in our 2023 Annual Report for discussion of the full cost method of accounting and our realized prices.
Each of the above factors is evaluated on a quarterly basis and if there is a material change in any factor it is incorporated into our reserves estimation utilized in our quarterly accounting estimates. We use our reserve estimates to evaluate, also on a quarterly basis, the reasonableness of our resource development plans for our reported proved reserves. Changes in circumstance, including commodity pricing, economic factors and the other uncertainties described above may lead to changes in our development plans. See "Critical accounting estimates" in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of the 2023 Annual Report for further discussion of our oil, NGL and natural gas reserve quantities and standardized measure of discounted future net cash flows.
Results of operations
Revenues
The following table presents our composition of revenue generated by product for the periods presented:
Oil, NGL and natural gas sales volumes, revenues and prices
The following tables present information regarding our oil, NGL and natural gas sales volumes, sales revenues and average sales prices for the periods presented and the corresponding changes for such periods:
Three months ended September 30,
2024 compared to 2023
2024
2023
Change (#)
Change (%)
Sales volumes:
Oil (MBbl)
5,446
4,507
939
21
%
NGL (MBbl)
3,460
2,421
1,039
43
%
Natural gas (MMcf)
20,160
14,593
5,567
38
%
Oil equivalent (MBOE)(1)(2)
12,267
9,361
2,906
31
%
Average daily oil equivalent sales volumes (BOE/d)(2)
133,339
101,746
31,593
31
%
Average daily oil sales volumes (Bbl/d)(2)
59,198
48,996
10,202
21
%
Sales revenues (in thousands):
Oil
$
416,668
$
375,166
$
41,502
11
%
NGL
41,807
38,303
3,504
9
%
Natural gas
(9,724)
21,234
(30,958)
(146)
%
Total oil, NGL and natural gas sales revenues
$
448,751
$
434,703
$
14,048
3
%
Average sales prices(2):
Oil ($/Bbl)(3)
$
76.51
$
83.23
$
(6.72)
(8)
%
NGL ($/Bbl)(3)
$
12.08
$
15.82
$
(3.74)
(24)
%
Natural gas ($/Mcf)(3)
$
(0.48)
$
1.46
$
(1.94)
(133)
%
Average sales price ($/BOE)(3)
$
36.58
$
46.44
$
(9.86)
(21)
%
Oil, with commodity derivatives ($/Bbl)(4)
$
78.37
$
78.62
$
(0.25)
—
%
NGL, with commodity derivatives ($/Bbl)(4)
$
12.07
$
15.82
$
(3.75)
(24)
%
Natural gas, with commodity derivatives ($/Mcf)(4)
$
0.45
$
1.32
$
(0.87)
(66)
%
Average sales price, with commodity derivatives ($/BOE)(4)
(1)BOE is calculated using a conversion rate of six Mcf per one Bbl.
(2)The numbers presented in the three months ended September 30, 2024 and 2023 columns are based on actual amounts and may not recalculate using the rounded numbers presented in the table above or the table below.
(3)Price reflects the average of actual sales prices received when control passes to the purchaser/customer adjusted for quality, certain transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the delivery point.
(4)Price reflects the after-effects of our commodity derivative transactions on our average sales prices. Our calculation of such after-effects includes settlements of matured commodity derivatives during the respective periods.
(1)BOE is calculated using a conversion rate of six Mcf per one Bbl.
(2)The numbers presented in the nine months ended September 30, 2024 and 2023 columns are based on actual amounts and may not recalculate using the rounded numbers presented in the table above or the table below.
(3)Price reflects the average of actual sales prices received when control passes to the purchaser/customer adjusted for quality, certain transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the delivery point.
(4)Price reflects the after-effects of our commodity derivative transactions on our average sales prices. Our calculation of such after-effects includes settlements of matured commodity derivatives during the respective periods.
Our average sales price for natural gas for the three and nine months ended September 30, 2024 was $(0.48) and $0.05, respectively, which were decreases of 133% and 96%, respectively, compared to the same periods in 2023. Due to all-time high natural gas production in the Permian Basin, the transportation of our natural gas production to market hubs has been constrained by existing natural gas pipeline capacity. Such pipeline constraints have resulted in low and, at times, negative sales prices for natural gas during the three and nine months ended September 30, 2024.
The following tables present net settlements received (paid) for matured commodity derivatives utilized in our calculation of the average sales prices, with commodity derivatives, for the periods presented and the corresponding changes for such periods:
Changes in average sales prices and sales volumes caused the following changes to our oil, NGL and natural gas revenues between the three and nine months ended September 30, 2024 and 2023:
(in thousands)
Oil
NGL
Natural gas
Total
Third-quarter 2023 Revenues
$
375,166
$
38,303
$
21,234
$
434,703
Effect of changes in average sales prices
(36,616)
(12,953)
(39,058)
(88,627)
Effect of changes in sales volumes
78,118
16,457
8,100
102,675
Third-quarter 2024 Revenues
$
416,668
$
41,807
$
(9,724)
$
448,751
Change ($)
$
41,502
$
3,504
$
(30,958)
$
14,048
Change (%)
11
%
9
%
(146)
%
3
%
(in thousands)
Oil
NGL
Natural gas
Total
Third-quarter year-to-date 2023 Revenues
$
940,982
$
97,196
$
48,260
$
1,086,438
Effect of changes in average sales prices
8,055
(18,399)
(69,013)
(79,357)
Effect of changes in sales volumes
325,082
49,955
23,903
398,940
Third-quarter year-to-date 2024 Revenues
$
1,274,119
$
128,752
$
3,150
$
1,406,021
Change ($)
$
333,137
$
31,556
$
(45,110)
$
319,583
Change (%)
35
%
32
%
(93)
%
29
%
Sales of purchased oil
The following table presents sales of purchased oil for the periods presented and corresponding changes for such periods:
Three months ended September 30,
2024 compared to 2023
(in thousands)
2024
2023
Change ($)
Change (%)
Sales of purchased oil
$
8,986
$
3
$
8,983
299,433
%
Nine months ended September 30,
2024 compared to 2023
(in thousands)
2024
2023
Change ($)
Change (%)
Sales of purchased oil
$
8,986
$
14,192
$
(5,206)
(37)
%
Sales of purchased oil are a function of the volumes and prices of purchased oil sold to customers. We are a firm shipper on the Gray Oak pipeline and we may elect to utilize purchased oil to fulfill portions of our commitments. The continuance of this practice in the future is based upon, among other factors, our pipeline capacity as a firm shipper and the quantity of our lease production which may contribute to our pipeline commitments. During the first and second quarters of 2024, we had no sales of purchased oil due to fulfilling our Gray Oak pipeline commitments with our lease production. During the third quarter of 2024, we utilized purchased oil to fulfill portions of our commitments. We expect to continue fulfilling our Gray Oak pipeline commitments primarily with our lease production in the foreseeable future.
The following tables present information regarding costs and expenses and selected average costs and expenses per BOE sold for the periods presented and the corresponding changes for such periods:
Three months ended September 30,
2024 compared to 2023
(in thousands except for per BOE sold data)
2024
2023
Change ($)
Change (%)
Costs and expenses:
Lease operating expenses
$
107,686
$
66,040
$
41,646
63
%
Production and ad valorem taxes
27,244
27,360
(116)
—
%
Oil transportation and marketing expenses
12,445
10,795
1,650
15
%
Gas gathering, processing and transportation expenses
4,602
371
4,231
1,140
%
Costs of purchased oil
9,331
101
9,230
9,139
%
General and administrative (excluding LTIP and transaction expenses)
18,752
20,196
(1,444)
(7)
%
General and administrative (LTIP):
LTIP cash
(411)
2,690
(3,101)
(115)
%
LTIP non-cash
3,444
2,635
809
31
%
General and administrative (transaction expenses)
220
3,120
(2,900)
93
%
Depletion, depreciation and amortization
187,063
120,499
66,564
55
%
Other operating expenses, net
1,754
1,703
51
3
%
Total costs and expenses
$
372,130
$
255,510
$
116,620
46
%
Gain on disposal of assets, net
$
839
$
149
$
690
463
%
Selected average costs and expenses per BOE sold(1):
Lease operating expenses
$
8.78
$
7.05
$
1.73
25
%
Production and ad valorem taxes
2.22
2.92
(0.70)
(24)
%
Oil transportation and marketing expenses
1.01
1.15
(0.14)
(12)
%
Gas gathering, processing and transportation expenses
0.38
—
0.38
100%
General and administrative (excluding LTIP and transaction expenses)
(1)Selected average costs and expenses per BOE sold are based on actual amounts and may not recalculate using the rounded numbers presented in the table above.
(1)Selected average costs and expenses per BOE sold are based on actual amounts and may not recalculate using the rounded numbers presented in the table above.
Lease operating expenses ("LOE"). LOE are daily expenses incurred to bring oil, NGL and natural gas out of the ground and to market, together with the daily expenses incurred to maintain our producing properties. Such costs also include maintenance, repairs and non-routine workover expenses related to our oil and natural gas properties. LOE increased for the three and nine months ended September 30, 2024, compared to the same periods in 2023 primarily due to our acquisitions of oil and natural gas properties in 2023 and the PEP Acquisition in first quarter of 2024. Workover expenses for the three and nine months ended September 30, 2024 were $19.4 million and $55.4 million, respectively, which were increases of 65% and 120%, respectively, compared to the same periods in 2023.
Production and ad valorem taxes. Production and ad valorem taxes remained relatively flat and increased for the three and nine months ended September 30, 2024, respectively, compared to the same periods in 2023. The increase during the nine months ended September 30, 2024 is due to increased oil and NGL sales revenues. Production taxes are based on and fluctuate in proportion to our oil, NGL and natural gas sales revenues, and are established by federal, state or local taxing authorities. Ad valorem taxes are based on and fluctuate in proportion to the taxable value assessed by the various counties where our oil and natural gas properties are located.
Oil transportation and marketing expenses. These are expenses incurred for the delivery of produced oil to customers in the U.S. Gulf Coast market via the Gray Oak pipeline. We ship the majority of our produced oil to the U.S. Gulf Coast, which we
believe provides a long-term pricing advantage versus the Midland market. Firm transportation payments on excess pipeline capacity associated with transportation agreements are also included in oil transportation and marketing expenses. Oil transportation and marketing expenses increased during the three and nine months ended September 30, 2024 compared to the same periods in 2023. This is primarily due to increases in transportation expenses of $1.6 million and $6.1 million for the three and nine months ended September 30, 2024, respectively, as our oil production has increased, and, for the nine months ended September 30, 2024, partially offset by a decrease in firm transportation payments on excess capacity of $4.0 million, compared to the same periods in 2023. See Note 10 to our consolidated financial statements included elsewhere in this Quarterly Report for additional discussion of our transportation commitments.
Gas gathering, processing and transportation expenses. Beginning in the third quarter of 2023, we became party to certain natural gas processing agreements where the Company concluded it is the principal in the transaction and the customer is the ultimate third party, with control of the NGL or residue gas transferring at the tailgate of the midstream entity's processing plant. Revenue for such agreements is recognized on a gross basis, with gathering, processing and transportation fees presented as an expense on the consolidated statements of operations.
Costs of purchased oil. Costs of purchased oil are a function of the volumes and prices of purchased oil. We are a firm shipper on the Gray Oak pipeline, and in the event our long-haul transportation capacity on the Gray Oak pipeline exceeds our net production, we may purchase third-party oil at the trading hubs to satisfy the deficit in our associated long-haul transportation commitments. During the first and second quarters of 2024, we had no costs of purchased oil due to fulfilling our Gray Oak pipeline commitments with our lease production. During the third quarter of 2024, we utilized purchased oil to fulfill portions of our commitments. We expect to continue fulfilling our Gray Oak pipeline commitments primarily with our lease production in the foreseeable future.
General and administrative ("G&A") (excluding LTIP and transaction expenses). G&A, excluding employee compensation expenses from our long-term incentive plan ("LTIP") and transaction expenses associated with the Henry Acquisition and certain financing transactions, decreased for the three months ended September 30, 2024, primarily due to higher performance-related bonuses accrued for our workforce in 2023 as compared to the same period in 2024. G&A, excluding LTIP and transaction expenses, increased for the nine months ended September 30, 2024 compared to the same period in 2023 primarily due to workforce and professional expenses in connection with the growth of the Company, offset by the aforementioned changes during third-quarter 2024.
General and administrative (LTIP cash). LTIP cash expense decreased for the three and nine months ended September 30, 2024, compared to the same period in 2023, due to (i) fluctuations in the fair value of our cash-settled LTIP awards as a result of the performance of our stock and (ii) cash performance awards and employee cash retainer awards expensed through 2023, which vested during first-quarter 2024.
General and administrative (LTIP non-cash). LTIP non-cash expense increased for the three and nine months ended September 30, 2024, compared to the same periods in 2023 due to 2024 expense including restricted stock awards for a larger population of our workforce as compared to 2023. See Note 6 to our consolidated financial statements included elsewhere in this Quarterly Report for information regarding our equity-based compensation.
General and administrative (transaction expenses). Transaction expenses for the three and nine months ended September 30, 2024 represent incurred costs associated with the Henry Acquisition. See Note 3 to our consolidated financial statements included elsewhere in this Quarterly Report for further discussion of the Henry Acquisition.
Depletion, depreciation and amortization. The following table presents depletion expense per BOE sold for the periods presented and the corresponding changes for such periods:
Depletion expense per BOE increased for the three and nine months ended September 30, 2024, compared to the same periods in 2023, primarily due to an increase in future development costs and volumes of our proved reserves as a result of our recent acquisitions of oil and natural gas properties in 2023 and 2024. See Note 6 to our consolidated financial statements included in our 2023 Annual Report and "—Commodity prices, reserves and full cost ceiling test" for additional information regarding the full cost method of accounting.
Non-operating income (expense)
The following tables present the components of non-operating income (expense), net for the periods presented and the corresponding changes for such periods:
Three months ended September 30,
2024 compared to 2023
(in thousands)
2024
2023
Change ($)
Change (%)
Gain (loss) on derivatives, net
$
226,553
$
(135,321)
$
361,874
267
%
Interest expense
(40,119)
(39,305)
(814)
(2)
%
Other income, net
1,247
1,739
(492)
(28)
%
Total non-operating income (expense), net
$
187,681
$
(172,887)
$
360,568
209
%
Nine months ended September 30,
2024 compared to 2023
(in thousands)
2024
2023
Change ($)
Change (%)
Gain (loss) on derivatives, net
$
82,064
$
(132,875)
$
214,939
162
%
Interest expense
(124,230)
(99,388)
(24,842)
(25)
%
Loss on extinguishment of debt, net
(66,115)
—
(66,115)
(100)%
Other income, net
5,921
3,697
2,224
60
%
Total non-operating expense, net
$
(102,360)
$
(228,566)
$
126,206
55
%
Gain (loss) on derivatives, net. The following tables present the changes in the components of gain (loss) on derivatives, net for the periods presented and the corresponding changes for such periods:
Three months ended September 30,
2024 compared to 2023
(in thousands)
2024
2023
Change ($)
Change (%)
Non-cash gain (loss) on derivatives, net
$
197,540
$
(112,608)
$
310,148
275
%
Settlements received (paid) for matured derivatives, net
29,013
(22,760)
51,773
227
%
Settlements received for contingent consideration
—
47
(47)
(100)
%
Gain (loss) on derivatives, net
$
226,553
$
(135,321)
$
361,874
267
%
Nine months ended September 30,
2024 compared to 2023
(in thousands)
2024
2023
Change ($)
Change (%)
Non-cash gain (loss) on derivatives, net
$
71,313
$
(120,637)
$
191,950
159
%
Settlements received (paid) for matured derivatives, net
10,751
(13,740)
24,491
178
%
Settlements received for contingent consideration
—
1,502
(1,502)
(100)
%
Gain (loss) on derivatives, net
$
82,064
$
(132,875)
$
214,939
162
%
Non-cash gain (loss) on derivatives, net is the result of new and matured contracts, including contingent consideration derivatives for the period subsequent to the initial valuation date and through the end of the contingency period, and the changing relationship between our outstanding contract prices and the future market prices in the forward curves, which we use to calculate the fair value of our derivatives. In general, if outstanding commodity contracts are held constant, we experience gains during periods of decreasing market prices and losses during periods of increasing market prices. Settlements paid or received for matured derivatives are for our (i) commodity derivative contracts, which are based on the settlement prices compared to the prices specified in the derivative contracts and (ii) contingent consideration derivatives.
See Notes 8 and 9 to our consolidated financial statements included elsewhere in this Quarterly Report and "Item 3. Quantitative and Qualitative Disclosures About Market Risk" for additional information regarding our derivatives.
Interest expense. Interest expense remained relatively flat and increased during the three and nine months ended September 30, 2024, respectively. We reflect interest paid to the lenders and bondholders in interest expense, net of
amounts capitalized. In addition, we include the amortization of (i) debt issuance costs, which includes origination, amendment and professional fees, (ii) commitment fees and (iii) annual agency fees in interest expense. The increase during the nine months ended September 30, 2024 is due to new senior unsecured notes issued during the third quarter of 2023 and the first half of 2024. See Note 4 to our consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding our long-term debt.
Loss on extinguishment of debt, net. During the nine months ended September 30, 2024, we recognized a loss on extinguishment of debt of $66.1 million. During the first quarter of 2024, we settled a cash tender offer on the January 2028 Notes. During the second quarter of 2024, we settled a cash tender offer on the September 2030 Notes and redeemed the remaining principal amount outstanding on the January 2028 Notes. The related loss on extinguishment of debt during the nine months ended September 30, 2024 consisted of early tender and redemption premiums and write-offs of debt issuance costs, premiums and discounts. See Note 4 to our consolidated financial statements included elsewhere in this Quarterly Report for additional information regarding our long-term debt.
Income tax benefit (expense)
We are subject to federal and state income taxes and the Texas Franchise tax. Income tax expense was recorded during the first nine months of 2024 due to the application of our estimated annual effective tax rate to the book net income before income taxes. Our effective tax rate was 21.89% and 22.83% for the three and nine months ended September 30, 2024, respectively. Our effective tax rate was not meaningful for the three and nine months ended September 30, 2023, due to releasing our full valuation allowance against our deferred tax assets during the second-quarter 2023. Our effective tax rate differs from the U.S. statutory rate as a result of the impact of discrete items, state income taxes and permanent differences. See Note 12 to our consolidated financial statements included elsewhere in this Quarterly Report for a discussion of our income taxes.
We have significant federal and state net operating loss carry-forwards. If we were to experience an “ownership change,” as determined under Section 382 of the Internal Revenue Code, our ability to offset taxable income arising after the ownership change with net operating losses and interest expense carryforwards arising prior to the ownership change may be significantly limited. Based on information available as of September 30, 2024, no such ownership change has occurred.
Liquidity and capital resources
Historically, our primary sources of liquidity have been cash flows from operations, proceeds from equity offerings, proceeds from senior unsecured and subordinated note offerings, borrowings under our Senior Secured Credit Facility and proceeds from asset dispositions. Our primary operational uses of capital have been for the acquisition, exploration and development of oil and natural gas properties and infrastructure development.
We continually seek to maintain a financial profile that provides operational flexibility and monitor the markets to consider which financing alternatives, including debt and equity capital resources, joint ventures and asset sales, are available to meet our future planned capital expenditures, a significant portion of which we are able to adjust and manage. We also continually evaluate opportunities with respect to our capital structure, including issuances of new securities, as well as transactions involving our outstanding senior notes, which could take the form of open market or private repurchases, exchange or tender offers, or other similar transactions, and our common stock, which could take the form of open market or private repurchases. We may make changes to our capital structure from time to time, with the goal of maintaining financial flexibility, preserving or improving liquidity and/or achieving cost efficiency. Such financing alternatives, or combination of alternatives, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. We continually look for other opportunities to maximize stockholder value. For further discussion of our financing activities related to debt instruments, see Note 4 to our consolidated financial statements included elsewhere in this Quarterly Report.
Due to the inherent volatility in the prices of oil, NGL and natural gas and the sometimes wide pricing differentials between where we produce and where we sell such commodities, we engage in commodity derivative transactions to hedge price risk associated with a portion of our anticipated sales volumes. By removing a portion of the price volatility associated with future sales volumes, we expect to mitigate, but not eliminate, the potential effects of variability in cash flows from operations. See "Part I. Item 3. Quantitative and Qualitative Disclosures About Market Risk" below. See Note 8 to our consolidated financial statements included elsewhere in this Quarterly Report for discussion of our open commodity positions.
As of September 30, 2024, we had cash and cash equivalents of $22.2 million and available capacity under the Senior Secured Credit Facility of $640.0 million, resulting in total liquidity of $662.2 million. As of November 5, 2024, we had outstanding borrowings under our Senior Secured Credit Facility of $950.0 million, resulting in available capacity of $550.0 million. We believe that our operating cash flows and the aforementioned liquidity sources provide us with sufficient liquidity and financial resources to manage our cash needs and contractual obligations, to implement our currently planned capital expenditure budget and, at our discretion, to fund any share repurchases, pay down, repurchase or refinance debt or adjust our planned capital expenditure budget. See Note 14 to our consolidated financial statements included elsewhere in this Quarterly Report for additional discussion of additional borrowings and repayments on the Senior Secured Credit Facility subsequent to September 30, 2024.
Cash requirements for known contractual and other obligations
The following table presents significant cash requirements for known contractual and other obligations as of September 30, 2024:
(1)Amounts presented include both principal and interest obligations.
(2)Amounts presented include both minimum lease payments and imputed interest.
We expect to satisfy our short-term contractual and other obligations with cash flows from operations. See Notes 4 and 10 to our consolidated financial statements included elsewhere in this Quarterly Report and Notes 2, 5 and 18 in our 2023 Annual Report for further discussion of our known contractual and other obligations.
Cash flows
The following table presents our cash flows for the periods presented and the corresponding changes for such periods:
Nine months ended September 30,
2024 compared to 2023
(in thousands)
2024
2023
Change ($)
Change (%)
Net cash provided by operating activities
$
743,156
$
579,222
$
163,934
28
%
Net cash used in investing activities
(1,480,169)
(1,001,442)
(478,727)
(48)
%
Net cash provided by financing activities
745,144
967,480
(222,336)
(23)
%
Net increase in cash and cash equivalents
$
8,131
$
545,260
$
(537,129)
(99)
%
Cash flows from operating activities
Net cash provided by operating activities increased during the nine months ended September 30, 2024, compared to the same period in 2023. Notable cash changes include an increase in total oil, NGL and natural gas sales revenues of $319.6 million, partially offset by an increase of $153.2 million in lease operating expenses. For additional information on changes in revenues and expenses, see "—Results of operations."
Our operating cash flows are sensitive to a number of variables, the most significant of which are the volatility of oil, NGL and natural gas prices, mitigated to the extent of our commodity derivatives' exposure, and sales volume levels. Regional and worldwide economic activity, weather, infrastructure, transportation capacity to reach markets, costs of operations, legislation and regulations, including potential government production curtailments, and other variable factors significantly impact the prices of these commodities. For additional information on risks related to our business, see "Part I. Item 3.
Quantitative and Qualitative Disclosures About Market Risk" and "Part II. Item 1A. Risk Factors" included elsewhere in this Quarterly Report and "Part I. Item 1A. Risk Factors" in our 2023 Annual Report.
Cash flows from investing activities
Net cash used in investing activities increased for the nine months ended September 30, 2024, compared to the same period in 2023, mainly due to (i) our acquisitions of oil and natural gas properties in 2024 and (ii) an increase in capital expenditures as a result of increased drilling and completions activity. For further discussion of our acquisitions of oil and natural gas properties, see Note 3 to our consolidated financial statements included elsewhere in this Quarterly Report.
We currently expect capital investments for 2024 to be in the approximate range of $845.0 million to $870.0 million. We will continue to monitor commodity prices and service costs and adjust activity levels in order to proactively manage our cash flows and preserve liquidity. We do not have a specific acquisition budget since the timing and size of acquisitions cannot be accurately forecasted.
The following tables present the components of our capital investments, excluding non-budgeted acquisition costs, for the periods presented and the corresponding changes for such periods:
Nine months ended September 30,
2024 compared to 2023
(in thousands)
2024
2023
Change ($)
Change (%)
Oil and natural gas properties(1)
$
652,604
$
483,329
$
169,275
35
%
Midstream and other fixed assets(1)
17,233
11,090
6,143
55
%
Total capital investments, excluding non-budgeted acquisition costs
(1)Includes capitalized share-settled equity-based compensation and asset retirement costs.
The amount, timing and allocation of capital investments are largely discretionary and within management's control. If oil, NGL and natural gas prices are below our acceptable levels, or costs are above our acceptable levels, we may choose to defer a portion of our capital expenditures until later periods to achieve the desired balance between sources and uses of liquidity and prioritize capital projects that we believe have the highest expected returns and potential to generate near-term cash flow. Subject to financing alternatives, we may also increase our capital expenditures significantly to take advantage of opportunities we consider to be attractive. We continually monitor and may adjust our projected capital expenditures in response to world developments, as well as success or lack of success in drilling activities, changes in prices, availability of financing and joint venture opportunities, drilling and acquisition costs, industry conditions, the timing of regulatory approvals, the availability of rigs and supplies, changes in service costs, contractual obligations, internally generated cash flow and other factors both within and outside our control.
Cash flows from financing activities
For the nine months ended September 30, 2024, net cash provided by financing activities was $745.1 million compared to $967.5 million in 2023. Notable 2024 activity includes (i) borrowings on our Senior Secured Credit Facility of $1.4 billion, which is inclusive of borrowings utilized to fund the Point Acquisition, (ii) proceeds from the issuance of certain senior unsecured notes of $1.0 billion, (iii) extinguishment of certain senior unsecured notes of $952.2 million, (iv) payments on our Senior Secured Credit Facility of $715.0 million and (v) payments for debt issuance costs of $21.7 million. For further discussion of our financing activities related to debt instruments, see Note 4 to our consolidated financial statements included elsewhere in this Quarterly Report.
Sources of Liquidity
Senior Secured Credit Facility
As of September 30, 2024, the Senior Secured Credit Facility, which matures on September 13, 2027, had a maximum credit amount of $3.0 billion, a borrowing base and an aggregate elected commitment of $1.5 billion, with $860.0 million outstanding, and was subject to an interest rate of 8.093%. The Senior Secured Credit Facility contains both financial and non-financial covenants, all of which we were in compliance with for all periods presented. Additionally, the Senior Secured Credit Facility provides for the issuance of letters of credit, limited to the lesser of total capacity or $80.0 million. As of September 30, 2024 and December 31, 2023, we had no letters of credit outstanding under the Senior Secured Credit Facility.
See Note 4 to our consolidated financial statements included elsewhere in this Quarterly Report for further discussion of our Senior Secured Credit Facility.
Supplemental Guarantor information
As of September 30, 2024, approximately $1.6 billion of our senior unsecured notes remained outstanding. Our wholly-owned subsidiary, Vital Midstream Services, LLC (the "Guarantor"), jointly and severally, and fully and unconditionally, guarantees all of our outstanding senior unsecured notes.
The guarantees are senior unsecured obligations of the Guarantor and rank equally in right of payment with other existing and future senior indebtedness of such Guarantor, and senior in right of payment to all existing and future subordinated indebtedness of such Guarantor. The guarantees of the senior unsecured notes by the Guarantor are subject to certain Releases. The obligations of the Guarantor under its note guarantee are limited as necessary to prevent such note guarantee from constituting a fraudulent conveyance under applicable law. Further, the rights of holders of the senior unsecured notes against the Guarantor may be limited under the U.S. Bankruptcy Code or state fraudulent transfer or conveyance law. Vital Energy is not restricted from making investments in the Guarantor and the Guarantor is not restricted from making intercompany distributions to Vital Energy.
The assets, liabilities and results of operations of the combined issuer and the Guarantor are not materially different than the corresponding amounts presented in our consolidated financial statements included elsewhere in this Quarterly Report. Accordingly, we have omitted the summarized financial information of the issuer and the Guarantor that would otherwise be required.
Critical accounting estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions or if different assumptions had been used. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements.
There have been no changes to our identified critical accounting estimates during the nine months ended September 30, 2024. See our critical accounting estimates in "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" of our 2023 Annual Report. See "Commodity prices, reserves and full cost ceiling test" for additional discussion our full cost ceiling calculation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term "market risk," in our case, refers to the risk of loss arising from adverse changes in oil, NGL and natural gas prices and in interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of how we view and manage our ongoing market risk exposures. All of our market risk-sensitive derivative instruments were entered into for hedging purposes, rather than for speculative trading.
Commodity price exposure
Due to the inherent volatility in oil, NGL and natural gas prices and the sometimes wide pricing differentials between where we produce and where we sell such commodities, we engage in commodity derivative transactions, such as puts, swaps, collars and basis swaps, to hedge price risk associated with a portion of our anticipated sales volumes. By removing a portion of the price volatility associated with future sales volumes, we expect to mitigate, but not eliminate, the potential effects of variability in cash flows from operations.
The fair values of our open commodity positions are largely determined by the relevant forward commodity price curves of the indexes associated with our open derivative positions. The following table provides a sensitivity analysis of the projected incremental effect on income or loss before income taxes of a hypothetical 10% change in the relevant forward commodity price curves of the indexes associated with our open commodity positions as of September 30, 2024:
(in thousands)
As of September 30, 2024
Commodity derivative asset position
$
199,242
Impact of a 10% increase in forward commodity prices
$
(175,092)
Impact of a 10% decrease in forward commodity prices
$
171,169
See Notes 8 and 9 to our consolidated financial statements included elsewhere in this Quarterly Report for further discussion of our commodity derivatives. For additional discussion of our quantitative and qualitative disclosures about market risk, see "Part II, Item 7A. Quantitative and Qualitative Disclosures About Market Risk" in our 2023 Annual Report.
Interest rate risk
Our Senior Secured Credit Facility bears interest at a floating rate and our senior unsecured notes bear interest at fixed rates. The interest rate on our Senior Secured Credit Facility as of September 30, 2024 was 8.093%. See Note 4 to our consolidated financial statements included elsewhere in this Quarterly Report for further discussion of our debt. The interest rate on borrowings may be based on an alternate base rate or term secured overnight financing rate ("Term SOFR"), at our option. Interest on alternate base rate loans is equal to the sum of (a) the highest of (i) the "prime rate" (as publicly announced by Wells Fargo Bank, N.A.) in effect on such day, (ii) the federal funds effective rate in effect on such day plus 0.5% and (iii) the Adjusted Term SOFR (as defined in our Senior Secured Credit Facility) for a one-month tenor in effect on such day plus 1% and (b) the applicable margin. Interest on Term SOFR loans is equal to the sum of (a)(i) the Term SOFR (as defined in our Senior Secured Credit Facility) rate for such period plus (ii) the Term SOFR Adjustment (as defined in our Senior Secured Credit Facility) of 0.1% (in the case of clause (a), subject to a floor of 0%) plus (b) the applicable margin. The applicable margin varies from 1.25% to 2.25% on alternate base rate borrowings and from 2.25% to 3.25% on Term SOFR borrowings, in each case, depending on our utilization ratio. At September 30, 2024, the applicable margin on our borrowings were 1.75% for alternate base rate borrowings and 2.75% for Term SOFR borrowings.
As of the end of the period covered by this report, an evaluation of the effectiveness of the design and operation of Vital Energy's disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act), was performed under the supervision and with the participation of Vital Energy's management, including our principal executive officer and principal financial officer. Based on that evaluation, these officers concluded that Vital Energy's disclosure controls and procedures were effective as of September 30, 2024. Our disclosure controls and other procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to Vital Energy's management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Evaluation of changes in internal control over financial reporting
There were no changes in our internal controls over financial reporting (as defined in Rule 13(a)-15(f) of the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
From time to time, we are subject to various legal proceedings arising in the ordinary course of business, including proceedings for which we may not have insurance coverage. While many of these matters involve inherent uncertainty as of the date hereof, we do not currently believe that any such legal proceedings will have a material adverse effect on our business, financial position, results of operations or liquidity.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the risks discussed in our 2023 Annual Report and those set forth from time to time in our other filings with the SEC. There have been no material changes in our risk factors from those described in our 2023 Annual Report. The risks described in such report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Issuer Repurchases of Equity Securities
The following table summarizes purchases of common stock by Vital Energy for the periods presented:
Period
Total number of shares purchased(1)
Weighted-average price paid per share
Total number of shares purchased as
part of publicly announced program
Maximum value that may yet be purchased under the program as of the respective period-end date(2)
(1)Represents shares that were withheld by us to satisfy tax withholding obligations that arose upon the lapse of restrictions on certain equity-based compensation awards, namely restricted stock awards.
(2)On May 31, 2022, our board of directors authorized a $200.0 million share repurchase program commencing on the date of such announcement and continuing through and including May 27, 2024. On May 23, 2024, our board of directors approved an amendment to the share repurchase program to (i) increase the shares of Common Stock which the Company may purchase by $37.3 million, resulting in aggregate authorization of $237.3 million, and (ii) extend the expiration date to May 22, 2026. Share repurchases under the program may be made through a variety of methods, which may include open market purchases, including under plans complying with Rule 10b5-1 of the Exchange Act, and privately negotiated transactions. During the three months ended September 30, 2024, no shares were repurchased.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
The operation of our Howard County, Texas sand mine is subject to regulation by the Federal Mine Safety and Health Administration (the "MSHA") under the Federal Mine Safety and Health Act of 1977 (the "Mine Act"). MSHA may inspect our Howard County mine and may issue citations and orders when it believes a violation has occurred under the Mine Act. While we contract the mining operations of the Howard County mine to an independent contractor, we may be considered an "operator" for purpose of the Mine Act and may be issued notices or citations if MSHA believes that we are responsible for violations.
The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K is included in Exhibit 95.1 to this Quarterly Report.
Item 5. Other Information
Rule 10b5-1 Trading Arrangement Changes
None of the Company's directors or officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the quarterly period ended September 30, 2024.
The following table includes a correction to one of the previously disclosed arrangements adopted during the three months ended June 30, 2024. Previous disclosure of other arrangements remains accurate and unchanged.
Name and title of director or officer
Type of change
Date of adoption
Date of termination
Duration of trading arrangement
Potential aggregate number of securities to be purchased (sold) pursuant to the trading arrangement(1)
(1)Our Quarterly Report on Form 10-Q for the three months ended June 30, 2024 previously disclosed 1,502 potential aggregate securities to be sold pursuant to the trading arrangement.
The following financial information from Vital’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows and (v) Condensed Notes to the Consolidated Financial Statements.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
^ Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
VITAL ENERGY, INC.
Date: November 6, 2024
By:
/s/ Jason Pigott
Jason Pigott
President and Chief Executive Officer
(principal executive officer)
Date: November 6, 2024
By:
/s/ Bryan J. Lemmerman
Bryan J. Lemmerman
Executive Vice President and Chief Financial Officer
