Note 1—Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
Permian Resources Corporation is an independent oil and natural gas company focused on the responsible acquisition, optimization and development of crude oil and associated liquids-rich natural gas reserves. The Company’s assets and operations are primarily concentrated in the core of the Permian Basin, and its properties consist of large, contiguous acreage blocks located in West Texas and New Mexico. Unless otherwise specified or the context otherwise requires, all references in these notes to “Permian Resources” or the “Company” are to Permian Resources Corporation and its consolidated subsidiaries, including Permian Resources Operating, LLC (“OpCo”).
Principles of Consolidation and Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain disclosures normally included in an Annual Report on Form 10-K have been omitted. The consolidated financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, 2023 (the “2023 Annual Report”). Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company’s 2023 Annual Report.
In the opinion of management, all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial results have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year.The consolidated financial statements include the accounts of the Company and its subsidiary OpCo, and OpCo’s wholly-owned subsidiaries. Noncontrolling interest represents third-party ownership in OpCo and is presented as a component of equity. Refer to Note 9—Shareholders’ Equity and Noncontrolling Interest for a discussion of noncontrolling interest.
Use of Estimates
The preparation of the Company’s consolidated financial statements requires the Company’s management to make various assumptions, judgments and estimates to determine the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events, and accordingly, actual results could differ from amounts previously established. Additionally, the prices received for oil, natural gas and NGL production can heavily influence the Company’s assumptions, judgments and estimates, and continued volatility of oil and gas prices could have a significant impact on the Company’s estimates.
The more significant areas requiring the use of assumptions, judgments and estimates include: (i) oil and natural gas reserves; (ii) cash flow estimates used in impairment tests for long-lived assets; (iii) impairment expense of unproved properties; (iv) depreciation, depletion and amortization; (v) asset retirement obligations; (vi) determining fair value and allocating purchase price in connection with business combinations and asset acquisitions; (vii) accrued revenues and related receivables; (viii) accrued liabilities; (ix) derivative valuations; (x) deferred income taxes; and (xi) determining the fair values of certain stock-based compensation awards.
Leases
The Company has operating leases for drilling rig contracts, office rental agreements and other wellhead equipment and a financing lease for a ground lease for its office building in Midland, Texas. During the nine months ended September 30, 2024, the Company entered into two drilling rig contracts each with lease terms of three years. A lease right-of-use asset and related liability were recorded for these drilling rig contracts based on the present value of the future lease payments of the drilling rigs over the lease terms. As of September 30, 2024, the Company had recorded in aggregate $22.5 million and $31.8 million of current and noncurrent operating lease liabilities, respectively, related to these drilling rig contracts.
The following table provides additional information related to the Company’s lease assets and liabilities as presented on the balance sheet for the periods presented:
(in thousands)
Balance Sheet Classification
September 30, 2024
December 31, 2023
Assets
Operating right-of-use assets
Operating lease right-of-use assets
$
111,783
$
59,359
Finance right-of-use asset
Other noncurrent assets
15,072
15,189
Liabilities
Current
Operating lease liabilities
Operating lease liabilities
$
52,329
$
33,006
Finance lease liability
Other current liabilities
767
753
Noncurrent
Operating lease liabilities
Operating lease liabilities
$
61,301
$
28,302
Finance lease liability
Other noncurrent liabilities
15,080
14,821
There have been no other significant changes in leases during the nine months ended September 30, 2024. Refer to Note 16—Leases in the notes to the consolidated financial statements in Part II, Item 8 of the Company’s 2023 Annual Report for additional information on the Company’s operating and financing leases.
Income Taxes
The Company is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income or loss of OpCo, as well as any stand-alone income generated by the Company. OpCo is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, OpCo is not subject to U.S. federal and certain state and local income taxes. Any taxable income generated by OpCo is passed through to and included in the taxable income of its members, including the Company, on a pro rata basis.
Income tax expense recognized during interim periods is based on applying an estimated annual effective income tax rate to the Company’s year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various state jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information becomes known or as the tax environment changes.
On September 17, 2024, the Company completed its acquisition of oil and gas properties with certain affiliates of Occidental Petroleum Corporation for total cash consideration of $743.5 million, subject to customary post-closing purchase price adjustments (the “Bolt-On Acquisition”). The Bolt-On Acquisition included approximately 29,500 net leasehold acres and approximately 9,900 net royalty acres that are predominately located directly offsetting the Company’s existing assets in Reeves County, Texas, as well as Eddy County, New Mexico. Additionally, the acquired assets in Reeves County include a fully integrated midstream system, consisting of over 100 miles of operated oil and gas gathering systems, approximately 10,000 surface acres, and water infrastructure including saltwater disposal wells, a recycling facility, frac ponds and water wells. The Bolt-On Acquisition was completed to drive long-term accretion across the Company’s key financial and operating metrics, enhance shareholder returns and add core inventory locations to the Company’s existing position in the Permian Basin.
Purchase Price Allocation
The Bolt-On Acquisition has been accounted for as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). Under the acquisition method of accounting, the assets acquired and liabilities assumed are recorded at their respective fair values as of the acquisition closing date, which requires judgment and certain estimates and assumptions to be made. Oil and natural gas properties were valued using an income based approach, which incorporates a discounted cash flow method. The pro forma impact of this business combination to revenues and net income is not disclosed as it was deemed not to have a material impact on the Company’s results of operations.
As of the date of this filing, the fair value of assets acquired and liabilities assumed are preliminary and not complete as adjustments may be made. The Company expects to complete the purchase price allocation during the 12-month period subsequent to the Bolt-On Acquisition closing date. The following table represents the preliminary consideration and purchase price allocation of the identifiable assets acquired and the liabilities assumed based on their respective fair values as of the closing date of the business combination.
(in thousands, except share and per share data)
Bolt-On Acquisition Consideration
Total cash consideration given
$
743,496
Fair value of assets acquired:
Preliminary Purchase Price Allocation
Accounts receivable, net
$
5,556
Oil and natural gas properties, net
770,449
Total assets acquired
$
776,005
Fair value of liabilities assumed:
Accounts payable and accrued expenses
$
17,355
Asset retirement obligations
15,154
Total liabilities assumed
$
32,509
Net assets acquired
$
743,496
2024 Asset Acquisitions
During the nine months ended September 30, 2024, the Company completed multiple acquisitions of oil and natural gas properties for a cumulative adjusted purchase price of approximately $363 million. These transactions were recorded as asset acquisitions in accordance with ASC 805.
Earthstone Merger
On November 1, 2023, the Company completed its merger (the “Earthstone Merger”) with Earthstone Energy, Inc. (“Earthstone”). Earthstone was an independent oil and gas company engaged in the operation and development of oil and natural gas properties in the Permian Basin in both Texas and New Mexico. Refer to Note 2—Business Combinations footnote in the notes to the consolidated financial statements in Item 8 of the Company’s 2023 Annual Report for additional details regarding the Earthstone Merger.
As of the date of this filing, the fair value of assets acquired and liabilities assumed are not complete and adjustments may be made. The Company expects to complete the purchase price allocation during the fourth quarter of 2024. There were no significant adjustments to the purchase price allocation during the nine months ended September 30, 2024.
Supplemental Unaudited Pro Forma Financial Information
The results of Earthstone’s operations have been included in the Company’s consolidated financial statements since November 1, 2023, the effective date of the Earthstone Merger. The following supplemental unaudited pro forma financial information (“pro forma information”) for the three and nine months ended September 30, 2023 has been prepared from the respective historical consolidated financial statements of the Company and Earthstone and has been adjusted to reflect the Earthstone Merger as if it had occurred on January 1, 2023.
The pro forma information is not necessarily indicative of the results that might have occurred had the Earthstone Merger occurred in the past and is not intended to be a projection of future results. Future results may vary significantly from the results reflected in the following pro forma information.
Three Months Ended September 30, 2023
Nine Months Ended September 30, 2023
Total Revenue
$
1,283,969
$
3,519,042
Net Income
137,779
432,571
Earnings per share:
Basic
$
0.29
$
0.92
Diluted
0.25
0.79
2023 SWD Divestiture
On March 13, 2023, the Company completed the sale of its operated saltwater disposal wells and the associated produced water infrastructure in Reeves County, Texas. The total cash consideration received at closing was $125 million of which $65 million was directly related to the sale and transfer of control of its water assets, while the remaining $60 million consisted of contingent consideration that is tied to the Company’s future drilling, completion and water connection activity in Reeves County, Texas. The $60 million of contingent consideration will require repayment if certain performance obligations through September 2026 are not met, and it has been recorded as a liability within the Company’s consolidated balance sheet accordingly. All performance obligations have been met during the payment periods and as of September 30, 2024, the remaining balance of the contingent consideration was $40 million. There was no gain or loss recognized as a result of this divestiture.
Note 3—Accounts Receivable, Accounts Payable and Accrued Expenses
Accounts receivable are comprised of the following:
(in thousands)
September 30, 2024
December 31, 2023
Accrued oil and gas sales receivable, net
$
227,244
$
345,982
Joint interest billings, net
194,170
123,160
Accrued derivative settlements receivable
11,671
8,228
Other
6,253
3,690
Accounts receivable, net
$
439,338
$
481,060
Accounts payable and accrued expenses are comprised of the following:
The following table provides information about the Company’s long-term debt as of the dates indicated:
(in thousands)
September 30, 2024
December 31, 2023
Credit Facility
$
—
$
—
Senior Notes
5.375% Senior Notes due 2026
289,448
289,448
7.75% Senior Notes due 2026
—
300,000
6.875% Senior Notes due 2027
—
356,351
8.00% Senior Notes due 2027
550,000
550,000
3.25% Convertible Senior Notes due 2028
170,000
170,000
5.875% Senior Notes due 2029
700,000
700,000
9.875% Senior Notes due 2031
500,000
500,000
7.00% Senior Notes due 2032
1,000,000
1,000,000
6.25% Senior Notes due 2033
1,000,000
—
Unamortized debt issuance costs on Senior Notes
(31,804)
(23,149)
Unamortized debt (discount)/premium
6,615
6,131
Senior Notes, net
4,184,259
3,848,781
Total long-term debt, net
$
4,184,259
$
3,848,781
Credit Agreement
OpCo, the Company’s consolidated subsidiary, has a credit agreement with a syndicate of banks that provides for a five-year secured revolving credit facility, maturing in February 2027 (the “Credit Agreement”) that, as of September 30, 2024, had a borrowing base of $4.0 billion and elected commitments of $2.5 billion. As of September 30, 2024, the Company had no borrowings outstanding and $2.5 billion in available borrowing capacity, net of $2.5 million in letters of credit outstanding.
In connection with the spring borrowing base redetermination in April 2024, the Company entered into the seventh amendment to its Credit Agreement (the “Seventh Amendment”). The Seventh Amendment, among other things, increased the elected commitments under the Credit Agreement to $2.5 billion from $2.0 billion and reaffirmed the borrowing base at $4.0 billion. The elected commitments and borrowing base were reaffirmed during the fall 2024 borrowing base redetermination resulting in an amendment to our Credit Agreement that also extended the maturity date to February 2028 (refer to Note 14—Subsequent Events for additional information).
The amount available to be borrowed under the Credit Agreement is equal to the lesser of (i) the borrowing base, which is set at $4.0 billion; (ii) aggregate elected commitments, which was set at $2.5 billion as of September 30, 2024; or (iii) $6.0 billion. The borrowing base is redetermined semi-annually in the spring and fall by the lenders in their sole discretion. It also allows for the Company to request two optional borrowing base redeterminations in between the scheduled redeterminations. The borrowing base depends on, among other things, the quantities of OpCo’s proved oil and natural gas reserves, estimated cash flows from those reserves, and the Company’s commodity hedge positions. Upon a redetermination of the borrowing base, if actual borrowings outstanding exceed the revised borrowing capacity, OpCo could be required to immediately repay a portion of its debt outstanding. Borrowings under the Credit Agreement are guaranteed by certain of OpCo’s subsidiaries.
Borrowings under the Credit Agreement may be base rate loans or Secured Overnight Financing Rate (“SOFR”) loans. Interest is payable quarterly for base rate loans and at the end of the applicable interest period for SOFR loans. SOFR loans bear interest at SOFR plus an applicable margin ranging from 175 to 275 basis points, depending on the percentage of elected commitments utilized, plus an additional 10 basis point credit spread adjustment. Base rate loans bear interest at a rate per annum equal to the greatest of: (i) the agent bank’s prime rate; (ii) the federal funds effective rate plus 50 basis points; or (iii) the adjusted Term SOFR rate for a one-month interest period plus 100 basis points, plus an applicable margin, ranging from 75 to 175 basis points, depending on the percentage of the borrowing base utilized. OpCo also pays a commitment fee of 37.5 to 50 basis points on unused elected commitment amounts under its facility.
The Credit Agreement contains restrictive covenants that limit our ability to, among other things: (i) incur additional indebtedness; (ii) make investments and loans; (iii) enter into mergers; (iv) make restricted payments; (v) repurchase or redeem junior debt; (vi) enter into commodity hedges exceeding a specified percentage of our expected production; (vii) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness; (viii) incur liens; (ix) sell assets; and (x) engage in transactions with affiliates.
The Credit Agreement also requires OpCo to maintain compliance with the following financial ratios:
(i) a current ratio, which is the ratio of OpCo’s consolidated current assets (including an add back of unused commitments under the revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding the current portion of long-term debt under the Credit Agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0; and
(ii) a leverage ratio, which is the ratio of total funded debt to consolidated EBITDAX (with such terms defined within the Credit Agreement) for the most recent quarter annualized, of not greater than 3.5 to 1.0.
The Credit Agreement includes fall away covenants, lower interest rates and reduced collateral requirements that OpCo may elect if OpCo is assigned an Investment Grade Rating (as defined within the Credit Agreement).
OpCo was in compliance with the covenants and the applicable financial ratios described above as of September 30, 2024.
Convertible Senior Notes
On March 19, 2021, OpCo issued $150.0 million in aggregate principal amount of 3.25% senior unsecured convertible notes due 2028 (the “Convertible Senior Notes”). On March 26, 2021, OpCo issued an additional $20.0 million of Convertible Senior Notes pursuant to the exercise of the underwriters’ over-allotment option to purchase additional Convertible Senior Notes. These issuances resulted in aggregate net proceeds to OpCo of $163.6 million, after deducting debt issuance costs of $6.4 million. Interest is payable on the Convertible Senior Notes semi-annually in arrears on each April 1 and October 1.
The Convertible Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of OpCo’s current subsidiaries that guarantee OpCo’s outstanding Senior Unsecured Notes.
The Convertible Senior Notes will mature on April 1, 2028 unless earlier repurchased, redeemed or converted. Before January 3, 2028, noteholders have the right to convert their Convertible Senior Notes (i) upon the occurrence of certain events; (ii) if the Company’s share price exceeds 130% of the conversion price for any 20 trading days during the last 30 consecutive trading days of a calendar quarter, after June 30, 2021; or (iii) if the trading price per $1,000 principal amount of the notes is less than 98% of the Company’s share price multiplied by the conversion rate, for a 10 consecutive trading day period. In addition, after January 2, 2028, noteholders may convert their Convertible Senior Notes at any time at their election through the second scheduled trading day immediately before the April 1, 2028 maturity date. As of September 30, 2024, certain conditions have been met, and as a result, noteholders have the right to convert their Convertible Senior Notes during the fourth quarter of 2024.
OpCo can settle conversions by paying or delivering, as applicable, cash, shares of Class A Common Stock, or a combination of cash and shares of Class A Common Stock, at OpCo’s election. The initial conversion rate was 159.2610 shares of Class A Common Stock per $1,000 principal amount of Convertible Senior Notes, which represents an initial conversion price of approximately $6.28 per share of Class A Common Stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events (as defined in the indenture governing the Convertible Senior Notes) which, in certain circumstances, will increase the conversion rate for a specified period of time. As of September 30, 2024, the conversion rate was adjusted to 171.2758 shares of Class A Common Stock per $1,000 principal amount of Convertible Senior Notes as a result of cash dividends and distributions paid. In the context of this debt issuance, we refer to the notes as convertible in accordance with ASC 470 - Debt. However, per the terms of the Convertible Senior Notes’ indenture, the Convertible Senior Notes were issued by OpCo and are exchangeable into shares of the Company’s Class A Common Stock.
OpCo has the option to redeem, in whole or in part, all of the Convertible Senior Notes at any time on or after April 7, 2025, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption, but only if the last reported sale price per share of Class A Common Stock exceeds 130% of the conversion price (i) for any 20 trading days during the 30 consecutive trading days ending on the day immediately before the date OpCo sends the related redemption notice; and (ii) also on the trading day immediately before the date OpCo sends such notice.
If certain corporate events occur, including certain business combination transactions involving the Company or OpCo or a stock de-listing with respect to the Class A Common Stock, noteholders may require OpCo to repurchase their Convertible Senior Notes at a cash repurchase price equal to the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest as of the repurchase date.
Upon an Event of Default (as defined in the indenture governing the Convertible Senior Notes), the trustee or the holders of at least 25% of the aggregate principal amount of then outstanding Convertible Senior Notes may declare the Convertible Senior Notes immediately due and payable. In addition, a default resulting from certain events of bankruptcy or insolvency with respect to the Company, OpCo or any of the subsidiary guarantors will automatically cause all outstanding Convertible Senior Notes to become due and payable.
At issuance, the Company recorded a liability equal to the face value the Convertible Senior Notes, net of unamortized debt issuance costs, in Long-term debt, net in the consolidated balance sheets. As of September 30, 2024, the net liability related to the Convertible Senior Notes was $166.6 million.
Capped Called Transactions
In connection with the issuance of the Convertible Senior Notes in March 2021, OpCo entered into privately negotiated capped call spread transactions with option counterparties (the “Capped Call Transactions”). The Capped Call Transactions cover the aggregate number of shares of Class A Common Stock that initially underlie the Convertible Senior Notes and are expected to (i) generally reduce potential dilution to the Class A Common Stock upon a conversion of the Convertible Senior Notes, and/or; (ii) offset any cash payments OpCo is required to make in excess of the principal amount of the Convertible Senior Notes, subject to a cap. The Capped Call Transactions have an initial strike price of $6.28 per share of Class A Common Stock and an initial capped price of $8.4525 per share of Class A Common Stock, each of which are subject to certain customary adjustments upon the occurrence of certain corporate events, as defined in the capped call agreements.
Senior Unsecured Notes
On August 5, 2024, OpCo issued at par $1.0 billion of 6.25% senior notes due 2033 (the “2033 Senior Notes”) in a 144A private placement that resulted in net proceeds to the Company of $986.4 million, after deducting $13.6 million debt issuance costs. Interest is payable on the 2033 Senior Notes semi-annually in arrears each August 1 and February 1. The Company used the net proceeds from the 2033 Senior Notes to (i) fund the redemption of its 2026 7.75% Senior Notes (discussed below); (ii) fund a portion of the purchase price of the Bolt-On Acquisition (discussed in Note 2—Acquisitions and Divestitures); and (iii repay a portion of borrowings outstanding under its credit facility. On or after August 1, 2027, OpCo may, on any one or more occasions, redeem all or a portion of the 2033 Senior Notes at a redemption price decreasing annually from 103.125% to 100% of the principal amount redeemed plus accrued and unpaid interest.
On November 1, 2023, in connection with the Earthstone Merger, the Company entered into supplemental indentures whereby all of Earthstone’s outstanding senior notes were assumed and became the senior unsecured debt obligations of OpCo. The senior notes assumed by OpCo included $550 million of 8.00% senior notes due 2027 (the “2027 8.00% Senior Notes”) and $500 million of 9.875% senior notes due 2031 (the “2031 Senior Notes”). The Company recorded the acquired senior notes at their fair values as of the Earthstone Merger closing date, which were equal to 102.86% of par (a $15.7 million premium) for the 2027 8.00% Senior Notes and 107.37% of par (a $36.8 million premium) for the 2031 Senior Notes. Interest on the 2027 8.00% Senior Notes is paid semi-annually in arrears on April 15 and October 15 of each year and interest on the 2031 Senior Notes is paid semi-annually in arrears on January 15 and July 15 of each year. Since April 15, 2024 (for the 2027 8.00% Senior Notes) and beginning on or after July 15, 2026 (for the 2031 Senior Notes), OpCo may, on any one or more occasions, redeem all or a portion of the acquired senior notes at a redemption price decreasing annually from 106% to 100% (for the 2027 8.00% Senior Notes) and 104.94% to 100% (for the 2031 Senior Notes) of the principal amount redeemed plus accrued and unpaid interest.
On September 12, 2023, OpCo issued at par $500 million of 7.00% senior notes due 2032 (the “Original 2032 Notes”) in a 144A private placement. On December 13, 2023, OpCo issued additional notes under the indenture dated September 12, 2023 that totaled an additional $500 million of 7.00% senior notes (together with the Original 2032 Notes, the “2032 Senior Notes”), which resulted in aggregate net proceeds to the Company of $982.5 million, after deducting the issuance discount of $2.5 million and debt issuance costs of $15.0 million. The 2032 Senior Notes are treated as a single series of securities and vote together as a single class, and have substantially identical terms, other than the issue date and issue price. Interest is payable on the 2032 Senior Notes semi-annually in arrears each January 15 and July 15. On or after January 15, 2027, OpCo may, on any one or more occasions, redeem all or a portion of the 2032 Senior Notes at a redemption price decreasing annually from 103.5% to 100% of the principal amount redeemed plus accrued and unpaid interest.
On September 1, 2022, the Company completed its merger (the “Colgate Merger”) with Colgate Energy Partners III, LLC (“Colgate”). In connection with the Colgate Merger, the Company entered into supplemental indentures whereby all of Colgate’s outstanding senior notes were assumed and became the senior unsecured debt obligations of OpCo. The senior notes assumed by OpCo included $300 million of 7.75% senior notes due 2026 (the “2026 7.75% Senior Notes”) and $700 million of 5.875% senior notes due 2029 (the “2029 Senior Notes”). The Company recorded the acquired senior notes at their fair values as of the Colgate Merger closing date on September 1, 2022, which were equal to 100% of par for the 2026 7.75% Senior Notes and 92.96% of par
(a $49.3 million debt discount) for the 2029 Senior Notes. In August 2024, the Company redeemed $299.6 million of our outstanding 2026 7.75% Senior Notes through a cash tender offer and the Company irrevocably elected to redeem the remaining amount of the 2026 7.75% Senior Notes outstanding pursuant to the terms of the indenture governing the 2026 7.75% Senior Notes. The tender offer and redemption were funded using proceeds from the issuance of the 2033 Senior Notes. The Company paid total consideration for the tender offer and redemption, excluding accrued interest, of $305.1 million resulting in a loss on extinguishment of debt of $5.1 million.
Interest on the 2029 Senior Notes is paid semi-annually each January 1 and July 1. Since July 1, 2024 for the 2029 Senior Notes, OpCo may, on any one or more occasions, redeem all or a portion of the acquired senior notes at a redemption price decreasing annually from 102.94% to 100% of the principal amount redeemed plus accrued and unpaid interest.
On November 30, 2017, OpCo issued $400.0 million of 5.375% senior notes due 2026 (the “2026 5.375% Senior Notes”) and on March 15, 2019, OpCo issued $500.0 million of 6.875% senior notes due 2027 (the “2027 6.875% Senior Notes” and, together with the 2027 8.00% Senior Notes, 2031 Senior Notes, 2032 Senior Notes, 2026 5.375% Senior Notes, 2029 Senior Notes and the 2026 7.75% Senior Notes, the “Senior Unsecured Notes”) in 144A private placements. In May 2020, $110.6 million aggregate principal amount of the 2026 5.375% Senior Notes and $143.7 million aggregate principal amount of the 2027 6.875% Senior Notes were validly tendered and exchanged by certain eligible bondholders for consideration consisting of $127.1 million aggregate principal amount of 8.00% second lien senior secured notes, which were fully redeemed at par in connection with the Convertible Senior Notes issuance during the second quarter of 2021. On April 5, 2024, all of OpCo’s remaining outstanding 2027 6.875% Senior Notes were redeemed at a price equal to 100% of the aggregate principal amount outstanding of $356.4 million.
As of September 30, 2024, the remaining aggregate principal amount of the 2026 5.375% Senior Notes outstanding was $289.4 million. Interest is payable on the 2026 5.375% Senior Notes semi-annually in arrears each January 15 and July 15. Since January 15, 2023, OpCo may, on any one or more occasions, redeem all or a portion of the 2026 5.375% Senior Notes at a redemption price of 100% of the principal amount redeemed plus accrued and unpaid interest.
The Senior Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of OpCo’s current subsidiaries that guarantee borrowings under OpCo’s Credit Agreement.
At any time prior to July 15, 2026 (for the 2031 Senior Notes), January 15, 2027 (for the 2032 Senior Notes) and August 1, 2027 (for the 2033 Senior Notes) the “Optional Redemption Dates,” OpCo may, on any one or more occasions, redeem up to 35% (for the 2031 Senior Notes) and 40% (for the 2032 and 2033 Senior Notes) of the aggregate principal amount of each series of Senior Unsecured Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 109.875% (for the 2031 Senior Notes), 107.000% (for the 2032 Senior Notes) and 106.25% (for the 2033 Senior Notes) of the principal amount of the Senior Unsecured Notes of the applicable series redeemed, plus accrued and unpaid interest to the date of redemption; provided that at least 65% (for the 2031 Senior Notes) and 60% (for the 2032 and 2033 Senior Notes) of the aggregate principal amount of each such series of Senior Unsecured Notes remains outstanding immediately after such redemption, and the redemption occurs within 180 days of the closing date of such equity offering.
At any time prior to Optional Redemption Dates, OpCo may, on any one or more occasions, redeem all or a part of the Senior Unsecured Notes at a redemption price equal to 100% of the principal amount of the Senior Unsecured Notes redeemed, plus a “make-whole” premium, and any accrued and unpaid interest as of the date of redemption. On and after the Optional Redemption Dates, OpCo may redeem the Senior Unsecured Notes, in whole or in part, at redemption prices expressed as percentages of principal amount plus accrued and unpaid interest to the redemption date.
If OpCo experiences certain defined changes of control accompanied by a ratings decline, each holder of the Senior Unsecured Notes may require OpCo to repurchase all or a portion of its Senior Unsecured Notes for cash at a price equal to 101% of the aggregate principal amount of such Senior Unsecured Notes, plus any accrued but unpaid interest to the date of repurchase.
The indentures governing the Senior Unsecured Notes contain covenants that, among other things and subject to certain exceptions and qualifications, limit OpCo’s ability and the ability of OpCo’s restricted subsidiaries to: (i) incur or guarantee additional indebtedness or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) enter into agreements that restrict dividends or other payments from their subsidiaries to them; (vii) consolidate, merge or transfer all or substantially all of their assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. OpCo was in compliance with these covenants as of September 30, 2024.
Upon an Event of Default (as defined in the indentures governing the Senior Unsecured Notes), the trustee or the holders of at least 25% (or in the case of the 2029 Senior Notes, 30%) of the aggregate principal amount of then outstanding Senior Unsecured
Notes may declare the Senior Unsecured Notes immediately due and payable. In addition, a default resulting from certain events of bankruptcy or insolvency with respect to OpCo, any restricted subsidiary of OpCo that is a significant subsidiary, or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Unsecured Notes to become due and payable.
Note 5—Asset Retirement Obligations
The following table summarizes changes in the Company’s asset retirement obligations (“ARO”) associated with its working interests in oil and gas properties for the nine months ended September 30, 2024:
(in thousands)
Asset retirement obligations, beginning of period
$
121,417
Liabilities incurred
8,115
Liabilities acquired
19,896
Liabilities divested and settled
(4,119)
Accretion expense
6,757
Asset retirement obligations, end of period
152,066
Less current portion(1)
(11,700)
Asset retirement obligations - long-term, end of period
$
140,366
(1) The current portion of ARO is included within Other current liabilities in the consolidated balance sheets.
ARO reflect the present value of the estimated future costs associated with the plugging and abandonment of oil and gas wells, removal of equipment and facilities from leased acreage and land restoration in accordance with applicable local, state and federal laws. Inherent in the fair value calculation of ARO are numerous estimates and assumptions, including plug and abandonment settlement amounts, inflation factors, credit adjusted discount rates and the timing of settlement. To the extent future revisions to these assumptions impact the value of the existing ARO liabilities, a corresponding offsetting adjustment is made to the oil and gas property balance. Changes in the liability due to the passage of time are recognized as an increase in the carrying amount of the liability with an offsetting charge to accretion expense, which is included within depreciation, depletion and amortization.
Note 6—Stock-Based Compensation
The Company has a Long Term Incentive Plan (the “LTIP”) that has a total of 71,718,560 shares of Class A Common Stock authorized for issuance. The LTIP provides for grants of restricted stock, stock options (including incentive stock options and nonqualified stock options), restricted stock units (including performance stock units), stock appreciation rights and other stock or cash-based awards.
Stock-based compensation expense is recognized within both General and administrative expenses and Exploration and other expenses in the consolidated statements of operations. The Company accounts for forfeitures of awards granted under the LTIP as they occur.
The following table summarizes stock-based compensation expense recognized for the periods presented:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Equity Awards
Restricted stock
$
6,083
$
6,311
$
21,522
$
30,324
Stock option awards
—
—
—
1
Performance stock units
8,023
9,709
25,191
39,260
Total stock-based compensation expense
$
14,106
$
16,020
$
46,713
$
69,585
Equity Awards
The Company has restricted stock, stock options and performance stock units (“PSUs”) outstanding that were granted under the LTIP as discussed below. Each award has service-based and, in the case of the PSUs, market-based vesting requirements, and are expected to be settled in shares of Class A Common Stock upon vesting. As a result, these awards are classified as equity-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”).
In connection with the Colgate Merger, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved a resolution to extend severance benefits under the Company’s Second Amended and Restated Severance Plan (the “Second A&R Severance Plan”) to employees that experience a Qualifying Termination (as defined in the Second A&R Severance Plan) following the Colgate Merger. As a result, affected employees of the Company received an accelerated vesting of their unvested restricted stock awards and PSUs upon termination, which changed the terms of the vesting conditions and were treated as modifications in accordance with ASC 718. During the nine months ended September 30, 2024, five employees had Qualifying Terminations related to the Colgate Merger as compared to nineteen employees during the nine months ended September 30, 2023, all of which received accelerated vesting of their unvested stock awards or had changes in their service periods resulting in modifications of such impacted stock awards. These modifications resulted in an increase to total stock-based compensation expense of $1.7 million and $14.6 million for the three and nine months ended September 30, 2024 and $7.1 million and $39.3 million for the three and nine months ended September 30, 2023, respectively, as a result of the change in the fair value of the modified awards. The restricted stock shares and performance stock units that were accelerated are included within the vested line items in the below tables. As of September 1, 2024, no additional Qualifying Terminations pursuant to the Second A&R Severance Plan can occur as a result of the Colgate Merger.
Restricted Stock
The following table provides information about restricted stock activity during the nine months ended September 30, 2024:
Restricted Stock
Weighted Average Fair Value
Unvested balance as of December 31, 2023
3,821,231
$
8.58
Granted
2,248,692
15.01
Vested
(1,874,301)
10.17
Forfeited
(565,008)
11.24
Unvested balance as of September 30, 2024
3,630,614
12.42
The Company grants service-based restricted stock to certain officers and employees, which either vests ratably over a three-year service period or cliff vests upon a three to five year service period, and to directors, which vest over a one-year service period. Compensation cost for these service-based restricted stock grants is based on the closing market price of the Company’s Class A Common Stock on the grant date, and such costs are recognized ratably over the applicable vesting period. The total fair value of restricted stock that vested during the nine months ended September 30, 2024 and 2023 was $19.1 million and $34.5 million, respectively. Unrecognized compensation cost related to restricted shares that were unvested as of September 30, 2024 was $35.3 million, which the Company expects to recognize over a weighted average period of 2.3 years.
Stock Options
Stock options that have been granted under the LTIP expire ten years from the grant date and vest ratably over their three-year service period. The exercise price for an option granted under the LTIP is the closing market price of the Company’s Class A Common Stock on the grant date. Compensation cost for stock options is based on the grant-date fair value of the award, which is then recognized ratably over the vesting period of three years.
The following table provides information about stock option awards outstanding during the nine months ended September 30, 2024:
The Company grants performance stock units (“PSU”) to certain officers and members of management that are subject to market-based vesting criteria as well as a service period of three years. Vesting at the end of the service period depends on the Company’s absolute annualized total shareholder return (“TSR”) over the performance period, as well as the Company’s TSR relative to the TSR of a group of peer companies. These market-based conditions must be met in order for the stock awards to vest, and it is therefore possible that no shares could ultimately vest. However, the Company recognizes compensation expense for the PSUs subject to market conditions regardless of whether it becomes probable that these conditions will be met or not, and compensation expense is not reversed if vesting does not actually occur.
The Company’s PSUs currently outstanding can be settled in either Class A Common Stock or cash upon vesting at the Company’s discretion. The Company intends to settle all PSUs in Class A Common Stock and has sufficient shares available under the LTIP to settle the units in Class A Common Stock at the potential future vesting dates. Accordingly, the PSUs have been treated as equity-based awards with their fair values determined as of the grant or modification date, as applicable. The fair values of the awards are estimated using a Monte Carlo valuation model. The Monte Carlo valuation model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility was calculated based on the historical volatility of the Company’s Class A Common Stock, and the risk-free interest rate is based on U.S. Treasury yield curve rates with maturities consistent with the vesting periods.
Each of our Co-Chief Executive Officers received performance-based restricted stock unit awards in September 2022 (the “2022 PSUs”) which were split into three tranches with performance period end dates at the end of 2025, 2026 and 2027 and with service periods corresponding to those same performance periods. During the three months ended September 30, 2024, the Compensation Committee amended the 2022 PSUs to deem the service requirement portion of the 2022 PSUs met on each of the three tranches as of September 1, 2025, which is consistent with the three-year service requirement for other performance-based restricted stock awards granted by the Company. Following September 1, 2025, each tranche of the 2022 PSUs will continue to be subject to the original performance-based conditions, including no changes to the performance period, and will continue to vest, if at all, based on the satisfaction of the original performance conditions at year-end 2025, 2026 and 2027. In accordance with ASC 718, no incremental stock-based compensation was recognized as a result of these modifications, instead the remaining unrecognized compensation cost will be recognized over the modified requisite service period.
The following table summarizes the key assumptions and related information used to determine the fair value of PSUs granted during the nine months ended September 30, 2024:
2024 Awards
Number of PSUs granted
731,472
Fair value per share
$24.81
Expected implied stock volatility
43.9%
Risk-free interest rate
4.3%
The following table provides information about PSUs outstanding during the nine months ended September 30, 2024:
Awards
Weighted Average Fair Value
Unvested balance as of December 31, 2023
5,019,425
$
15.18
Granted
731,472
24.81
Vested(1)
(283,462)
20.81
Forfeited
(123,052)
19.77
Unvested balance as of September 30, 2024
5,344,383
16.54
(1) This balance includes vested PSU awards as of September 30, 2024 based on the original number of PSUs granted. Actual PSUs vested is based upon the Company’s absolute annualized TSR calculation and the Company’s TSR relative to the TSR of a peer group of companies at the time of vesting, which may be greater than or less than the original number granted.
As of September 30, 2024, there was $42.2 million of unrecognized compensation cost related to PSUs that were unvested, which the Company expects to recognize on a pro-rata basis over a weighted average period of 1.2 years.
The Company is exposed to certain risks relating to its ongoing business operations and may use derivative instruments to manage its exposure to commodity price risk from time to time.
Commodity Derivative Contracts
Historically, prices received for crude oil and natural gas production have been volatile because of supply and demand factors, worldwide political factors, general economic conditions and seasonal weather patterns. The Company may periodically use derivative instruments, such as swaps, costless collars and basis swaps, to mitigate its exposure to declines in commodity prices and to the corresponding negative impacts such declines can have on its cash flows from operations, returns on capital and other financial results. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. The Company does not enter into derivative contracts for speculative or trading purposes.
Commodity Swaps, Collar Contracts and Deferred Premium Puts. The Company may use commodity derivative instruments known as fixed price swaps to realize a known price for a specific volume of production, basis swaps to hedge the difference between the index price and a local or future index price, costless collars to establish fixed price floors and ceilings, or deferred premium puts to establish fixed price floors while delaying the premium payment until the option’s expiration. All transactions are settled in cash with one party paying the other for the resulting difference in price multiplied by the contract volume.
The following table summarizes the approximate volumes and average contract prices of derivative contracts the Company had in place as of September 30, 2024:
(1) These crude oil swap transactions are settled based on the NYMEX WTI index price on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.
(2) These crude oil collars are settled based on the NYMEX WTI index price on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.
(3) These crude oil deferred premium puts are settled based on the NYMEX WTI index price on each trading day within the specified monthly settlement period versus the contractual put prices for the volumes stipulated.
(4) These crude oil basis swap transactions are settled based on the difference between the arithmetic average of ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each applicable monthly settlement period.
(5) These crude oil roll swap transactions are settled based on the difference between the arithmetic average of NYMEX WTI calendar month prices and the physical crude oil delivery month price.
(1) These natural gas swap contracts are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.
(2) These natural gas basis swap contracts are settled based on the difference between the Inside FERC’s West Texas WAHA price and the NYMEX price of natural gas, during each applicable monthly settlement period.
(3) These natural gas collars are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.
Derivative Instrument Reporting. The Company’s oil and natural gas derivative instruments have not been designated as hedges for accounting purposes. Therefore, all gains and losses are recognized in the Company’s consolidated statements of operations. All derivative instruments are recorded at fair value in the consolidated balance sheets, other than derivative instruments that meet the “normal purchase normal sale” exclusion, and any fair value gains and losses are recognized in current period earnings.
The following table presents the impact of the Company’s derivative instruments in its consolidated statements of operations for the periods presented:
Offsetting of Derivative Assets and Liabilities. The Company’s commodity derivatives are included in the accompanying consolidated balance sheets as derivative assets and liabilities. The Company nets its financial derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master netting agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The tables below summarize the fair value amounts and the classification in the consolidated balance sheets of the Company’s derivative contracts outstanding at the respective balance dates, as well as the gross recognized derivative assets, liabilities and offset amounts:
Balance Sheet Classification
Gross Fair Value Asset/Liability Amounts
Gross Amounts Offset(1)
Net Recognized Fair Value Assets/Liabilities
(in thousands)
September 30, 2024
Derivative Assets
Commodity contracts
Derivative instruments
$
134,106
$
(3,936)
$
130,170
Other noncurrent assets
55,088
(323)
54,765
Derivative Liabilities
Commodity contracts
Other current liabilities
$
3,936
$
(3,936)
$
—
Other noncurrent liabilities
323
(323)
—
December 31, 2023
Derivative Assets
Commodity contracts
Derivative instruments
$
88,192
$
(17,601)
$
70,591
Other noncurrent assets
29,469
(2,435)
27,034
Derivative Liabilities
Commodity contracts
Other current liabilities
$
20,326
$
(17,601)
$
2,725
Other noncurrent liabilities
3,762
(2,435)
1,327
(1) The Company has agreements in place with each of its counterparties that allow for the financial right of offset for derivative assets against derivative liabilities at settlement or in the event of a default under the agreements or if contracts are terminated.
Contingent Features in Financial Derivative Instruments. None of the Company’s derivative instruments contain credit-risk-related contingent features. Counterparties to the Company’s financial derivative contracts are high credit-quality financial institutions that are primarily lenders under OpCo’s Credit Agreement. The Company enters into new hedge arrangements only with participants under its Credit Agreement, since these institutions are secured equally with the holders of any OpCo bank debt, which eliminates the potential need to post collateral when the Company is in a derivative liability position. As a result, the Company is not required to post letters of credit or corporate guarantees for its derivative counterparties in order to secure contract performance obligations.
In addition, the Company is exposed to credit risk associated with its derivative contracts from non-performance by its counterparties. The Company mitigates its exposure to any single counterparty by contracting with a number of financial institutions, each of which has a high credit rating and is a lender under OpCo’s Credit Agreement as referenced above.
Note 8—Fair Value Measurements
Recurring Fair Value Measurements
The Company follows ASC Topic 820, Fair Value Measurement and Disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:
•Level 1: Quoted Prices in Active Markets for Identical Assets – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
•Level 2: Significant Other Observable Inputs – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
•Level 3: Significant Unobservable Inputs – inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The following table presents, for each applicable level within the fair value hierarchy, the Company’s net derivative assets and liabilities, including both current and noncurrent portions, measured at fair value on a recurring basis:
(in thousands)
Level 1
Level 2
Level 3
September 30, 2024
Total assets
$
—
$
184,935
$
—
Total liabilities
—
—
—
December 31, 2023
Total assets
$
—
$
97,625
$
—
Total liabilities
—
4,052
—
Both financial and non-financial assets and liabilities are categorized within the above fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following is a description of the valuation methodologies used by the Company as well as the general classification of such instruments pursuant to the above fair value hierarchy. There were no transfers between any of the fair value levels during any period presented.
Derivatives
The Company uses Level 2 inputs to measure the fair value of its oil and natural gas commodity derivatives. The Company uses industry-standard models that consider various assumptions including current market and contractual prices for the underlying instruments, implied market volatility, time value, nonperformance risk, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be supported by observable data. The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations. Refer to Note 7—Derivative Instruments for details of the gross and net derivative assets, liabilities and offset amounts as presented in the consolidated balance sheets.
Nonrecurring Fair Value Measurements
The Company applies the provisions of the fair value measurement standard on a nonrecurring basis to its non-financial assets and liabilities, including proved oil and gas properties. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances.
Oil and Gas Property Acquisitions. The fair value measurements of assets acquired and liabilities assumed are measured on the acquisition date using an income valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs to the valuation of acquired oil and gas properties include estimates of: (i) reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; (v) future cash flows; (vi) a market participant-based weighted average cost of capital rate and (vii) risk adjustment factors applied to proved and unproved reserves. These inputs require significant judgements and estimates by the Company’s management at the time of valuation.
Impairment of Oil and Natural Gas Properties. The Company reviews its proved oil and natural gas properties for impairment whenever events and circumstances indicate that the fair value of these assets may be below their carrying value. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows from oil and gas properties is less than the carrying amount of the assets. In this circumstance, the Company then recognizes impairment expense for the amount by which the carrying amount of proved properties exceeds their estimated fair value. The Company reviews its oil and natural gas properties on a field-by-field basis.
The Company calculates the estimated fair value of its oil and natural gas properties using an income approach that is based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs to the expected future net cash flows used for the impairment review and the related fair value measurement of oil and natural gas proved properties include estimates of: (i) oil and gas reserves; (ii) future production decline rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; and (v) a market participant-based weighted average cost of capital rate. These inputs require significant judgments and estimates by the Company’s management.
Asset Retirement Obligations. The initial measurement of ARO at fair value is calculated using discounted cash flow techniques and is based on internal estimates of future retirement costs associated with property, plant and equipment. Significant Level 3 inputs used in the calculation of ARO include the estimated future costs to plug and abandon oil and gas properties and reserve lives. Refer to Note 5—Asset Retirement Obligations for additional information on the Company’s ARO.
Other Financial Instruments
The carrying amounts of the Company’s cash, cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values because of the short-term maturities and/or liquid nature of these assets and liabilities.
The Company’s senior notes and borrowings under its Credit Agreement are accounted for at cost. The following table summarizes the carrying values, principal amounts and fair values of these instruments as of the periods indicated:
September 30, 2024
December 31, 2023
Carrying Value
Principal Amount
Fair Value
Carrying Value
Principal Amount
Fair Value
Credit Facility(1)
$
—
$
—
$
—
$
—
$
—
$
—
5.375% Senior Notes due 2026(2)
288,115
289,448
288,690
287,408
289,448
285,287
7.75% Senior Notes due 2026(2)
—
—
—
300,000
300,000
304,551
6.875% Senior Notes due 2027(2)
—
—
—
352,619
356,351
356,852
8.00% Senior Notes due 2027(2)
561,976
550,000
566,850
565,063
550,000
568,473
3.25% Convertible Senior Notes due 2028(2)(3)
166,573
170,000
418,342
165,897
170,000
404,124
5.875% Senior Notes due 2029(2)
663,299
700,000
700,726
658,562
700,000
684,705
9.875% Senior Notes due 2031(2)
533,646
500,000
557,490
536,280
500,000
555,625
7.00% Senior Notes due 2032(2)
984,008
1,000,000
1,041,193
982,952
1,000,000
1,030,790
6.25% Senior Notes due 2033(2)
986,642
1,000,000
1,018,607
—
—
—
(1) The carrying values of the amounts outstanding under OpCo’s Credit Agreement approximate fair value because its variable interest rates are tied to current market rates and the applicable credit spreads represent current market rates for the credit risk profile of the Company.
(2) The carrying values include associated unamortized debt issuance costs and any debt discounts or premiums as reflected in the consolidated balance sheets. The fair values are determined using quoted market prices for these debt securities, a Level 1 classification in the fair value hierarchy, and are based on the aggregate principal amount of the senior notes outstanding.
(3) The Convertible Senior Notes are subject to certain conditions that allow them to be convertible prior to their maturity and as of September 30, 2024, noteholders have the right to convert during the fourth quarter of 2024. The Company has Capped Call Transactions that cover the aggregate number of shares of Class A Common Stock that underlie the Convertible Senior Notes and would offset any cash payment OpCo is required to make in excess of the principal amount of these notes. Refer to Note 4—Long-Term Debt for additional information on theConvertible Senior Notes and associated Capped Call Transactions.
Note 9—Shareholders’ Equity and Noncontrolling Interest
Stock Conversion
During the nine months ended September 30, 2024 and 2023, certain legacy owners of Colgate and Earthstone exchanged 126.8 million and 49.1 million, respectively, of their common units of OpCo (“Common Unit”) and corresponding shares of Class C Common Stock for Class A Common Stock. Deferred tax assets of $89.7 million and $16.6 million were recorded in equity as a result of the conversions of shares from the noncontrolling interest owners for the nine months ended September 30, 2024 and 2023, respectively. No cash proceeds were received by the Company in connection with these conversions.
In July 2024, the Company completed an underwritten public offering of 26.5 million shares of its Class A Common Stock in which the Company received net cash proceeds of $402.2 million after underwriting discounts and commissions. The Company used the net proceeds from this equity offering to fund a portion of the aggregate purchase price of the Bolt-On Acquisition discussed in Note 2—Acquisitions and Divestitures.
In May 2024, the Company issued 6.2 million shares of Class A Common Stock, which were issued as partial consideration for a portion of the 2024 asset acquisitions discussed in Note 2—Acquisitions and Divestitures. No cash proceeds were received by the Company in connection with this issuance.
Dividends
The following table summarizes the Company’s base and variable dividend per share of Class A Common Stock and distribution per Common Unit (each of which has an underlying share of Class C Common Stock) declared and paid during each period:
Dividend/Distribution per Share
Total Dividends/Distributions Declared and Paid
Base
Variable
Total
Three Months Ended,
(in thousands)
September 30, 2024
$
0.06
$
0.15
$
0.21
$
170,156
September 30, 2023
$
0.05
$
0.05
$
0.10
$
57,587
Nine Months Ended,
September 30, 2024
$
0.17
$
0.39
$
0.56
$
440,291
September 30, 2023
$
0.15
$
0.10
$
0.25
$
143,089
Stock Repurchase Program
The Company’s Board of Directors authorized a stock repurchase program to acquire up to $500 million of the Company’s outstanding common stock (the “Repurchase Program”), which was approved to run through December 31, 2024. On September 3, 2024, the Company’s Board of Directors authorized a new share repurchase program (the “New Repurchase Program”) of $1 billion, replacing the existing $500 million Repurchase Program. The New Repurchase Program is approved to run on an indefinite basis and can be used by the Company to reduce its shares of Class A Common Stock and Class C Common Stock outstanding. Repurchases may be made from time to time in the open-market or via privately negotiated transactions at the Company’s discretion and will be subject to market conditions, applicable legal requirements, available liquidity, compliance with the Company’s debt agreements and other factors. The New Repurchase Program does not require any specific number of shares to be acquired and can be modified or discontinued by the Company’s Board of Directors at any time.
During the nine months ended September 30, 2024 and 2023, the Company paid $61.0 million and $57.3 million, respectively, to repurchase 3.8 million and 5.0 million, respectively, Common Units of OpCo resulting in an equal number of the underlying shares of Class C Common Stock simultaneously being canceled under its Repurchase Program.
Noncontrolling Interest
The noncontrolling interest relates to Common Units that were issued in connection with the Colgate Merger and the Earthstone Merger. The noncontrolling interest percentage is affected by various equity transactions such as Common Unit and Class C Common Stock exchanges and transactions involving Class A Common Stock.
As of September 30, 2024, the noncontrolling interest ownership of OpCo had decreased to 12% from 30% as of December 31, 2023. This decrease was mainly the result of (i) exchanges of Common Units (and corresponding shares of Class C Common Stock) for Class A Common Stock and (ii) Class C Common Stock repurchases completed by the Company as discussed above.
The Company consolidates the financial position, results of operations and cash flows of OpCo and reflects the portion retained by other holders of Common Units as a noncontrolling interest. Refer to the consolidated statements of shareholders’ equity for a summary of the activity attributable to the noncontrolling interest during the period.
Basic earnings per share (“EPS”) is calculated by dividing net income attributable to Class A Common Stock by the weighted average shares of Class A Common Stock outstanding during each period. Diluted EPS is calculated by dividing adjusted net income by the weighted average shares of diluted Class A Common Stock outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities for the diluted EPS calculation consists of (i) unvested equity-based restricted stock and performance stock units and outstanding stock options, all using the treasury stock method; (ii) equity-based restricted stock and performance stock units that were vested but not outstanding, using the treasury stock method; and (iii) the Company’s Class C Common Stock and potential shares issuable under our Convertible Senior Notes, both using the “if-converted” method, which is net of tax.
The following table reflects the EPS computations for the periods indicated based on a weighted average number of Class A Common Stock outstanding each period:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands, except per share data)
2024
2023
2024
2023
Net income attributable to Class A Common Stock
$
386,376
$
45,433
$
768,051
$
220,952
Add: Interest on Convertible Senior Notes, net of tax
1,305
1,374
3,887
4,116
Adjusted net income (attributable to Class A Common Stock)
$
387,681
$
46,807
$
771,938
$
225,068
Basic weighted average shares of Class A Common Stock outstanding
693,692
324,650
619,741
312,015
Add: Dilutive effects of Convertible Senior Notes
29,117
27,829
29,117
27,583
Add: Dilutive effects of equity awards
13,430
13,695
14,457
11,819
Diluted weighted average shares of Class A Common Stock outstanding
736,239
366,174
663,315
351,417
Basic net earnings per share of Class A Common Stock
$
0.56
$
0.14
$
1.24
$
0.71
Diluted net earnings per share of Class A Common Stock
$
0.53
$
0.13
$
1.16
$
0.64
The following table presents shares excluded from the diluted earnings per share calculation for the periods presented as their impact was anti-dilutive:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Out-of-the-money stock options
436
1,022
482
1,451
Weighted average shares of Class C Common Stock
100,670
241,340
159,396
250,018
Restricted stock
325
—
182
69
Performance stock units
831
—
277
39
Note 11—Transactions with Related Parties
Pearl Energy Investments (“Pearl”), EnCap Partners GP, LLC (“EnCap”), Riverstone Investment Group LLC (“Riverstone”) and related affiliates of each entity each beneficially owned more than 5% of any class of common stock in the Company as of September 30, 2024. Due to Pearl’s, EnCap’s and Riverstone’s beneficial ownership, these entities are considered related parties to the Company. NGP Energy Capital (“NGP”), was a related party through the first quarter of 2024, however, NGP no longer beneficially owns any class of common stock in the Company as of September 30, 2024 and is no longer considered a related party to the Company.
The Company has a vendor arrangement with Streamline Innovations Inc, (“Streamline”) who was a former affiliate of Riverstone beginning in the second quarter of 2022 and is now an affiliate of Pearl as of September 30, 2024 that represents a related party transaction. The Company believes that the terms of this arrangement are no less favorable to either party than those held with unaffiliated parties.
The following table summarizes the costs incurred from the arrangement during the periods it was considered a related party, as discussed above, as included in the consolidated statements of operations for the periods indicated:
Three Months Ended September 30,
Nine Months Ended September 30,
(in thousands)
2024
2023
2024
2023
Streamline
Lease operating expenses
$
2,556
$
1,782
6,599
3,616
During the nine months ended September 30, 2024 and 2023, the Company paid various affiliates of NGP and EnCap for revenues earned based upon their net revenue interests held in wells that are operated by the Company. These relationships are considered ordinary in the course of business and the terms of these relationships are no more favorable than those held with unaffiliated parties.
During the nine months ended September 30, 2024 and 2023, the Company repurchased 3.8 million and 5.0 million Common Units of OpCo from NGP, respectively, for $61.0 million and $57.3 million, respectively, under the Repurchase Program. The equal number of underlying shares of Class C Common Stock were simultaneously canceled by the Company.
Note 12—Commitments and Contingencies
Commitments
In connection with the Bolt-On Acquisition, the Company assumed a NGL purchase agreement during the nine months ended September 30, 2024. The purchase agreement includes a commitment to deliver a minimum of 9,000 Bbls/d of NGLs to the purchaser over the next 3.5 years or be subject to under-delivery fees that would result in a financial obligation equal to $3.36 per barrel of NGL under the required minimum volumes, subject to inflation factors. The Company currently expects its future production will satisfy all minimum volume commitments under this agreement.
During the nine months ended September 30, 2024, the Company also entered into a multi-year energy purchase agreement to buy electricity utilized in the Company’s operations. Under the contract, the Company is obligated to purchase a minimum amount of electricity at a fixed price. If the Company does not utilize the minimum amounts of electricity on a monthly basis and the supplier is unable to sell the unutilized quantity, the Company is liable for the full cost of the underutilization at the fixed price per the agreement. The total remaining obligation is $45.2 million, which represents the gross minimum financial commitments pursuant to this agreement as of September 30, 2024.
The Company routinely enters into, extends or amends operating agreements in the ordinary course of business. There has been no other material, non-routine changes in commitments during the nine months ended September 30, 2024. Please refer to Note 14—Commitments and Contingencies included in Part II, Item 8 in the Company’s 2023 Annual Report.
Contingencies
The Company may at times be subject to various commercial or regulatory claims, prior period adjustments from service providers, litigation or other legal proceedings that arise in the ordinary course of business. While the outcome of these lawsuits and claims cannot be predicted with certainty, management believes it is remote that the impact of such matters, other than those discussed below, that are reasonably possible to occur will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
In February 2021, the Permian Basin was impacted by record-low temperatures and a severe winter storm (“Winter Storm Uri”) that resulted in multi-day electrical outages and shortages, pipeline and infrastructure freezes, transportation disruptions, and regulatory actions in Texas, which led to significant increases in gas prices, gathering, processing and transportation fees and electrical rates during this time. As a result, many oil and gas operators, including upstream producers like the Company, gas processors and purchasers, and transportation providers experienced operational disruptions. During this time, the Company was unable to utilize the entire volume of its reserved capacity on pipelines and as a result has made certain force majeure declarations. One third-party transportation provider filed a lawsuit against the Company claiming compensation for the full amount of the reserved capacity, both utilized and unutilized. The Company paid for the utilized capacity and filed a separate lawsuit against the transportation provider requesting declaratory relief for the purpose of construing the provisions of the transportation agreement relating to the unutilized capacity. At this time, a loss in relation to these matters is certain and in accordance with ASC Topic 450-20, Loss Contingencies, the Company has recorded a net estimated liability of $7.6 million, inclusive of estimated interest penalties, as of September 30, 2024, which was paid during the fourth quarter of 2024.
Other than the matter above, management is unaware of any pending litigation brought against the Company requiring a contingent liability to be recognized as of the date of these consolidated financial statements.
Note 13—Revenues
Revenue from Contracts with Customers
Crude oil, natural gas and NGL sales are recognized at the point that control of the product is transferred to the customer and collectability is reasonably assured. Substantially all of the Company’s contract pricing provisions are tied to a market index, with certain adjustments based on, among other factors, transportation costs to an active spot market and quality differentials. As a result, the Company’s realized prices of oil, natural gas, and NGLs fluctuate to remain competitive with other available oil, natural gas, and NGLs supplies both globally (in the case of crude oil) and locally.
Oil and gas revenues presented within the consolidated statements of operations relate to the sale of oil, natural gas and NGLs as shown below:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Operating revenues (in thousands):
Oil sales
$
1,099,318
$
660,445
$
3,265,303
$
1,734,057
Natural gas sales(1)
(37,087)
38,354
(21,351)
94,123
NGL sales(2)
153,340
59,742
460,701
170,027
Oil and gas sales
$
1,215,571
$
758,541
$
3,704,653
$
1,998,207
(1) Natural gas sales include a portion of gathering, processing and transportation costs (“GP&T”) that are reflected as a reduction to natural gas sales of $26.2 million and $75.1 million for the three and nine months ended September 30, 2024, respectively, and $12.0 million and $30.7 million for the three and nine months ended September 30, 2023, respectively.
(2) NGL sales include a portion of GP&T that are reflected as a reduction to NGL sales of $23.0 million and $64.7 million for the three and nine months ended September 30, 2024, respectively, and $16.3 million and $48.9 million for the three and nine months ended September 30, 2023, respectively.
Oil sales
The Company’s crude oil sales contracts are generally structured whereby oil is delivered to the purchaser at a contractually agreed-upon delivery point at which the purchaser takes title of the product. This delivery point is usually at the wellhead or at the inlet of a transportation pipeline. Revenue is recognized when control transfers to the purchaser at the delivery point based on the net price received from the purchaser. Any downstream transportation costs incurred by crude purchasers are reflected as a net reduction to oil sales revenues.
Natural gas and NGL sales
Under the Company’s natural gas processing contracts, liquids rich natural gas is delivered to a midstream gathering and processing entity at the agreed upon delivery point at which the purchaser takes title of the product. The midstream processing entity gathers and processes the raw gas and then remits proceeds to the Company. For these contracts, the Company evaluates when control is transferred and revenue should be recognized. Where the Company elects to take its residue gas or NGL product “in-kind” at the plant tailgate, fees incurred prior to transfer of control at the outlet of the plant are presented as GP&T within the consolidated statements of operations. Where the Company does not take its residue gas or NGL products “in-kind”, transfer of control occurs at the inlet of the gas gathering systems, or prior, and fees incurred subsequent to this point are reflected as a net reduction to natural gas and NGL sales revenues presented in the table above.
Performance obligations
For all commodity products, the Company records revenue in the month production is delivered to the purchaser. Settlement statements for crude oil are generally received within 30 days following the date that production volumes are delivered, but for natural gas and NGL sales, statements may not be received for 30 to 60 days after delivery has occurred. However, payment is unconditional once the performance obligations have been satisfied. At such time, the volumes delivered and sales prices can be reasonably estimated and amounts due from customers are accrued in Accounts receivable, net in the consolidated balance sheets. As of September 30, 2024 and December 31, 2023, such receivable balances were $227.2 million and $346.0 million, respectively.
The Company records any differences between its estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. Historically, any identified differences between revenue estimates and actual revenue received have not been significant. For the nine months ended September 30, 2024 and 2023, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods were not material.
Transaction price allocated to remaining performance obligations
For the Company’s product sales that have a contract term greater than one year, the Company has utilized the practical expedient in ASC Topic 606, Revenue from contracts with Customers, which states the Company is not required to disclose the transaction price allocated to the remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, monthly sales of a product generally represent a separate performance obligation. Therefore, future commodity volumes to be delivered and sold are wholly unsatisfied, and disclosure of the transaction price allocated to such unsatisfied performance obligations is not required.
Note 14—Subsequent Events
Dividends Declared
On November 6, 2024, the Company announced that its Board of Directors declared a quarterly base dividend of $0.15 per share of Class A Common Stock and distribution of $0.15 per share of Class C Common Stock (each of which has an underlying Common Unit of OpCo). The dividend is payable November 22, 2024 to shareholders of record as of November 14, 2024.
Amended Credit Agreement
In connection with the fall borrowing base redetermination on October 31, 2024, the Company entered into the eighth amendment to its Credit Agreement (the “Eighth Amendment”). The Eighth Amendment, among other things, (i) extended the maturity date from February 2027 to February 2028, (ii) reaffirmed the borrowing base at $4.0 billion, (iii) reaffirmed the aggregate elected commitments at $2.5 billion and (iv) adjusted the applicable margin calculation to a pricing grid based upon borrowing base utilization.
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 should be read in conjunction with the accompanying consolidated financial statements and related notes. The following discussion and analysis contain forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, future market prices for oil, natural gas and NGLs, future production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, inflation, regulatory changes, and other uncertainties, as well as those factors discussed in “Cautionary Statement Concerning Forward-Looking Statements” and under the heading “Item 1A. Risk Factors” in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”); all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may or may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
Permian Resources Corporation is an independent oil and natural gas company focused on the responsible acquisition, optimization and development of high-return oil and natural gas properties. Our assets are mainly located in the core of the Permian Basin. Our principal business objective is to increase shareholder value by efficiently developing our oil and natural gas assets in an environmentally and socially responsible way, with an overall objective of improving our rates of return and generating sustainable free cash flow. Unless otherwise specified or the context otherwise requires, all references in these discussions to “Permian Resources,” “we,” “us,” or “our” are to Permian Resources Corporation and its consolidated subsidiaries, including Permian Resources Operating, LLC (“OpCo”).
On November 1, 2023, we completed the Earthstone merger (the “Earthstone Merger”) with Earthstone Energy, Inc. (“Earthstone”). Earthstone’s results of operations were included in our financial statements and results of operations beginning on November 1, 2023.
Market Conditions
Our revenue, profitability and ability to return cash to stockholders can depend substantially on factors beyond our control, such as economic, political and regulatory developments. Prices for crude oil, natural gas and NGLs have experienced significant fluctuations in recent years and may continue to fluctuate widely in the future.
The Organization of Petroleum Exporting Countries and other oil producing countries (“OPEC+”) undertook a series of actions in an effort to support commodity prices throughout 2023 in response to global recession concerns, a high interest rate environment, lower than expected demand from China and a regional banking crisis in the U.S., among other events. In addition, both Saudi Arabia and Russia announced unilateral production curtailments at separate times during 2023. These actions, coupled with relatively strong global demand and rising tensions in the Middle East, caused crude oil prices to increase during 2023, with NYMEX WTI spot prices reaching a high of $93.68 per barrel on September 27, 2023. However, further concerns of global economic growth, inflation and increases in oil and natural gas supply levels resulted in additional price deterioration at the end of 2023 and into the beginning of 2024. More recently, oil demand concerns around China and the rest of the world have caused the NYMEX WTI spot price to drop to an average of $69.37 in September 2024. Natural gas prices have remained low throughout the first nine months of 2024 driven by an over-supply due to mild winter weather, liquefied natural gas (LNG) project delays and higher than expected natural gas production. Market prices in the Permian Basin were further impacted by low demand as a result of current pipeline capacity constraints out of the basin and additional pipeline maintenance, which led to negative regional gas prices being realized at the Waha Hub in West Texas (“Waha”) throughout the first nine months of 2024. Specifically, the Waha price of natural gas averaged negative $1.00 per MMBtu during the third quarter of 2024 leading to negative gas realizations.
The oil and natural gas industry is cyclical, and it is likely that commodity prices, as well as commodity price differentials, will continue to be volatile due to fluctuations in global supply and demand, inventory levels, geopolitical events, federal and state government regulations, weather conditions, the global transition to alternative energy sources, supply chain constraints and other factors. The following table highlights the quarterly average price trends for NYMEX WTI spot prices for crude oil and NYMEX Henry Hub index price for natural gas since the first quarter of 2022:
Lower commodity prices and lower futures curves for oil and gas prices can result in impairments of our proved oil and natural gas properties or undeveloped acreage and may materially and adversely affect our operating cash flows, liquidity, financial condition, results of operations, future business and operations, and/or our ability to finance planned capital expenditures, which could in turn impact our ability to comply with covenants under our five-year secured revolving credit facility (the “Credit Agreement”) and senior notes. Lower realized prices may also reduce the borrowing base under our Credit Agreement, which is determined at the discretion of the lenders and is based on the collateral value of our proved reserves that have been mortgaged to the lenders. Upon a redetermination, if any borrowings in excess of the revised borrowing capacity were outstanding, we could be forced to immediately repay a portion of the debt outstanding under the Credit Agreement.
Due to the cyclical nature of the oil and gas industry, fluctuating demand for oilfield goods and services can put pressure on the pricing structure within our industry. As commodity prices rise, costs of oilfield goods and services generally also increase; however, during periods of commodity price declines, oilfield costs typically lag and do not adjust downward as fast as oil prices do. In addition, the U.S. has seen higher than normal inflation during 2023 and 2024. Inflationary pressures such as these may also result in increases to the costs of our oilfield goods, services and personnel, which can in turn cause our capital expenditures and operating costs to rise.
2024 Highlights
2024 Asset Acquisitions
On September 17, 2024, we completed the acquisition of oil and gas properties with certain affiliates of Occidental Petroleum Corporation for total cash consideration of $743.5 million, subject to customary post-closing purchase price adjustments (the “Bolt-On Acquisition”). The Bolt-On Acquisition included approximately 29,500 net leasehold acres and approximately 9,900 net royalty acres that are predominately located directly offsetting our existing assets in Reeves County, Texas, as well as Eddy County, New Mexico. Additionally, the acquired assets in Reeves County include a fully integrated midstream system, consisting of over 100 miles of operated oil and gas gathering systems, approximately 10,000 surface acres, and water infrastructure including saltwater disposal wells, a recycling facility, frac ponds and water wells. The revenues and associated operating expenses from the Bolt-On Acquisition are included in our consolidation financial data as of September 30, 2024, but had a minimal impact to our third quarter results of operations due to the end of quarter acquisition close date.
During the nine months ended September 30, 2024, we completed multiple acquisitions of oil and natural gas properties for a cumulative adjusted purchase price of approximately $363 million. These acquisitions are part of our ongoing bolt-on and grassroots acquisition programs.
Return of Capital Program
During the third quarter of 2024, we announced an update to our return of capital strategy including an increase to our quarterly base dividend to $0.15 per share ($0.60 per share annually), representing a 150% increase to our prior base dividend. Additionally, our Board of Directors authorized a new share repurchase program of $1 billion, replacing our existing $500 million program. These strategic return changes reinforce our commitment to maximizing shareholder value and continued focus on delivering leading shareholder returns.
During the nine months ended September 30, 2024, we declared and paid quarterly base dividends totaling $0.17 per share of Class A Common Stock and distributions totaling $0.17 per share of Class C Common Stock (each of which has an underlying common unit of OpCo (“Common Units”)). In addition, during the first nine months of 2024, we declared and paid variable dividends totaling $0.39 per share of Class A Common Stock and distributions totaling $0.39 per share of Class C Common Stock. The cash dividends and distributions paid to common unitholders totaled $440.3 million for the nine months ended September 30, 2024.
During the nine months ended September 30, 2024, we paid $61.0 million to repurchase 3.8 million Common Units resulting in an equal number of the underlying shares of Class C Common Stock simultaneously being canceled under our stock repurchase program.
Financing
On August 5, 2024 we issued $1.0 billion of 6.25% senior notes due 2033 (the “2033 Senior Notes”) in a 144A private placement at par. We used the net proceeds from the 2033 Senior Notes to (i) fund the tender offer and remaining redemption of our $300 million 7.75% senior notes due 2026; (ii) fund a portion of the purchase price of the Bolt-On Acquisition; and (iii) repay a portion of borrowings outstanding under our credit facility.
On July 30, 2024, we completed an underwritten public offering of 26.5 million shares of our Class A Common Stock resulting in net cash proceeds of $402.2 million after underwriting discounts and commissions. The net proceeds from this equity offering were used to fund a portion of the aggregate purchase price of the Bolt-On Acquisition.
On April 5, 2024, we redeemed all of OpCo’s outstanding 2027 6.875% Senior Notes at a redemption price equal to 100% of the aggregate principal amount outstanding of $356.4 million plus accrued and unpaid interest up to, but excluding, the redemption date.
In connection with the spring borrowing base redetermination in April 2024, we entered into the seventh amendment to the Credit Agreement (the “Seventh Amendment”). The Seventh Amendment, among other things, increased the elected commitments under the Credit Agreement to $2.5 billion from $2.0 billion and reaffirmed the borrowing base at $4.0 billion.
Results of Operations
Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023
The following table provides the components of our net revenues and net production (net of all royalties, overriding royalties and production due to others) for the periods indicated, as well as each period’s average prices and average daily production volumes:
Three Months Ended September 30,
Increase/(Decrease)
2024
2023
$
%
Net revenues (in thousands):
Oil sales
$
1,099,318
$
660,445
$
438,873
66
%
Natural gas sales(1)
(37,087)
38,354
(75,441)
(197)
%
NGL sales(2)
153,340
59,742
93,598
157
%
Oil and gas sales
$
1,215,571
$
758,541
$
457,030
60
%
Average sales prices:
Oil (per Bbl)
$
74.31
$
79.92
$
(5.61)
(7)
%
Effect of derivative settlements on average price (per Bbl)
0.09
0.69
(0.60)
(87)
%
Oil including the effects of hedging (per Bbl)
$
74.40
$
80.61
$
(6.21)
(8)
%
Average NYMEX WTI price for oil (per Bbl)
$
75.16
$
82.26
$
(7.10)
(9)
%
Oil differential from NYMEX
(0.85)
(2.34)
1.49
64
%
Natural gas price excluding the effects of GP&T (per Mcf)(1)
$
(0.20)
$
1.93
$
(2.13)
(110)
%
Effect of derivative settlements on average price (per Mcf)
0.43
0.16
0.27
169
%
Natural gas including the effects of hedging (per Mcf)
$
0.23
$
2.09
$
(1.86)
(89)
%
Average NYMEX Henry Hub price for natural gas (per MMBtu)
$
2.08
$
2.58
$
(0.50)
(19)
%
Natural gas differential from NYMEX
(2.28)
(0.65)
(1.63)
(251)
%
NGL price excluding the effects of GP&T (per Bbl)(2)
$
22.35
$
23.67
$
(1.32)
(6)
%
Net production:
Oil (MBbls)
14,794
8,264
6,530
79
%
Natural gas (MMcf)
55,496
26,068
29,428
113
%
NGL (MBbls)
7,889
3,212
4,677
146
%
Total (MBoe)(3)
31,932
15,821
16,111
102
%
Average daily net production:
Oil (Bbls/d)
160,801
89,824
70,977
79
%
Natural gas (Mcf/d)
603,217
283,351
319,866
113
%
NGL (Bbls/d)
85,754
34,917
50,837
146
%
Total (Boe/d)(3)
347,091
171,966
175,125
102
%
(1) Natural gas sales for the three months ended September 30, 2024 include $26.2 million of gathering, processing and transportation costs (“GP&T”) that are reflected as a reduction to natural gas sales and $12.0 million for the three months ended September 30, 2023. Natural gas average sales price, however, excludes $0.47 per Mcf of such GP&T charges for the three months ended September 30, 2024 and $0.46 per Mcffor the three months ended September 30, 2023.
(2) NGL sales for the three months ended September 30, 2024 include $23.0 million of GP&T that are reflected as a reduction to NGL sales and $16.3 million for the three months ended September 30, 2023. NGL average sales price, however, excludes $2.91 per Bbl of such GP&T charges for the three months ended September 30, 2024 and $5.07 per Bbl for the three months ended September 30, 2023.
(3) Calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Boe.
Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the three months ended September 30, 2024 were $457.0 million (or 60%) higher than total net revenues for the three months ended September 30, 2023. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.
Net production volumes for oil, natural gas and NGLs increased 79%, 113% and 146%, respectively, between periods. The increase in oil production resulted from additional production added from wells acquired in the Earthstone Merger and from placing additional wells online since the third quarter of 2023. These oil volume increases were partially offset by normal production declines across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, which typically result in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold driving the 113% and 146% respective increases in gas and NGL volumes between periods. The higher increase in gas and NGL volumes between periods as compared to the 79% increase in oil volumes was due to the producing wells acquired in the Earthstone Merger, which have a higher gas-to-oil ratio than our existing production base, and this has resulted in more volumes of gas and NGLs being added to our total production stream since the closing of the Earthstone Merger on November 1, 2023. NGL volumes were further positively impacted by processors of our raw gas operating in higher ethane-recovery during the third quarter of 2024 as compared to the same 2023 period, which resulted in a higher percentage of NGLs being recovered from our wet gas stream between periods.
The average realized sales prices for oil and natural gas decreased 7% and 110%, respectively, in the third quarter of 2024 compared to the same 2023 period. The 7% decrease in the average realized oil price was mainly the result of lower NYMEX crude prices partially offset by improved oil differentials realized between periods. The 110% decrease was mainly due to wider gas differentials realized on our gas sales, which are primarily sold at Waha where the market price averaged negative $1.00 per MMBtu during the third quarter of 2024 due to location specific market constraints as discussed under the “Market Conditions” section above.
Operating Expenses. The following table sets forth selected operating expense data for the periods indicated:
Three Months Ended September 30,
Increase/(Decrease)
2024
2023
Change
%
Operating costs (in thousands):
Lease operating expenses
$
173,255
$
85,810
$
87,445
102
%
Severance and ad valorem taxes
91,548
58,942
32,606
55
%
Gathering, processing and transportation expenses
50,220
20,731
29,489
142
%
Operating cost metrics:
Lease operating expenses (per Boe)
$
5.43
$
5.42
$
0.01
—
%
Severance and ad valorem taxes (% of revenue)
7.5
%
7.8
%
(0.3)
%
(4)
%
Gathering, processing and transportation expenses (per Boe)
$
1.57
$
1.31
$
0.26
20
%
Lease Operating Expenses. Lease operating expenses (“LOE”) per Boe for the third quarter of 2024 was $5.43 and consistent with our per Boe rate of $5.42 from the third quarter of 2023. On a nominal basis, LOE for the three months ended September 30, 2024 increased $87.4 million compared to the three months ended September 30, 2023 and was the direct result of our significantly higher well count between periods primarily due to (i) wells acquired in the Earthstone Merger on November 1, 2023; and (ii) additional wells placed on production since September 30, 2023.
Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the three months ended September 30, 2024 increased $32.6 million compared to the three months ended September 30, 2023. Severance taxes are based on the market value of our oil and gas production at the wellhead, while ad valorem taxes are generally based on the assessed taxable value of proved developed oil and gas properties and vary across the different counties in which we operate. Severance taxes for the third quarter of 2024 increased $29.4 million compared to the same 2023 period primarily due to higher total operating revenues between periods. Ad valorem taxes between periods also increased by $3.2 million, mainly due to additional expense incurred on the proved developed properties acquired in the Earthstone Merger.
Gathering, Processing and Transportation Expenses. Gathering, processing and transportation costs (“GP&T”) for the three months ended September 30, 2024 increased $29.5 million as compared to the three months ended September 30, 2023. This increase in expense was mainly attributable to higher natural gas and NGL volumes sold between periods, which in turn resulted in a higher amount of plant processing fees and gathering costs being incurred. Additionally, GP&T increased 20% on a per Boe basis from $1.31 for the third quarter of 2023 to $1.57 for the third quarter of 2024. This increase in rate was mainly attributable to a higher portion of our GP&T costs being recognized as expense as compared to a reduction to our gas and NGL revenues between periods primarily related to processing contracts assumed as part of the Earthstone Merger.
Depreciation, Depletion and Amortization. The following table summarizes our depreciation, depletion and amortization (“DD&A”) for the periods indicated:
Three Months Ended September 30,
(in thousands, except per Boe data)
2024
2023
Depreciation, depletion and amortization
$
453,603
$
236,204
Depreciation, depletion and amortization per Boe
$
14.21
$
14.93
For the three months ended September 30, 2024, DD&A expense amounted to $453.6 million, an increase of $217.4 million over the same 2023 period. The primary factor contributing to higher DD&A expense in 2024 was the increase in our overall production volumes between periods, which increased DD&A expense by $240.5 million, while our lower DD&A rate of $14.21 per BOE decreased DD&A expense by $23.1 million between periods.
DD&A per BOE was $14.21 for the third quarter of 2024 as compared to $14.93 for the same period in 2023, a 5% decline between periods. Our DD&A rate can fluctuate as a result of finding and development costs incurred, acquisitions, impairments, as well as changes in proved developed and proved undeveloped reserves.
General and Administrative Expenses. The following table summarizes our general and administrative (“G&A”) expenses for the periods indicated:
Three Months Ended September 30,
(in thousands)
2024
2023
Cash general and administrative expenses
$
30,246
$
18,886
Stock-based compensation
13,537
15,633
General and administrative expenses
$
43,783
$
34,519
Cash general and administrative expenses per Boe
$
0.95
$
1.19
G&A expenses for the three months ended September 30, 2024 were $43.8 million compared to $34.5 million for the three months ended September 30, 2023. Higher G&A in the third quarter of 2024 was the result of an increase of $11.4 million in cash G&A between periods primarily associated with our overall corporate growth between periods and associated higher G&A headcount, which increased from 179 as of September 30, 2023 to 260 as of September 30, 2024 stemming from the Earthstone Merger. This increase was partially offset by a $2.1 million decrease in stock-based compensation between periods related to less expenses associated with accelerated vestings of equity awards associated with employees terminated in connection with the merger with Colgate Energy Partners III, LLC (the “Colgate Merger”) on September 1, 2022. Refer to Note 6—Stock-Based Compensation for additional information regarding these award accelerations and modifications.
While cash G&A increased between periods, on a per Boe basis, our Cash G&A rate decreased 20% from $1.19 per Boe during the three months ended September 30, 2023 to $0.95 per Boe during the three months ended September 30, 2024 as a result of improved operational execution and realization of cost synergies following the Earthstone Merger.
Merger and integration expense. There was no merger and integration expense incurred during the three months ended September 30, 2024 as integration of the Earthstone Merger was complete. Merger and integration expense incurred during the three months ended September 30, 2023 was $10.4 million. These charges related to the Colgate Merger that closed on September 1, 2022 and consisted of (i) $0.7 million in severance and related benefits associated with employees that were terminated in connection with the Colgate Merger; and (ii) $9.7 million of costs associated with consultancy, legal and accounting fees.
Exploration and Other Expenses. The following table summarizes our exploration and other expenses for the periods indicated:
Three Months Ended September 30,
(in thousands)
2024
2023
Geological and geophysical costs
$
5,297
$
2,132
Stock-based compensation
569
387
Other expenses
1,096
2,512
Exploration and other expenses
$
6,962
$
5,031
Exploration and other expenses were $7.0 million for the three months ended September 30, 2024 compared to $5.0 million for the three months ended September 30, 2023. Exploration and other expenses mainly consist of topographical studies, geographical and geophysical (“G&G”) projects, salaries and expenses of G&G personnel and include other operating costs. The period over period increase was primarily related to (i) higher G&G personnel costs in the third quarter of 2024 associated with increased headcount due to the Earthstone Merger; and (ii) higher costs incurred on G&G projects and seismic studies in the third quarter of 2024 compared to the same period in 2023.
Other Income and Expenses.
Interest Expense. The following table summarizes our interest expense for the periods indicated:
Three Months Ended September 30,
(in thousands)
2024
2023
Credit facility
$
4,015
$
7,067
5.375% Senior Notes due 2026
3,889
3,889
7.75% Senior Notes due 2026
2,390
5,813
6.875% Senior Notes due 2027
—
6,125
8.00% Senior Notes due 2027
11,000
—
3.25% Convertible Senior Notes due 2028
1,381
1,381
5.875% Senior Notes due 2029
10,281
10,281
9.875% Senior Notes due 2031
12,344
—
7.00% Senior Notes due 2032
17,500
1,847
6.25% Senior Notes due 2033
9,722
—
Amortization of debt issuance costs, discount and premium
1,752
5,580
Interest capitalized
—
(1,657)
Loss on extinguishment of debt
5,110
—
Other interest expense
550
256
Total
$
79,934
$
40,582
Interest expense increased $39.4 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 primarily due to (i) $23.3 million in additional interest costs on the senior notes we assumed in the Earthstone Merger; (ii) $15.7 million in higher interest incurred on our 2032 Senior Notes that were issued in September 2023 and December 2023; and (iii) $9.7 million in interest incurred on our 2033 Senior Notes that were issued in July 2024. These increases were partially offset by (i) the redemption of our 2027 6.875% Senior Notes in April 2024 and the redemption of our 2026 7.75% Senior Notes in August 2024 that resulted in $4.4 million less interest incurred period over period, inclusive of the loss on extinguishment associated with their extinguishment (refer to Note 4—Long-Term Debt for additional information regarding the senior note redemptions); and (ii) $3.2 million less interest expense incurred on our credit facility due to lower weighted average borrowings outstanding, which were $92.0 million versus $317.3 million for the three months of 2024 and 2023, respectively.
Net Gain (Loss) on Derivative Instruments. Net gains and losses are a function of (i) changes in derivative fair values associated with fluctuations in the forward price curves for the commodities underlying each of our hedge contracts outstanding; and (ii) monthly cash settlements on any closed out hedge positions during the period.
The following table presents gains and losses on our derivative instruments for the periods indicated:
Three Months Ended September 30,
(in thousands)
2024
2023
Realized cash settlement gains (losses)
$
25,431
$
9,891
Non-cash mark-to-market derivative gain (loss)
213,102
(161,672)
Total
$
238,533
$
(151,781)
Income Tax Expense. The following table summarizes our pre-tax income and income tax expense for the periods indicated:
Three Months Ended September 30,
(in thousands)
2024
2023
Income before income taxes
$
562,995
$
114,583
Income tax expense
(106,468)
(16,254)
Our provisions for income taxes for the three months ended September 30, 2024 and 2023 differs from the amounts that would be provided by applying the U.S. federal statutory rate of 21% to pre-tax book income primarily due to (i) the portion of pre-tax net income that is attributable to our non-controlling interest and which is therefore not taxable to the Company; (ii) other permanent differences; and (iii) state income taxes.
For the three months ended September 30, 2024, we generated pre-tax net income of $563.0 million and recorded income tax expense of $106.5 million. During the three months ended September 30, 2023, we generated pre-tax net income of $114.6 million and recorded income tax expense of $16.3 million. The primary factor decreasing our income tax expense below the U.S. statutory rate for both periods was the portion of pre-tax income that was attributable to our non-controlling interest partners and not taxable to the Company.
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
The following table provides the components of our net revenues and net production (net of all royalties, overriding royalties and production due to others) for the periods indicated, as well as each period’s average prices and average daily production volumes:
Nine Months Ended September 30,
Increase/(Decrease)
2024
2023
$
%
Net revenues (in thousands):
Oil sales
$
3,265,303
$
1,734,057
$
1,531,246
88
%
Natural gas sales(1)
(21,351)
94,123
(115,474)
(123)
%
NGL sales(2)
460,701
170,027
290,674
171
%
Oil and gas sales
$
3,704,653
$
1,998,207
$
1,706,446
85
%
Average sales prices:
Oil (per Bbl)
$
76.80
$
75.42
$
1.38
2
%
Effect of derivative settlements on average price (per Bbl)
(0.37)
2.51
(2.88)
(115)
%
Oil including the effect of hedging (per Bbl)
$
76.43
$
77.93
$
(1.50)
(2)
%
Average NYMEX WTI price for oil (per Bbl)
$
77.54
$
77.39
$
0.15
—
%
Oil differential from NYMEX
(0.74)
(1.97)
1.23
62
%
Natural gas price excluding the effects of GP&T (per Mcf)(1)
$
0.33
$
1.66
$
(1.33)
(80)
%
Effect of derivative settlements on average price (per Mcf)
0.34
0.41
(0.07)
(17)
%
Natural gas including the effects of hedging (per Mcf)
$
0.67
$
2.07
$
(1.40)
(68)
%
Average NYMEX Henry Hub price for natural gas (per MMBtu)
$
2.18
$
2.46
$
(0.28)
(11)
%
Natural gas differential from NYMEX
(1.85)
(0.80)
(1.05)
(131)
%
NGL price excluding the effects of GP&T (per Bbl)(2)
$
23.63
$
23.69
$
(0.06)
—
%
Net production:
Oil (MBbls)
42,519
22,994
19,525
85
%
Natural gas (MMcf)
162,522
75,134
87,388
116
%
NGL (MBbls)
22,229
9,241
12,988
141
%
Total (MBoe)(3)
91,835
44,758
47,077
105
%
Average daily net production:
Oil (Bbls/d)
155,180
84,225
70,955
84
%
Natural gas (Mcf/d)
593,144
275,215
317,929
116
%
NGLs (Bbls/d)
81,129
33,852
47,277
140
%
Total (Boe/d)(3)
335,166
163,946
171,220
104
%
(1) Natural gas sales for the nine months ended September 30, 2024 include $75.1 million of GP&T that are reflected as a reduction to natural gas sales and $30.7 million for the nine months ended September 30, 2023. Natural gas average sales price, however, excludes $0.46 per Mcf of such GP&T charges for the nine months ended September 30, 2024 and $0.41for the nine months ended September 30, 2023.
(2) NGL sales for the nine months ended September 30, 2024 include $64.7 million of GP&T that are reflected as a reduction to NGL sales and $48.9 million for the nine months ended September 30, 2023. NGL average sales price, however, excludes $2.90 per Bbl of such GP&T charges for the nine months ended September 30, 2024 and $5.29for the nine months ended September 30, 2023.
(3) Calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Boe.
Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the nine months ended September 30, 2024 were $1.7 billion, or 85%, higher than total net revenues for the nine months ended September 30, 2023. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.
Net production volumes for oil, natural gas, and NGLs increased 85%, 116%, and 141%, respectively, between periods. The increase in oil production resulted from additional production added from wells acquired in the Earthstone Merger and from placing additional wells online since the third quarter of 2023. These oil volume increases were partially offset by normal production declines across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, which typically result in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold driving the 116% and 141%, respective increases in gas and NGL volumes between periods. The higher increase in gas and NGL volumes between periods as compared to the 85% increase in oil volumes was due to the producing wells acquired in the Earthstone Merger, which have a higher gas-to-oil ratio than our existing production base, and this has resulted in more volumes of gas and NGLs being added to our total production stream since the closing of the Earthstone Merger on November 1, 2023. NGL volumes were further positively impacted by processors of our raw gas operating in higher ethane-recovery during the first nine months of 2024 as compared to the same 2023 period, which resulted in a higher percentage of NGLs being recovered from our wet gas stream between periods.
Total net revenues increases were also driven by higher average realized sales prices of oil, which increased 2% in the first nine months of 2024 compared to the same 2023 period. The 2% increase in the average realized oil price was mainly the result of improved oil differentials between periods.
These increases were partially offset by decreases in the average realized sales prices for natural gas which decreased 80% in the first nine months of 2024 compared to the same 2023 period. This decrease was mainly due to wider gas differentials realized on our gas sales, which are primarily sold at Waha where the market price averaged negative $0.15 per MMBtu during the first nine months of 2024 compared to $1.56 for the first nine months of 2023 due to location specific market constraints as discussed under the “Market Conditions” section above.
Operating Expenses. The following table summarizes our operating expenses for the periods indicated:
Nine Months Ended September 30,
Increase/(Decrease)
2024
2023
Change
%
Operating costs (in thousands):
Lease operating expenses
$
501,597
$
243,333
$
258,264
106
%
Severance and ad valorem taxes
280,784
156,378
124,406
80
%
Gathering, processing and transportation expenses
133,020
57,966
75,054
129
%
Operating cost metrics:
Lease operating expenses (per Boe)
$
5.46
$
5.44
$
0.02
—
%
Severance and ad valorem taxes (% of revenue)
7.6
%
7.8
%
(0.2)
%
(3)
%
Gathering, processing and transportation expenses (per Boe)
$
1.45
$
1.30
$
0.15
12
%
Lease Operating Expenses. LOE per Boe was $5.46 for the nine months ended September 30, 2024, which was consistent with our per Boe rate of $5.44 for the nine months ended September 30, 2023. On a nominal basis, LOE for the nine months ended September 30, 2024 increased $258.3 million compared to the nine months ended September 30, 2023 and was related to our significantly higher well count between periods primarily due to (i) wells acquired in the Earthstone Merger on November 1, 2023; and (ii) additional wells placed on production since September 30, 2023.
Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the nine months ended September 30, 2024 increased $124.4 million compared to the nine months ended September 30, 2023. Severance taxes are based on the market value of our production at the wellhead, while ad valorem taxes are generally based on the assessed taxable value of our proved developed oil and gas properties and vary across the different counties in which we operate. Severance taxes for the first nine months of 2024 increased $109.3 million compared to the same 2023 period primarily due to higher total operating revenues between periods. Ad valorem taxes between periods also increased by $15.1 million, mainly due to additional expense incurred on the proved developed properties acquired in the Earthstone Merger.
Gathering, Processing and Transportation Expenses. GP&T for the nine months ended September 30, 2024 increased $75.1 million compared to the nine months ended September 30, 2023. This increase in expense was mainly attributable to higher natural gas and NGL volumes sold between periods, which in turn resulted in a higher amount of plant processing fees and gathering costs being incurred. Additionally, GP&T increased on a per Boe basis from $1.30 for the first nine months of 2023 to $1.45 for the first nine months of 2024. This increase in rate was mainly attributable to a higher portion of our GP&T costs being recognized as expense as compared to a reduction to our gas and NGL revenues between periods primarily related to processing contracts assumed as part of the Earthstone Merger.
Depreciation, Depletion and Amortization. The following table summarizes our DD&A for the periods indicated:
Nine Months Ended September 30,
(in thousands, except per Boe data)
2024
2023
Depreciation, depletion and amortization
$
1,290,210
$
640,149
Depreciation, depletion and amortization per Boe
$
14.05
$
14.30
For the nine months ended September 30, 2024, DD&A expense amounted to $1.3 billion, an increase of $650.1 million over the same 2023 period. The primary factor contributing to higher DD&A expense in 2024 was the increase in our overall production volumes between periods, which increased DD&A expense by $673.3 million during the first nine months of 2024, while slightly lower DD&A rates between periods decreased DD&A expense by $23.2 million for the nine months ended September 30, 2024.
DD&A per BOE was $14.05 for the nine months ended September 30, 2024 as compared to $14.30 for the same period in 2023, a 2% decline between periods. Our DD&A rate can fluctuate as a result of finding and development costs incurred, acquisitions, impairments, as well as changes in proved developed and proved undeveloped reserves.
General and Administrative Expenses. The following table summarizes our G&A expenses for the periods indicated:
Nine Months Ended September 30,
(in thousands)
2024
2023
Cash general and administrative expenses
$
84,791
$
55,347
Stock-based compensation expense
45,094
67,382
General and administrative expenses
$
129,885
$
122,729
Cash general and administrative expenses per Boe
$
0.92
$
1.24
G&A expenses for the nine months ended September 30, 2024 were $129.9 million compared to $122.7 million for the nine months ended September 30, 2023. Higher G&A for the first nine months of 2024 was the result of an increase of $29.4 million in cash G&A between periods primarily associated with our overall corporate growth between periods and associated higher G&A headcount, which increased from 179 as of September 30, 2023 to 260 as of September 30, 2024 stemming primarily from the Earthstone Merger. This increase was partially offset by a $22.3 million decrease in total stock-based compensation expense between periods related to less expenses associated with accelerated vestings of equity awards primarily for employees terminated in connection with the Colgate Merger on September 1, 2022. Refer to Note 6—Stock-Based Compensation for additional information regarding these award accelerations and modifications.
While cash G&A increased between periods, on a per Boe basis our Cash G&A rate decreased 26% from $1.24 per Boe during the nine months ended September 30, 2023 to $0.92 per Boe during the nine months ended of 2024 as a result of improved operational execution and realization of cost synergies following the Earthstone Merger.
Merger and integration expense. Merger and integration expense for the nine months ended September 30, 2024 was $18.1 million. These charges incurred during the 2024 period mainly related to the Earthstone Merger that closed on November 1, 2023 and consisted of (i) $13.2 million in severance and related benefits incurred for employees that were terminated in connection with our corporate mergers; and (ii) $4.9 million in charges associated with software integration, consultancy and other professional fees.
Merger and integration expense incurred during the nine months ended September 30, 2023 was $28.1 million. These charges related to the Colgate Merger that closed on September 1, 2022 and consisted of (i) $14.5 million in severance and related benefits associated with employees that were terminated in connection with the Colgate Merger; and (ii) $13.6 million of costs associated with consultancy, legal and accounting fees.
Exploration and Other Expenses. The following table summarizes our exploration and other expenses for the periods indicated:
Nine Months Ended September 30,
(in thousands)
2024
2023
Geological and geophysical costs
$
11,488
$
8,204
Stock-based compensation
1,619
2,203
Other expenses
11,321
4,261
Exploration and other expenses
$
24,428
$
14,668
Exploration and other expenses were $24.4 million for the nine months ended September 30, 2024 compared to $14.7 million for the same prior year period. Exploration and other expenses mainly consist of topographical studies, G&G projects, salaries and expenses of G&G personnel and includes other operating costs. The period over period increase was primarily related to (i) an estimated net contingency loss of $7.6 million recorded during 2024 associated with charges that have been in legal dispute and stemmed from a severe winter storm impacting the Permian Basin in February 2021 (refer to Note 12—Commitments and Contingencies for additional information regarding the contingency loss); and (ii) higher G&G personnel costs associated with increased headcount.
Other Income and Expenses.
Interest Expense. The following table summarizes our interest expense for the periods indicated:
Nine Months Ended September 30,
(in thousands)
2024
2023
Credit facility
$
13,657
$
23,226
5.375% Senior Notes due 2026
11,667
11,667
7.75% Senior Notes due 2026
14,016
17,439
6.875% Senior Notes due 2027
6,397
18,375
8.00% Senior Notes due 2027
33,000
—
3.25% Convertible Senior Notes due 2028
4,143
4,143
5.875% Senior Notes due 2029
30,843
30,843
9.875% Senior Notes due 2031
37,032
—
7.00% Senior Notes due 2032
52,500
1,847
6.25% Senior Notes due 2033
9,722
—
Amortization of debt issuance costs, discount and premium
4,752
11,858
Interest capitalized
—
(5,774)
Loss on extinguishment of debt
8,585
—
Other interest expense
1,659
561
Total
$
227,973
$
114,185
Interest expense was $113.8 million higher for the nine months ended September 30, 2024 compared to the same 2023 period mainly due to (i) $70.0 million in additional interest costs on the senior notes we assumed in the Earthstone Merger; (ii) $50.7 million in higher interest incurred on our 2032 Senior Notes that were issued in September 2023 and December 2023; and (iii) $9.7 million in interest incurred on our 2033 Senior Notes that were issued in July 2024. These increases were partially offset by (i) $9.6 million less interest expense incurred on our credit facility due to lower weighted average borrowings outstanding, which were $136.4 million versus $380.5 million for the first nine months of 2024 and 2023, respectively; and (ii) the redemption of our 2027 6.875% Senior Notes in April 2024 and the redemption of our 2026 7.75% Senior Notes in August 2024 that resulted in $6.8 million less interest incurred period over period, inclusive of the loss on extinguishment associated with their redemptions (refer to Note 4—Long-Term Debt for additional information regarding the senior note redemptions).
Net Gain (Loss) on Derivative Instruments. Net gains and losses are a function of (i) changes in derivative fair values associated with fluctuations in the forward price curves for the commodities underlying each of our hedge contracts outstanding and (ii) monthly cash settlements on any closed out hedge positions during the period.
The following table presents gains and losses on our derivative instruments for the periods indicated:
Nine Months Ended September 30,
(in thousands)
2024
2023
Realized cash settlement gains (losses)
$
40,340
$
88,905
Non-cash mark-to-market derivative gain (loss)
91,362
(165,573)
Total
$
131,702
$
(76,668)
Income Tax Expense. The following table summarizes our pre-tax income and income tax expense for the periods indicated:
Nine Months Ended September 30,
(in thousands)
2024
2023
Income before income taxes
$
1,232,727
$
544,140
Income tax expense
(237,697)
(77,056)
Our provisions for income taxes for the first nine months of 2024 and 2023 differs from the amounts that would be provided by applying the U.S. federal statutory rate of 21% to pre-tax book income primarily due to (i) the portion of pre-tax net income that is attributable to our non-controlling interest and which is therefore not taxable to the Company; (ii) other permanent differences; and (iii) state income taxes.
For the nine months ended September 30, 2024 we generated pre-tax net income of $1.2 billion and recorded income tax expense of $237.7 million. During the nine months ended September 30, 2023, we generated pre-tax net income of $544.1 million and recorded income tax expense of $77.1 million. The primary factor decreasing our income tax expense below the U.S. statutory rate for both periods was the portion of pre-tax income that was attributable to our non-controlling interest partners and not taxable to the Company.
Our drilling and completion activities require us to make significant capital expenditures. Historically, our primary sources of liquidity have been cash flows from operations, borrowings under our revolving credit facility, proceeds from offerings of debt or equity securities, or proceeds from the sale of oil and gas properties. Our future cash flows are subject to a number of variables, including oil and natural gas prices, which have been and will likely continue to be volatile. Lower commodity prices can negatively impact our cash flows and our ability to access debt or equity markets, and sustained low oil and natural gas prices could have a material and adverse effect on our liquidity position. To date, our primary uses of capital have been for drilling and development capital expenditures and the acquisition of oil and natural gas properties.
We continually evaluate our capital needs and compare them to our capital resources. Our total cash capital expenditures incurred for development during the nine months ended September 30, 2024 were $1.6 billion. We expect our total drilling, completion and facilities cash capital expenditures budget for 2024 to be between $1.9 billion to $2.1 billion. We funded our capital expenditures for the nine months ended September 30, 2024 entirely from cash flows from operations, and we expect to fund the remainder of our 2024 capital expenditures budget entirely from cash flows from operations given our anticipated level of oil and gas production, current commodity prices and our commodity hedge positions in place.
During the third quarter of 2024, we completed an underwritten public offering of 26.5 million shares of our Class A Common Stock resulting in net cash proceeds of $402.2 million after underwriting discounts and commissions. Additionally, we issued $1.0 billion of 6.25% senior notes due 2033 in a 144A private placement at par. We used the net proceeds from these offerings to (i) fund the tender offer and remaining redemption of our $300 million 7.75% senior notes due 2026; (ii) fund the $743.5 million purchase price of the Bolt-On Acquisition; and (iii) repay borrowings outstanding under our credit facility.
We are the operator of a high percentage of our acreage and can control the amount and timing of our capital expenditures. Accordingly, we can choose to defer or accelerate a portion of our planned capital expenditures depending on a variety of factors, including but not limited to: (i) prevailing and anticipated prices for oil and natural gas; (ii) oil storage or transportation constraints; (iii) the success of our drilling activities; (iv) the availability of necessary equipment, infrastructure and capital; (v) the receipt and timing of required regulatory permits and approvals; (vi) seasonal conditions; (vii) property or land acquisition costs; and (viii) the level of participation by other working interest owners.
We plan to return capital to shareholders through a combination of a quarterly base dividend plus a variable return program, including variable dividends, share repurchases or a combination of both. During the nine months ended September 30, 2024, we declared and paid quarterly base dividends totaling $0.17 per share of Class A Common Stock and distributions totaling $0.17 per share of Class C Common Stock (each of which has an underlying Common Unit of OpCo). In addition, during the first three quarters of 2024, we declared and paid variable dividends totaling $0.39 per share of Class A Common Stock and distributions totaling $0.39 per share of Class C Common Stock. The cash dividends and distributions paid to common unitholders totaled $440.3 million for the nine months ended September 30, 2024. Additionally, we repurchased 3.8 million shares of Class C Common Stock for $61.0 million under our stock repurchase program during the nine months ended September 30, 2024.
On September 3, 2024, our Board of Directors approved a new stock repurchase program to allow for share repurchases of up to $1 billion on an indefinite basis, replacing our existing $500 million stock repurchase program. The stock repurchase program can be used to reduce our shares of common stock outstanding. Such repurchases would be made at terms and prices determined by us based upon prevailing market conditions, applicable legal requirements, available liquidity, compliance with our debt agreements and other factors. In addition, we may, from time to time, seek to retire or purchase our outstanding senior notes through cash purchases and/or exchanges for debt in open-market purchases, privately negotiated transactions or otherwise.
Although we cannot provide any assurance that cash flows from operations or other sources of needed capital will be available to us at acceptable terms, or at all, and noting that our ability to access the public or private debt or equity capital markets at economic terms in the future will be affected by general economic conditions, the domestic and global oil and financial markets, our operational and financial performance, the value and performance of our debt or equity securities, prevailing commodity prices and other macroeconomic factors outside of our control, we believe that based on our current expectations and projections, we will have sufficient capital available to fund our capital expenditure requirements through the 12-month period following the filing of this Quarterly Report and the long-term.
The following table summarizes our cash flows for the periods indicated:
Nine Months Ended September 30,
(in thousands)
2024
2023
Net cash provided by operating activities
$
2,540,390
$
1,367,505
Net cash used in investing activities
(2,563,819)
(1,095,187)
Net cash used in financing activities
222,196
(129,973)
For the nine months ended September 30, 2024, we generated $2.5 billion of cash from operating activities, an increase of $1.2 billion from the same period in 2023. Cash provided by operating activities increased primarily due to higher production volumes and higher realized price of oil as well as the timing of our collections on our receivables for the nine months ended September 30, 2024 as compared to the same 2023 period. These increasing factors were partially offset by higher lease operating expenses, severance and ad valorem taxes, GP&T and cash G&A and lower realized prices for gas during the nine months ended September 30, 2024 as compared to the same 2023 period. Refer to “Results of Operations” for more information on the impact of volumes and prices on revenues and on fluctuations in our operating costs between periods.
During the nine months ended September 30, 2024, cash flows from operating activities, proceeds from the issuance of our 2033 Senior Notes and proceeds from an underwritten public offering of 26.5 million Class A shares were used to (i) fund $1.6 billion of drilling and development cash capital expenditures; (ii) fund acquisitions of oil and gas properties of $1.0 billion; (iii) redeem $656.4 million of our senior notes; (iv) pay $440.3 million in dividends and cash distributions to our shareholders and holders of our Common Units; and (v) repurchase $61.0 million of our common stock.
During the nine months ended September 30, 2023, cash flows from operating activities, cash on hand, proceeds from the issuance of our 2032 Senior Notes and sales proceeds from divestitures together with contingent consideration of $119.2 million from the sale of oil and natural gas properties were used to (i) fund $1.1 billion of drilling and development cash expenditures; (ii) repay net borrowings of $385 million under our Credit Agreement; (iii) pay $143.1 million in dividends and cash distributions to our shareholders and holders of our Common Units; (iv) fund acquisitions of oil and gas properties of $116.9 million; (v) repurchase $57.3 million of our common stock; and (vi) purchase an office building in Midland, Texas for $27.5 million.
Credit Agreement
OpCo, our consolidated subsidiary, has a five-year secured revolving Credit Agreement with a syndicate of banks maturing in February 2027 that, as of September 30, 2024, had a borrowing base of $4.0 billion and elected commitments of $2.5 billion. As of September 30, 2024, we had $0.0 million in borrowings outstanding and $2.5 billion in available borrowing capacity, which was net of $2.5 million in letters of credit outstanding.
In connection with the 2024 spring borrowing base redetermination, we entered into the Seventh Amendment to the Credit Agreement, which, among other things, increased the elected commitments under the Credit Agreement to $2.5 billion from $2.0 billion and reaffirmed the borrowing base at $4.0 billion. The elected commitments and borrowing base were reaffirmed during the fall 2024 borrowing base redetermination that also resulted in us entering into the eighth amendment to our Credit Agreement (the “Eighth Amendment”). The Eighth Amendment, among other things, also extended the maturity date from February 2027 to February 2028 and adjusted the applicable margin calculation to a pricing grid based upon borrowing base utilization.
The Credit Agreement contains restrictive covenants that limit our ability to, among other things: (i) incur additional indebtedness; (ii) make investments and loans; (iii) enter into mergers; (iv) make restricted payments; (v) repurchase or redeem junior debt; (vi) enter into commodity hedges exceeding a specified percentage of our expected production; (vii) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness; (viii) incur liens; (ix) sell assets; and (x) engage in transactions with affiliates.
The Credit Agreement also requires OpCo to maintain compliance with the following financial ratios:
(i) a current ratio, which is the ratio of OpCo’s consolidated current assets (including an add back of unused commitments under the revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding the current portion of long-term debt under the Credit Agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0; and
(ii) a leverage ratio, which is the ratio of total funded debt to consolidated EBITDAX (with such terms defined within the Credit Agreement) for the most recent quarter annualized, of not greater than 3.5 to 1.0.
The Credit Agreement includes fall away covenants, lower interest rates and reduced collateral requirements that OpCo may elect if OpCo is assigned an Investment Grade Rating (as defined within the Credit Agreement). OpCo was in compliance with the covenants and the applicable financial ratios described above as of September 30, 2024 and through the filing of this
Quarterly Report. For further information on the Credit Agreement, refer to Note 4—Long-Term Debt under Part I, Item I of this Quarterly Report.
Convertible Senior Notes
On March 19, 2021, OpCo issued $150.0 million of 3.25% senior unsecured convertible notes due 2028 (the “Convertible Senior Notes”). On March 26, 2021, OpCo issued an additional $20.0 million of Convertible Senior Notes pursuant to the exercise of the underwriters’ over-allotment option to purchase additional notes. These issuances resulted in aggregate net proceeds to OpCo of $163.6 million, which were used to repay borrowings outstanding under the Credit Agreement and to fund the cost of entering into capped call spread transactions of $14.7 million. Subsequently in April 2021, we redeemed at par all of our 8% second lien senior secured notes, which was the intended use of proceeds from the Convertible Senior Notes offering.
The Convertible Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of OpCo’s current subsidiaries that guarantee OpCo’s outstanding Senior Unsecured Notes as defined below.
The Convertible Senior Notes bear interest at an annual rate of 3.25% and are due on April 1, 2028 unless earlier repurchased, redeemed or converted. The Convertible Senior Notes may become convertible prior to April 1, 2028, upon the occurrence of certain events or conditions being met as disclosed in Note 4—Long-Term Debt under Part I, Item I of this Quarterly Report. As of September 30, 2024, certain conditions have been met, and as a result, noteholders have the right to convert their Convertible Senior Notes. OpCo can settle the Convertible Senior Notes by paying or delivering cash, shares of the Class A Common Stock, or a combination of cash and Class A Common Stock, at OpCo’s election.
In connection with the Convertible Senior Notes issuance, OpCo entered into privately negotiated capped call spread transactions (the “Capped Call Transactions”), that are expected to reduce potential dilution to our Class A Common Stock upon a conversion and/or offset any cash payments OpCo is required to make in excess of the principal amount of the Convertible Senior Notes, subject to a cap. The Capped Call Transactions have an initial strike price of $6.28 per share of Class A Common Stock and an initial capped price of $8.4525 per share of Class A Common Stock (each subject to certain customary adjustments).
Senior Notes
On August 5, 2024, OpCo issued at par $1.0 billion of 6.25% senior notes due 2033 (the “2033 Senior Notes”) in a 144A private placement that resulted in net proceeds of $986.4 million, after deducting $13.6 million debt issuance costs.
On November 1, 2023, in connection with the Earthstone Merger, OpCo entered into supplemental indentures whereby all of Earthstone’s outstanding senior notes were assumed and became the senior unsecured debt obligations of OpCo. The senior notes assumed by OpCo included $550 million of 8.00% senior notes due 2027 (the “2027 8.00% Senior Notes”) and $500 million of 9.875% senior notes due 2031 (the “2031 Senior Notes”). We recorded the acquired senior notes at their fair values as of the Earthstone Merger closing date, which were equal to 102.86% of par (a $15.7 million premium) for the 2027 8.00% Senior Notes and 107.37% of par (a $36.8 million premium) for the 2031 Senior Notes.
On September 12, 2023, OpCo issued $500 million of 7.00% senior notes due 2032 (the “Original 2032 Notes”) in a 144A private placement. On December 13, 2023, OpCo issued additional notes under the indenture dated September 12, 2023 that totaled an additional $500 million of 7.00% senior notes (together with the Original 2032 Notes, the “2032 Senior Notes”), which resulted in aggregate net proceeds of $982.5 million, after deducting the issuance discount of $2.5 million and debt issuance costs of $15.0 million. The 2032 Senior Notes are treated as a single series of securities and vote together as a single class, and have substantially identical terms, other than the issue date and issue price.
On September 1, 2022, in connection with the Colgate Merger, OpCo entered into supplemental indentures whereby all of Colgate’s outstanding senior notes were assumed at the Colgate Merger closing date and became the senior unsecured debt obligations of OpCo. The senior notes assumed by OpCo included $300 million of 7.75% senior notes due 2026 (the “2026 7.75% Senior Notes”) and $700 million of 5.875% senior notes due 2029 (the “2029 Senior Notes”). We recorded the acquired senior notes at their fair value as of the Colgate Merger closing, which were equal to 100% of par for the 2026 7.75% Senior Notes and 92.96% of par (a $49.3 million debt discount) for the 2029 Senior Notes. In August 2024, we redeemed $299.6 million of our outstanding 2026 7.75% Senior Notes through a cash tender offer and we irrevocably elected to redeem the remaining amount of the 2026 7.75% Senior Notes outstanding pursuant to the terms of the indenture governing the 2026 7.75% Senior Notes.
On November 30, 2017, OpCo issued $400.0 million of 5.375% senior notes due 2026 (the “2026 5.375% Senior Notes”) and on March 15, 2019, OpCo issued $500.0 million of 6.875% senior notes due 2027 (the “2027 6.875% Senior Notes” and, together with the 2027 8.00% Senior Notes, 2031 Senior Notes, 2032 Senior Notes, 2026 5.375% Senior Notes, 2029 Senior Notes and the 2026 7.75% Senior Notes, the “Senior Unsecured Notes”) in 144A private placements. In May 2020, $110.6 million aggregate principal amount of the 2026 5.375% Senior Notes and $143.7 million aggregate principal amount of the 2027 6.875% Senior Notes were validly tendered and exchanged by certain eligible bondholders for consideration consisting of $127.1 million aggregate principal amount of 8.00% second lien senior secured notes, which were fully redeemed at par in connection with the Convertible Senior Notes issuance during the second quarter of 2021. On April 5, 2024, we redeemed all of OpCo’s remaining outstanding 2027 6.875% Senior Notes at a redemption price equal to 100% of the aggregate principal amount outstanding of $356.4 million.
The Senior Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of OpCo’s current subsidiaries that guarantee borrowings under OpCo’s Credit Agreement.
The indentures governing the Senior Unsecured Notes contain covenants that, among other things and subject to certain exceptions and qualifications, limit OpCo’s ability and the ability of OpCo’s restricted subsidiaries to: (i) incur or guarantee additional indebtedness or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) enter into agreements that restrict dividends or other payments from their subsidiaries to them; (vii) consolidate, merge or transfer all or substantially all of their assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. OpCo was in compliance with these covenants as of September 30, 2024 and through the filing of this Quarterly Report.
For further information on our Convertible Senior Notes and Senior Unsecured Notes, refer to Note 4—Long-Term Debt under Part I, Item I of this Quarterly Report.
Contractual Obligations
Our contractual obligations include operating and transportation agreements, drilling rig contracts, office and equipment leases, asset retirement obligations, long-term debt obligations and cash interest expense on long-term debt obligations, which we routinely enter into, modify or extend. Since December 31, 2023, there have not been any significant, non-routine changes in our contractual obligations other than (i) the NGL delivery commitment assumed and multi-year energy purchase agreement entered into as discussed in Note 12—Commitments and Contingencies under Part I, Item I of this Quarterly Report; and (ii) the drilling rig contracts entered into as discussed in Note 1—Basis of Presentation and Summary of Significant Accounting Policies under Part I, Item I of this Quarterly Report.
Critical Accounting Policies and Estimates
There have been no material changes to the critical accounting policies as disclosed in Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates in our 2023 Annual Report.
New Accounting Pronouncements
There were no significant new accounting standards adopted or new accounting pronouncements that would have potential effects on us or our financial statements as of September 30, 2024.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The term “market risk” as it applies to our business refers to the risk of loss arising from adverse changes in oil and natural gas prices and interest rates, and we are exposed to market risk as described below. The primary objective of the following information is to provide quantitative and qualitative information about our potential exposure to market risks. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. All of our market risk sensitive instruments were entered into for purposes other than speculative trading.
Commodity Price Risk
Our primary market risk exposure is in the pricing that we receive for our oil, natural gas and NGL production. Pricing for oil, natural gas and NGLs has been volatile and unpredictable for several years, and we expect this volatility to continue for the foreseeable future. Based on our production for the first nine months of 2024, our oil and gas sales for the nine months ended September 30, 2024 would have moved up or down $326.5 million for each 10% change in oil prices per Bbl, $2.1 million for each 10% change in natural gas prices per Mcf, and $46.1 million for each 10% change in NGL prices per Bbl.
Due to this volatility, we have historically used, and we may elect to continue to selectively use, commodity derivative instruments (such as collars, swaps, puts and basis swaps) to mitigate price risk associated with a portion of our anticipated production. Our derivative instruments allow us to reduce, but not eliminate, the potential effects of the variability in cash flows that can emanate from fluctuations in oil and natural gas prices, and thereby provide increased certainty of cash flows for our drilling program and debt service requirements. These instruments provide only partial price protection against declines in oil and natural gas prices, but alternatively they partially limit our potential gains from future increases in prices. Our Credit Agreement limits our ability to enter into commodity hedges covering greater than 85% of our reasonably anticipated projected production from proved properties.
The table below summarizes the terms of the derivative contracts we had in place as of September 30, 2024 and additional contracts entered into through October 31, 2024. Refer to Note 7—Derivative Instruments in Part I, Item 1 of this Quarterly Report for open derivative positions as of September 30, 2024.
(1) These crude oil swap transactions are settled based on the NYMEX WTI index price on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.
(2) These crude oil collars are settled based on the NYMEX WTI index price on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.
(3) These crude oil deferred premium puts are settled based on the NYMEX WTI index price on each trading day within the specified monthly settlement period versus the contractual put prices for the volumes stipulated.
(4) These crude oil basis swap transactions are settled based on the difference between the arithmetic average of ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each applicable monthly settlement period.
(5) These crude oil roll swap transactions are settled based on the difference between the arithmetic average of NYMEX WTI calendar month prices and the physical crude oil delivery month price.
(1) These natural gas swap contracts are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.
(2) These natural gas basis swap contracts are settled based on the difference between the Inside FERC’s West Texas WAHA price and the NYMEX price of natural gas during each applicable monthly settlement period.
(3) These natural gas collars are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.
Changes in the fair value of derivative contracts from December 31, 2023 to September 30, 2024, are presented below:
(in thousands)
Commodity Derivative Asset (Liability)
Net fair value of oil and gas derivative contracts outstanding as of December 31, 2023
$
93,573
Commodity hedge contract settlement payments, net of any receipts
(40,340)
Cash and non-cash mark-to-market gains (losses) on commodity hedge contracts(1)
131,702
Net fair value of oil and gas derivative contracts outstanding as of September 30, 2024
$
184,935
(1) At inception, new derivative contracts entered into by us have no intrinsic value.
A hypothetical upward or downward shift of 10% per Bbl in the NYMEX forward curve for crude oil as of September 30, 2024 would cause a $175.9 million increase or $176.4 million decrease, respectively, in this fair value position, and a hypothetical upward or downward shift of 10% per MMBtu in the NYMEX forward curve for natural gas as of September 30, 2024 would cause a $4.5 million increase or $4.6 million decrease, respectively, in this same fair value position.
Our ability to borrow and the rates offered by lenders can be adversely affected by deteriorations in the credit markets and/or downgrades in our credit rating. OpCo’s Credit Agreement interest rate is based on a SOFR spread, which exposes us to interest rate risk to the extent we have borrowings outstanding under this credit facility. As of September 30, 2024, we had no borrowings outstanding under the Credit Agreement. We do not currently have or intend to enter into any derivative hedge contracts to protect against fluctuations in interest rates applicable to our outstanding indebtedness.
The long-term debt balance of $4.2 billion consists of our senior notes, which have fixed interest rates; therefore, this balance is not affected by interest rate movements. For additional information regarding our debt instruments, see Note 4—Long-Term Debt, in Part I, Item 1 of this Quarterly Report.
In accordance with Rules 13a-15 and 15d-15 under the Exchange Act, we have evaluated, under the supervision and with the participation of management, including our principal executive officers and principal financial officer, the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2024. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officers and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2024 at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in the system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the nine months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 12—Commitments and Contingencies under Part I, Item 1 of this Quarterly Report for more information regarding our legal proceedings.
Environmental. Due to the nature of the oil and gas industry, we are exposed to environmental risks. We have various policies and procedures to minimize and mitigate the risks from environmental contamination and we conduct periodic reviews to identify changes in our environmental risk profile. Liabilities are recorded when environmental damages resulting from events are probable and the costs can be reasonably estimated. Item 103 of Regulation S-K promulgated under the Exchange Act requires disclosure regarding certain proceedings arising under federal, state or local environmental laws when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that the Company reasonably believes will exceed a specified threshold. Pursuant to such item, we have elected to use a $1 million threshold for purposes of determining whether disclosure of any such proceedings is required. We believe proceedings under this threshold are not material to our business and financial condition. We are not aware of any material environmental claims existing as of September 30, 2024 over our threshold which have not been provided for or would otherwise have a material impact on our financial statements; however, there can be no assurance that current regulatory requirements will not change or that unknown potential past non-compliance with environmental laws or other environmental liabilities will not be discovered on our properties.
Item 1A. Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2023 Annual Report and the risk factors and other cautionary statements contained in our other SEC filings. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes in our risk factors from those described in our 2023 Annual Report or our SEC filings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
During the three months ended September 30, 2024, our Board of Director authorized a new share repurchase program of $1 billion of the Company’s outstanding Common Stock (“New Repurchase Program”), replacing the existing $500 million stock repurchase program. The New Repurchase Program is approved to run on an indefinite basis and can be used by the Company to reduce its shares of Class A Common Stock and Class C Common Stock outstanding.
During the three months ended September 30, 2024, we did not purchase any Common Stock in the open market under our stock repurchase program.
Item 5. Other Information
Trading Plans
During the quarter ended September 30, 2024, no directors or officers, as defined in Rule 16a-1(f), adopted or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement,” each as defined in Regulation S-K Item 408.
Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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 thereto duly authorized.
PERMIAN RESOURCES CORPORATION
By:
/s/ GUY M. OLIPHINT
Guy M. Oliphint
Executive Vice President and Chief Financial Officer