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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(X) Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2023
Commission File Number 1-8754
SilverBow Logo Black 3.jpg
SILVERBOW RESOURCES, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware20-3940661
(State of Incorporation)
(I.R.S. Employer Identification No.)
920 Memorial City Way, Suite 850
Houston, Texas 77024
(281) 874-2700
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSBOWNew York Stock Exchange
Preferred Stock Purchase RightsNoneNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YesþNoo
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
YesþNo
 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FileroAccelerated Filer
þ 
Non-Accelerated FileroSmaller Reporting Companyo
Emerging Growth Companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
1




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YesoNoþ
Indicate the number of shares outstanding of each of the issuer’s classes
of common stock, as of the latest practicable date.
Common Stock ($.01 Par Value) (Class of Stock)
25,429,610 Shares outstanding at October 27, 2023
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SILVERBOW RESOURCES, INC.
 
FORM 10-Q
 
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023
INDEX
  Page
Part IFINANCIAL INFORMATION 
   
Item 1.Condensed Consolidated Financial Statements 
   
 
   
 
   
 
   
 
   
 
   
Item 2.
   
Item 3.
   
Item 4.
   
Part IIOTHER INFORMATION 
   
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
  

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Forward-Looking Statements

This report includes forward-looking statements intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are based on current expectations and assumptions and are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact included in this report, including those regarding our strategy, future operations, financial position, well expectations and drilling plans, estimated production levels, expected oil and natural gas pricing, estimated oil and natural gas reserves or the present value thereof, reserve increases, service costs, impact of inflation, capital expenditures, budget, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this report, the words “will,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “budgeted,” “guidance,” “expect,” “may,” “continue,” “predict,” “potential,” “plan,” “project,” “should” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words.

    Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the following risks and uncertainties:

• further actions by the members of the Organization of the Petroleum Exporting Countries (“OPEC”), Russia and other allied producing countries (together with OPEC, “OPEC+”) with respect to oil production levels and announcements of potential changes in such levels;
• risks related to the recently announced acquisition of oil and gas assets from Chesapeake Exploration, L.L.C., Chesapeake Operating, L.L.C., Chesapeake Energy Marketing, L.L.C. and Chesapeake Royalty, L.L.C. (collectively, the “Chesapeake Sellers”), including the risk that the transaction will not be completed on the timeline or terms currently contemplated, risks related to the ability to obtain any necessary consents or approvals, the risk that the benefits of the transaction may not be fully realized or may take longer to realize than expected, the risk that the costs of the acquisition will be significant and the risk that management attention will be diverted to transaction-related issues;
• risks related to recently completed acquisitions and integration of these acquisitions;
• volatility in natural gas, oil and natural gas liquids prices;
• ability to obtain permits and government approvals;
• our borrowing capacity, future covenant compliance, cash flow and liquidity, including our ability to satisfy our short or long-term liquidity needs;
• asset disposition efforts or the timing or outcome thereof;
• ongoing and prospective joint ventures, their structures and substance, and the likelihood of their finalization or the timing thereof;
• the amount, nature and timing of capital expenditures, including future development costs;
• timing, cost and amount of future production of oil and natural gas;
• availability of drilling and production equipment or availability of oil field labor;
• availability, cost and terms of capital;
• timing and successful drilling and completion of wells;
• availability and cost for transportation and storage capacity of oil and natural gas;
• costs of exploiting and developing our properties and conducting other operations;
• competition in the oil and natural gas industry;
• general economic and political conditions, including inflationary pressures, further increases in interest rates, a general economic slowdown or recession, instability in financial institutions, political tensions and war (including future developments in the ongoing conflicts in Ukraine and the Gaza Strip);
• the severity and duration of world health events, including health crises and pandemics, related economic repercussions, including disruptions in the oil and gas industry, supply chain disruptions, and operational challenges including remote work arrangements and protecting the health and well-being of our employees;
• opportunities to monetize assets;
• our ability to execute on strategic initiatives;
• effectiveness of our risk management activities including hedging strategy;
• counterparty and credit market risk;
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• pending legal and environmental matters, including potential impacts on our business related to climate change and related regulations;
• actions by third parties, including customers, service providers and shareholders;
• current and future governmental regulation and taxation of the oil and natural gas industry;
• developments in world oil and natural gas markets and in oil and natural gas-producing countries;
• uncertainty regarding our future operating results; and
• other risks and uncertainties described in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2022 and our other filings with the Securities and Exchange Commission (“SEC”).

Many of the foregoing risks and uncertainties, as well as risks and uncertainties that are currently unknown to us, are, and may be, exacerbated by geopolitical events and wars, increasing economic uncertainty, recessionary and inflationary pressures and any consequent worsening of the global business and economic environment. New factors emerge from time to time, and it is not possible for us to predict all such factors. Should one or more of the risks or uncertainties described in this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2022, subsequent Quarterly Reports on Form 10-Q, or other SEC filings occur, or should underlying assumptions prove incorrect, actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements speak only as of the date they are made. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022 and in subsequent Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and our other filings with the SEC. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the foregoing. We undertake no obligation to publicly release the results of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events, except as required by law.

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PART I. FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets (Unaudited)
SilverBow Resources, Inc. and Subsidiary (in thousands, except share amounts)
 September 30, 2023December 31, 2022
ASSETS  
Current Assets:  
Cash and cash equivalents$1,697 $792 
Accounts receivable, net80,202 89,714 
Fair value of commodity derivatives50,189 52,549 
Other current assets3,825 2,671 
Total Current Assets135,913 145,726 
Property and Equipment:  
Property and equipment, full cost method, including $27,821 and $16,272, respectively, of unproved property costs not being amortized at the end of each period
2,861,267 2,529,223 
Less – Accumulated depreciation, depletion, amortization & impairment(1,151,141)(1,004,044)
Property and Equipment, Net1,710,126 1,525,179 
Right of use assets10,085 12,077 
Fair value of long-term commodity derivatives14,180 24,172 
Deposit and other fees for oil and gas property transaction52,564  
Other long-term assets7,581 9,208 
Total Assets$1,930,449 $1,716,362 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current Liabilities:  
Accounts payable and accrued liabilities$74,731 $60,200 
Fair value of commodity derivatives32,752 40,796 
Accrued capital costs56,424 56,465 
Accrued interest2,976 2,665 
Current lease liability5,507 8,553 
Undistributed oil and gas revenues22,462 27,160 
Total Current Liabilities194,852 195,839 
Long-term debt, net645,096 688,531 
Non-current lease liability4,604 3,775 
Deferred tax liabilities49,033 16,141 
Asset retirement obligations9,840 9,171 
Fair value of long-term commodity derivatives21,560 7,738 
Other long-term liabilities922 3,588 
Commitments and Contingencies (Note 11)
Stockholders' Equity:  
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued
  
Common stock, $0.01 par value, 40,000,000 shares authorized, 25,914,823 and 22,663,135 shares issued, respectively, and 25,429,517 and 22,309,740 shares outstanding, respectively
259 227 
Additional paid-in capital677,473 576,118 
Treasury stock, held at cost, 485,306 and 353,395 shares, respectively
(10,616)(7,534)
Retained earnings337,426 222,768 
Total Stockholders’ Equity1,004,542 791,579 
Total Liabilities and Stockholders’ Equity$1,930,449 $1,716,362 
See accompanying Notes to Condensed Consolidated Financial Statements.
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Condensed Consolidated Statements of Operations (Unaudited)

SilverBow Resources, Inc. and Subsidiary (in thousands, except per-share amounts)
 Three Months Ended September 30, 2023Three Months Ended September 30, 2022
Revenues: 
Oil and gas sales$173,963 $242,181 
Operating Expenses: 
General and administrative, net4,438 4,343 
Depreciation, depletion, and amortization53,186 41,501 
Accretion of asset retirement obligations254 166 
Lease operating expenses22,678 17,701 
Workovers672 284 
Transportation and gas processing13,710 9,662 
Severance and other taxes10,407 12,581 
Total Operating Expenses105,345 86,238 
Operating Income68,618 155,943 
Non-Operating Income (Expense)
Gain (loss) on commodity derivatives, net(54,639)4,832 
Interest expense, net(19,811)(12,173)
Other income (expense), net112 5 
Income (Loss) Before Income Taxes(5,720)148,607 
Provision (Benefit) for Income Taxes(949)6,066 
Net Income (Loss)$(4,771)$142,541 
Per Share Amounts: 
Basic Earnings (Loss) Per Share$(0.21)$6.39 
Diluted Earnings (Loss) Per Share$(0.21)$6.29 
Weighted-Average Shares Outstanding - Basic22,985 22,308 
Weighted-Average Shares Outstanding - Diluted22,985 22,669 
See accompanying Notes to Condensed Consolidated Financial Statements.

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Condensed Consolidated Statements of Operations (Unaudited)

SilverBow Resources, Inc. and Subsidiary (in thousands, except per-share amounts)
 Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
Revenues: 
Oil and gas sales$440,317 $554,442 
Operating Expenses: 
General and administrative, net17,421 14,840 
Depreciation, depletion, and amortization147,037 89,096 
Accretion of asset retirement obligations718 366 
Lease operating expenses62,417 37,095 
Workovers2,263 933 
Transportation and gas processing37,001 22,784 
Severance and other taxes28,563 30,183 
Total Operating Expenses295,420 195,297 
Operating Income144,897 359,145 
Non-Operating Income (Expense)
Gain (loss) on commodity derivatives, net57,604 (157,816)
Interest expense, net(54,746)(26,632)
Other income (expense), net117 57 
Income (Loss) Before Income Taxes147,872 174,754 
Provision (Benefit) for Income Taxes33,214 7,678 
Net Income (Loss)$114,658 $167,076 
Per Share Amounts: 
Basic Earnings (Loss) Per Share$5.06 $8.85 
Diluted Earnings (Loss) Per Share$5.02 $8.69 
Weighted-Average Shares Outstanding - Basic22,677 18,885 
Weighted-Average Shares Outstanding - Diluted22,852 19,237 
See accompanying Notes to Condensed Consolidated Financial Statements.
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Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
SilverBow Resources, Inc. and Subsidiary (in thousands, except share amounts)
 Common StockAdditional Paid-In CapitalTreasury StockRetained Earnings (Accumulated Deficit)Total
Balance, December 31, 2021$168 $413,017 $(2,984)$(117,669)$292,532 
Purchase of treasury shares (96,012 shares)
  (2,462) (2,462)
Treasury shares pursuant to purchase price adjustment (41,191 shares)
  (1,146) (1,146)
Vesting of share-based compensation (318,390 shares)
3 (3)   
Issuance pursuant to acquisition (489 shares)
 12   12 
Share-based compensation 1,101   1,101 
Net Loss   (64,255)(64,255)
Balance, March 31, 2022$171 $414,127 $(6,592)$(181,924)$225,782 
Stock options exercised (4,497 shares)
 39   39 
Purchase of treasury shares (16,485 shares)
  (503) (503)
Vesting of share-based compensation (57,355 shares)
1 (1)   
Issuance pursuant to acquisition (5,448,472 shares)
55 157,338   157,393 
Share-based compensation 1,756   1,756 
Net Income   88,790 88,790 
Balance, June 30, 2022$227 $573,259 $(7,095)$(93,134)$473,257 
Stock options exercised (11,087 shares)
 387   387 
Purchase of treasury shares (7,853 shares)
  (432) (432)
Treasury shares pursuant to purchase price adjustment (184 shares)
  (7) (7)
Share-based compensation 1,239   1,239 
Net income   142,541 142,541 
Balance, September 30, 2022$227 $574,885 $(7,534)$49,407 $616,985 
Balance, December 31, 2022$227 $576,118 $(7,534)$222,768 $791,579 
Purchase of treasury shares (126,240 shares)
  (2,945) (2,945)
Vesting of share-based compensation (418,518 shares)
4 (4)   
Share-based compensation 1,179   1,179 
Net Income   94,492 94,492 
Balance, March 31, 2023$231 $577,293 $(10,479)$317,260 $884,305 
Purchase of treasury shares (5,310 shares)
  (121) (121)
Vesting of share-based compensation (21,134 shares)
     
Share-based compensation 1,524   1,524 
Net Income   24,937 24,937 
Balance, June 30, 2023$231 $578,817 $(10,600)$342,197 $910,645 
Purchase of treasury shares (361 shares)
  (16) (16)
Vesting of share-based compensation (1,225 shares)
     
Issuance of common stock (2,810,811 shares)
28 97,105   97,133 
Share-based compensation 1,551   1,551 
Net Loss   (4,771)(4,771)
Balance, September 30, 2023$259 $677,473 $(10,616)$337,426 $1,004,542 
See accompanying Notes to Condensed Consolidated Financial Statements.
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Condensed Consolidated Statements of Cash Flows (Unaudited)
SilverBow Resources, Inc. and Subsidiary (in thousands)
Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
Cash Flows from Operating Activities:
Net income (loss)$114,658 $167,076 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation, depletion, and amortization147,037 89,096 
Accretion of asset retirement obligations718 366 
Deferred income taxes32,892 7,496 
Share-based compensation4,043 3,901 
(Gain) Loss on derivatives, net(57,604)157,816 
Cash settlement (paid) received on derivatives70,670 (182,058)
Settlements of asset retirement obligations(481)(47)
Write down of debt issuance cost 350 
Other, net2,028 (6,425)
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable and other current assets9,129 (47,320)
Increase (decrease) in accounts payable and accrued liabilities(5,320)20,260 
Increase (decrease) in income taxes payable321 (21)
Increase (decrease) in accrued interest311 1,688 
Net Cash Provided by (Used in) Operating Activities318,402 212,178 
Cash Flows from Investing Activities:
Additions to property and equipment(316,003)(163,567)
Acquisition of oil and gas properties, net of purchase price adjustments(382)(293,880)
Deposit and other fees for oil and gas property transaction(51,163) 
Proceeds from the sale of property and equipment 4,415 
Payments on property sale obligations (750)
Net Cash Provided by (Used in) Investing Activities(367,548)(453,782)
Cash Flows from Financing Activities:
Proceeds from bank borrowings334,000 679,000 
Payments of bank borrowings(378,000)(426,000)
Net proceeds from issuances of common stock97,133  
Net proceeds from stock options exercised 39 
Purchase of treasury shares(3,082)(3,404)
Payments of debt issuance costs (7,228)
Net Cash Provided by (Used in) Financing Activities50,051 242,407 
Net Increase (Decrease) in Cash and Cash Equivalents905 803 
Cash and Cash Equivalents at Beginning of Period792 1,121 
Cash and Cash Equivalents at End of Period$1,697 $1,924 
Supplemental Disclosures of Cash Flow Information: 
Cash paid during period for interest, net of amounts capitalized$52,170 $22,701 
Non-cash Investing and Financing Activities:
Changes in capital accounts payable and capital accruals$13,363 $60,595 
Accrued other fees for oil and gas property transaction $(1,401)$ 
Non-cash equity consideration for acquisitions$ $(156,259)
See accompanying Notes to Condensed Consolidated Financial Statements.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
SilverBow Resources, Inc. and Subsidiary

(1)           General Information

SilverBow Resources, Inc. (“SilverBow,” the “Company,” or “we”) is an independent oil and gas company headquartered in Houston, Texas. The Company's strategy is focused on acquiring and developing assets in the Eagle Ford and Austin Chalk located in South Texas.

Being a committed and long-term operator in South Texas, SilverBow possesses a significant understanding of the reservoir characteristics, geology, landowners and competitive landscape in the region. The Company leverages this in-depth knowledge to continue to assemble high quality drilling inventory while continuously enhancing its operations to maximize returns on capital invested.

The condensed consolidated financial statements included herein are unaudited and certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been omitted pursuant to the rules and regulations of the Securities and Exchange Commission. We believe that the disclosures presented are adequate to allow the information presented not to be misleading. The condensed consolidated financial statements should be read in conjunction with the audited financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
(2)          Summary of Significant Accounting Policies

Basis of Presentation. The condensed consolidated financial statements included herein reflect necessary adjustments, all of which were of a recurring nature unless otherwise disclosed herein, and are in the opinion of our management necessary for a fair presentation.

Principles of Consolidation. The accompanying condensed consolidated financial statements include the accounts of SilverBow and its wholly owned subsidiary, SilverBow Resources Operating LLC, which are engaged in the exploration, development, acquisition, and operation of oil and gas properties, with a focus on oil and natural gas reserves in the Eagle Ford and Austin Chalk trend in Texas. Our undivided interests in oil and gas properties are accounted for using the proportionate consolidation method, whereby our proportionate share of the assets, liabilities, revenues, and expenses are included in the appropriate classifications in the accompanying condensed consolidated financial statements. Intercompany balances and transactions have been eliminated in preparing the accompanying condensed consolidated financial statements.

Stockholder Rights Agreement. On September 20, 2022, the Board adopted a stockholder rights agreement (the “Rights Agreement”) and declared a dividend distribution of one right (each, a “Right” and together with all such rights distributed or issued pursuant to the Rights Agreement, dated as of September 20, 2022, by and between the Company and American Stock Transfer & Trust Company, LLC, as rights agent, the “Rights”) for each outstanding share of Company common stock to holders of record on October 5, 2022. In the event that a person or group acquires beneficial ownership of 15% or more of the Company’s then-outstanding common stock, subject to certain exceptions, each Right would entitle its holder (other than such person or members of such group) to purchase additional shares of Company common stock at a substantial discount to the public market price. In addition, at any time after a person or group acquires beneficial ownership of 15% or more of the outstanding common stock, subject to certain exceptions, the Board may direct the Company to exchange the Rights (other than Rights owned by such person or certain related parties, which will have become null and void), in whole or in part, at an exchange ratio of one share of common stock per Right (subject to adjustment). While in effect, the Rights Agreement could make it more difficult for a third party to acquire control of the Company or a large block of the common stock of the Company without the approval of the Board. On May 16, 2023, the Company and the rights agent entered into an Amendment to the Rights Agreement (the “Amendment”) that amended the Rights Agreement to extend the expiration date until the close of business on the first day following the date of the Company’s first annual meeting of its stockholders that occurs after (but not on) the date of the Amendment. The Rights Agreement, as amended, will expire on the earliest of (a) 5:00 p.m., New York City time, on the first business day after the 2024 annual stockholders’ meeting, (b) the time at which the Rights are redeemed and (c) the time at which the Rights are exchanged in full.


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Subsequent Events. We have evaluated subsequent events requiring potential accrual or disclosure in our condensed consolidated financial statements.

Through October 31, 2023, the Company entered into additional derivative contracts. The following tables summarize the weighted-average prices as well as future production volumes for our future derivative contracts entered into after September 30, 2023:
Oil Derivative Contracts
(NYMEX WTI Settlements)
Total Volumes
(Bbls)
Weighted-Average Price
Swap Contracts
2024 Contracts
1Q2491,000 $83.40 
2Q2491,000 $81.31 
3Q2492,000 $79.63 
4Q2492,000 $78.21 
2025 Contracts
1Q2590,000 $76.52 
2Q2591,000 $75.38 
3Q2592,000 $74.56 
4Q2592,000 $73.58 
2026 Contracts
1Q26157,500 $68.01 
2Q26136,500 $67.98 
3Q26110,400 $67.94 
4Q26156,150 $68.60 
Oil Basis Swaps
(Argus Cushing (WTI) and Magellan East Houston)
Total Volumes
(MMBtu)
Weighted-Average Price
2023 Contracts
4Q2361,000 $0.90 
2025 Contracts
1Q2590,000 $1.75 
2Q2591,000 $1.75 
3Q2592,000 $1.75 
4Q2592,000 $1.75 
Calendar Monthly Roll Differential Swaps
2023 Contracts
4Q2361,000 $2.40 
2025 Contracts
1Q2590,000 $0.50 
2Q2591,000 $0.50 
3Q2592,000 $0.50 
4Q2592,000 $0.50 
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Natural Gas Derivative Contracts
(NYMEX Henry Hub Settlements)
Total Volumes
(MMBtu)
Weighted-Average Price
Swap Contracts
2024 Contracts
1Q241,820,000 $3.66 
2Q242,430,000 $3.31 
3Q242,760,000 $3.46 
4Q242,760,000 $3.75 
2025 Contracts
1Q252,700,000 $4.20 
2Q252,730,000 $3.75 
3Q252,760,000 $3.89 
4Q251,540,000 $4.11 
2026 Contracts
1Q26900,000 $4.56 
2Q26910,000 $3.53 
3Q26920,000 $3.73 
4Q26920,000 $4.19 

Natural Gas Basis Derivative Swaps
(East Texas Houston Ship Channel vs. NYMEX Settlements)
Total Volumes
(MMBtu)
Weighted-Average Price
2024 Contracts
1Q24910,000 $(0.21)
2Q24910,000 $(0.21)
3Q24920,000 $(0.21)
4Q24920,000 $(0.21)
2025 Contracts
1Q25900,000 $(0.23)
2Q25910,000 $(0.23)
3Q25920,000 $(0.23)
4Q25920,000 $(0.23)
NGL Swaps (Mont Belvieu)Total Volumes
(Bbls)
Weighted-Average Price
2024 Contracts
1Q2491,000 $24.25 
2Q2491,000 $24.25 
3Q2492,000 $24.25 
4Q2492,000 $24.25 

There were no other material subsequent events requiring additional disclosure in these condensed consolidated financial statements.

Use of Estimates. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of certain assets and liabilities and the reported amounts of certain revenues and expenses during each reporting period. Such estimates and assumptions are subject to a number of risks and uncertainties that may cause actual results to differ materially from such estimates. Significant estimates and assumptions underlying these financial statements include:

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the estimated quantities of proved oil and natural gas reserves used to compute depletion of oil and natural gas properties, the related present value of estimated future net cash flows therefrom, and the Ceiling Test impairment calculation,
estimates related to the collectability of accounts receivable and the creditworthiness of our customers,
estimates of the counterparty bank risk related to letters of credit that our customers may have issued on our behalf,
estimates of future costs to develop and produce reserves,
accruals related to oil and gas sales, capital expenditures and lease operating expenses (“LOE”),
estimates in the calculation of share-based compensation expense,
estimates of our ownership in properties prior to final division of interest determination,
the estimated future cost and timing of asset retirement obligations,
estimates made in our income tax calculations, including the valuation of our deferred tax assets,
estimates in the calculation of the fair value of commodity derivative assets and liabilities,
estimates in the assessment of current litigation claims against the Company,
estimates used in the assessment of business combinations and asset purchases,
estimates in amounts due with respect to open state regulatory audits, and
estimates on future lease obligations.

While we are not currently aware of any material revisions to any of our estimates, there will likely be future revisions to our estimates resulting from matters such as new accounting pronouncements, changes in ownership interests, payouts, joint venture audits, reallocations by purchasers or pipelines, or other corrections and adjustments common in the oil and gas industry, many of which relate to prior periods. These types of adjustments cannot be currently estimated and are expected to be recorded in the period during which the adjustments are known.

We are subject to legal proceedings, claims, liabilities and environmental matters that arise in the ordinary course of business. We accrue for losses when such losses are considered probable and the amounts can be reasonably estimated.

Property and Equipment. We follow the “full-cost” method of accounting for oil and natural gas property and equipment costs. Under this method of accounting, all productive and nonproductive costs incurred in the exploration, development, and acquisition of oil and natural gas reserves are capitalized. Such costs may be incurred both prior to and after the acquisition of a property and include lease acquisitions, geological and geophysical services, drilling, completion, and equipment. Internal costs incurred that are directly identified with exploration, development, and acquisition activities undertaken by us for our own account, and which are not related to production, general corporate overhead, or similar activities, are also capitalized. For the three months ended September 30, 2023 and 2022, such internal costs capitalized totaled $1.4 million and $1.1 million, respectively. For the nine months ended September 30, 2023 and 2022, such internal costs capitalized totaled $4.1 million and $3.3 million, respectively. Interest costs are also capitalized to unproved oil and natural gas properties. There was no capitalized interest on our unproved properties for both the three months ended September 30, 2023 and 2022 and the nine months ended September 30, 2023 and 2022.

The “Property and Equipment” balances on the accompanying condensed consolidated balance sheets are summarized for presentation purposes. The following is a detailed breakout of our “Property and Equipment” balances (in thousands):
September 30, 2023December 31, 2022
Property and Equipment  
Proved oil and gas properties$2,827,145 $2,506,853 
Unproved oil and gas properties27,821 16,272 
Furniture, fixtures and other equipment6,301 6,098 
Less – Accumulated depreciation, depletion, amortization & impairment(1,151,141)(1,004,044)
Property and Equipment, Net$1,710,126 $1,525,179 

No gains or losses are recognized upon the sale or disposition of oil and natural gas properties, except in transactions involving a significant amount of reserves or where the proceeds from the sale of oil and natural gas properties would significantly alter the relationship between capitalized costs and proved reserves of oil and natural gas attributable to a cost center. Internal costs associated with selling properties are expensed as incurred.

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We compute the provision for depreciation, depletion and amortization (“DD&A”) of oil and natural gas properties using the unit-of-production method. Under this method, we compute the provision by multiplying the total unamortized costs of oil and natural gas properties, including future development costs, gas processing facilities, and both capitalized asset retirement obligations and undiscounted abandonment costs of wells to be drilled, net of salvage values, but excluding costs of unproved properties, by an overall rate determined by dividing the physical units of oil and natural gas produced (which excludes natural gas consumed in operations) during the period by the total estimated units of proved oil and natural gas reserves (which excludes natural gas consumed in operations) at the beginning of the period. Future development costs are estimated on a property-by-property basis based on current economic conditions. The period over which we will amortize these properties is dependent on our production from these properties in future years. Furniture, fixtures and other equipment are recorded at cost and are depreciated by the straight-line method at rates based on the estimated useful lives of the property, which range between two and 20 years. Repairs and maintenance are charged to expense as incurred.

Geological and geophysical (“G&G”) costs incurred on developed properties are recorded in “Proved oil and gas properties” and therefore subject to amortization. G&G costs incurred that are associated with unproved properties are capitalized in “Unproved oil and gas properties” and evaluated as part of the total capitalized costs associated with a prospect. The cost of unproved properties not being amortized is assessed quarterly, on a property-by-property basis, to determine whether such properties have been impaired. In determining whether such costs should be impaired, we evaluate current drilling results, lease expiration dates, current oil and gas industry conditions, economic conditions, capital availability and available geological and geophysical information. Any impairment assessed is added to the cost of proved properties being amortized.

Full-Cost Ceiling Test. At the end of each quarterly reporting period, the unamortized cost of oil and natural gas properties (including natural gas processing facilities, capitalized asset retirement obligations, net of related salvage values and deferred income taxes) is limited to the sum of the estimated future net revenues from proved properties (excluding cash outflows from recognized asset retirement obligations, including future development and abandonment costs of wells to be drilled, using the preceding 12-months’ average price based on closing prices on the first day of each month, adjusted for price differentials, discounted at 10% and the lower of cost or fair value of unproved properties) adjusted for related income tax effects (“Ceiling Test”).

The quarterly calculations of the Ceiling Test and provision for DD&A are based on estimates of proved reserves. There are numerous uncertainties inherent in estimating quantities of proved reserves and in projecting the future rates of production, timing and plan of development. The accuracy of any reserves estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing, and production subsequent to the date of the estimate may justify revision of such estimates. Accordingly, reserves estimates are often different from the quantities of oil and natural gas that are ultimately recovered. There was no ceiling test write-down for either of the three months ended September 30, 2023 and 2022 or the nine months ended September 30, 2023 and 2022.

If future capital expenditures outpace future discounted net cash flows in our reserve calculations, if we have significant declines in our oil and natural gas reserves volumes (which also reduces our estimate of discounted future net cash flows from proved oil and natural gas reserves) or if oil or natural gas prices decline, it is possible that non-cash write-downs of our oil and natural gas properties will occur again in the future. We cannot control and cannot predict what future prices for oil and natural gas will be; therefore, we cannot estimate the amount of any potential future non-cash write-down of our oil and natural gas properties due to decreases in oil or natural gas prices. However, it is reasonably possible that we will record additional Ceiling Test write-downs in future periods.

Accounts Receivable, Net. We assess the collectability of accounts receivable based on a broad range of reasonable and forward-looking information including historical losses, current economic conditions, future forecasts and contractual terms. The Company's credit losses based on these assessments are considered immaterial. At September 30, 2023, December 31, 2022 and December 31, 2021, we had an allowance of less than $0.1 million. The allowance has been deducted from the total “Accounts receivable, net” balance on the accompanying condensed consolidated balance sheets.

At September 30, 2023, our “Accounts receivable, net” balance included $60.4 million for oil and gas sales, $1.9 million due from joint interest owners, $9.1 million for severance tax credit receivables and $8.8 million for other receivables. At December 31, 2022, our “Accounts receivable, net” balance included $70.9 million for oil and gas sales, $5.6 million due from joint interest owners, $4.3 million for severance tax credit receivables and $8.9 million for other receivables. At December 31, 2021, our “Accounts receivable, net” balance included $45.3 million for oil and gas sales, $1.9 million due from joint interest owners, $1.0 million for severance tax credit receivables and $1.5 million for other receivables.

Supervision Fees. Consistent with industry practice, we charge a supervision fee to the wells we operate, including our wells, in which we own up to a 100% working interest. Supervision fees are recorded as a reduction to “General and
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administrative, net,” on the accompanying condensed consolidated statements of operations. The amount of supervision fees charged for each of the nine months ended September 30, 2023 and 2022 did not exceed our actual costs incurred. The total amount of supervision fees charged to the wells we operated was $3.0 million and $2.8 million for the three months ended September 30, 2023 and 2022, respectively, and $8.6 million and $6.1 million for the nine months ended September 30, 2023 and 2022, respectively.

Income Taxes. Deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities, given the provisions of the enacted tax laws. The Company's effective tax rate was approximately 17% and 4% for the three months ended September 30, 2023 and 2022, respectively, and 22% and 4% for the nine months ended September 30, 2023 and 2022, respectively. The Company recorded an income tax benefit of $0.9 million and income tax provision of $33.2 million for the three and nine months ended September 30, 2023, respectively, and an income tax provision of $6.1 million and $7.7 million for the three and nine months ended September 30, 2022, respectively. The tax impact for both periods was a product of the overall forecasted annual effective tax rate applied to the year to date income.

Section 382 of the Internal Revenue Code (“Section 382”) imposes limitations on a corporation’s ability to utilize its net operating losses (“NOLs”) if it experiences an ownership change. Generally, an “ownership change” occurs if one or more shareholders, each of whom is deemed to own five percent or more in value of a corporation’s stock, increase their aggregate percentage ownership by more than 50 percent over the lowest percentage of stock owned by those shareholders at any time during the preceding three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382. We believe we had an ownership change in August 2022 and, therefore, are subject to an annual limitation on the usage of our NOLs generated prior to the ownership change. However, we do not expect to have any of our NOLs expire before becoming available to be utilized by the Company. Management will continue to monitor the potential impact of Section 382 with respect to our NOLs.

Our policy is to record interest and penalties relating to uncertain tax positions in income tax expense. At September 30, 2023 and December 31, 2022, we did not have any accrued liability for uncertain tax positions and do not anticipate recognition of any significant liabilities for uncertain tax positions during the next 12 months.

Revenue Recognition. Our reported oil and gas sales are comprised of revenues from oil, natural gas and natural gas liquids (“NGLs”) sales. Revenues from each product stream are recognized at the point when control of the product is transferred to the customer and collectability is reasonably assured. Prices for our products are either negotiated on a monthly basis or tied to market indices. The Company has determined that these contracts represent performance obligations which are satisfied when control of the commodity transfers to the customer, typically through the delivery of the specified commodity to a designated delivery point. Natural gas revenues are recognized based on the actual volume of natural gas sold to the purchasers.

The following table provides information regarding our oil and gas sales, by product, reported on the Condensed Consolidated Statements of Operations for the three months ended September 30, 2023 and 2022 and the nine months ended September 30, 2023 and 2022 (in thousands):
Three Months Ended September 30, 2023Three Months Ended September 30, 2022Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
Oil, natural gas and NGLs sales:
Oil$112,456 $71,811 $267,263 $155,566 
Natural gas46,075 150,958 132,802 351,626 
NGLs15,432 19,412 40,252 47,250 
Total$173,963 $242,181 $440,317 $554,442 
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Accounts Payable and Accrued Liabilities. The “Accounts payable and accrued liabilities” balances on the accompanying condensed consolidated balance sheets are summarized below (in thousands):
 September 30, 2023December 31, 2022
Trade accounts payable$30,708 $23,660 
Accrued operating expenses11,266 10,572 
Accrued compensation costs3,267 4,814 
Asset retirement obligations – current portion1,578 1,284 
Accrued non-income based taxes13,303 4,849 
Accrued corporate and legal fees181 388 
WTI contingency payouts - current portion1,537 1,600 
Payable for settled derivatives3,549 6,026 
Other payables9,342 7,007 
Total accounts payable and accrued liabilities$74,731 $60,200 

Cash and Cash Equivalents. We consider all highly liquid instruments with an initial maturity of three months or less to be cash equivalents. These amounts do not include cash balances that are contractually restricted. The Company maintains cash and cash equivalent balances with major financial institutions, which at times exceed federally insured limits. The Company monitors the financial condition of the financial institutions and has experienced no losses associated with these accounts.

Treasury Stock. Our treasury stock repurchases are reported at cost and are included in “Treasury stock, held at cost” on the accompanying condensed consolidated balance sheets. For the nine months ended September 30, 2023, we purchased 131,911 treasury shares to satisfy withholding tax obligations arising upon the vesting of restricted shares. For the nine months ended September 30, 2022, we purchased 120,350 treasury shares to satisfy withholding tax obligations arising upon the vesting of restricted shares and received 41,375 shares in conjunction with our post-closing settlement for a previously disclosed acquisition.

New Accounting Pronouncements. In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments. The standard changes how entities will measure credit losses for most financial assets, including accounts and notes receivables. The new standard replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. The updated guidance is effective for the Company for annual and quarterly reporting periods beginning after December 15, 2022, and the Company adopted the guidance on January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements or disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting followed by ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), issued in January 2021, and ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, issued in December 2022. The guidance provides and clarifies optional expedients and exceptions for applying generally accepted accounting principles to contract modifications, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. The amendments within these ASUs were in effect beginning March 12, 2020, and an entity may elect to apply the amendments prospectively through December 31, 2024. This guidance provides an optional practical expedient that allows qualifying modifications to be accounted for as a debt modification rather than be analyzed under existing guidance to determine if the modification should be accounted for as a debt extinguishment. The Company adopted this accounting pronouncement in conjunction with the execution of the Third Amendment to the Note Purchase Agreement in June 2023 and elected to apply this optional expedient. See Note 6 – Long-Term Debt for further discussion of the Company’s accounting for its existing debt and related issuance costs. The adoption of this accounting standard did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU No. 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The guidance simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity. Additionally, the amendment requires the application of the if-converted method to calculate the impact of convertible instruments on diluted earnings per share (EPS). The guidance is effective for the Company for fiscal years beginning after December 15, 2022, and the Company adopted the
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guidance on January 1, 2023. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements or disclosures.

(3)       Leases

The Company follows the FASB's Accounting Standards Codification Topic No. 842 and elected the package of practical expedients that allows an entity to carry forward historical accounting treatment relating to lease identification and classification for existing leases upon adoption and the practical expedient related to land easements that allows an entity to carry forward historical accounting treatment for land easements on existing agreements. The Company has made an accounting policy election to keep leases with an initial term of 12 months or less off the condensed consolidated balance sheets. We have elected to not account for lease and non-lease components separately.
    
The Company has contractual agreements for its corporate office lease, vehicle fleet, compressors, treating equipment, and for surface use rights. For leases with a primary term of more than 12 months, a right-of-use (“ROU”) asset and the corresponding lease liability is recorded. The Company determines at inception if an arrangement is an operating or financing lease. As of September 30, 2023, all of the Company’s leases were operating leases.

The initial asset and liability balances are recorded at the present value of the payment obligations over the lease term. If lease terms include options to extend the lease and it is reasonably certain that the Company will exercise that option, the lease term used for capitalization includes the expected renewal periods. Most leases do not provide an implicit interest rate. Unless the lease contract contains an implicit interest rate, the Company uses its incremental borrowing rate at the time of lease inception to compute the fair value of the lease payments. The ROU asset balance and current and non-current lease liabilities are reported separately on the accompanying condensed consolidated balance sheets. Certain leases have payment terms that vary based on the usage of the underlying assets. Variable lease payments are not included in ROU assets and lease liabilities. The Company recognizes lease expense on a straight-line basis over the lease term.
    
As of September 30, 2023, the Company's future cash payment obligation for its operating lease liabilities are as follows (in thousands):
As of September 30, 2023
2023 (Remaining)$2,667 
20244,166 
20252,427 
20261,194 
202761 
Thereafter475 
Total undiscounted lease payments10,990 
Present value adjustment(879)
Net operating lease liabilities$10,111 

(4)          Share-Based Compensation

    Share-Based Compensation Plans

In 2016, the Company adopted the 2016 Equity Incentive Plan (as amended from time to time, the “2016 Plan”). The Company also adopted the Inducement Plan (as amended from time to time, the “Inducement Plan,” and, together with the 2016 Plan, the “Plans”) on December 15, 2016.

The Company computes a deferred tax benefit for restricted stock units (“RSUs”), performance-based stock units (“PSUs”) and stock options expected to generate future tax deductions by applying its effective tax rate to the expense recorded. For RSUs, the Company's actual tax deduction is based on the value of the units at the time of vesting.

The expense for awards issued to both employees and non-employees, which was recorded in “General and administrative, net” in the accompanying condensed consolidated statements of operations was $1.5 million and $1.2 million for the three months ended September 30, 2023 and 2022, respectively, and $4.0 million and $3.9 million for the nine months ended September 30, 2023 and 2022, respectively. Capitalized share-based compensation was less than $0.1 million for both
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the three months ended September 30, 2023 and 2022, and $0.2 million for both the nine months ended September 30, 2023 and 2022.

We view stock option awards and RSUs with graded vesting as single awards with an expected life equal to the average expected life of component awards, and we amortize the awards on a straight-line basis over the life of the awards. The Company accounts for forfeitures in compensation cost when they occur.

    Stock Option Awards

The compensation cost related to stock option awards is based on the grant date fair value and is typically expensed over the vesting period (generally one to five years). We use the Black-Scholes option pricing model to estimate the fair value of stock option awards.

At September 30, 2023, we had no unrecognized compensation cost related to stock option awards. The following table provides information regarding stock option award activity for the nine months ended September 30, 2023:
SharesWtd. Avg. Exer. Price
Options outstanding, beginning of period196,162 $26.46 
Options granted $ 
Options exercised $ 
Options outstanding, end of period196,162 $26.46 
Options exercisable, end of period196,162 $26.46 

Our outstanding stock option awards had $1.8 million aggregate intrinsic value at September 30, 2023. At September 30, 2023, the weighted-average remaining contract life of stock option awards outstanding was 3.6 years and exercisable was 3.6 years. The total intrinsic value of stock option awards exercisable was $1.8 million as of September 30, 2023.

Restricted Stock Units

The compensation cost related to restricted stock awards is based on the grant date fair value and is typically expensed over the requisite service period (generally one to five years).

As of September 30, 2023, we had $5.1 million unrecognized compensation expense related to our RSUs which is expected to be recognized over a weighted-average period of 2.0 years.

The following table provides information regarding RSU activity for the nine months ended September 30, 2023:
 RSUsWtd. Avg. Grant Price
RSUs outstanding, beginning of period227,114 $21.18 
RSUs granted195,791 $23.75 
RSUs forfeited(1,424)$25.44 
RSUs vested(137,467)$17.78 
RSUs outstanding, end of period284,014 $24.58 
    
Performance-Based Stock Units

On May 21, 2019, the Company granted 99,500 PSUs for which the number of shares earned was based on the total shareholder return (“TSR”) of the Company's common stock relative to the TSR of its selected peers during the performance period from January 1, 2019 to December 31, 2021. The awards contained market conditions which allowed a payout ranging between 0% payout and 200% of the target payout. The fair value as of the grant date was $18.86 per unit or 112.9% of stock price. The awards had a cliff-vesting period of three years. In the first quarter of 2022, the Board and its Compensation Committee approved payout of these awards at 117% of target. Accordingly, 97,812 shares were issued on February 23, 2022.

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On February 24, 2021, the Company granted 161,389 PSUs for which the number of shares earned is based on the TSR of the Company's common stock relative to the TSR of its selected peers during the performance period from January 1, 2021 to December 31, 2022. The awards contain market conditions which allow a payout ranging between 0% and 200% of the target payout. The fair value as of the grant date was $13.13 per unit or 157.6% of the stock price. The compensation expense for these awards is based on the per unit grant date valuation using a Monte Carlo simulation multiplied by the target payout level. The payout level is calculated based on actual stock price performance achieved during the performance period. The awards have a cliff-vesting period of two years. In the first quarter of 2023, the Board and its Compensation Committee approved payout of these awards at 188% of target. Accordingly, 303,410 shares were issued on February 22, 2023.

On February 23, 2022, the Company granted 122,111 PSUs for which the number of shares earned is based on the TSR of the Company's common stock relative to the TSR of its selected peers during the performance period from January 1, 2022 to December 31, 2024. The awards contain market conditions which allow a payout ranging between 0% and 200% of the target payout. The fair value as of the grant date was $36.47 per unit or 150.93% of the stock price. The compensation expense for these awards is based on the per unit grant date valuation using a Monte Carlo simulation multiplied by the target payout level. The payout level is calculated based on actual stock price performance achieved during the performance period. The awards have a cliff-vesting period of three years. All PSUs granted remain outstanding related to this award as of September 30, 2023.

On February 23, 2023, the Company granted 120,749 PSUs for which the number of shares earned is based on the TSR of the Company's common stock relative to the TSR of its selected peers during the performance period from January 1, 2023 to December 31, 2025. The awards contain market conditions which allow a payout ranging between 0% and 200% of the target payout. The fair value as of the grant date was $31.18 per unit or 136.28% of the stock price. The compensation expense for these awards is based on the per unit grant date valuation using a Monte Carlo simulation multiplied by the target payout level. The payout level is calculated based on actual stock price performance achieved during the performance period. The awards have a cliff-vesting period of three years. All PSUs granted remain outstanding related to this award as of September 30, 2023.

As of September 30, 2023, we had $4.9 million unrecognized compensation expense related to our PSUs based on the assumption of 100% target payout. The remaining weighted-average performance period is 1.9 years.

The following table provides information regarding performance-based stock unit activity for the nine months ended September 30, 2023:
PSUsWtd. Avg. Grant Price
Performance based stock units outstanding, beginning of period283,500 $23.18 
Performance based stock units granted120,749 $31.18 
Performance based stock units incremental shares granted142,021 $13.13 
Performance based stock units vested(303,410)$13.13 
Performance based stock units outstanding, end of period242,860 $33.84 

(5)          Earnings Per Share

Basic earnings per share (“Basic EPS”) has been computed using the weighted-average number of common shares outstanding during each period. Diluted earnings per share (“Diluted EPS”) assumes, as of the beginning of the period, exercise of stock options and RSU grants using the treasury stock method. Diluted EPS also assumes conversion of PSUs to common shares based on the number of shares (if any) that would be issuable, according to predetermined performance and market goals, if the end of the reporting period was the end of the performance period. Certain of our stock options and RSU grants that would potentially dilute Basic EPS in the future were also antidilutive for the three and nine months ended September 30, 2023 and 2022 are discussed below.


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The following is a reconciliation of the numerators and denominators used in the calculation of Basic EPS and Diluted EPS for the periods indicated below (in thousands, except per share amounts):
 Three Months Ended September 30, 2023Three Months Ended September 30, 2022
 Net Income (Loss)SharesPer Share
Amount
Net Income (Loss)SharesPer Share
Amount
Basic EPS:
Net Income (Loss) and Share Amounts$(4,771)22,985 $(0.21)$142,541 22,308 $6.39 
Dilutive Securities:
Performance Based Stock Unit Awards 169 
RSU Awards 137 
Stock Option Awards 55 
Diluted EPS:
Net Income (Loss) and Assumed Share Conversions$(4,771)22,985 $(0.21)$142,541 22,669 $6.29 

 Nine Months Ended September 30, 2023Nine Months Ended September 30, 2022
 Net Income (Loss)SharesPer Share
Amount
Net Income (Loss)SharesPer Share
Amount
Basic EPS:
Net Income (Loss) and Share Amounts$114,658 22,677 $5.06 $167,076 18,885 $8.85 
Dilutive Securities:
Performance Based Stock Unit Awards67 141 
RSU Awards91 171 
Stock Option Awards17 40 
Diluted EPS:
Net Income (Loss) and Assumed Share Conversions$114,658 22,852 $5.02 $167,076 19,237 $8.69 

On September 18, 2023, the Company issued 2,810,811 shares of its common stock in a registered underwritten offering, for aggregate net proceeds, after offering expenses and fees, of approximately $97.1 million.

There were 0.2 million stock options that were not included in the computation of Diluted EPS for the three months ended September 30, 2023 because they were antidilutive due to the net loss, while there were no antidilutive stock options for the three months ended September 30, 2022. Additionally, there were less than 0.1 million stock options to purchase shares which were not included in the computation of Diluted EPS for both the nine months ended September 30, 2023 and 2022, because they were antidilutive.

There were 0.2 million shares of RSUs that were not included in the computation of Diluted EPS for the three months ended September 30, 2023 because they were antidilutive due to the net loss and less than 0.1 million shares of RSUs that were not included in the computation of Diluted EPS for the three months ended September 30, 2022 because they were antidilutive. Additionally, there were less than 0.1 million shares of RSUs which were not included in the computation of Diluted EPS for both the nine months ended September 30, 2023 and 2022 because they were antidilutive.

There were 0.1 million shares of PSUs that were not included in the computation of Diluted EPS for the three months ended September 30, 2023 because they were antidilutive due to the net loss and no antidilutive shares of PSUs for the three months ended September 30, 2022. Additionally, there were no antidilutive shares of PSUs for both the nine months ended September 30, 2023 and 2022.


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(6)          Long-Term Debt

    The Company's long-term debt consisted of the following (in thousands):
September 30, 2023December 31, 2022
Credit Facility Borrowings due 2026 (1)
$498,000 $542,000 
Second Lien Notes due 2026150,000 150,000 
648,000 692,000 
Unamortized discount on Second Lien Notes due 2026(738)(882)
Unamortized debt issuance cost on Second Lien Notes due 2026(2,166)(2,587)
Long-Term Debt, net$645,096 $688,531 
(1) Unamortized debt issuance costs on our Credit Facility borrowings are included in Other Long-Term Assets in our condensed consolidated balance sheet. As of September 30, 2023 and December 31, 2022, we had $7.0 million and $8.7 million, respectively, in unamortized debt issuance costs on our Credit Facility borrowings.

Revolving Credit Facility. Amounts outstanding under our Credit Facility (defined below) were $498.0 million and $542.0 million as of September 30, 2023 and December 31, 2022, respectively. The Company is a party to a First Amended and Restated Senior Secured Revolving Credit Agreement with JPMorgan Chase Bank, National Association, as administrative agent, and certain lenders party thereto, as amended (such agreement, the “Credit Agreement” and the borrowing facility provided thereby, the “Credit Facility”).

The Credit Facility matures October 19, 2026 (or to the extent earlier, the date that is 91 days prior to the scheduled maturity of the Company's Second Lien notes), and provides for a maximum credit amount of $2.0 billion, subject to the current borrowing base of $775.0 million. The borrowing base is regularly redetermined in or about May and November of each calendar year and is subject to additional adjustments from time to time, including for asset sales, elimination or reduction of hedge positions and incurrence of other debt. Additionally, the Company and the administrative agent may request an unscheduled redetermination of the borrowing base between scheduled redeterminations. The amount of the borrowing base is determined by the lenders, in their discretion, in accordance with their oil and gas lending criteria at the time of the relevant redetermination. In conjunction with its regularly scheduled semi-annual redeterminations, the Company reaffirmed the borrowing base and elected commitment amount under the Credit Facility at $775.0 million, effective November 22, 2022, and again on March 20, 2023. The Company may also request the issuance of letters of credit under the Credit Agreement in an aggregate amount up to $25.0 million, which reduces the amount of available borrowings under the borrowing base in the amount of such issued and outstanding letters of credit. There were no outstanding letters of credit as of September 30, 2023, and no outstanding letters of credit as of December 31, 2022. Maintaining or increasing our borrowing base under our Credit Facility is dependent on many factors, including commodity prices, our hedge positions, changes in our lenders' lending criteria and our ability to raise capital to drill wells to replace produced reserves.

Interest under the Credit Facility accrues at the Company’s option either at an Alternate Base Rate plus the applicable margin (“ABR Loans”), the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus the applicable margin (“Term Benchmark Loans”) or Adjusted Daily Simple SOFR plus the applicable margin (“RFR Loans”). The applicable margin ranges from 1.75% to 2.75% based on borrowing base utilization for ABR Loans and 2.75% to 3.75% based on borrowing base utilization for Term Benchmark Loans and RFR Loans. The Alternate Base Rate and SOFR are defined, and the applicable margins are set forth, in the Credit Agreement. Undrawn amounts under the Credit Facility are subject to a 0.5% commitment fee. To the extent that a payment default exists and is continuing, all amounts outstanding under the Credit Facility will bear interest at 2.0% per annum above the rate and margin otherwise applicable thereto. As of September 30, 2023, the Company's weighted average interest rate on Credit Facility borrowings was 8.67%.

The obligations under the Credit Agreement are secured, subject to certain exceptions, by a first priority lien on substantially all assets of the Company and its subsidiary, including a first priority lien on properties attributed with at least 85% of estimated proved reserves of the Company and its subsidiary.

The Credit Agreement contains the following financial covenants:

a ratio of total debt to earnings before interest, tax, depreciation and amortization (“EBITDA”), as defined in the Credit Agreement, for the most recently completed four fiscal quarters, not to exceed 3.00 to 1.00 as of the last day of each fiscal quarter; and

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a current ratio, as defined in the Credit Agreement, which includes in the numerator available borrowings undrawn under the borrowing base, of not less than 1.00 to 1.00 as of the last day of each fiscal quarter.

As of September 30, 2023, the Company was in compliance with all financial covenants under the Credit Agreement.

    Additionally, the Credit Agreement contains certain representations, warranties and covenants, including but not limited to, limitations on incurring debt and liens, limitations on making certain restricted payments, limitations on investments, limitations on asset sales and hedge unwinds, limitations on transactions with affiliates and limitations on modifying organizational documents and material contracts. The Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Credit Facility to be immediately due and payable.

Total interest expense on the Credit Facility, which includes commitment fees and amortization of debt issuance costs, was $14.6 million and $8.3 million for the three months ended September 30, 2023 and 2022, respectively, and $39.8 million and $15.9 million for the nine months ended September 30, 2023 and 2022, respectively. The amount of commitment fee amortization included in interest expense, net was $0.2 million and $0.3 million for the three months ended September 30, 2023 and 2022, respectively, and $0.7 million and $0.9 million for the nine months ended September 30, 2023 and 2022, respectively.

    Senior Secured Second Lien Notes. On December 15, 2017, the Company entered into a Note Purchase Agreement for Senior Secured Second Lien Notes (as amended, the “Note Purchase Agreement,” and such second lien facility the “Second Lien”) among the Company as issuer, U.S. Bank National Association as agent and collateral agent, and certain holders that are a party thereto, and issued notes in an initial principal amount of $200.0 million, with a $2.0 million discount, for net proceeds of $198.0 million.

Effective November 12, 2021, the Company entered into the Second Amendment to the Note Purchase Agreement, which extended the maturity date from December 15, 2024 to December 15, 2026 subject to paying down the principal amount of the Second Lien from $200.0 million to $150.0 million. The Company made the $50.0 million redemption of the Second Lien notes on November 29, 2021.

On June 14, 2023, the Company entered into the Third Amendment to the Note Purchase Agreement to effectuate the replacement of LIBOR with an adjusted term secured overnight financing rate plus a margin of 0.25% (“Term SOFR”). After the Third Amendment, interest under the Second Lien is payable quarterly and accrues, based on the Company's election at the time of the borrowing, either at Term SOFR plus a margin of 7.5% (“Second Lien Term SOFR Loans”) or at an Alternate Base Rate which is based on the greater of (i) the prime rate; (ii) the greater of the federal funds effective rate or overnight bank funding rate, plus 0.5%; or (iii) Term SOFR plus 1% (“Second Lien ABR Loans”) plus a margin of 6.5%. Additionally, to the extent the Company were to default on the Second Lien, this would potentially trigger a cross-default under our Credit Facility. As of September 30, 2023, the Company's interest rate on Second Lien borrowings was 13.16%.

The Company has the right, to the extent permitted under the Credit Facility and subject to the terms and conditions of the Second Lien, to optionally prepay the notes at no premium. Additionally, the Second Lien contains customary mandatory prepayment obligations upon asset sales (including hedge terminations), casualty events and incurrences of certain debt, subject to, in certain circumstances, reinvestment periods. Management believes the probability of mandatory prepayment due to default is remote.

The obligations under the Second Lien are secured, subject to certain exceptions and other permitted liens (including the liens created under the Credit Facility), by a perfected security interest, second in priority to the liens securing our Credit Facility, and mortgage lien on substantially all assets of the Company and its subsidiary, including a mortgage lien on oil and gas properties attributed with at least 90% of estimated PV-9 (defined below), of proved reserves of the Company and its subsidiary and 90% of the book value attributed to the PV-9 of the non-proved oil and gas properties of the Company. PV-9 is determined using commodity price assumptions by the administrative agent of the Credit Facility. PV-9 value is the estimated future net revenues to be generated from the production of proved reserves discounted to present value using an annual discount rate of 9%.

The Second Lien contains an Asset Coverage Ratio, which is only tested (i) as a condition to issuance of additional notes and (ii) in connection with certain asset sales in order to determine whether the proceeds of such asset sale must be applied as a prepayment of the notes and includes in the numerator of the PV-10 (defined below), based on forward strip pricing, plus the swap mark-to-market value of the commodity derivative contracts of the Company and its restricted subsidiary and in the denominator the total net indebtedness of the Company and its restricted subsidiary, of not less than 1.25 to 1.0 as of
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each date of determination (the “Asset Coverage Ratio”). PV-10 value is the estimated future net revenues to be generated from the production of proved reserves discounted to present value using an annual discount rate of 10%.

The Second Lien also contains a financial covenant measuring the ratio of total net debt-to-EBITDA, as defined in the Note Purchase Agreement, for the most recently completed four fiscal quarters, not to exceed 3.25 to 1.0 as of the last day of each fiscal quarter. As of September 30, 2023, the Company was in compliance with all financial covenants under the Second Lien.

The Second Lien contains certain customary representations, warranties and covenants, including but not limited to, limitations on incurring debt and liens, limitations on making certain restricted payments, limitations on investments, limitations on asset sales and hedge unwinds, limitations on transactions with affiliates and limitations on modifying organizational documents and material contracts. The Second Lien contains customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Second Lien to be immediately due and payable.

    As of September 30, 2023, total net amounts recorded for the Second Lien were $147.1 million, net of unamortized debt discount and debt issuance costs. Interest expense on the Second Lien totaled $5.2 million and $3.8 million for the three months ended September 30, 2023 and 2022, respectively, and $14.9 million and $10.7 million for the nine months ended September 30, 2023 and 2022, respectively.

Debt Issuance Costs. Our policy is to capitalize upfront commitment fees and other direct expenses associated with our line of credit arrangement and then amortize such costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings. During the nine months ended September 30, 2022, the Company capitalized $7.2 million for debt issuance costs incurred in connection with the amendments to our Credit Facility. There were no capitalized costs incurred during the nine months ended September 30, 2023.

(7)          Acquisitions and Dispositions

November 2021 Acquisition
On November 19, 2021, the Company closed on an acquisition of oil-weighted assets in the Eagle Ford. The acquired assets included wells and acreage in La Salle, McMullen, DeWitt and Lavaca counties. After consideration of closing adjustments, total aggregate consideration was approximately $77.4 million, consisting of $37.6 million in cash, 1,351,961 shares of our common stock valued at approximately $37.9 million based on the Company's share price on the closing date, and contingent consideration with an estimated fair value of $1.9 million. The contingent consideration consists of up to three earn-out payments of $1.6 million per year for each of 2022, 2023 and 2024, contingent upon the average monthly settlement price of WTI exceeding $70 per barrel for such year (the “2021 WTI Contingency Payout”). During the three months ended September 30, 2023 and 2022, the Company recorded losses of $0.9 million and gains of $0.7 million, respectively, and losses of $1.0 million and $0.8 million, respectively, for the nine months ended September 30, 2023 and 2022 related to the 2021 WTI Contingency Payout which are recorded in “Gain (loss) on commodity derivatives, net” on the consolidated statements of operations. We also recorded $1.6 million in earn-out consideration payable to the seller related to the 2022 calendar year in “Accounts payable and accrued liabilities” on the condensed consolidated balance sheet as of December 31, 2022. For further discussion of the fair value related to the Company's contingent consideration, refer to Note 9 of these Notes to Consolidated Financial Statements. Management determined that substantially all the fair value of the gross assets acquired were concentrated in the proved oil and gas properties and have therefore accounted for this transaction as an asset acquisition and allocated the purchase price based on the relative fair value of the assets acquired and liabilities assumed.

May 2022 Acquisition
On May 10, 2022, the Company closed the acquisition of certain oil and gas assets located in La Salle and McMullen Counties, Texas, as well as assumed the seller's commodity derivative contracts in place at the closing date, from SandPoint Operating, LLC, a subsidiary of SandPoint Resources, LLC (collectively, “SandPoint”). After consideration of closing adjustments, total aggregate consideration was approximately $67.5 million, consisting of $27.7 million in cash and 1,300,000 shares of our common stock valued at approximately $39.8 million based on the Company's share price on the closing date. We incurred approximately $0.5 million in transaction costs during the year ended December 31, 2022 related to the acquisition. Management determined that substantially all the fair value of the gross assets acquired were concentrated in the proved oil and gas properties and have therefore accounted for this transaction as an asset acquisition and allocated the purchase price based on the relative fair value of the assets acquired and liabilities assumed.

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The following table represents the allocation of the total cost of the acquisition to the assets acquired and liabilities assumed (in thousands):
Total Cost
Cash consideration$27,709 
Equity consideration39,767 
Total Consideration67,476 
Transaction costs466 
Total Cost of Transaction$67,942 
Allocation of Total Cost
Assets
Oil and gas properties$84,810 
Total assets84,810 
Liabilities
Accounts payable and accrued liabilities199 
Fair value of commodity derivatives 16,511 
Asset retirement obligations158 
Total Liabilities$16,868 
Net Assets Acquired$67,942 

June 2022 Acquisition
On June 30, 2022, the Company closed the acquisition of certain oil and gas assets located in Atascosa, La Salle, Live Oak and McMullen Counties, Texas, as well as assumed the seller's commodity derivative contracts in place at the closing date, from Sundance Energy, Inc., and its affiliated entities Armadillo E&P, Inc. and SEA Eagle Ford, LLC (collectively, “Sundance”). After consideration of closing adjustments, total aggregate consideration was approximately $344.9 million, consisting of $220.9 million in cash, 4,148,472 shares of our common stock valued at approximately $117.7 million based on the Company's share price on the closing date, accrued purchase price adjustments receivable of $1.0 million and contingent consideration with an estimated fair value of $7.4 million. The contingent consideration consists of up to two earn-out payments of $7.5 million each, contingent upon the average monthly settlement price of NYMEX West Texas Intermediate crude oil exceeding $95 per barrel for the period from April 13, 2022 through December 31, 2022 which would trigger a payment of $7.5 million in 2023 and $85 per barrel for 2023 which would trigger a payment of $7.5 million in 2024 (the “2022 WTI Contingency Payout”). The contingent payout for the period of April 13, 2022 through December 31, 2022 did not materialize. During the nine months ended September 30, 2023, the Company recorded gains of $1.0 million related to valuation changes in the 2022 WTI Contingency Payout recorded in “Gain (loss) on commodity derivatives, net” on the accompanying condensed consolidated statements of operations. Additionally, as part of our post-close settlement we settled the 2022 WTI Contingency during the second quarter of 2023. As such, we recorded a non-cash gain of $1.1 million during the nine months ended September 30, 2023, and we are no longer required to make a contingency payment related to the 2022 WTI Contingency Payout. We incurred approximately $6.8 million in transaction costs during the year ended December 31, 2022 related to the acquisition. Management determined that substantially all the fair value of the gross assets acquired were concentrated in the proved oil and gas properties and have therefore accounted for this transaction as an asset acquisition and allocated the purchase price based on the relative fair value of the assets acquired and liabilities assumed.


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The following table represents the allocation of the total cost of the acquisition to the assets acquired and liabilities assumed (in thousands):
Total Cost
Cash consideration$220,866 
Equity consideration117,651 
Fair value of contingent consideration7,422 
Accrued purchase price adjustments receivable(1,000)
Total Consideration344,939 
Transaction costs6,766 
Total Cost of Transaction$351,705 
Allocation of Total Cost
Assets
Other current assets$4,202 
Oil and gas properties397,401 
Right of use assets890 
Total assets402,493 
Liabilities
Accounts payable and accrued liabilities 13,687 
Fair value of commodity derivatives 33,767 
Non-current lease liability890 
Asset retirement obligations2,444 
Total Liabilities$50,788 
Net Assets Acquired$