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☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 Commission File Number:  001-35371

(Exact name of registrant as specified in its charter) 

Delaware						61-1630631
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class			Trading Symbol			Name of exchange on which registered
Common Stock, par value $0.01 per share			CIVI			New 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.  ☒ Yes ☐  No

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).  ☒ Yes  ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒  No

As of November 6, 2024, the registrant had 96,514,065 shares of common stock outstanding.

This Quarterly Report on Form 10-Q contains various statements, including those that express belief, expectation or intention, as well as those that are not statements of historic fact, that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” “plan,” “will,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events.

Forward-looking statements include statements related to, among other things:

•our business strategies;

•reserves estimates;

•estimated sales volumes;

•the amount and allocation of forecasted capital expenditures and plans for funding capital expenditures and operating expenses;

•our ability to modify future capital expenditures;

•anticipated costs;

•compliance with debt covenants;

•our ability to fund and satisfy obligations related to ongoing operations;

•compliance with government regulations, including those related to climate change as well as environmental, health, and safety regulations and liabilities thereunder;

•our ability to achieve, reach, or otherwise meet initiatives, plans, or ambitions with respect to environmental, social, and governance matters;

•the adequacy of gathering systems and continuous improvement of such gathering systems;

•the impact from the lack of available gathering systems and processing facilities in certain areas;

•crude oil, natural gas, and natural gas liquids (“NGL”) prices and factors affecting the volatility of such prices;

•the ability to use derivative instruments to manage commodity price risk and ability to use such instruments in the future;

•our drilling inventory and drilling intentions;

•the impact of potentially disruptive technologies;

•the timing and success of specific projects;

•our implementation of standard and long reach laterals;

•our intention to continue to optimize enhanced completion techniques and well design changes;

•stated working interest percentages;

•our management and technical team;

•outcomes and effects of litigation, claims, and disputes;

•our ability to replace crude oil and natural gas reserves;

•our ability to convert proved undeveloped reserves to producing properties within five years of their initial proved booking;

•our ability to pursue potential future capital management activities such as stock repurchases, paying dividends on our common stock at their current level or at all, or additional mechanisms to return excess capital to our stockholders;

•the impact of the loss of a single customer or any purchaser of our products;

•the timing and ability to meet certain volume commitments related to purchase and transportation agreements;

•the impact of customary royalty interests, overriding royalty interests, obligations incident to operating agreements, liens for current taxes, and other industry-related constraints;

•our anticipated financial position, including our cash flow and liquidity;

•the adequacy of our insurance;

•plans and expectations with respect to our recent acquisitions and the anticipated impact of the recent acquisitions on our results of operations, financial position, future growth opportunities, reserve estimates, and competitive position;

•the results, effects, benefits, and synergies of other mergers and acquisitions; and

•other statements concerning our anticipated operations, economic performance, and financial condition.

We have based these forward-looking statements on certain assumptions and analyses we have made in light of our experience and our perception of historical trends, current conditions, and expected future developments as well as other factors we believe are appropriate under the circumstances. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining actual future results. The actual results or developments anticipated by these forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, and may not be realized or, even if substantially realized, may not have the expected consequences. Actual results could differ materially from those expressed or implied in the forward-looking statements.

Factors that could cause actual results to differ materially include, but are not limited to, the following:

•the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”);

•declines or volatility in the prices we receive for our crude oil, natural gas, and NGL;

•general economic conditions, whether internationally, nationally, or in the regional and local market areas in which we do business, including any future economic downturn, the impact of continued or further inflation, disruption in the financial markets, and the availability of credit on acceptable terms;

•our ability to identify and select possible additional acquisition and disposition opportunities;

•the effects of disruption of our operations or excess supply of crude oil and natural gas and other effects of world health events, and the actions by certain crude oil and natural gas producing countries;

•the ability of our customers to meet their obligations to us;

•our access to capital on acceptable terms;

•our ability to generate sufficient cash flow from operations, borrowings, or other sources to enable us to fully develop our undeveloped acreage positions;

•the presence or recoverability of estimated crude oil and natural gas reserves and the actual future sales volume rates and associated costs;

•uncertainties associated with estimates of proved crude oil and natural gas reserves;

•the possibility that the industry may be subject to future local, state, and federal regulatory or legislative actions (including additional taxes and changes in environmental, health, and safety regulation and regulations addressing climate change);

•environmental, health, and safety risks;

•seasonal weather conditions as well as severe weather and other natural events caused by climate change;

•lease stipulations;

•drilling and operating risks, including the risks associated with the employment of horizontal drilling and completion techniques;

•our ability to acquire adequate supplies of water for drilling and completion operations;

•availability of oilfield equipment, services, and personnel;

•exploration and development risks;

•operational interruption of centralized crude oil and natural gas processing facilities;

•competition in the crude oil and natural gas industry;

•management’s ability to execute our plans to meet our goals;

•unforeseen difficulties encountered in operating in new geographic areas;

•our ability to attract and retain key members of our senior management and key technical employees;

•our ability to maintain effective internal controls;

•access to adequate gathering systems and pipeline take-away capacity;

•our ability to secure adequate processing capacity for natural gas we produce, to secure adequate transportation for crude oil, natural gas, and NGL we produce, and to sell the crude oil, natural gas, and NGL at market prices;

•costs and other risks associated with perfecting title for mineral rights in some of our properties;

•pandemics and other public health epidemics;

•potential impacts following the result of the presidential election in the United States, including volatility in the political, legal, and regulatory environments;

•political conditions in or affecting other producing countries, including conflicts or hostilities in or relating to the Middle East (including the current events related to the Israel-Palestine conflict), South America, and Russia (including the current events involving Russia and Ukraine), and other sustained military campaigns or acts of terrorism or sabotage and the effects therefrom; and

•other economic, competitive, governmental, legislative, regulatory, geopolitical, and technological factors that may negatively impact our businesses, operations, or pricing.

All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We disclaim any obligation to update or revise these statements unless required by law, and 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 Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions, or expectations will be achieved. We disclose other important factors that could cause our actual results to differ materially from our expectations under “Part I, Item 1A. Risk Factors” and elsewhere in our 2023 Form 10-K, which may be updated by in subsequent Quarterly Reports on Form 10-Q and other documents we file with the Securities and Exchange Commission (the “SEC”). These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

When we use the terms “Civitas,” the “Company,” “we,” “us,” or “our,” we are referring to Civitas Resources, Inc. and its consolidated subsidiaries unless the context otherwise requires. Civitas is an independent exploration and production company focused on the acquisition, development, and production of crude oil and associated liquids-rich natural gas in the DJ Basin in Colorado and the Permian Basin in Texas and New Mexico.

The accompanying unaudited condensed consolidated financial statements include the accounts of Civitas and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Quarterly Report on Form 10-Q, and Regulation S-X. Accordingly, pursuant to such rules and regulations, certain notes and other financial information included in audited financial statements have been condensed or omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of interim financial information, have been included. All significant intercompany balances and transactions have been eliminated in consolidation.

The December 31, 2023 unaudited condensed consolidated balance sheet data has been derived from the audited consolidated financial statements contained in our 2023 Form 10-K, but does not include all disclosures, including notes required by GAAP. As such, this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and related notes included in our 2023 Form 10-K. In connection with the preparation of the unaudited condensed consolidated financial statements, we evaluated events subsequent to the balance sheet date of September 30, 2024 through the filing date of this Quarterly Report on Form 10-Q. The results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full year or any other future period. Additionally, certain insignificant prior period amounts have been reclassified to conform to current period presentation in the accompanying unaudited condensed consolidated financial statements. Such reclassifications did not have a material impact on prior period consolidated financial statements.

The significant accounting policies followed by us are set forth in Note 1 - Summary of Significant Accounting Policies in the 2023 Form 10-K and are supplemented by the notes to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 was issued to improve the disclosures about a public entity’s reportable segments and to provide additional, more detailed information about a reportable segment’s expenses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied on a retrospective basis to all prior periods presented in the financial statements. We are within the scope of this ASU and are evaluating the impact of this ASU on our consolidated financial statement disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 is intended to enhance income tax disclosures by requiring disclosure of items such as the disaggregation of the income tax rate reconciliation as well as information regarding income taxes paid. This ASU is effective for annual reporting periods beginning after December 15, 2024, and early adoption is permitted. ASU 2023-07 should be applied on a prospective basis, and retrospective application is permitted. We are evaluating the impact that ASC 2023-09 will have on the consolidated financial statements and our plan for adoption, including the adoption date and transition method.

In March 2024, the SEC adopted rules intended to enhance and standardize climate-related disclosures in registration statements and annual reports. The new rules will require disclosure of material climate-related risks, including disclosure of boards of directors’ oversight and risk management activities, the material impacts of these risks to us and the quantification of material impacts to us as a result of severe weather events and other natural conditions. The rules also require disclosure of material greenhouse gas emissions and any material climate-related targets and goals.

The new rules were to be effective for annual reporting periods beginning in fiscal year 2025, except for the greenhouse gas emissions disclosures which were to be effective for annual reporting periods beginning in fiscal year 2026, though the new rules were voluntarily stayed by the SEC on April 4, 2024 pending completion of the judicial review of consolidated challenges to the new rules by the Court of Appeals for the Eighth Circuit. We are currently evaluating the impact of these new rules.

As of the filing of this Quarterly Report, we have not elected to early adopt ASU 2023-07 or ASU 2023-09. There are no other accounting standards applicable that would have a material effect on our financial statements and disclosures that have been issued but not yet adopted as of September 30, 2024, and through the filing date of this Quarterly Report on Form 10-Q.

All mergers and acquisitions disclosed below are accounted for under the acquisition method of accounting for business combinations under ASC Topic 805, Business Combinations. Accordingly, we conducted assessments of the net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisition were expensed as incurred. The fair value measurements of assets acquired, and liabilities assumed were based on inputs that are not observable in the market, and therefore represent Level 3 inputs. The fair values of crude oil and natural gas properties were measured using valuation techniques that converted future cash flows to a single discounted amount. Significant inputs to the valuation of the crude oil and natural gas properties included estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows, reserve adjustment factors, and a market-based weighted-average cost of capital. These inputs required significant judgments and estimates by management at the time of the valuation.

On January 2, 2024, we completed the acquisition of certain crude oil and natural gas assets from Vencer Energy, LLC (“Vencer”) for adjusted aggregate consideration of approximately $2.0 billion, inclusive of customary post-closing adjustments and $550 million in cash to be paid on or before January 3, 2025 (the “Vencer Acquisition”). In connection with and upon execution of the Vencer purchase and sale agreement, we deposited cash of $161.3 million with an escrow agent. This deposit, along with interest accrued thereon, was credited against the cash payable at closing. The following tables present the consideration transferred and preliminary purchase price allocation of the assets acquired and the liabilities assumed in the Vencer Acquisition:

Consideration (in thousands, except shares and per share amount)
Cash consideration			$	996,420
Deferred acquisition consideration(1)(3)			$	532,284
Shares of common stock issued			7,181,527
Closing price per share(2)			$	68.08
Equity consideration(4)			$	488,918
Total consideration			$	2,017,622

_______________________

(1)Based on discounted fixed and determinable future payments of cash.

(2)Based on the closing stock price of Civitas common stock on January 2, 2024.

(3)Amounts represent non-cash investing activities until such time payments are made, as applicable. Refer to Note 5 - Debt for additional information.

(4)Amounts represent non-cash financing activities.

Through September 30, 2024, there have been immaterial adjustments made to the allocation presented in the Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed with the SEC on May 2, 2024. The purchase price allocation for the Vencer Acquisition is preliminary, and we continue to assess the fair values of certain of the Vencer assets acquired and liabilities assumed. We expect to finalize the purchase price allocation as soon as practicable, which will not extend beyond the one-year measurement period.

On August 2, 2023, we acquired all of the issued and outstanding equity ownership interests of Hibernia Energy III, LLC (“HE3”) and Hibernia Energy III-B, LLC (“HE3-B”, and together with HE3, “Hibernia”) for aggregate consideration of approximately $2.2 billion in cash, inclusive of customary post-closing adjustments (the “Hibernia Acquisition”). The following table presents the final purchase price allocation of the assets acquired and the liabilities assumed in the Hibernia Acquisition:

The purchase price allocation for the Hibernia Acquisition was finalized as of the third quarter of 2024 with immaterial adjustments made to the allocation presented in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, filed with the SEC on November 7, 2023.

On August 2, 2023, we acquired all of the issued and outstanding equity ownership interests of Tap Rock AcquisitionCo, LLC (“Tap Rock AcquisitionCo”), Tap Rock Resources II, LLC (“Tap Rock Resources II”), and Tap Rock NM10 Holdings, LLC (“Tap Rock NM10” and, together with Tap Rock AcquisitionCo and Tap Rock NM10, “Tap Rock”) for aggregate consideration of approximately $2.5 billion, inclusive of customary post-closing adjustments (the “Tap Rock Acquisition”). The following tables present the consideration transferred and final purchase price allocation of the assets acquired and the liabilities assumed in the Tap Rock Acquisition:

Consideration (in thousands, except shares and per share amount)
Cash consideration			$	1,502,880
Shares of common stock issued			13,538,472
Closing price per share(1)			$	73.14
Equity consideration			$	990,204
Total consideration			$	2,493,084

_______________________

(1)Based on the closing stock price of Civitas common stock on August 2, 2023.

The purchase price allocation for the Tap Rock Acquisition was finalized as of the third quarter of 2024 with immaterial adjustments made to the allocation presented in the Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, filed with the SEC on November 7, 2023.

The results of operations for the Vencer Acquisition since the closing date have been included on our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2024. The amount of revenue of Vencer included in our accompanying unaudited condensed consolidated statements of operations (“statements of operations”) was approximately $186.9 million and $584.9 million during the three and nine months ended September 30, 2024, respectively. We determined that disclosing the amount of Vencer-related net income included in the accompanying statements of operations is impracticable as the operations from the acquisition were integrated into our operations from the date of the acquisition.

The results of operations for the Vencer, Hibernia, and Tap Rock acquisitions since their respective closing dates have been included in our unaudited condensed consolidated financial statements and therefore do not require pro forma disclosure for the three and nine months ended September 30, 2024. The following unaudited pro forma financial information (in thousands, except per share amounts) represents a summary of the consolidated results of operations for the three and nine months ended September 30, 2023, assuming the Vencer Acquisition had been completed as of January 1, 2023 and the Hibernia and Tap Rock acquisitions had been completed as of January 1, 2022. The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the Vencer, Hibernia, and Tap Rock acquisitions had been effective as of those dates, or of future results, and includes certain nonrecurring pro forma adjustments that were directly related to these business combinations.

Transaction costs related to the aforementioned acquisitions are accounted for separately from the assets acquired and liabilities assumed and are included in transaction costs in the accompanying statements of operations. Transaction costs also include costs associated with our efforts to divest of certain non-core assets in the DJ Basin, completed in early 2024. We incurred transaction costs of $0.1 million and $28.5 million during the three months ended September 30, 2024 and 2023, respectively, and $30.7 million and $60.1 million during the nine months ended September 30, 2024 and 2023, respectively.

Crude oil, natural gas, and NGL sales revenue presented within the accompanying statements of operations is reflective of the revenue generated from contracts with customers. Revenue attributable to each identified revenue stream and operating region is disaggregated below (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
Sales by Commodity and Operating Region			2024						2023						2024						2023
Crude oil
DJ Basin			$	487,311					$	582,798					$	1,467,376					$	1,583,605
Permian Basin			616,563						258,595						1,846,813						258,595
Total			1,103,874						841,393						3,314,189						1,842,200
Natural gas
DJ Basin			45,009						67,418						159,860						214,079
Permian Basin			(35,522)						12,694						(53,995)						12,694
Total			9,487						80,112						105,865						226,773
NGL
DJ Basin			79,970						77,502						248,357						243,714
Permian Basin			78,044						35,403						242,252						35,403
Total			158,014						112,905						490,609						279,117
Crude oil, natural gas, and NGL
DJ Basin			612,290						727,718						1,875,593						2,041,398
Permian Basin			659,085						306,692						2,035,070						306,692
Total			$	1,271,375					$	1,034,410					$	3,910,663					$	2,348,090

For the three and nine months ended September 30, 2024 and 2023, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was insignificant. As of September 30, 2024 and December 31, 2023, our receivables from contracts with customers were $549.1 million and $506.0 million, respectively.

Accounts payable and accrued expenses contain the following (in thousands):

			September 30, 2024						December 31, 2023
Accounts payable trade			$	76,824					$	55,750
Accrued drilling and completion costs			171,843						149,520
Accrued crude oil and natural gas operating expense			156,730						149,483
Accrued general and administrative expense			33,344						30,095
Accrued transaction costs			63						8,796
Accrued interest expense			109,324						141,401
Other accrued expenses			38,201						30,663
Total accounts payable and accrued expenses			$	586,329					$	565,708

Debt, net of unamortized discounts and deferred financing costs, consists of the following (in thousands):

The table below summarizes the face values, interest rates, maturity dates, and semi-annual interest payment dates related to our outstanding senior note obligations as of September 30, 2024 (in thousands):

The 2026 Senior Notes, 2028 Senior Notes, 2030 Senior Notes, and 2031 Senior Notes (collectively, the “Senior Notes”) are unsecured senior obligations and rank equal in right of payment with all of the Company’s existing and any future unsecured senior debt and are senior in right of payment to any future subordinated debt. The Company may redeem some or all of its Senior Notes prior to their maturity at redemption prices that may include a premium, plus accrued and unpaid interest as described in the indentures governing the Senior Notes. The Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of our existing subsidiaries and are expected to be guaranteed by certain other future subsidiaries that may be required to guarantee the Senior Notes.

The indentures governing the Senior Notes contain covenants that limit, among other things, our ability and the ability of our subsidiaries to: (i) incur or guarantee additional indebtedness; (ii) create liens securing indebtedness; (iii) pay dividends on or redeem or repurchase stock or subordinated debt; (iv) make specified types of investments and acquisitions; (v) enter into or permit to exist contractual limits on the ability of our subsidiaries to pay dividends to us; (vi) enter into transactions with affiliates; and (vii) sell assets or merge with other companies. These covenants are subject to a number of important limitations and exceptions. We were in compliance with all covenants and all restricted payment provisions related to our Senior Notes through the filing of this Quarterly Report on Form 10-Q. The indentures governing the Senior Notes also contain customary events of default.

For additional details on our Senior Notes, refer to Note 5 - Long-Term Debt in Item 8. Financial Statements and Supplementary Data included in our 2023 Form 10-K.

We are party to a reserve-based revolving facility, as the borrower, with JPMorgan Chase Bank, N.A. (“JPMorgan”), as the administrative agent, and a syndicate of financial institutions, as lenders, that has an aggregate maximum commitment amount of $4.0 billion and is set to mature on August 2, 2028 (together with all amendments thereto, the “Credit Facility” or the “Credit Agreement”).

On June 12, 2024, we entered into a Sixth Amendment to our Credit Agreement (the “Sixth Amendment”), which, among other things, amended certain terms of the Credit Agreement to: (i) increase the borrowing base by $400.0 million for a new borrowing base of $3.4 billion, (ii) increase the aggregate elected commitments by $350.0 million for a new aggregate elected commitment of $2.2 billion, (iii) lower the interest rate margins applicable to loans under the Credit Agreement, (iv) add provisions to lower the interest rate margins and modify certain covenants in the Credit Agreement, as well as to make the Credit Facility unsecured, upon the achievement of investment grade credit ratings, (v) modify certain definitions in the Credit Agreement in connection with the transactions contemplated by the Sixth Amendment, and (vi) provide for the addition of certain new lenders under the Credit Agreement.

As of September 30, 2024, the borrowing base and aggregate elected commitments under the Credit Agreement were $3.4 billion and $2.2 billion, respectively. The next scheduled borrowing base redetermination date is in November 2024.

Interest and commitment fees associated with the Credit Facility are accrued based on a revolving loan commitment utilization grid set forth in the Credit Agreement. Borrowings under the Credit Facility bear interest at a per annum rate equal to, at our option, either (i) the Alternate Base Rate (“ABR”) plus the applicable margin, or (ii) the term-specific Secured Overnight Financing Rate (“SOFR”) plus the applicable margin. ABR is established as a rate per annum equal to the greatest of (a) the rate of interest publicly announced by JPMorgan as its prime rate, (b) the applicable rate of interest published by the Federal Reserve Bank of New York plus 0.5%, or (c) the term-specific SOFR for an interest period of one month plus 1.0%, in each case, subject to a 1.5% floor, plus an applicable margin of 0.75% to 1.75% based on the utilization of the Credit Facility. Term-specific SOFR is based on one-, three-, or six-month terms as selected by us and is subject to a 0.5% floor, plus an applicable margin of 1.75% to 2.75%, based on the utilization of the Credit Facility. Interest on borrowings that bear interest at the SOFR are payable on the last day of the applicable interest period selected by us, and interest on borrowings that bear interest at the ABR are payable quarterly in arrears.

The Credit Facility is guaranteed by all our restricted domestic subsidiaries and is secured by first priority security interests on substantially all assets, including a mortgage on at least 90% of the total value of the proved properties evaluated in the most recently delivered reserve reports, including any engineering reports relating to the crude oil and natural gas properties of our restricted domestic subsidiaries, subject to customary exceptions.

The Credit Facility contains customary representations and affirmative covenants. The Credit Facility also contains customary negative covenants, which, among other things, and subject to certain exceptions, including the suspension and/or modification of certain covenants in the event that we receive investment grade credit ratings, include restrictions on (i) liens, (ii) indebtedness, guarantees and other obligations, (iii) restrictions in agreements on liens and distributions, (iv) mergers or consolidations, (v) asset sales, (vi) restricted payments, (vii) investments, (viii) affiliate transactions, (ix) change of business, (x) foreign operations or subsidiaries, (xi) changes to organizational documents, (xii) use of proceeds from loans and letters of credit, (xiii) hedging transactions, (xiv) additional subsidiaries, (xv) changes in fiscal year or fiscal quarter, (xvi) prepayments of certain debt and other obligations, (xvii) sales or discounts of receivables, and (xviii) dividend payment thresholds. 

In addition, we are subject to certain financial covenants under the Credit Facility, as tested on the last day of each fiscal quarter, including, without limitation, (a) a maximum ratio of our consolidated net indebtedness to earnings before interest, income taxes, depreciation, depletion, and amortization, exploration expense, and other non-cash charges (“permitted net leverage ratio”) of 3.00 to 1.00, (b) a current ratio, inclusive of the unused commitments under the Credit Facility then available to be borrowed, to not be less than 1.00 to 1.00, and (c) upon the achievement of investment grade credit ratings, a PV-9 coverage ratio of the net present value, discounted at 9% per annum, of the estimated future net revenues expected in the proved reserves to our total net indebtedness of not less than 1.50 to 1.00 (“PV-9 Coverage Ratio”). We were in compliance with all covenants under the Credit Facility as of September 30, 2024 and through the filing of this Quarterly Report on Form 10-Q.

The following table presents the outstanding balance, letters of credit outstanding, and available borrowing capacity under the Credit Facility as of the dates indicated (in thousands):

As of September 30, 2024 and December 31, 2023, the unamortized deferred financing costs associated with amendments to the Credit Facility were $31.4 million and $34.4 million, respectively. Of the unamortized deferred financing costs, (i) $23.2 million and $26.9 million are presented within other noncurrent assets on the accompanying balance sheets as of September 30, 2024 and December 31, 2023, respectively, and (ii) $8.2 million and $7.5 million are presented within prepaid expenses and other on the accompanying balance sheets as of September 30, 2024 and December 31, 2023, respectively.

The Vencer Acquisition included deferred consideration of $550.0 million to be paid in cash on or before January 3, 2025. We discounted this obligation and recorded $532.3 million as deferred acquisition consideration upon closing and are amortizing the discount to interest expense in the accompanying statements of operations until the payment is made. During the nine months ended September 30, 2024, we paid $75.0 million of this deferred consideration, which is recorded as a cash outflow within the acquisitions of businesses, net of cash acquired in the accompanying unaudited condensed consolidated statements of cash flows (“statements of cash flows”). $475.0 million of deferred consideration remains to be paid on or before January 3, 2025.

For the three months ended September 30, 2024 and 2023, we incurred interest expense of $117.8 million and $76.5 million, respectively. Interest expense for the three months ended September 30, 2024 includes $9.5 million related to the amortization of deferred acquisition consideration associated with the Vencer Acquisition. For the nine months ended September 30, 2024 and 2023, we incurred interest expense of $342.4 million and $92.7 million, respectively. Interest expense for the nine months ended September 30, 2024 includes $27.4 million related to the amortization of deferred acquisition consideration associated with the Vencer Acquisition.

Commitments. We routinely enter into, extend, or amend operating agreements in the ordinary course of business. We have long-term transportation, sales, processing, and water delivery commitments. There were no significant commitments entered into during the nine months ended September 30, 2024. For details of our existing commitments, refer to Note 6 - Commitments and Contingencies in Item 8. Financial Statements and Supplementary Data included in our 2023 Form 10-K.

Litigation and Legal Items. We are involved in various legal proceedings. We review the status of these proceedings on an ongoing basis and, from time to time, may settle or otherwise resolve these matters on terms and conditions that management believes are in our best interests. We have provided the necessary estimated accruals in the accompanying balance sheets where deemed appropriate for litigation and legal related items that are ongoing and not yet concluded. Although the results cannot be known with certainty, we currently believe that the ultimate results of such proceedings will not have a material adverse effect on our financial position, results of operations, or liquidity.

In June 2024, in connection with our stockholders’ approval at our 2024 annual meeting of stockholders, we adopted the 2024 Long Term Incentive Plan (the “2024 LTIP”), which provides for the issuance of restricted stock units, performance stock units, stock options, and various other forms of awards, and reserved 3,100,000 shares of common stock for issuance under the 2024 LTIP. The 2024 LTIP supersedes and replaces all of our previous long-term incentive plans (the “Prior Plans”), such that awards may not be granted under the Prior Plans subsequent to the adoption of the 2024 LTIP. Awards granted under the Prior Plans will remain subject to the terms and conditions set forth in the applicable Prior Plan. The Prior Plans and 2024 LTIP are collectively referred to herein as the “LTIP.”

We record compensation expense associated with the issuance of awards under the LTIP on a straight-line basis over the vesting period based on the fair value of the awards as of the date of grant within general and administrative expense in the accompanying statements of operations. The following table outlines the compensation expense recorded by type of award (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Restricted and deferred stock units			$	7,535					$	4,711					$	21,333					$	13,905
Performance stock units			5,126						3,591						14,789						11,672
Total stock-based compensation			$	12,661					$	8,302					$	36,122					$	25,577

As of September 30, 2024, unrecognized compensation expense related to the awards granted under the LTIP will be amortized through the relevant periods as follows (in thousands):

			Unrecognized Compensation Expense						Final Year of Recognition
Restricted and deferred stock units			$	42,611					2027
Performance stock units			27,966						2026
Total unrecognized stock-based compensation			$	70,577

We grant time-based restricted stock units (“RSUs”) to our officers, executives, and employees and time-based deferred stock units (“DSUs”) to our non-employee directors under the LTIP. Each RSU and DSU represents a right to receive one share of our common stock after the RSU or DSU vests and is settled. RSUs generally vest ratably either over a one, two, or three-year service period on each anniversary following the grant date. RSUs are settled in shares of our common stock shortly after vesting. DSUs generally vest over a one-year period following the grant date. DSUs are settled in shares of our common stock upon the non-employee director’s separation of service from our Board of Directors (our “Board”). The grant-date fair value of RSUs and DSUs is equal to the closing price of our common stock on the date of the grant.

The following table presents the changes in non-vested RSUs and DSUs for the nine months ended September 30, 2024:

			RSUs and DSUs						Weighted-Average Grant-Date Fair Value
Non-vested, beginning of year			855,627						$	66.31
Granted			472,485						64.45
Vested			(294,594)						64.65
Forfeited			(58,841)						67.18
Non-vested, end of period			974,677						$	65.86

The aggregate grant-date fair value of the RSUs and DSUs granted under the LTIP during the nine months ended September 30, 2024 was $30.5 million.

We grant market-based performance stock units (“PSUs”) to our officers and certain executives under the LTIP. The number of shares of our common stock issued to settle PSUs ranges from zero to 225% (or, for PSUs granted prior to fiscal year 2023, 200%) of the number of PSUs granted and is determined based on performance achievement against certain market-based criteria over a three-year performance period. PSUs generally vest on December 31 of the year preceding the third anniversary of the date of grant and settle by March 15 of the following year upon the determination and approval of performance achievement by the Compensation Committee of our Board.

Performance achievement is determined based on either, or a combination of, (1) our annualized absolute total stockholder return (“TSR”) or (2) for certain PSUs granted prior to fiscal year 2023, our absolute TSR relative to that of a defined peer group. Absolute TSR is determined based upon the change in our stock price over the performance period plus dividends paid. For awards with a relative TSR component, our absolute TSR is compared with the absolute TSRs of a group of peer companies over the performance period.

The grant-date fair value of the PSUs was estimated using a Monte Carlo valuation model. The Monte Carlo valuation model is based on random projections of stock price paths and repeated numerous times to achieve a probabilistic assessment. Significant assumptions used in this valuation include our expected volatility as well as the volatilities for each of our peers and an interpolated risk-free interest rate based on U.S. Treasury yields with maturities consistent with the performance period.

The following table presents the change of non-vested PSUs for the nine months ended September 30, 2024:

			PSUs						Weighted-Average Grant-Date Fair Value
Non-vested, beginning of year			472,593						$	92.08
Granted(1)			270,509						74.55
Additional shares based on performance(2)			59,504						97.45
Vested(2)			(139,218)						91.59
Forfeited			(13,342)						99.71
Non-vested, end of period(1)			650,046						$	85.23

___________________________

(1)The number of awards assumes that the associated performance condition is met at the target amount (multiplier of one). The final number of shares of our common stock issued may vary depending on the performance multiplier, which ranges from zero to 225% (or, for PSUs granted prior to fiscal year 2023, 200%), depending on the level of satisfaction of the performance condition.

(2)Upon completion of the performance period for the PSUs granted in 2021, a performance achievement of 200% or 141%, as applicable, was applied to each of the grants, resulting in a number of shares greater than the target amount of such PSUs vesting and being settled during the nine months ended September 30, 2024.

The aggregate grant-date fair value of the PSUs granted under the LTIP during the nine months ended September 30, 2024 was $20.2 million.

NOTE 8 - FAIR VALUE MEASUREMENTS

We follow authoritative accounting guidance for measuring the fair value of assets and liabilities. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Further, this guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.

The fair value hierarchy is broken down into three levels based on the reliability of the inputs as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities 

Level 2: Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable

Level 3: Significant inputs to the valuation model are unobservable

We classify financial and non-financial assets and liabilities based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy.

We use Level 2 inputs to measure the fair value of crude oil and natural gas commodity price derivatives. The fair value of our commodity price derivatives is estimated using industry-standard models that contemplate various inputs including, but not limited to, the contractual price of the underlying position, current market prices, forward commodity price curves, volatility factors, time value of money, and the credit risk of both us and our counterparties. We validate our fair value estimate by corroborating the original source of inputs, monitoring changes in valuation methods and assumptions, and reviewing counterparty mark-to-market statements and other supporting documentation. Refer to Note 9 - Derivatives for more information regarding our derivative instruments.

The following table presents our financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 and their classification within the fair value hierarchy (in thousands):

			As of September 30, 2024						As of December 31, 2023
			Level 2						Level 2
Derivative assets			$	98,804					$	43,425
Derivative liabilities			$	25,058					$	18,096

The portion of our long-term debt related to our Credit Facility, if any, approximates its fair value as it bears interest at a floating rate that approximates a current market rate. The portion of our long-term debt related to our Senior Notes is recorded at cost, net of any unamortized discount and deferred financing costs. The fair value of our Senior Notes is based on quoted market prices, and as such, is designated as Level 1 within the fair value hierarchy. The following table presents the fair value our Senior Notes as of the dates indicated (in thousands):

									As of September 30, 2024												As of December 31, 2023
			Nominal Interest						Fair Value						Percent of Par						Fair Value						Percent of Par
2026 Senior Notes			5.000%						$	395,616					98.9%						$	389,020					97.3%
2028 Senior Notes			8.375%						1,408,266						104.3%						1,412,559						104.6%
2030 Senior Notes			8.625%						1,060,660						106.1%						1,063,050						106.3%
2031 Senior Notes			8.750%						1,430,676						106.0%						1,433,363						106.2%

Our deferred acquisition consideration was recorded in connection with the Vencer Acquisition using an estimated fair value discount at the time of the transaction based on quoted market prices from our debt as well as other inputs classified as Level 2 within the fair value hierarchy. As of September 30, 2024, the carrying value of the deferred acquisition consideration approximated fair value. Refer to Note 5 - Debt for additional information.

We measure acquired assets or businesses at fair value on a nonrecurring basis and review our proved and unproved crude oil and natural gas properties for impairment using inputs that are not observable in the market and are therefore designated as Level 3 within the valuation hierarchy. The most significant fair value determinations for non-financial assets and liabilities are related to crude oil and natural gas properties acquired. Refer to Note 2 - Acquisitions and Divestitures for additional information. During the three and nine months ended September 30, 2024 and 2023, we recorded no impairments of proved or unproved properties. Refer to Note 1 – Summary of Significant Accounting Policies in Item 8. Financial Statements and Supplementary Data included in our 2023 Form 10-K for information on our policies for determining fair value of proved and unproved properties and related impairment expense.

We periodically enter into commodity derivative contracts to mitigate a portion of our exposure to potentially adverse market changes in commodity prices for our expected future crude oil and natural gas production and the associated impact on cash flows. Our commodity derivative contracts consist of swaps, collars, basis protection swaps, and puts. As of September 30, 2024, all derivative counterparties were members of the Credit Facility lender group, and all commodity derivative contracts are entered into for other-than-trading purposes. We do not designate our commodity derivative contracts as hedging instruments.

A typical swap arrangement guarantees a fixed price on contracted volumes. If the agreed upon published third-party index price (“index price”) is lower than the fixed contract price at the time of settlement, we receive the difference between the index price and the fixed contract price. If the index price is higher than the fixed contact price at the time of settlement, we pay the difference between the index price and the fixed contract price.

A typical collar arrangement establishes a floor and ceiling price on contracted volumes through the use of a short call and a long put. When the index price is above the ceiling price at the time of settlement, we pay the difference between the index price and the ceiling price. When the index price is below the floor price at the time of settlement, we receive the difference between the index price and floor price. When the index price is between the floor price and ceiling price, no payment or receipt occurs.

Basis protection swaps are arrangements that guarantee a price differential from a specified delivery point. For basis protection swaps, we receive a payment from the counterparty if the price differential is greater than the stated terms of the contract and pay the counterparty if the price differential is less than the stated terms of the contract.

A put arrangement gives us the right to sell the underlying commodity at a strike price over the term of the contract. If the index price is higher than the strike price, no payment or receipt occurs. If the index price is lower than the strike price, we receive the difference between the index price and the strike price.

The following table summarizes the components of the derivative gain (loss), net presented on the accompanying statements of operations for the periods below (in thousands):

			Three Months Ended September 30,												Nine Months Ended September 30,
			2024						2023						2024						2023
Derivative cash settlement gain (loss), net
Crude oil contracts			$	(11,145)					$	(32,397)					$	(41,412)					$	(38,010)
Natural gas contracts			29,340						(625)						35,700						(6,897)
Total derivative cash settlement gain (loss), net			18,195						(33,022)						(5,712)						(44,907)
Change in fair value gain (loss)			132,834						(117,639)						54,639						(75,667)
Total derivative gain (loss), net			$	151,029					$	(150,661)					$	48,927					$	(120,574)

As of September 30, 2024, we had entered into the following commodity price derivative contracts:

						Contract Period
						Q4 2024						Q1 2025						Q2 2025						Q3 2025						Q4 2025						2026
Crude Oil Derivatives (volumes in Bbl/day and prices in $/Bbl)
Swaps
NYMEX WTI Volumes						25,997						19,000						19,000						22,000						—						—
Weighted-Average Contract Price						$	70.77					$	72.74					$	71.89					$	74.34					$	—					$	—
Collars
NYMEX WTI Volumes						23,504						28,000						32,000						28,000						6,000						—
Weighted-Average Ceiling Price						$	80.99					$	79.87					$	77.78					$	77.65					$	75.53					$	—
Weighted-Average Floor Price						$	65.66					$	70.00					$	69.88					$	69.31					$	55.00					$	—
Puts
NYMEX WTI Volumes						5,669						—						—						—						—						—
Weighted-Average Contract Price						$	55.00					$	—					$	—					$	—					$	—					$	—
Natural Gas Derivatives (volumes in MMBtu/day and prices in $/MMBtu)
Swaps
NYMEX HH Volumes						131,701						110,000						110,000						110,000						110,000						—
Weighted-Average Contract Price						$	2.71					$	3.20					$	3.20					$	3.20					$	3.20					$	—
Collars
NYMEX HH Volumes						—						20,000						20,000						20,000						20,000						130,000
Weighted-Average Ceiling Price						$	—					$	3.76					$	3.76					$	3.76					$	3.76					$	4.02
Weighted-Average Floor Price						$	—					$	3.03					$	3.03					$	3.03					$	3.03					$	3.24
Basis Protection Swaps
WAHA Basis Volumes						130,000						130,000						130,000						130,000						130,000						130,000
Weighted-Average Contract Price						$	(0.97)					$	(1.17)					$	(1.17)					$	(1.17)					$	(1.17)					$	(1.31)
WAHA Index Volumes						96,522						90,000						—						—						—						—
Weighted-Average Contract Price						$	0.02					$	0.07					$	—					$	—					$	—					$	—