sm-20240331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2024

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

For the transition period from ___________ to ___________

Commission File Number 001-31539

SM ENERGY COMPANY

(Exact name of registrant as specified in its charter)

Delaware

41-0518430

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1700 Lincoln Street, Suite 3200, Denver, Colorado

80203

(Address of principal executive offices)

(Zip Code)

(303) 861-8140

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, $0.01 par value	SM	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, a 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 ☑

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of April 25, 2024, the registrant had 115,036,144 shares of common stock outstanding.

TABLE OF CONTENTS


Item		Page
	Cautionary Information about Forward-Looking Statements	3

	Part I	4

Item 1.	Financial Statements (unaudited)	4

	Condensed Consolidated Balance Sheets March 3 1 , 202 4 , and December 31, 202 3	4

	Condensed Consolidated Statements of Operations Three M o n t h s Ended March 3 1 , 202 4 , and 202 3	5

	Condensed Consolidated Statements of Comprehensive Income Three Months Ended March 3 1 , 202 4 , and 202 3	6

	Condensed Consolidated Statements of Stockholders’ Equity Three Months Ended March 3 1 , 202 4 , and 202 3	7

	Condensed Consolidated Statements of Cash Flows Three Months Ended March 3 1 , 202 4 , and 202 3	8

	Notes to Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

	Part II	34

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34



Item 6.	Exhibits	35

	Signatures	36

Cautionary Information about Forward-Looking Statements

This Report on Form 10-Q (“Form 10-Q” or “this report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). All statements included in this report, other than statements of historical fact, that address activities, conditions, events, or developments with respect to our financial condition, results of operations, business prospects or economic performance that we expect, believe, or anticipate will or may occur in the future, or that address plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “assume,” “believe,” “budget,” “could,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “pending,” “plan,” “potential,” “projected,” “seek,” “target,” “will,” and similar expressions are intended to identify forward-looking statements. Forward-looking statements appear throughout this report, and include statements about such matters as:

•business strategies and other plans and objectives for future operations, including plans for expansion and growth of operations or to defer capital investment, plans with respect to future dividend payments, debt redemptions or equity repurchases, capital markets activities, environmental, social, and governance (“ESG”) goals and initiatives, and our outlook on our future financial condition or results of operations;

•the amount and nature of future capital expenditures, the resilience of our assets to declining commodity prices, and the availability of liquidity and capital resources to fund capital expenditures;

•our outlook on prices for future crude oil, natural gas, and natural gas liquids (also referred to throughout this report as “oil,” “gas,” and “NGLs,” respectively), well costs, service costs, production costs, and general and administrative costs, and the effects of inflation on each of these;

•armed conflict, political instability, or civil unrest in oil and gas producing regions and shipping channels, including instability in the Middle East, the wars between Russia and Ukraine and Israel and Hamas, and related potential effects on laws and regulations, or the imposition of economic or trade sanctions;

•any changes to the borrowing base or aggregate lender commitments under our Seventh Amended and Restated Credit Agreement (“Credit Agreement”);

•cash flows, liquidity, interest and related debt service expenses, changes in our effective tax rate, and our ability to repay debt in the future;

•our drilling and completion activities and other exploration and development activities, each of which could be affected by supply chain disruptions and inflation, our ability to obtain permits and governmental approvals, and plans by us, our joint development partners, and/or other third-party operators;

•possible or expected acquisitions and divestitures, including the possible divestiture or farm-out of, or farm-in or joint development of, certain properties;

•oil, gas, and NGL reserve estimates and estimates of both future net revenues and the present value of future net revenues associated with those reserve estimates, as well as the conversion of proved undeveloped reserves to proved developed reserves;

•our expected future production volumes, identified drilling locations, as well as drilling prospects, inventories, projects and programs; and

•other similar matters, such as those discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this report.

Our forward-looking statements are based on assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions, expected future developments, and other factors that we believe are appropriate under the circumstances. We caution you that forward-looking statements are not guarantees of future performance and these statements are subject to known and unknown risks and uncertainties, which may cause our actual results or performance to be materially different from any future results or performance expressed or implied by the forward-looking statements. Factors that may cause our financial condition, results of operations, business prospects or economic performance to differ from expectations include the factors discussed in the Risk Factors section in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”).

The forward-looking statements in this report speak only as of the filing of this report. Although we may from time to time voluntarily update our prior forward-looking statements, we disclaim any commitment to do so except as required by applicable securities laws.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share data)


	March 31, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	506,252	$	616,164
Accounts receivable	241,731		231,165
Derivative assets	33,913		56,442
Prepaid expenses and other	11,149		12,668
Total current assets	793,045		916,439
Property and equipment (successful efforts method):
Proved oil and gas properties	11,756,523		11,477,358
Accumulated depletion, depreciation, and amortization	(6,994,005)		(6,830,253)
Unproved oil and gas properties, net of valuation allowance of $34,934 and $35,362, respectively	335,755		335,620
Wells in progress	380,419		358,080

Other property and equipment, net of accumulated depreciation of $60,606 and $59,669, respectively	34,905		35,615
Total property and equipment, net	5,513,597		5,376,420
Noncurrent assets:
Derivative assets	7,198		8,672
Other noncurrent assets	84,618		78,454
Total noncurrent assets	91,816		87,126
Total assets	$	6,398,458	$	6,379,985
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	496,361	$	611,598

Derivative liabilities	24,108		6,789
Other current liabilities	15,615		15,425
Total current liabilities	536,084		633,812
Noncurrent liabilities:
Revolving credit facility	—		—
Senior Notes, net	1,576,115		1,575,334


Asset retirement obligations	124,085		118,774

Net deferred tax liabilities	397,296		369,903
Derivative liabilities	1,369		1,273
Other noncurrent liabilities	65,258		65,039
Total noncurrent liabilities	2,164,123		2,130,323

Commitments and contingencies (note 6)

Stockholders’ equity:
Common stock, $0.01 par value - authorized: 200,000,000 shares; issued and outstanding: 115,036,144 and 115,745,393 shares, respectively	1,150		1,157
Additional paid-in capital	1,536,929		1,565,021
Retained earnings	2,162,771		2,052,279
Accumulated other comprehensive loss	(2,599)		(2,607)
Total stockholders’ equity	3,698,251		3,615,850
Total liabilities and stockholders’ equity	$	6,398,458	$	6,379,985

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

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)


	For the Three Months Ended March 31,
		2024		2023
Operating revenues and other income:
Oil, gas, and NGL production revenue		$	559,596	$	570,778

Other operating income		274		2,727
Total operating revenues and other income		559,870		573,505
Operating expenses:
Oil, gas, and NGL production expense		137,375		142,348
Depletion, depreciation, amortization, and asset retirement obligation liability accretion		166,188		154,189
Exploration		18,581		18,428

General and administrative		30,178		27,669
Net derivative (gain) loss		28,145		(51,329)
Other operating expense, net		1,008		10,153
Total operating expenses		381,475		301,458
Income from operations		178,395		272,047
Interest expense		(21,873)		(22,459)
Interest income		6,770		4,702

Other non-operating expense		(24)		(232)
Income before income taxes		163,268		254,058
Income tax expense		(32,069)		(55,506)
Net income		$	131,199	$	198,552

Basic weighted-average common shares outstanding		115,642		121,671
Diluted weighted-average common shares outstanding		116,456		122,294
Basic net income per common share		$	1.13	$	1.63
Diluted net income per common share		$	1.13	$	1.62
Net dividends declared per common share		$	0.18	$	0.15

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

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)


	For the Three Months Ended March 31,
		2024		2023
Net income		$	131,199	$	198,552
Other comprehensive income, net of tax:
Pension liability adjustment		8		13
Total other comprehensive income, net of tax		8		13
Total comprehensive income		$	131,207	$	198,565

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

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands, except share data and dividends per share)


				Additional Paid-in Capital				Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Common Stock					Retained Earnings
	Shares	Amount
Balances, December 31, 2023	115,745,393	$	1,157	$	1,565,021	$	2,052,279	$	(2,607)	$	3,615,850
Net income	—	—		—		131,199		—		131,199
Other comprehensive income	—	—		—		—		8		8
Net cash dividends declared, $0.18 per share	—	—		—		(20,707)		—		(20,707)

Issuance of common stock upon vesting of RSUs, net of shares used for tax withholdings	1,147	—		(22)		—		—		(22)
Stock-based compensation expense	1,839	—		5,018		—		—		5,018

Purchase of shares under Stock Repurchase Program	(712,235)	(7)		(33,088)		—		—		(33,095)
Balances, March 31, 2024	115,036,144	$	1,150	$	1,536,929	$	2,162,771	$	(2,599)	$	3,698,251


				Additional Paid-in Capital				Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Common Stock					Retained Earnings
	Shares	Amount
Balances, December 31, 2022	121,931,676	$	1,219	$	1,779,703	$	1,308,558	$	(4,022)	$	3,085,458
Net income	—	—		—		198,552		—		198,552
Other comprehensive income	—	—		—		—		13		13
Net cash dividends declared, $0.15 per share	—	—		—		(18,078)		—		(18,078)


Stock-based compensation expense	—	—		4,318		—		—		4,318

Purchase of shares under Stock Repurchase Program	(1,413,758)	(14)		(40,454)		—		—		(40,468)
Balances, March 31, 2023	120,517,918	$	1,205	$	1,743,567	$	1,489,032	$	(4,009)	$	3,229,795

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

SM ENERGY COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	For the Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net income	$	131,199	$	198,552
Adjustments to reconcile net income to net cash provided by operating activities:

Depletion, depreciation, amortization, and asset retirement obligation liability accretion	166,188		154,189


Stock-based compensation expense	5,018		4,318
Net derivative (gain) loss	28,145		(51,329)
Net derivative settlement gain	13,274		5,076
Amortization of deferred financing costs	1,371		1,371

Deferred income taxes	27,391		49,968
Other, net	1,102		(4,295)
Net change in working capital	(97,688)		(26,216)





Net cash provided by operating activities	276,000		331,634

Cash flows from investing activities:

Capital expenditures	(332,365)		(240,712)

Other, net	77		307
Net cash used in investing activities	(332,288)		(240,405)

Cash flows from financing activities:




Repurchase of common stock	(32,768)		(40,068)
Dividends paid	(20,834)		(18,290)
Net share settlement from issuance of stock awards	(22)		—

Net cash used in financing activities	(53,624)		(58,358)

Net change in cash, cash equivalents, and restricted cash	(109,912)		32,871
Cash, cash equivalents, and restricted cash at beginning of period	616,164		444,998
Cash, cash equivalents, and restricted cash at end of period	$	506,252	$	477,869

Supplemental schedule of additional cash flow information:
Operating activities:
Cash paid for interest, net of capitalized interest	$	(32,986)	$	(33,882)
Net cash refunded (paid) for income taxes	$	3,292	$	(50)
Investing activities:
Changes in capital expenditure accruals	$	(26,569)	$	66,873

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

SM ENERGY COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Summary of Significant Accounting Policies

Description of Operations

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company 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. These financial statements do not include all information and notes required by GAAP for annual financial statements. However, except as disclosed herein, there has been no material change in the information disclosed in the notes to the consolidated financial statements included in the 2023 Form 10-K. 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. Operating results for the periods presented are not necessarily indicative of expected results for the full year. In connection with the preparation of the Company’s unaudited condensed consolidated financial statements, the Company evaluated events subsequent to the balance sheet date of March 31, 2024, and through the filing of this report. Additionally, certain prior period amounts have been reclassified to conform to current period presentation in the accompanying unaudited condensed consolidated financial statements.

Significant Accounting Policies

The significant accounting policies followed by the Company 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 report. These unaudited condensed consolidated financial statements should be read in conjunction with the 2023 Form 10-K.

Recently Issued Accounting Guidance

Accounting Standards Updates. In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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. The Company is within the scope of this ASU and expects to adopt ASU 2023-07 and related guidance on December 31, 2024. Adoption of ASU 2023-07 is not expected to have a material impact on the Company’s consolidated financial statements or related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 was issued to improve the disclosures related to rate reconciliations and income taxes paid. ASU 2023-09 is effective for annual periods beginning after December 15, 2024, with early adoption permitted. The guidance is to be applied on a prospective basis, however, retrospective application is permitted. The Company is within the scope of this ASU and expects to adopt ASU 2023-09 on January 1, 2025, on a prospective basis. Adoption of ASU 2023-09 is not expected to have a material impact on the Company’s consolidated financial statements or related disclosures.

SEC Final Rule to Enhance and Standardize Climate-Related Disclosures. On March 6, 2024, the Securities and Exchange Commission (“SEC”) adopted final rules to require registrants to disclose certain climate-related information in registration statements and annual reports. On April 4, 2024, the SEC issued an order staying the final rules pending completion of judicial review of the petitions challenging the final rules. The order does not amend the compliance dates contemplated by the final rules, which are applicable to the Company for fiscal years beginning with the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2025. The Company is currently evaluating the potential impact of the final rules on its financial statements and related disclosures.

As of March 31, 2024, and through the filing of this report, no other accounting guidance has been issued and not yet adopted that is applicable to the Company and that would have a material effect on the Company’s unaudited condensed consolidated financial statements and related disclosures.

Note 2 - Revenue from Contracts with Customers

The Company recognizes its share of revenue from the sale of produced oil, gas, and NGLs from its Midland Basin and South Texas assets. Oil, gas, and NGL production revenue presented within the accompanying unaudited condensed consolidated statements of operations (“accompanying statements of operations”) reflects revenue generated from contracts with customers.

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


	Midland Basin						South Texas						Total
	Three Months Ended March 31,						Three Months Ended March 31,						Three Months Ended March 31,
	2024			2023			2024			2023			2024			2023

	(in thousands)
Oil production revenue	$	332,191		$	320,135		$	108,703		$	100,703		$	440,894		$	420,838
Gas production revenue	40,538			49,789			27,306			43,942			67,844			93,731
NGL production revenue	84			177			50,774			56,032			50,858			56,209
Total	$	372,813		$	370,101		$	186,783		$	200,677		$	559,596		$	570,778
Relative percentage	67		%	65		%	33		%	35		%	100		%	100		%

The Company recognizes oil, gas, and NGL production revenue at the point in time when custody and title (“control”) of the product transfers to the purchaser, which may differ depending on the applicable contractual terms. Transfer of control determines the presentation of transportation, gathering, processing, and other post-production expenses (“fees and other deductions”) within the accompanying statements of operations. Fees and other deductions incurred by the Company prior to transfer of control are recorded within the oil, gas, and NGL production expense line item on the accompanying statements of operations. When control is transferred at or near the wellhead, sales are based on a wellhead market price that may be affected by fees and other deductions incurred by the purchaser subsequent to the transfer of control.

Revenue is recorded in the month when performance obligations are satisfied. However, settlement statements from the purchasers of hydrocarbons and the related cash consideration are received 30 to 90 days after production has occurred. As a result, the Company must estimate the amount of production delivered to the customer and the consideration that will ultimately be received for sale of the product. Estimated revenue due to the Company is recorded within the accounts receivable line item on the accompanying unaudited condensed consolidated balance sheets (“accompanying balance sheets”) until payment is received. The accounts receivable balances from contracts with customers within the accompanying balance sheets as of March 31, 2024, and December 31, 2023, were $184.2 million and $175.3 million, respectively. To estimate accounts receivable from contracts with customers, the Company uses knowledge of its properties, historical performance, contractual arrangements, index pricing, quality and transportation differentials, and other factors as the basis for these estimates. Differences between estimates and actual amounts received for product sales are recorded in the month that payment is received from the purchaser. The time period between production and satisfaction of performance obligations is generally less than one day, therefore there are no material unsatisfied or partially unsatisfied performance obligations at the end of the reporting period.

Note 3 - Equity

Stock Repurchase Program

The Company’s current stock repurchase program authorizes the Company to repurchase up to $500.0 million in aggregate value of its common stock through December 31, 2024 (“Stock Repurchase Program”). The Stock Repurchase Program permits the Company to repurchase shares of its common stock from time to time in open market transactions, through privately negotiated transactions or by other means in accordance with federal securities laws and subject to certain provisions of the Credit Agreement and the indentures governing the Senior Notes, as defined in Note 5 - Long-Term Debt. Please refer to Note 3 - Equity in the 2023 Form 10-K for additional information regarding the Company’s Stock Repurchase Program.

The following table presents activity under the Company’s Stock Repurchase Program during the three months ended March 31, 2024, and 2023:


	For the Three Months Ended March 31,
		2024		2023

		(in thousands, except per share data)
Shares of common stock repurchased (1)		712		1,414
Weighted-average price per share (2)		$	45.99	$	28.32
Cost of shares of common stock repurchased (2) (3)		$	32,753	$	40,040

____________________________________________

(1) All repurchased shares of the Company’s common stock were retired upon repurchase.

(2) Amounts exclude excise taxes, commissions, and fees.

(3) Amounts may not calculate due to rounding.

Since the inception of the Stock Repurchase Program in 2022, the Company has repurchased and subsequently retired approximately 9.0 million shares of the Company’s outstanding common stock at a cost of $317.9 million, excluding excise taxes, commissions, and fees. As of March 31, 2024, $182.1 million remained available for repurchases of the Company’s outstanding common stock through December 31, 2024, under the Stock Repurchase Program.

Note 4 - Income Taxes

The provision for income taxes consisted of the following:


	For the Three Months Ended March 31,
		2024			2023

		(in thousands)
Current portion of income tax expense:
Federal		$	(4,254)		$	(4,998)
State		(424)			(540)
Deferred portion of income tax expense		(27,391)			(49,968)
Income tax expense		$	(32,069)		$	(55,506)

Effective tax rate		19.6		%	21.8		%

Income tax expense or benefit differs from the amount that would be calculated by applying the statutory United States federal income tax rate to income or loss before income taxes. These differences primarily relate to the effect of federal tax credits, state income taxes, changes in valuation allowances, excess tax benefits and deficiencies from stock-based compensation awards, tax deduction limitations on compensation of covered individuals, the cumulative effect of other smaller permanent differences, and can also reflect the cumulative effect of an enacted tax rate change, in the period of enactment, on the Company’s net deferred tax asset and liability balances. The quarterly effective tax rate and the resulting income tax expense or benefit can also be affected by the proportional effects of forecast net income or loss and the correlative effect on the valuation allowance for each of the periods presented in the table above.

The Company completed a multi-year research and development (“R&D”) credit study in 2023, which resulted in a favorable adjustment to the Company’s effective tax rate in both the third and fourth quarters of 2023 and a reduction of the Company’s tax obligation. Favorable adjustments to the Company’s effective tax rate are expected to continue in 2024 resulting from qualifying R&D activity and anticipated credit claims.

The Company complies with authoritative accounting guidance regarding uncertain tax positions. The entire amount of unrecognized tax benefit reported by the Company would affect its effective tax rate if recognized. The Company does not expect a significant change to the recorded unrecognized tax benefits in 2024, except for any potential changes related to the Company’s 2024 R&D credit claims.

For all years before 2020, the Company is generally no longer subject to United States federal or state income tax examinations by tax authorities.

Note 5 - Long-Term Debt

Credit Agreement

The Company’s Credit Agreement provides for a senior secured revolving credit facility with a maximum loan amount of $3.0 billion. As of March 31, 2024, the borrowing base and aggregate lender commitments under the Credit Agreement were $2.5 billion and $1.25 billion, respectively. Subsequent to March 31, 2024, the semi-annual borrowing base redetermination was completed, which reaffirmed both the Company’s borrowing base and aggregate lender commitments at existing amounts. The next scheduled borrowing base redetermination date is October 1, 2024. The Credit Agreement is scheduled to mature on the earlier of (a) August 2, 2027 (“Stated Maturity Date”), or (b) 91 days prior to the maturity date of any of the Company’s outstanding Senior Notes, as defined below, to the extent that, on or before such date, the respective Senior Notes have not been repaid, exchanged, repurchased, refinanced, or otherwise redeemed in full, and, if refinanced or exchanged, with a scheduled maturity date that is not earlier than at least 180 days after the Stated Maturity Date.

Interest and commitment fees associated with the revolving credit facility are accrued based on a borrowing base utilization grid set forth in the Credit Agreement, as presented in Note 5 - Long-Term Debt in the 2023 Form 10-K. At the Company’s election, borrowings under the Credit Agreement may be in the form of Secured Overnight Financing Rate (“SOFR”), Alternate Base Rate (“ABR”), or Swingline loans. SOFR loans accrue interest at SOFR plus the applicable margin from the utilization grid, and ABR and Swingline loans accrue interest at a market-based floating rate, plus the applicable margin from the utilization grid. Commitment fees are accrued on the unused portion of the aggregate lender commitment amount at rates from the utilization grid.

The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Agreement as of April 25, 2024, March 31, 2024, and December 31, 2023:


	As of April 25, 2024		As of March 31, 2024		As of December 31, 2023

	(in thousands)
Revolving credit facility (1)	$	—	$	—	$	—
Letters of credit (2)	2,500		2,500		2,500
Available borrowing capacity	1,247,500		1,247,500		1,247,500
Total aggregate lender commitment amount	$	1,250,000	$	1,250,000	$	1,250,000

____________________________________________

(1) Unamortized deferred financing costs attributable to the revolving credit facility are presented as a component of the other noncurrent assets line item on the accompanying balance sheets and totaled $7.9 million and $8.5 million as of March 31, 2024, and December 31, 2023, respectively. These costs are being amortized over the term of the revolving credit facility on a straight-line basis.

(2) Letters of credit outstanding reduce the amount available under the revolving credit facility on a dollar-for-dollar basis.

Senior Notes

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


	As of March 31, 2024						As of December 31, 2023
	Principal Amount		Unamortized Deferred Financing Costs		Principal Amount, Net		Principal Amount		Unamortized Deferred Financing Costs		Principal Amount, Net

	(in thousands)
5.625% Senior Notes due 2025	$	349,118	$	738	$	348,380	$	349,118	$	896	$	348,222
6.75% Senior Notes due 2026	419,235		1,693		417,542		419,235		1,868		417,367
6.625% Senior Notes due 2027	416,791		2,201		414,590		416,791		2,395		414,396
6.5% Senior Notes due 2028	400,000		4,397		395,603		400,000		4,651		395,349
Total	$	1,585,144	$	9,029	$	1,576,115	$	1,585,144	$	9,810	$	1,575,334

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.

Covenants

The Company is subject to certain financial and non-financial covenants under the Credit Agreement and the indentures governing the Senior Notes that, among other terms, limit the Company’s ability to incur additional indebtedness, make restricted payments including dividends, sell assets, create liens that secure debt, enter into transactions with affiliates, make certain investments, or merge or consolidate with other entities. The Company was in compliance with all financial and non-financial covenants as of March 31, 2024, and through the filing of this report.

Capitalized Interest

Capitalized interest costs for the three months ended March 31, 2024, and 2023, totaled $6.1 million and $5.5 million, respectively. The amount of interest the Company capitalizes generally fluctuates based on the amount borrowed, the Company’s capital program, and the timing and amount of costs associated with capital projects that are considered in progress. Capitalized interest costs are included in total costs incurred.

Note 6 - Commitments and Contingencies

Commitments

Other than those items discussed below, there have been no changes in commitments through the filing of this report that differ materially from those disclosed in the 2023 Form 10-K.

Drilling Rig Service Contracts. During the three months ended March 31, 2024, the Company entered into new drilling rig contracts. As of March 31, 2024, the Company’s drilling rig commitments totaled $31.3 million under contract terms extending through the first quarter of 2025. If all of the drilling rig contracts were terminated as of March 31, 2024, the Company would avoid a portion of the contractual service commitments; however, the Company would be required to pay $19.6 million in early termination fees. No early termination penalties or standby fees were incurred by the Company during the three months ended March 31, 2024, and the Company does not expect to incur material penalties with regard to its drilling rig contracts during the remainder of 2024.

Drilling and Completion Commitments. During the three months ended March 31, 2024, the Company entered into an agreement that includes minimum drilling and completion footage requirements on certain existing leases. If these minimum requirements are not satisfied by March 31, 2026, the Company will be required to pay liquidated damages based on the difference between the actual footage drilled and completed and the minimum requirements. As of March 31, 2024, the liquidated damages could range from zero to a maximum of $96.0 million, with the maximum exposure assuming no additional development activity occurs prior to March 31, 2026. As of the filing of this report, the Company expects to meet its obligations under this agreement.

Contingencies

The Company is subject to litigation and claims arising in the ordinary course of business. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. As of the filing of this report, in the opinion of management, the anticipated results of any pending litigation and claims are not expected to have a material effect on the results of operations, the financial position, or the cash flows of the Company.

Note 7 - Derivative Financial Instruments

Summary of Oil, Gas, and NGL Derivative Contracts in Place

The Company regularly enters into commodity derivative contracts to mitigate a portion of its exposure to oil, gas, and NGL price volatility and location differentials, and the associated effect on cash flows. All commodity derivative contracts that the Company enters into are for other-than-trading purposes. The Company’s commodity derivative contracts consist of price swap and collar arrangements for oil and gas production, and price swap arrangements for NGL production. In a typical commodity swap agreement, if the agreed upon published third-party index price (“index price”) is lower than the swap price, the Company receives the difference between the index price and the agreed upon swap price. If the index price is higher than the swap price, the Company pays the difference. For collar arrangements, the Company receives the difference between an agreed upon index price and the floor price if the index price is below the floor price. The Company pays the difference between the agreed upon ceiling price and the index price if the index price is above the ceiling price. No amounts are paid or received if the index price is between the floor and ceiling prices.

The Company has entered into fixed price oil and gas basis swaps in order to mitigate exposure to adverse pricing differentials between certain industry benchmark prices and the actual physical pricing points where the Company’s production is sold. As of March 31, 2024, the Company had basis swap contracts with fixed price differentials between:

•NYMEX WTI and Argus WTI Midland (“WTI Midland”) for a portion of its Midland Basin oil production with sales contracts that settle at WTI Midland prices;

•NYMEX WTI and Argus WTI Houston Magellan East Houston Terminal (“WTI Houston MEH”) for a portion of its South Texas oil production with sales contracts that settle at WTI Houston MEH prices;

•NYMEX Henry Hub (“HH”) and Inside FERC Houston Ship Channel (“IF HSC”) for a portion of its South Texas gas production with sales contracts that settle at IF HSC prices; and

•NYMEX HH and Inside FERC West Texas (“IF Waha”) for a portion of its Midland Basin gas production with sales contracts that settle at IF Waha prices.

The Company has also entered into oil swap contracts to fix the differential in pricing between the NYMEX calendar month average and the physical crude oil delivery month (“Roll Differential”) in which the Company pays the periodic variable Roll Differential and receives a weighted-average fixed price differential. The weighted-average fixed price differential represents the amount of net addition (reduction) to delivery month prices for the notional volumes covered by the swap contracts.

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


	Contract Period
	Second Quarter 2024		Third Quarter 2024		Fourth Quarter 2024		2025		2026
Oil Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
NYMEX WTI Volumes	—		—		780		323		—
Weighted-Average Contract Price	$	—	$	—	$	73.24	$	75.00	$	—


Collars
NYMEX WTI Volumes	1,846		2,003		900		323		—
Weighted-Average Floor Price	$	67.46	$	68.27	$	69.85	$	68.00	$	—
Weighted-Average Ceiling Price	$	85.53	$	83.10	$	78.53	$	79.93	$	—
Basis Swaps
WTI Midland-NYMEX WTI Volumes	1,193		1,235		1,230		2,748		—
Weighted-Average Contract Price	$	1.21	$	1.21	$	1.21	$	1.15	$	—


WTI Houston MEH-NYMEX WTI Volumes	293		332		309		1,413		816
Weighted-Average Contract Price	$	1.82	$	1.82	$	1.82	$	1.90	$	2.10
Roll Differential Swaps
NYMEX WTI Volumes	1,792		1,964		1,877		—		—
Weighted-Average Contract Price	$	0.57	$	0.57	$	0.57	$	—	$	—

Gas Derivatives (volumes in BBtu and prices in $ per MMBtu):
Swaps
NYMEX HH Volumes	4,186		2,923		1,569		5,891		—
Weighted-Average Contract Price	$	3.17	$	3.18	$	3.03	$	4.20	$	—






Collars
NYMEX HH Volumes	4,432		4,612		7,328		25,434		—
Weighted-Average Floor Price	$	3.69	$	3.68	$	3.38	$	3.23	$	—
Weighted-Average Ceiling Price	$	4.00	$	4.21	$	4.97	$	4.67	$	—









Basis Swaps




IF Waha-NYMEX HH Volumes	5,285		5,344		5,240		20,501		—
Weighted-Average Contract Price	$	(1.09)	$	(0.99)	$	(0.73)	$	(0.66)	$	—
IF HSC-NYMEX HH Volumes	3,310		3,426		5,750		946		—
Weighted-Average Contract Price	$	(0.34)	$	(0.30)	$	(0.38)	$	0.0025	$	—

NGL Derivatives (volumes in MBbl and prices in $ per Bbl):
Swaps
OPIS Propane Mont Belvieu Non-TET Volumes	387		404		434		396		—
Weighted-Average Contract Price	$	31.90	$	31.87	$	31.85	$	32.86	$	—
OPIS Normal Butane Mont Belvieu Non-TET Volumes	44		46		49		45		—
Weighted-Average Contract Price	$	39.48	$	39.48	$	39.48	$	39.48	$	—
OPIS Isobutane Mont Belvieu Non-TET Volumes	24		25		28		25		—
Weighted-Average Contract Price	$	41.58	$	41.58	$	41.58	$	41.58	$	—

Commodity Derivative Contracts Entered Into Subsequent to March 31, 2024

Subsequent to March 31, 2024, and through the filing of this report, the Company entered into the following commodity derivative contracts:

•NYMEX WTI collar contracts for the fourth quarter of 2024 through the second quarter of 2025 for a total of 1.0 MMBbl of oil production at a weighted-average floor price of $71.77 per Bbl and a weighted-average ceiling price of $82.74 per Bbl;

•NYMEX WTI Roll Differential swap contract for the second through fourth quarters of 2024 for a total of 1.8 MMBbl of oil production at a weighted-average contract price of $1.02 per Bbl;

•NYMEX HH collar contracts for 2026 for a total of 13,438 BBtu of gas production at a weighted-average floor price of $3.25 per MMBtu and a weighted-average ceiling price of $4.90 per MMBtu; and

•IF Waha swap contracts for the first, third, and fourth quarters of 2026 for a total of 1,548 BBtu of gas production at a weighted-average contract price of $3.26 per MMBtu.

Derivative Assets and Liabilities Fair Value

The Company’s commodity derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities, with the exception of derivative instruments that meet the “normal purchase normal sale” exclusion. The Company does not designate its commodity derivative contracts as hedging instruments. The fair value of commodity derivative contracts at March 31, 2024, and December 31, 2023, was a net asset of $15.6 million and $57.1 million, respectively.

The following table details the fair value of commodity derivative contracts recorded in the accompanying balance sheets, by category:


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

	(in thousands)
Derivative assets:
Current assets	$	33,913	$	56,442
Noncurrent assets	7,198		8,672
Total derivative assets	$	41,111	$	65,114
Derivative liabilities:
Current liabilities	$	24,108	$	6,789
Noncurrent liabilities	1,369		1,273
Total derivative liabilities	$	25,477	$	8,062

Offsetting of Derivative Assets and Liabilities

As of March 31, 2024, and December 31, 2023, all derivative instruments held by the Company were subject to master netting arrangements with various financial institutions. In general, the terms of the Company’s agreements provide for offsetting of amounts payable or receivable between it and the counterparty, at the election of both parties, for transactions that settle on the same date and in the same currency. The Company’s agreements also provide that in the event of an early termination, the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. The Company’s accounting policy is to not offset these positions in its accompanying balance sheets.

The following table provides a reconciliation between the gross assets and liabilities reflected on the accompanying balance sheets and the potential effects of master netting arrangements on the fair value of the Company’s commodity derivative contracts:


	Derivative Assets as of				Derivative Liabilities as of
	March 31, 2024		December 31, 2023		March 31, 2024		December 31, 2023

	(in thousands)
Gross amounts presented in the accompanying balance sheets	$	41,111	$	65,114	$	(25,477)	$	(8,062)
Amounts not offset in the accompanying balance sheets	(21,519)		(7,362)		21,519		7,362
Net amounts	$	19,592	$	57,752	$	(3,958)	$	(700)

The following table summarizes the commodity components of the net derivative settlement gain, and the net derivative (gain) loss line items presented within the accompanying unaudited condensed consolidated statements of cash flows (“accompanying statements of cash flows”) and the accompanying statements of operations, respectively:


	For the Three Months Ended March 31,
		2024		2023

		(in thousands)
Net derivative settlement (gain) loss:
Oil contracts		$	(2,525)	$	6,226
Gas contracts		(12,220)		(11,302)
NGL contracts		1,471		—
Total net derivative settlement gain		$	(13,274)	$	(5,076)

Net derivative (gain) loss:
Oil contracts		$	37,099	$	(29,167)
Gas contracts		(14,828)		(20,778)
NGL contracts		5,874		(1,384)
Total net derivative (gain) loss		$	28,145	$	(51,329)

Credit Related Contingent Features

As of March 31, 2024, all of the Company’s derivative counterparties were members of the Company’s Credit Agreement lender group. The Company does not enter into derivative contracts with counterparties that are not part of the lender group. Under the Credit Agreement, the Company is required to provide mortgage liens on assets having a value equal to at least 85 percent of the total PV-9, as defined in the Credit Agreement, of the Company’s proved oil and gas properties evaluated in the most recent reserve report. Collateral securing indebtedness under the Credit Agreement also secures the Company’s derivative agreement obligations.

Note 8 - Fair Value Measurements

The Company follows fair value measurement accounting guidance for all assets and liabilities measured at fair value. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. Market or observable inputs are the preferred sources of values, followed by assumptions based on hypothetical transactions in the absence of market inputs. The fair value hierarchy for grouping these assets and liabilities is based on the significance level of the following inputs:

•Level 1 – quoted prices in active markets for identical assets or liabilities

•Level 2 – quoted prices in active markets for similar assets or 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

The following table is a listing of the Company’s assets and liabilities that are measured at fair value in the accompanying balance sheets and where they are classified within the fair value hierarchy:


	As of March 31, 2024						As of December 31, 2023
	Level 1		Level 2		Level 3		Level 1		Level 2		Level 3

	(in thousands)
Assets:
Derivatives (1)	$	—	$	41,111	$	—	$	—	$	65,114	$	—

Liabilities:
Derivatives (1)	$	—	$	25,477	$	—	$	—	$	8,062	$	—

__________________________________________

(1) This represents a financial asset or liability that is measured at fair value on a recurring basis.

Both financial and non-financial assets and liabilities are categorized within the above fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodologies used by the Company as well as the general classification of such instruments pursuant to the above fair value hierarchy.

Derivatives

The Company uses Level 2 inputs to measure the fair value of oil, gas, and NGL commodity derivative instruments. Fair values are based upon interpolated data. The Company derives internal valuation estimates taking into consideration forward commodity price curves, counterparties’ credit ratings, the Company’s credit rating, and the time value of money. These valuations are then compared to the respective counterparties’ mark-to-market statements. The considered factors result in an estimated exit price that management believes provides a reasonable and consistent methodology for valuing derivative instruments. The commodity derivative instruments utilized by the Company are not considered by management to be complex, structured, or illiquid. The oil, gas, and NGL commodity derivative markets are highly active. Please refer to Note 7 - Derivative Financial Instruments for more information regarding the Company’s derivative instruments.

Long-Term Debt

The following table reflects the fair value of the Company’s Senior Notes obligations measured using Level 1 inputs based on quoted secondary market trading prices. These notes were not presented at fair value on the accompanying balance sheets as of March 31, 2024, or December 31, 2023, as they were recorded at carrying value, net of any unamortized deferred financing costs. Please refer to Note 5 - Long-Term Debt for additional information.


	As of March 31, 2024				As of December 31, 2023
	Principal Amount		Fair Value		Principal Amount		Fair Value

	(in thousands)
5.625% Senior Notes due 2025	$	349,118	$	348,025	$	349,118	$	348,189
6.75% Senior Notes due 2026	$	419,235	$	419,491	$	419,235	$	420,660
6.625% Senior Notes due 2027	$	416,791	$	417,458	$	416,791	$	416,549
6.5% Senior Notes due 2028	$	400,000	$	402,644	$	400,000	$	401,372

Note 9 - Earnings Per Share

Basic net income or loss per common share is calculated by dividing net income or loss available to common stockholders by the basic weighted-average number of common shares outstanding for the respective period. Diluted net income or loss per common share is calculated by dividing net income or loss available to common stockholders by the diluted weighted-average number of common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities for this calculation consist primarily of non-vested restricted stock units (“RSU” or “RSUs”) and contingent performance share units (“PSU” or “PSUs”), which were measured using the treasury stock method. Please refer to Note 9 - Earnings Per Share and Note 10 - Compensation Plans in the 2023 Form 10-K for additional detail on these potentially dilutive securities.

The following table sets forth the calculations of basic and diluted net income per common share:


	For the Three Months Ended March 31,
	2024		2023

	(in thousands, except per share data)
Net income	$	131,199	$	198,552

Basic weighted-average common shares outstanding	115,642		121,671
Dilutive effect of non-vested RSUs, contingent PSUs, and other	814		623
Diluted weighted-average common shares outstanding	116,456		122,294

Basic net income per common share	$	1.13	$	1.63
Diluted net income per common share	$	1.13	$	1.62

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion includes forward-looking statements. Please refer to the Cautionary Information about Forward-Looking Statements section of this report for important information about these types of statements. Throughout the following discussion, we explain changes between the three months ended March 31, 2024, and the three months ended December 31, 2023 (“sequential quarterly” or “sequentially”), as well as the year-to-date (“YTD”) change between the three months ended March 31, 2024, and the three months ended March 31, 2023 (“YTD 2024-over-YTD 2023”).

Overview of the Company

General Overview

Our purpose is to make people’s lives better by responsibly producing energy supplies, contributing to domestic energy security and prosperity, and having a positive impact in the communities where we live and work. Our long-term vision and strategy is to sustainably grow value for all of our stakeholders as a premier operator of top-tier assets by maintaining and optimizing our high-quality asset portfolio, generating cash flows, and maintaining a strong balance sheet. Our team executes this strategy by prioritizing safety, technological innovation, and stewardship of natural resources, all of which are integral to our corporate culture. Our near-term goals include focusing on continued operational excellence and continuing to return value to stockholders through our Stock Repurchase Program and fixed dividend payments.

Our asset portfolio is comprised of high-quality assets in the Midland Basin of West Texas and in the Maverick Basin of South Texas that we believe are capable of generating strong returns in the current macroeconomic environment and provide resilience to commodity price risk and volatility. We seek to maximize returns and increase the value of our top-tier assets through disciplined capital spending, strategic acquisitions, and continued development and optimization of our existing assets. We believe that our high-quality assets facilitate a sustainable approach to prioritizing operational execution, maintaining a strong balance sheet, generating cash flows, returning capital to stockholders, and maintaining financial flexibility.

We are committed to exceptional safety, health, and environmental stewardship; supporting the professional development of a diverse and thriving team of employees; building and maintaining partnerships with our stakeholders by investing in and connecting with the communities where we live and work; and transparency in reporting on our progress in these areas. The Environmental, Social and Governance Committee of our Board of Directors oversees, among other things, the effectiveness of our ESG policies, programs and initiatives, monitors and responds to emerging trends, issues, and associated risks, and, together with management, reports to our Board of Directors regarding such matters. Further demonstrating our commitment to sustainable operations and environmental stewardship, compensation for our executives and eligible employees under our long-term incentive plan, and compensation for all employees under our short-term incentive plan is calculated based on, in part, certain Company-wide, performance-based metrics that include key financial, operational, environmental, health, and safety measures.

We are impacted by global commodity and financial markets that remain subject to heightened levels of uncertainty and volatility. While inflation continues to affect certain aspects of our business, the extent of its impact decreased in the first quarter of 2024 compared to 2023. Continued oil production curtailment agreements among the Organization of the Petroleum Exporting Countries (“OPEC”) plus other non-OPEC oil producing countries (collectively referred to as “OPEC+”), instability in the Middle East, economic and trade sanctions associated with the wars between Russia and Ukraine and Israel and Hamas, United States Federal Reserve monetary policy, shipping channel constraints and disruptions, and changes in global oil inventory in storage have driven commodity price volatility, contributed to instances of supply chain disruptions and fluctuations in interest rates, and could have further industry-specific impacts that may require us to adjust our business plan. For additional detail, please refer to the Risk Factors section in Part I, Item 1A of our 2023 Form 10-K. Despite continuing uncertainty, we expect to maximize the value of our high-quality asset base and sustain strong operational performance and financial stability. We remain focused on returning capital to stockholders through cash flow generation.

Areas of Operations

Our Midland Basin assets are comprised of approximately 110,000 net acres located in the Permian Basin in West Texas (“Midland Basin”). In the first quarter of 2024, our drilling and completion activities focused on development optimization of our RockStar and Sweetie Peck assets, and delineation and development of our Klondike assets. Our Midland Basin position provides substantial future development opportunities within multiple oil-rich intervals, including the Spraberry and Wolfcamp formations.

Our South Texas assets are comprised of approximately 155,000 net acres located in Dimmit and Webb Counties, Texas (“South Texas”). In the first quarter of 2024, we focused our operations on development and further delineation of the Austin Chalk formation, and on production from both the Austin Chalk formation and Eagle Ford shale formation. Our overlapping acreage position in the Maverick Basin in South Texas covers a significant portion of the western Eagle Ford shale and Austin Chalk formations, and includes acreage across the oil, gas-condensate, and dry gas windows with gas composition amenable to processing for NGL extraction.

First Quarter 2024 Overview and Outlook for the Remainder of 2024

During the first quarter of 2024, we continued to execute on our goal of sustainably returning capital to our stockholders through our Stock Repurchase Program and fixed quarterly dividend by repurchasing and subsequently retiring approximately 0.7 million shares of our outstanding common stock at a cost of $32.8 million, excluding excise taxes, commissions, and fees, and paying a quarterly dividend of $0.18 per share totaling $20.8 million. Please refer to Note 3 - Equity in Part I, Item 1 of this report for additional discussion of our Stock Repurchase Program.

Financial and Operational Results. Average net daily equivalent production for the three months ended March 31, 2024, decreased five percent sequentially to 145.1 MBOE, consisting of an eight percent decrease from our South Texas assets and a three percent decrease from our Midland Basin assets, resulting from the timing of well completions.

Realized price per BOE, before the effect of net derivative settlements (“realized price” or “realized prices”), remained flat sequentially. During the first quarter of 2024, oil and gas benchmark prices decreased and the NGL benchmark price increased. These changes resulted in sequential quarterly decreases in oil and gas realized prices of two percent and 12 percent, respectively, offset by an increase in NGL realized price of five percent.

As a result of the decrease in average net daily equivalent production volumes, oil, gas, and NGL production revenue decreased eight percent to $559.6 million for the three months ended March 31, 2024, from $606.9 million for the three months ended December 31, 2023. Oil, gas, and NGL production expense of $10.41 per BOE for the three months ended March 31, 2024, increased seven percent sequentially, primarily as a result of increases in ad valorem tax expense per BOE and lease operating expense (“LOE”) per BOE, partially offset by a decrease in production tax expense per BOE.

We recorded a net derivative loss of $28.1 million and a net derivative gain of $80.5 million for the three months ended March 31, 2024, and December 31, 2023, respectively. Included within these amounts are net derivative settlement gains of $13.3 million and $6.5 million for the three months ended March 31, 2024, and December 31, 2023, respectively.

Operational and financial activities during the three months ended March 31, 2024, resulted in the following:

•Net cash provided by operating activities of $276.0 million, compared with $476.5 million for the three months ended December 31, 2023.

•Net income of $131.2 million, or $1.13 per diluted share, compared with net income of $247.1 million, or $2.12 per diluted share, for the three months ended December 31, 2023.

•Adjusted EBITDAX, a non-GAAP financial measure, of $409.0 million, compared with $445.1 million for the three months ended December 31, 2023. Please refer to the caption Non-GAAP Financial Measures below for additional discussion and our definition of adjusted EBITDAX and reconciliations to net income and net cash provided by operating activities.

Please refer to Overview of Selected Production and Financial Information, Including Trends and Comparison of Financial Results and Trends Between the Three Months Ended March 31, 2024, and December 31, 2023, and Between the Three Months Ended March 31, 2024, and 2023 below for additional discussion.

Operational Activities. We expect our total 2024 capital program to be between $1.14 billion and $1.18 billion, excluding acquisitions. This reflects a decrease from our original expectation primarily as a result of capital efficiencies and lower-than-expected costs. Our capital program remains focused on highly economic oil development projects in both our Midland Basin and South Texas assets. During 2024, we expect to continue our focus on strategic inventory replacement and growth by applying our strength in geosciences and development optimization. Please refer to Overview of Liquidity and Capital Resources below for discussion of how we expect to fund the remainder of our 2024 capital program.

In our Midland Basin program, we operated four drilling rigs and two completion crews, drilled 19 gross (17 net) wells, and completed 16 gross (11 net) wells during the first quarter of 2024. Average net daily equivalent production volumes decreased sequentially by three percent to 74.5 MBOE. Costs incurred during the three months ended March 31, 2024, totaled $182.4 million, or 57 percent of our total costs incurred for the period. We anticipate operating four drilling rigs and between one and two completion crews for the remainder of 2024, focused on developing formations within our RockStar, Sweetie Peck, and Klondike assets.

In our South Texas program, we operated two drilling rigs and one completion crew, drilled 12 gross (12 net) wells, and completed 16 gross (16 net) wells during the first quarter of 2024. Average net daily equivalent production volumes decreased sequentially by eight percent to 70.6 MBOE. Costs incurred during the three months ended March 31, 2024, totaled $129.0 million, or 40 percent of our total costs incurred for the period. We anticipate operating two drilling rigs and averaging one completion crew for the remainder of 2024, focused primarily on developing the Austin Chalk formation.

The table below provides a quarterly summary of changes in our drilled but not completed well count and current year drilling and completion activity in our operated programs for the three months ended March 31, 2024:


	Midland Basin		South Texas (1)		Total
	Gross	Net	Gross	Net	Gross	Net
Wells drilled but not completed at December 31, 2023	39	29	37	37	76	66
Wells drilled	19	17	12	12	31	29
Wells completed	(16)	(11)	(16)	(16)	(32)	(27)

Wells drilled but not completed at March 31, 2024	42	35	33	33	75	68

____________________________________________

(1) As of December 31, 2023, the drilled but not completed well count included nine gross (nine net) wells that were not included in our five-year development plan as of December 31, 2023, eight of which were in the Eagle Ford shale.

Costs Incurred. Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed, totaled $320.2 million for the three months ended March 31, 2024, and were primarily incurred in our Midland Basin and South Texas programs as discussed in Operational Activities above.

Production Results. The table below presents our net production by product type for each of our assets for the periods presented:


	For the Three Months Ended
	March 31, 2024		December 31, 2023		March 31, 2023
Midland Basin Net Production:
Oil (MMBbl)	4.4		4.6		4.2
Gas (Bcf)	14.5		15.2		14.5
NGLs (MMBbl)	—		—		—
Equivalent (MMBOE)	6.8		7.1		6.7
Average net daily equivalent (MBOE per day)	74.5		77.0		74.0
Relative percentage	51	%	50	%	51	%

South Texas Net Production:
Oil (MMBbl)	1.4		1.5		1.4
Gas (Bcf)	16.7		18.3		17.8
NGLs (MMBbl)	2.2		2.5		2.1
Equivalent (MMBOE)	6.4		7.0		6.5
Average net daily equivalent (MBOE per day)	70.6		76.4		72.5
Relative percentage	49	%	50	%	49	%

Total Net Production:
Oil (MMBbl)	5.8		6.1		5.7
Gas (Bcf)	31.1		33.5		32.2
NGLs (MMBbl)	2.2		2.5		2.1
Equivalent (MMBOE)	13.2		14.1		13.2
Average net daily equivalent (MBOE per day)	145.1		153.5		146.4

____________________________________________

Note: Amounts may not calculate due to rounding.

Oil, Gas, and NGL Prices

Our financial condition and the results of our operations are significantly affected by the prices we receive for our oil, gas, and NGL production, which can fluctuate dramatically. When we refer to realized oil, gas, and NGL prices below, the disclosed price represents the average price for the respective period, before the effect of net derivative settlements. While quoted NYMEX oil and gas and OPIS NGL prices are generally used as a basis for comparison within our industry, the prices we receive are affected by quality, energy content, location and transportation differentials, and contracted pricing benchmarks for these products.

The following table summarizes commodity price data, as well as the effect of net derivative settlements, for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023:


	For the Three Months Ended
	March 31, 2024		December 31, 2023		March 31, 2023
Oil (per Bbl):
Average NYMEX contract monthly price	$	76.96	$	78.32	$	76.13
Realized price	$	76.09	$	77.41	$	74.31
Effect of oil net derivative settlements	$	0.44	$	(1.11)	$	(1.10)
Gas:
Average NYMEX monthly settle price (per MMBtu)	$	2.24	$	2.88	$	3.42
Realized price (per Mcf)	$	2.18	$	2.47	$	2.91
Effect of gas net derivative settlements (per Mcf)	$	0.39	$	0.35	$	0.35
NGLs (per Bbl):
Average OPIS price (1)	$	29.28	$	26.89	$	30.95
Realized price	$	22.94	$	21.92	$	26.24
Effect of NGL net derivative settlements	$	(0.66)	$	0.65	$	—

____________________________________________

(1) Average OPIS price per barrel of NGL, historical or strip, assumes a composite barrel product mix of 42% Ethane, 28% Propane, 6% Isobutane, 11% Normal Butane, and 13% Natural Gasoline. This product mix represents the industry standard composite barrel and does not necessarily represent our product mix for NGL production. Realized prices reflect our actual product mix.

Given the uncertainty surrounding global financial markets, production output from OPEC+, global shipping channel constraints and disruptions, instability in the Middle East, economic and trade sanctions associated with the wars between Russia and Ukraine and Israel and Hamas, changes in global oil inventory in storage, and the potential impacts of these issues on global commodity markets, we expect benchmark prices for oil, gas, and NGLs to remain volatile for the foreseeable future, and we cannot reasonably predict the timing or likelihood of any future impacts that may result, which could include further inflation, supply chain disruptions, fluctuations in interest rates, and industry-specific impacts. In addition to supply and demand fundamentals, as global commodities, the prices for oil, gas, and NGLs are affected by real or perceived geopolitical risks in various regions of the world as well as the relative strength of the United States dollar compared to other currencies. Our realized prices at local sales points may also be affected by infrastructure capacity or outages in the areas of our operations and beyond. We expect the realized price for our Midland Basin gas production during the second and third quarters of 2024 to be impacted by residue pipeline capacity constraints; however, a portion of any negative impact to the realized price would be mitigated by our commodity derivative contracts, which are discussed below.

The following table summarizes 12-month strip prices for NYMEX WTI oil, NYMEX Henry Hub gas, and OPIS NGLs as of April 25, 2024, and March 31, 2024:


	As of April 25, 2024		As of March 31, 2024
NYMEX WTI oil (per Bbl)	$	80.03	$	79.72
NYMEX Henry Hub gas (per MMBtu)	$	2.82	$	2.66
OPIS NGLs (per Bbl)	$	28.51	$	29.00

We use financial derivative instruments as part of our financial risk management program. We have a financial risk management policy governing our use of derivatives, and decisions regarding entering into commodity derivative contracts are overseen by a financial risk management committee consisting of certain senior executive officers and finance personnel. We make decisions about the amount of our expected production that we cover by derivatives based on the amount of debt on our balance sheet, the level of capital commitments and long-term obligations we have in place, and the terms and futures prices that are made available by our approved counterparties. With our current commodity derivative contracts, we believe we have partially reduced our exposure to

volatility in commodity prices and basis differentials in the near term. Our use of costless collars for a portion of our derivatives allows us to participate in some of the upward movements in oil and gas prices while also setting a price floor below which we are insulated from further price decreases. Please refer to Note 7 - Derivative Financial Instruments in Part I, Item 1 of this report and to Commodity Price Risk in Overview of Liquidity and Capital Resources below for additional information regarding our oil, gas, and NGL derivatives.

Financial Results of Operations and Additional Comparative Data

The tables below provide information regarding selected production and financial information for the three months ended March 31, 2024, and the preceding three quarters:


	For the Three Months Ended
	March 31,		December 31,		September 30,		June 30,
	2024		2023		2023		2023

	(in millions)
Net production (MMBOE)	13.2		14.1		14.1		14.1
Oil, gas, and NGL production revenue	$	559.6	$	606.9	$	639.7	$	546.6
Oil, gas, and NGL production expense	$	137.4	$	137.3	$	138.3	$	145.6
Depletion, depreciation, amortization, and asset retirement obligation liability accretion	$	166.2	$	189.1	$	189.4	$	157.8
Exploration	$	18.6	$	15.8	$	10.2	$	15.0
General and administrative	$	30.2	$	36.6	$	29.3	$	27.5
Net income	$	131.2	$	247.1	$	222.3	$	149.9

Selected Performance Metrics


	For the Three Months Ended
	March 31,			December 31,			September 30,			June 30,
	2024			2023			2023			2023
Average net daily equivalent production (MBOE per day)	145.1			153.5			153.7			154.4
Lease operating expense (per BOE)	$	5.54		$	5.31		$	5.08		$	4.98
Transportation costs (per BOE)	$	2.07		$	2.08		$	2.07		$	2.89
Production taxes as a percent of oil, gas, and NGL production revenue	4.5		%	4.6		%	4.3		%	4.3		%
Ad valorem tax expense (per BOE)	$	0.89		$	0.37		$	0.70		$	0.83
Depletion, depreciation, amortization, and asset retirement obligation liability accretion (per BOE)	$	12.59		$	13.39		$	13.39		$	11.23
General and administrative (per BOE)	$	2.29		$	2.60		$	2.07		$	1.96

____________________________________________

Note: Amounts may not calculate due to rounding.

Overview of Selected Production and Financial Information, Including Trends


		For the Three Months Ended								Amount Change Between the Three Months Ended						Percent Change Between the Three Months Ended
	March 31, 2024		December 31, 2023			March 31, 2023			March 31, 2024 & December 31, 2023			March 31, 2024 & 2023			March 31, 2024 & December 31, 2023			March 31, 2024 & 2023

Net production volumes: (1)
Oil (MMBbl)				5.8			6.1			5.7			(0.3)			0.1			(5)	%	2	%
Gas (Bcf)				31.1			33.5			32.2			(2.4)			(1.1)			(7)	%	(3)	%
NGLs (MMBbl)				2.2			2.5			2.1			(0.2)			0.1			(10)	%	3	%
Equivalent (MMBOE)				13.2			14.1			13.2			(0.9)			—			(6)	%	—	%
Average net daily production: (1)
Oil (MBbl per day)				63.7			66.0			62.9			(2.4)			0.7			(4)	%	1	%
Gas (MMcf per day)				342.3			364.1			358.1			(21.8)			(15.9)			(6)	%	(4)	%
NGLs (MBbl per day)				24.4			26.7			23.8			(2.4)			0.6			(9)	%	2	%
Equivalent (MBOE per day)				145.1			153.5			146.4			(8.4)			(1.3)			(5)	%	(1)	%
Oil, gas, and NGL production revenue (in millions): (1)
Oil production revenue				$	440.9		$	470.3		$	420.8		$	(29.4)		$	20.1		(6)	%	5	%
Gas production revenue				67.8			82.6			93.7			(14.8)			(25.9)			(18)	%	(28)	%
NGL production revenue				50.9			53.9			56.2			(3.1)			(5.3)			(6)	%	(10)	%
Total oil, gas, and NGL production revenue				$	559.6		$	606.9		$	570.8		$	(47.3)		$	(11.2)		(8)	%	(2)	%
Oil, gas, and NGL production expense (in millions): (1)
Lease operating expense				$	73.1		$	74.9		$	68.0		$	(1.8)		$	5.1		(2)	%	7	%
Transportation costs				27.3			29.4			37.0			(2.1)			(9.7)			(7)	%	(26)	%
Production taxes				25.1			27.8			26.7			(2.6)			(1.5)			(9)	%	(6)	%
Ad valorem tax expense				11.8			5.3			10.6			6.5			1.2			124	%	11	%
Total oil, gas, and NGL production expense				$	137.4		$	137.3		$	142.3		$	—		$	(5.0)		—	%	(3)	%
Realized price:
Oil (per Bbl)				$	76.09		$	77.41		$	74.31		$	(1.32)		$	1.78		(2)	%	2	%
Gas (per Mcf)				$	2.18		$	2.47		$	2.91		$	(0.29)		$	(0.73)