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 September 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 001-35380 Vital Energy, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or Delaware 45-3007926 organization) (I.R. ...

Financial Data and Key Metrics Changes - The company reported a record oil production in the second quarter, with capital expenditures below expectations, reflecting efficiency gains and moderating inflationary pressures [70][71][84] - Free cash flow over the next 18 months is expected to be around $265 million, supported by a robust hedge book [8] - The midpoint of the fourth quarter oil production guidance is lower than the third quarter, reflecting planned development schedules [20][44] Business Line Data and Key Metrics Changes - The company has successfully integrated new assets from the Driftwood and Forge acquisitions, enhancing oil production capabilities [70][84] - Production volumes in the second quarter exceeded expectations, driven by base production outperformance and accelerated oil production from new wells [5][70] - The company is currently drilling a 20-well package in Western Glasscock, with completions expected to start in early March 2024 [6][44] Market Data and Key Metrics Changes - The company anticipates maintaining production levels similar to 2023, even after increasing production from recent acquisitions [68] - The company is focused on high-return oil-weighted acreage across the Permian Basin, particularly in Upton County and Delaware Basin [18][68] Company Strategy and Development Direction - The company remains focused on capital discipline, generating free cash flow, reducing debt, and targeting accretive acquisitions [3][68] - The strategy includes optimizing well productivity and improving operational efficiencies through the deployment of AI and digital solutions [13][21] - The company is actively evaluating smaller, accretive acquisitions in the Permian Basin, with a focus on oilier parts of the basin [52][54][112] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about operational performance and the integration of new assets, driving a strong outlook for the remainder of 2023 and 2024 [86] - The company expects to see improvements in cost structure and production optimization over the next 6 to 18 months [14][21] - Management highlighted the importance of maintaining a strong hedge book to lock in free cash flow for debt reduction [73][115] Other Important Information - The company has reduced the midpoint of its capital expenditure guidance for the year from $700 million to $680 million due to exceptional operational performance [86] - The company expects to be a federal taxpayer around 2026, as it anticipates utilizing its $1.2 billion net operating loss (NOL) to offset income for the next 2 to 3 years [23] Q&A Session All Questions and Answers Question: What is the outlook for production in the second half of 2023 and 2024? - Management indicated a dip in production for Q4 due to a lighter turn-in-line schedule, with expectations for production to remain flat in Q1 2024 before increasing in subsequent quarters as new wells come online [12][44] Question: How is the integration of the Driftwood and Forge assets progressing? - Management reported that Driftwood is nearly fully integrated, and they are leveraging scale and purchasing power to optimize operations and reduce costs [31][91] Question: What is the company's strategy regarding M&A activity? - The company is focused on smaller, accretive acquisitions in the Permian Basin, with a strategy shift towards deals in the $250 million to $500 million range [52][112]

[Glossary of Oil and Natural Gas Terms and Certain Other Terms](index=4&type=section&id=Glossary%20of%20Oil%20and%20Natural%20Gas%20Terms%20and%20Certain%20Other%20Terms) Provides definitions for key terminology related to oil and natural gas operations and other relevant terms [Cautionary Statement Regarding Forward-Looking Statements](index=7&type=section&id=Cautionary%20Statement%20Regarding%20Forward-Looking%20Statements) Highlights that forward-looking statements are subject to risks and uncertainties, potentially differing from actual results - Forward-looking statements are not guarantees of performance and are based on assumptions, subject to material differences from actual results[25](index=25&type=chunk) - Key risk factors include inflationary pressures, changes in commodity supply/demand, price volatility, competition, acquisition integration, reserve replacement, transportation capacity, and regulatory changes[26](index=26&type=chunk)[28](index=28&type=chunk) [Part I](index=9&type=section&id=Part%20I) Presents the company's unaudited consolidated financial statements and management's discussion and analysis [Item 1. Consolidated Financial Statements (Unaudited)](index=9&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) Presents Vital Energy, Inc.'s unaudited consolidated financial statements and accompanying notes for the periods ended June 30, 2023 [Consolidated Balance Sheets](index=9&type=section&id=Consolidated%20balance%20sheets%20as%20of%20June%2030%2C%202023%20and%20December%2031%2C%202022) Details the company's financial position, including assets, liabilities, and equity, as of June 30, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | Change ($) | Change (%) | | :-------------------------- | :-------------- | :---------------- | :--------- | :--------- | | Total assets | $3,815,429 | $2,726,114 | $1,089,315 | 39.96% | | Total liabilities | $2,211,856 | $1,615,368 | $596,488 | 36.93% | | Total stockholders' equity | $1,603,573 | $1,110,746 | $492,827 | 44.37% | | Cash and cash equivalents | $71,696 | $44,435 | $27,261 | 61.35% | | Long-term debt, net | $1,619,599 | $1,113,023 | $506,576 | 45.51% | [Consolidated Statements of Operations](index=10&type=section&id=Consolidated%20statements%20of%20operations%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Reports the company's revenues, expenses, and net income for the three and six months ended June 30, 2023 and 2022 Consolidated Statements of Operations Highlights (Three Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Total revenues | $335,062 | $560,156 | $(225,094) | (40.18)% | | Total costs and expenses | $213,767 | $191,922 | $21,845 | 11.38% | | Operating income | $121,449 | $369,164 | $(247,715) | (67.09)% | | Net income | $294,811 | $262,546 | $32,265 | 12.29% | | Basic EPS | $16.35 | $15.60 | $0.75 | 4.81% | | Diluted EPS | $16.30 | $15.41 | $0.89 | 5.78% | Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Total revenues | $667,569 | $1,092,551 | $(424,982) | (38.90)% | | Total costs and expenses | $423,754 | $453,566 | $(29,812) | (6.57)% | | Operating income | $244,206 | $639,655 | $(395,449) | (61.82)% | | Net income | $408,751 | $175,765 | $232,986 | 132.56% | | Basic EPS | $23.71 | $10.46 | $13.25 | 126.67% | | Diluted EPS | $23.60 | $10.31 | $13.29 | 128.90% | - Net income for the three and six months ended June 30, 2023, includes a significant non-cash deferred income tax benefit of **$222.2 million** due to the release of a valuation allowance[115](index=115&type=chunk)[116](index=116&type=chunk) [Consolidated Statements of Stockholders' Equity](index=11&type=section&id=Consolidated%20statements%20of%20stockholders'%20equity%20for%20the%20three%20and%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Outlines changes in stockholders' equity, including common stock and accumulated deficit, for the periods ended June 30, 2023 and 2022 Stockholders' Equity Changes (in thousands) | Metric | December 31, 2022 | June 30, 2023 | Change ($) | Change (%) | | :-------------------------- | :------------------ | :-------------- | :--------- | :--------- | | Common stock | $168 | $186 | $18 | 10.71% | | Additional paid-in capital | $2,754,085 | $2,838,143 | $84,058 | 3.05% | | Accumulated deficit | $(1,643,507) | $(1,234,756) | $408,751 | 24.87% | | Total stockholders' equity | $1,110,746 | $1,603,573 | $492,827 | 44.37% | - The company issued **1,578,948 shares** of common stock valued at **$80.07 million** as part of the Driftwood Acquisition on April 3, 2023[35](index=35&type=chunk)[62](index=62&type=chunk)[69](index=69&type=chunk) [Consolidated Statements of Cash Flows](index=13&type=section&id=Consolidated%20statements%20of%20cash%20flows%20for%20the%20six%20months%20ended%20June%2030%2C%202023%20and%202022) Presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | Change (%) | | :------------------------------------ | :------------------ | :------------------ | :--------- | :--------- | | Net cash provided by operating activities | $365,013 | $539,007 | $(173,994) | (32.28)% | | Net cash used in investing activities | $(838,820) | $(293,540) | $(545,280) | (185.76)% | | Net cash provided by (used in) financing activities | $501,068 | $(154,719) | $655,787 | 423.86% | | Net increase in cash and cash equivalents | $27,261 | $90,748 | $(63,487) | (69.96)% | | Cash and cash equivalents, end of period | $71,696 | $147,546 | $(75,850) | (51.41)% | - The significant increase in cash used in investing activities was primarily due to acquisitions of oil and natural gas properties (Driftwood and Forge Acquisitions) and increased capital expenditures[166](index=166&type=chunk) - Net cash provided by financing activities increased substantially due to **$595.0 million** in borrowings on the Senior Secured Credit Facility, mainly to fund recent acquisitions[173](index=173&type=chunk) [Condensed Notes to the Consolidated Financial Statements](index=14&type=section&id=Condensed%20notes%20to%20the%20consolidated%20financial%20statements) Offers detailed explanations and disclosures for the consolidated financial statements, including accounting policies, acquisitions, and debt [Note 1—Organization and Basis of Presentation](index=14&type=section&id=Note%201%E2%80%94Organization%20and%20basis%20of%20presentation) Describes Vital Energy, Inc.'s business as an independent energy company and the basis for preparing its financial statements - Vital Energy, Inc. is an independent energy company focused on the acquisition, exploration, and development of oil and natural gas properties in the Permian Basin of West Texas, operating as a single exploration and production segment[44](index=44&type=chunk) - The unaudited consolidated financial statements are prepared in accordance with GAAP, with all material intercompany transactions eliminated, and reflect management's necessary adjustments for fair presentation[45](index=45&type=chunk)[46](index=46&type=chunk) [Note 2—New Accounting Standards](index=14&type=section&id=Note%202%E2%80%94New%20accounting%20standards) Addresses the impact of new accounting standard updates, confirming no material disclosures or adoptions for the period - The company determined there are no new accounting standard updates (ASUs) that are not yet adopted and meaningful to disclose as of June 30, 2023, and no new ASUs were adopted during the six months ended June 30, 2023[52](index=52&type=chunk) [Note 3—Acquisitions and Divestiture](index=15&type=section&id=Note%203%E2%80%94Acquisitions%20and%20divestiture) Details the Forge and Driftwood acquisitions, including consideration, acquired assets, and accounting treatment - On June 30, 2023, Vital Energy closed the Forge Acquisition for **$397.2 million** (comprising **$391.6 million cash** and **$5.7 million transaction costs**), acquiring **70% interest** in approximately **34,000 net acres** of oil and natural gas properties in the Delaware Basin[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - On April 3, 2023, the company completed the Driftwood Acquisition for **$201.3 million**, consisting of **$117.3 million cash**, **1,578,948 shares** of common stock (**$80.07 million value**), and **$3.9 million** in transaction costs, adding approximately **11,200 net acres** in the Midland Basin[57](index=57&type=chunk)[58](index=58&type=chunk)[62](index=62&type=chunk) - Both the Forge and Driftwood acquisitions were accounted for as asset acquisitions, with consideration allocated to acquired assets and assumed liabilities based on their relative fair values, and transaction costs capitalized[56](index=56&type=chunk)[59](index=59&type=chunk) [Note 4—Debt](index=18&type=section&id=Note%204%E2%80%94Debt) Provides information on the company's long-term debt, including senior unsecured notes and the Senior Secured Credit Facility Long-term Debt, Net (in thousands) | Debt Type | June 30, 2023 | December 31, 2022 | Change ($) | Change (%) | | :------------------------ | :-------------- | :---------------- | :--------- | :--------- | | January 2025 Notes | $453,221 | $452,331 | $890 | 0.20% | | January 2028 Notes | $297,186 | $296,831 | $355 | 0.12% | | July 2029 Notes | $294,192 | $293,861 | $331 | 0.11% | | Senior Secured Credit Facility | $575,000 | $70,000 | $505,000 | 721.43% | | Total Long-term debt, net | $1,619,599 | $1,113,023 | $506,576 | 45.51% | - As of June 30, 2023, the Senior Secured Credit Facility had a **$1.3 billion** borrowing base, **$1.0 billion** aggregate elected commitment, and **$575.0 million** outstanding at an interest rate of **7.978%**, with the company in compliance with all covenants[67](index=67&type=chunk) - No senior unsecured notes were repurchased during the six months ended June 30, 2023, compared to **$32.03 million** in principal repurchased in the same period of 2022, which resulted in a **$0.8 million loss** on extinguishment of debt in 2022[66](index=66&type=chunk) [Note 5—Stockholders' Equity](index=19&type=section&id=Note%205%E2%80%94Stockholders'%20equity) Details changes in stockholders' equity, including common stock issuance for acquisitions and the share repurchase program - On April 3, 2023, **1,578,948 shares** of common stock were issued as part of the Driftwood Acquisition[69](index=69&type=chunk) - The company's board authorized a **$200.0 million** share repurchase program in May 2022, with **$162.7 million** remaining available as of June 30, 2023. No shares were repurchased under this program during the six months ended June 30, 2023[71](index=71&type=chunk) [Note 6—Equity Incentive Plan](index=19&type=section&id=Note%206%E2%80%94Equity%20Incentive%20Plan) Outlines the company's equity incentive plan, including authorized shares and equity-based compensation expenses - The Equity Incentive Plan allows for the issuance of up to **2,432,500 shares**, granting various incentive awards including restricted stock, stock options, and performance shares/units[72](index=72&type=chunk) Equity-Based Compensation Expense (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Total share-settled equity-based compensation, net | $2,893 | $2,604 | $5,465 | $4,657 | | Total cash-settled equity-based compensation, net | $1,111 | $455 | $1,775 | $6,583 | | Total equity-based compensation, net | $4,004 | $3,059 | $7,240 | $11,240 | - As of June 30, 2023, total unrecognized cost related to equity-based compensation was **$30.2 million**, to be recognized over an average of **2.14 years**, with **$4.8 million** attributable to cash-settled liability awards[75](index=75&type=chunk) [Note 7—Net Income Per Common Share](index=21&type=section&id=Note%207%E2%80%94Net%20income%20per%20common%20share) Presents basic and diluted net income per common share calculations for the three and six months ended June 30 Net Income Per Common Share (Three Months Ended June 30) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :----- | :----- | :--------- | :--------- | | Net income (in thousands) | $294,811 | $262,546 | $32,265 | 12.29% | | Basic EPS | $16.35 | $15.60 | $0.75 | 4.81% | | Diluted EPS | $16.30 | $15.41 | $0.89 | 5.78% | | Weighted-average common shares outstanding (Basic) | 18,031 | 16,834 | 1,197 | 7.11% | | Weighted-average common shares outstanding (Diluted) | 18,085 | 17,039 | 1,046 | 6.14% | Net Income Per Common Share (Six Months Ended June 30) | Metric | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :----- | :----- | :--------- | :--------- | | Net income (in thousands) | $408,751 | $175,765 | $232,986 | 132.56% | | Basic EPS | $23.71 | $10.46 | $13.25 | 126.67% | | Diluted EPS | $23.60 | $10.31 | $13.29 | 128.90% | | Weighted-average common shares outstanding (Basic) | 17,236 | 16,800 | 436 | 2.59% | | Weighted-average common shares outstanding (Diluted) | 17,319 | 17,040 | 279 | 1.64% | [Note 8—Derivatives](index=21&type=section&id=Note%208%E2%80%94Derivatives) Discusses the company's use of commodity derivatives to hedge price risk and reports related gains or losses - The company uses commodity derivatives (puts, swaps, collars, basis swaps) to hedge price risk for oil, NGL, and natural gas, and previously used interest rate swaps, but these are not designated as hedges for accounting purposes[80](index=80&type=chunk)[82](index=82&type=chunk) Gain (Loss) on Derivatives, Net (in thousands) | Derivative Type | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :---------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Commodity | $(16,190) | $(66,347) | $1,392 | $(396,071) | | Contingent consideration | $(1,854) | $419 | $1,054 | $4,314 | | Interest rate | $0 | $1 | $0 | $14 | | Total | $(18,044) | $(65,927) | $2,446 | $(391,743) | - As of June 30, 2023, the company had open commodity derivative positions for oil (WTI NYMEX swaps, collars, three-way collars, Argus WTI Midland basis swaps) and natural gas (Henry Hub NYMEX swaps, collars, three-way collars, Waha Inside FERC basis swaps) extending into 2024[84](index=84&type=chunk) [Note 9—Fair Value Measurements](index=23&type=section&id=Note%209%E2%80%94Fair%20value%20measurements) Provides fair value measurements for derivative instruments and debt, categorized by the fair value hierarchy Net Derivative Asset Positions by Fair Value Hierarchy Level (June 30, 2023, in thousands) | Metric | Level 1 | Level 2 | Level 3 | Total Gross Fair Value | Net Fair Value on Balance Sheet | | :-------------------------- | :------ | :------ | :------ | :--------------------- | :------------------------------ | | Current Assets: Commodity | $0 | $32,558 | $0 | $32,558 | $10,017 | | Current Assets: Contingent consideration | $0 | $0 | $1,925 | $1,925 | $1,925 | | Noncurrent Assets: Commodity | $0 | $416 | $0 | $416 | $0 | | Noncurrent Assets: Contingent consideration | $0 | $0 | $24,314 | $24,314 | $24,314 | | Current Liabilities: Commodity | $0 | $(24,879) | $0 | $(24,879) | $(2,338) | | Noncurrent Liabilities: Commodity | $0 | $(3,441) | $0 | $(3,441) | $(3,025) | | Net derivative asset positions | $0 | $4,654 | $26,239 | $30,893 | $30,893 | - The Sixth Street Contingent Consideration, classified as Level 3, had a fair value of **$26.2 million** as of June 30, 2023, and **$26.6 million** as of December 31, 2022, with changes recognized in "Gain (loss) on derivatives, net"[85](index=85&type=chunk)[91](index=91&type=chunk) Fair Values of Debt Instruments (in thousands) | Debt Type | Carrying Amount (June 30, 2023) | Fair Value (June 30, 2023) | Carrying Amount (Dec 31, 2022) | Fair Value (Dec 31, 2022) | | :------------------------ | :------------------------------ | :------------------------- | :------------------------------ | :------------------------- | | January 2025 Notes | $455,628 | $452,211 | $455,628 | $449,122 | | January 2028 Notes | $300,309 | $294,378 | $300,309 | $292,846 | | July 2029 Notes | $298,214 | $246,027 | $298,214 | $268,416 | | Senior Secured Credit Facility | $575,000 | $575,348 | $70,000 | $69,945 | | Total | $1,629,151 | $1,567,964 | $1,124,151 | $1,080,329 | [Note 10—Commitments and Contingencies](index=24&type=section&id=Note%2010%E2%80%94Commitments%20and%20contingencies) Outlines the company's legal proceedings, firm transportation commitments, and other contractual obligations - The company is subject to various legal proceedings in the ordinary course of business but believes that any adverse outcomes will not materially affect its business, financial position, results of operations, or liquidity[94](index=94&type=chunk)[97](index=97&type=chunk) - The company has firm transportation commitments, including on the Gray Oak pipeline, and expensed **$2.4 million** and **$3.5 million** in firm transportation payments on excess capacity for the six months ended June 30, 2023 and 2022, respectively[98](index=98&type=chunk) - As of June 30, 2023, future firm sale and transportation commitments totaled **$138.5 million**, which are expected to be satisfied and are not recorded as a liability[98](index=98&type=chunk) [Note 11—Supplemental Cash Flow and Non-Cash Information](index=26&type=section&id=Note%2011%E2%80%94Supplemental%20cash%20flow%20and%20non-cash%20information) Presents additional cash flow details and non-cash investing and financing activities for the six months ended June 30 Supplemental Cash Flow and Non-Cash Information (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :-------------------------------------------------------------------- | :----- | :----- | | Cash paid for interest, net of capitalized interest | $55,987 | $67,995 | | Right-of-use assets obtained in exchange for operating lease liabilities | $124,868 | $33,985 | | Change in accrued capital expenditures | $18,110 | $14,173 | | Equity issued for acquisition of oil and natural gas properties | $80,068 | $0 | | Liabilities assumed in acquisitions of oil and natural gas properties | $11,152 | $0 | [Note 12—Income Taxes](index=26&type=section&id=Note%2012%E2%80%94Income%20taxes) Details the company's income tax position, including the release of a federal valuation allowance and net operating loss carryforwards - As of June 30, 2023, the company released a **$222.2 million** federal valuation allowance against its deferred tax assets, concluding that these assets are more likely than not realizable, while maintaining a full valuation allowance for Oklahoma deferred tax assets[101](index=101&type=chunk)[102](index=102&type=chunk) - The company has federal net operating loss carryforwards totaling **$1.2 billion** (**$727.4 million** expiring in 2034, **$425.9 million** non-expiring but potentially limited) and state of Oklahoma NOLs of **$34.4 million** (expiring in 2032)[102](index=102&type=chunk) [Note 13—Related Parties](index=28&type=section&id=Note%2013%E2%80%94Related%20parties) Discloses transactions with related parties, specifically a lease agreement and capital expenditures with Halliburton - The company has a lease agreement with Halliburton (whose board chairman is also on Vital's board) for an electric fracture stimulation crew, resulting in a **$73.2 million** lease liability as of June 30, 2023[105](index=105&type=chunk) Capital Expenditures for Oil and Natural Gas Properties Paid to Halliburton (Six Months Ended June 30, in thousands) | Year | Amount | | :--- | :----- | | 2023 | $69,911 | | 2022 | $56,620 | [Note 14—Subsequent Events](index=29&type=section&id=Note%2014%E2%80%94Subsequent%20events) Reports significant events occurring after June 30, 2023, including credit facility borrowings and derivative updates - Subsequent to June 30, 2023, the company borrowed an additional **$35.0 million** and repaid **$15.0 million** on its Senior Secured Credit Facility, resulting in an outstanding balance of **$595.0 million** as of August 4, 2023[109](index=109&type=chunk) - The company updated its open oil and natural gas derivative positions from June 30, 2023, through August 4, 2023, with no other derivative activity occurring after June 30, 2023[110](index=110&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Analyzes Vital Energy, Inc.'s financial condition and results of operations for the three and six months ended June 30, 2023 and 2022 [Executive Overview](index=30&type=section&id=Executive%20overview) Provides a high-level summary of Vital Energy's business, recent operational achievements, and capital expenditure plans - Vital Energy is an independent energy company focused on oil and natural gas properties in the Permian Basin, having assembled **197,985 net acres** as of June 30, 2023[112](index=112&type=chunk) - The company achieved a record oil production of **44,360 Bbl/d** in Q2 2023 and closed two accretive acquisitions in the Midland and Delaware basins, adding approximately **35,000 net acres** and **130 high-value, oil-weighted locations**[113](index=113&type=chunk)[114](index=114&type=chunk) - Planned capital expenditures for full-year 2023 are projected between **$665.0 million** and **$695.0 million**, with activity levels subject to adjustment based on commodity prices and service costs[114](index=114&type=chunk) [Recent Developments](index=31&type=section&id=Recent%20developments) Discusses current trends impacting the company, including elevated drilling costs, inflationary pressures, and higher interest rates - Drilling and completion costs, along with oilfield services, equipment, and materials, remain elevated due to inflationary pressures, labor tightening, and supply chain disruptions[117](index=117&type=chunk) - Higher interest rates have increased borrowing costs on the Senior Secured Credit Facility and may limit access to debt capital markets, with potential for further increases[117](index=117&type=chunk) [Pricing and Reserves](index=31&type=section&id=Pricing%20and%20reserves) Examines commodity price volatility, hedging strategies, and the company's proved reserves and full cost ceiling compliance - Commodity prices remain volatile, influenced by global demand, supply constraints, and geopolitical factors, with the company using commodity derivatives to mitigate price risk[119](index=119&type=chunk)[120](index=120&type=chunk) Realized Prices for Proved Reserves (as of June 30, 2023) | Commodity | Price ($) | | :---------- | :-------- | | Oil ($/Bbl) | $84.88 | | NGL ($/Bbl) | $19.88 | | Natural gas ($/Mcf) | $2.49 | - The unamortized cost of evaluated oil and natural gas properties did not exceed the full cost ceiling as of June 30, 2023, and no full cost ceiling impairments were recorded during the six months ended June 30, 2023[121](index=121&type=chunk) [Results of Operations](index=33&type=section&id=Results%20of%20operations) Analyzes the company's financial performance, detailing changes in revenues, costs, expenses, and non-operating items [Revenues](index=33&type=section&id=Revenues) Examines the drivers behind changes in oil, NGL, and natural gas sales revenues, including average sales prices and volumes Total Oil, NGL, and Natural Gas Sales Revenues (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :--------- | :--------- | :--------- | :--------- | | Three months ended June 30 | $333,924 | $549,470 | $(215,546) | (39)% | | Six months ended June 30 | $651,735 | $1,000,657 | $(348,922) | (35)% | - The decrease in total oil, NGL, and natural gas sales revenues was primarily driven by a **41% decrease** in average sales price per BOE for the three months ended June 30, 2023, and a **34% decrease** for the six months ended June 30, 2023[114](index=114&type=chunk)[116](index=116&type=chunk)[126](index=126&type=chunk)[130](index=130&type=chunk) Average Sales Prices (Excluding Derivatives) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Oil ($/Bbl) | $74.09 | $111.20 | $(37.11) | (33)% | | NGL ($/Bbl) | $12.63 | $34.52 | $(21.89) | (63)% | | Natural gas ($/Mcf) | $0.71 | $5.21 | $(4.50) | (86)% | | Average sales price ($/BOE) | $40.76 | $69.38 | $(28.62) | (41)% | Average Sales Prices (With Commodity Derivatives) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | Change ($) | Change (%) | | :-------------------- | :--------------------------- | :--------------------------- | :--------- | :--------- | | Oil ($/Bbl) | $74.43 | $74.72 | $(0.29) | (0)% | | NGL ($/Bbl) | $12.63 | $27.24 | $(14.61) | (54)% | | Natural gas ($/Mcf) | $1.45 | $3.33 | $(1.88) | (56)% | | Average sales price ($/BOE) | $42.07 | $47.41 | $(5.34) | (11)% | - Sales of purchased oil decreased by **96%** for the three months and **84%** for the six months ended June 30, 2023, primarily due to a larger portion of pipeline commitments being fulfilled by lease production and a decrease in sales price[132](index=132&type=chunk) [Costs and Expenses](index=37&type=section&id=Costs%20and%20expenses) Analyzes changes in key operating expenses such as lease operating expenses, production taxes, G&A, and depletion Total Costs and Expenses (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :--------- | :--------- | :--------- | :--------- | | Three months ended June 30 | $213,767 | $191,922 | $21,845 | 11% | | Six months ended June 30 | $423,754 | $453,566 | $(29,812) | (7)% | - Lease operating expenses (LOE) increased by **37%** for the three months and **30%** for the six months ended June 30, 2023, primarily due to a shift to high-value Howard County wells with higher water production and inflationary pressures[134](index=134&type=chunk)[136](index=136&type=chunk)[137](index=137&type=chunk) - Production and ad valorem taxes decreased by **35%** for the three months and **30%** for the six months ended June 30, 2023, due to decreased oil, NGL, and natural gas sales revenues[134](index=134&type=chunk)[136](index=136&type=chunk)[138](index=138&type=chunk) - General and administrative (G&A) expenses, excluding LTIP and transaction expenses, increased by **14%** for the three months and **39%** for the six months ended June 30, 2023, mainly due to higher bonuses and inflationary pressures on compensation[134](index=134&type=chunk)[136](index=136&type=chunk)[142](index=142&type=chunk) - Depletion expense per BOE increased by **28%** for the three months and **27%** for the six months ended June 30, 2023, primarily due to an increase in future development costs and inflationary pressures[145](index=145&type=chunk) [Non-Operating Income (Expense)](index=40&type=section&id=Non-operating%20income%20(expense)) Reviews non-operating items, including derivative gains/losses and interest expense, and their impact on financial results Total Non-Operating Expense, Net (in thousands) | Period | 2023 | 2022 | Change ($) | Change (%) | | :------------------------------------ | :--------- | :--------- | :--------- | :--------- | | Three months ended June 30 | $(48,469) | $(99,526) | $51,057 | 51% | | Six months ended June 30 | $(55,679) | $(457,675) | $401,996 | 88% | - The gain (loss) on derivatives, net, significantly improved, moving from a loss of **$(65.9) million** in Q2 2022 to a loss of **$(18.0) million** in Q2 2023, and from a loss of **$(391.7) million** in H1 2022 to a gain of **$2.4 million** in H1 2023, primarily due to changes in non-cash mark-to-market valuations and settlements[146](index=146&type=chunk) - Interest expense decreased by **4%** for the three months and **8%** for the six months ended June 30, 2023, due to a reduction in senior unsecured notes principal from 2022 repurchases, partially offset by increased Senior Secured Credit Facility borrowings[148](index=148&type=chunk) [Income Tax Benefit (Expense)](index=42&type=section&id=Income%20tax%20benefit%20(expense)) Details the company's income tax benefit or expense, highlighting the impact of deferred income tax adjustments Income Tax Benefit (Expense) (in thousands) | Metric | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :-------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Current | $(503) | $(4,513) | $(1,834) | $(5,731) | | Deferred | $222,334 | $(2,579) | $222,058 | $(484) | | Total | $221,831 | $(7,092) | $220,224 | $(6,215) | - The significant income tax benefit in 2023 is primarily due to a **$222.2 million** non-cash deferred income tax benefit from the release of the federal valuation allowance, as the company determined its federal deferred tax assets are more likely than not realizable[151](index=151&type=chunk)[152](index=152&type=chunk) [Liquidity and Capital Resources](index=42&type=section&id=Liquidity%20and%20capital%20resources) Assesses the company's ability to meet its financial obligations, including cash flows, debt, and available credit [Cash Requirements for Known Contractual and Other Obligations](index=44&type=section&id=Cash%20requirements%20for%20known%20contractual%20and%20other%20obligations) Outlines the company's short-term and long-term cash requirements for contractual obligations and expected funding sources Significant Cash Requirements for Contractual Obligations (as of June 30, 2023, in thousands) | Obligation Type | Short-term | Long-term | Total | | :-------------------------- | :--------- | :---------- | :---------- | | Senior unsecured notes | $96,803 | $1,346,174 | $1,442,977 | | Senior Secured Credit Facility | $0 | $575,000 | $575,000 | | Asset retirement obligations | $2,666 | $74,428 | $77,094 | | Firm transportation commitments | $17,604 | $48,289 | $65,893 | | Operating lease commitments | $57,246 | $87,191 | $144,437 | | Total | $174,319 | $2,131,082 | $2,305,401 | - The company expects to meet its short-term contractual and other obligations using cash flows from operations[161](index=161&type=chunk) [Cash Flows](index=44&type=section&id=Cash%20flows) Analyzes cash flows from operating, investing, and financing activities, highlighting significant changes and their drivers [Cash Flows from Operating Activities](index=44&type=section&id=Cash%20flows%20from%20operating%20activities) Examines the net cash generated or used by the company's core business operations for the six months ended June 30 - Net cash provided by operating activities decreased by **32%** to **$365.0 million** for the six months ended June 30, 2023, compared to **$539.0 million** in the same period of 2022[162](index=162&type=chunk)[163](index=163&type=chunk) - The decrease was primarily due to a **$348.9 million** decrease in total oil, NGL, and natural gas sales revenues (driven by lower average sales prices), partially offset by a **$306.3 million** increase from changes in net settlements for matured derivatives[163](index=163&type=chunk) [Cash Flows from Investing Activities](index=46&type=section&id=Cash%20flows%20from%20investing%20activities) Details cash used for acquisitions of oil and natural gas properties and capital expenditures for the six months ended June 30 - Net cash used in investing activities increased significantly by **186%** to **$838.8 million** for the six months ended June 30, 2023, from **$293.5 million** in the prior year, mainly due to the Driftwood and Forge acquisitions and increased capital expenditures[162](index=162&type=chunk)[166](index=166&type=chunk) Incurred Capital Expenditures for Oil and Natural Gas Properties (Six Months Ended June 30, in thousands) | Category | 2023 | 2022 | Change ($) | Change (%) | | :---------------------------------------------------- | :--------- | :--------- | :--------- | :--------- | | Property acquisition costs (Evaluated) | $405,986 | $4,780 | $401,206 | 8393.43% | | Property acquisition costs (Unevaluated) | $212,220 | $3,291 | $208,929 | 6348.49% | | Exploration costs | $15,780 | $14,357 | $1,423 | 9.91% | | Development costs | $312,684 | $289,507 | $23,177 | 8.00% | | Total oil and natural gas properties incurred capital expenditures | $946,670 | $311,935 | $634,735 | 203.48% | - Total incurred capital expenditures, excluding non-budgeted acquisition costs, increased by **9%** to **$336.2 million** for the six months ended June 30, 2023, compared to **$308.9 million** in the same period of 2022[169](index=169&type=chunk) [Cash Flows from Financing Activities](index=47&type=section&id=Cash%20flows%20from%20financing%20activities) Reports cash flows related to debt, equity, and other financing transactions for the six months ended June 30 - Net cash provided by financing activities was **$501.1 million** for the six months ended June 30, 2023, a significant increase from net cash used of **$154.7 million** in the prior year, primarily driven by **$595.0 million** in borrowings on the Senior Secured Credit Facility to fund acquisitions[162](index=162&type=chunk)[173](index=173&type=chunk) [Sources of Liquidity](index=47&type=section&id=Sources%20of%20Liquidity) Identifies the company's primary sources of liquidity, including cash, credit facilities, and outstanding notes [Senior Secured Credit Facility](index=47&type=section&id=Senior%20Secured%20Credit%20Facility) Details the terms, borrowing base, and outstanding balance of the company's Senior Secured Credit Facility - As of June 30, 2023, the company had total liquidity of **$496.7 million**, comprising **$71.7 million** in cash and cash equivalents and **$425.0 million** in available capacity under its Senior Secured Credit Facility[159](index=159&type=chunk) - The Senior Secured Credit Facility has a maximum credit amount of **$2.0 billion**, a borrowing base of **$1.3 billion**, and an aggregate elected commitment of **$1.0 billion**, with **$575.0 million** outstanding as of June 30, 2023[174](index=174&type=chunk) [January 2025 Notes, January 2028 Notes and July 2029 Notes](index=47&type=section&id=January%202025%20Notes%2C%20January%202028%20Notes%20and%20July%202029%20Notes) Provides information on the principal amounts and interest rates of the company's outstanding senior unsecured notes Outstanding Senior Unsecured Notes (as of June 30, 2023, in millions) | Note Type | Principal | Interest Rate | | :---------------- | :-------- | :------------ | | January 2025 Notes | $455.6 | 9.500% | | January 2028 Notes | $300.3 | 10.125% | | July 2029 Notes | $298.2 | 7.750% | | Total | $1,054.1 | | [Supplemental Guarantor Information](index=47&type=section&id=Supplemental%20Guarantor%20information) Identifies the subsidiary that guarantees the company's senior unsecured notes and the ranking of these guarantees - Vital Midstream Services, LLC, a wholly-owned subsidiary, jointly and severally guarantees the company's senior unsecured notes, with guarantees ranking equally with other senior indebtedness[177](index=177&type=chunk)[178](index=178&type=chunk) [Critical Accounting Estimates](index=48&type=section&id=Critical%20accounting%20estimates) Discusses accounting estimates requiring significant judgment, particularly regarding income taxes and deferred tax asset recoverability [Income Taxes](index=48&type=section&id=Income%20taxes) Explains the judgments involved in income tax accounting, including deferred tax asset valuation and allowance release - The company's income tax accounting involves estimating federal and state income taxes and assessing the recoverability of deferred tax assets, which requires significant judgment based on positive and negative evidence[182](index=182&type=chunk)[183](index=183&type=chunk) - During Q2 2023, the company determined its federal net deferred tax assets were realizable, leading to the release of the federal valuation allowance, while the Oklahoma valuation allowance remains[184](index=184&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Provides information on the company's exposure to market risks from commodity prices and interest rates, and risk management strategies [Commodity Price Exposure](index=50&type=section&id=Commodity%20price%20exposure) Details the company's use of commodity derivatives to hedge price risk and presents a sensitivity analysis of these positions - The company uses commodity derivative transactions (puts, swaps, collars, basis swaps) to hedge price risk for a portion of anticipated sales volumes, aiming to mitigate cash flow variability from volatile oil, NGL, and natural gas prices[187](index=187&type=chunk) Sensitivity Analysis of Commodity Derivative Asset Position (as of June 30, 2023, in thousands) | Metric | Amount | | :------------------------------------------ | :------- | | Commodity derivative asset position | $4,654 | | Impact of a 10% increase in forward commodity prices | $(54,735) | | Impact of a 10% decrease in forward commodity prices | $49,165 | [Interest Rate Risk](index=50&type=section&id=Interest%20rate%20risk) Discusses the company's exposure to interest rate fluctuations on its floating-rate debt, specifically the Senior Secured Credit Facility - The Senior Secured Credit Facility bears interest at a floating rate (**7.978%** as of June 30, 2023), while senior unsecured notes bear fixed rates, exposing the company to interest rate fluctuations on its floating-rate debt[189](index=189&type=chunk) - The applicable margin on Senior Secured Credit Facility borrowings varies from **1.5% to 2.5%** for alternate base rate and **2.5% to 3.5%** for Term SOFR, depending on the utilization ratio, with the margin at **1.75%** for alternate base rate and **2.75%** for Term SOFR as of June 30, 2023[189](index=189&type=chunk) [Item 4. Controls and Procedures](index=51&type=section&id=Item%204.%20Controls%20and%20Procedures) Evaluates the effectiveness of the company's disclosure controls and internal control over financial reporting [Evaluation of Disclosure Controls and Procedures](index=51&type=section&id=Evaluation%20of%20disclosure%20controls%20and%20procedures) Confirms the effectiveness of Vital's disclosure controls and procedures as of June 30, 2023 - Vital's disclosure controls and procedures were evaluated and concluded to be effective as of June 30, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[190](index=190&type=chunk) [Evaluation of Changes in Internal Control Over Financial Reporting](index=51&type=section&id=Evaluation%20of%20changes%20in%20internal%20control%20over%20financial%20reporting) Reports no material changes in the company's internal control over financial reporting during the quarter ended June 30, 2023 - There were no changes in the company's internal controls over financial reporting during the quarter ended June 30, 2023, that materially affected, or are reasonably likely to materially affect, these controls[191](index=191&type=chunk) [Part II](index=52&type=section&id=Part%20II) Covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) States that the company is involved in various legal proceedings, none expected to have a material adverse effect - The company is involved in various legal proceedings but does not believe any, if decided adversely, will have a material adverse effect on its business, financial position, results of operations, or liquidity[194](index=194&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) Refers to previously disclosed risk factors, confirming no material changes since the 2022 Annual Report on Form 10-K - There have been no material changes in the company's risk factors from those described in its 2022 Annual Report on Form 10-K[195](index=195&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports on equity security transactions, including no unregistered sales and activity under the share repurchase program [Unregistered Sales of Equity Securities](index=52&type=section&id=Unregistered%20Sales%20of%20Equity%20Securities) Confirms that there were no unregistered sales of equity securities during the reporting period - There were no unregistered sales of equity securities during the period[196](index=196&type=chunk) [Issuer Repurchases of Equity Securities](index=52&type=section&id=Issuer%20Repurchases%20of%20Equity%20Securities) Details shares withheld for tax obligations and the remaining availability under the share repurchase program - During the three months ended June 30, 2023, the company withheld **8,551 shares** to satisfy tax withholding obligations related to equity-based compensation awards, but no shares were repurchased under the **$200 million** share repurchase program[197](index=197&type=chunk) - As of June 30, 2023, approximately **$162.7 million** remained available for future repurchases under the share repurchase program, which expires in May 2024[197](index=197&type=chunk) [Item 3. Defaults Upon Senior Securities](index=52&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) States that no defaults occurred upon senior securities during the reporting period - There were no defaults upon senior securities during the period[198](index=198&type=chunk) [Item 4. Mine Safety Disclosures](index=52&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Provides information on the company's mine safety disclosures, specifically regarding its MSHA-regulated sand mine - The company's Howard County, Texas sand mine operations are subject to regulation by the Federal Mine Safety and Health Administration (MSHA) under the Mine Act[199](index=199&type=chunk) - Information concerning mine safety violations and other regulatory matters is included in Exhibit 95.1 to this Quarterly Report[200](index=200&type=chunk) [Item 5. Other Information](index=54&type=section&id=Item%205.%20Other%20Information) Presents other relevant information, including changes to Rule 10b5-1 trading arrangements for officers and directors [Rule 10b5-1 Trading Arrangement Changes](index=54&type=section&id=Rule%2010b5-1%20Trading%20Arrangement%20Changes) Details modifications and terminations of Rule 10b5-1 trading arrangements by company officers - Mark Denny adopted a new Rule 10b5-1 trading arrangement on May 22, 2023, for the sale of **5,496 securities**, and terminated a previous arrangement on February 24, 2023[201](index=201&type=chunk) - Jason Pigott terminated a Rule 10b5-1 trading arrangement on February 24, 2023, for the sale of **10,000 securities**[201](index=201&type=chunk) [Item 6. Exhibits](index=55&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including agreements and certifications [Signatures](index=56&type=section&id=Signatures) Contains the required signatures for the Quarterly Report on Form 10-Q

Vital Energy, Inc. (NYSE:VTLE) Q1 2023 Earnings Conference Call May 10, 2023 8:30 AM ET Company Participants Ronald Hagood - Vice President of Investor Relations Mikell Pigott - President and Chief Executive Officer Katie Hill - Vice President of Operations Bryan Lemmerman - Senior Vice President and Chief Financial Officer Conference Call Participants Derrick Whitfield - Stifel, Nicolaus & Company, Incorporated. Operator Good day, ladies and gentlemen, and welcome to Vital Energy, Inc., First Quarter 2023 ...

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, 2023 or ☐ 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: 001-35380 Vital Energy, Inc. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or Delaware ...

Vital Energy, Inc. (NYSE:VTLE) Q4 2022 Results Conference Call February 22, 2023 8:30 AM ET Company Participants Ron Hagood - VP, IR Jason Pigott - President and CEO Bryan Lemmerman - SVP and CFO Katie Hill - VP, Operations Kyle Coldiron - VP, Development & Production Conference Call Participants Derrick Whitfield - Stifel Gregg Brody - Bank of America Nicholas Pope - Seaport Research Operator Good day, ladies and gentlemen, and welcome to Vital Energy, Inc.’s Fourth Quarter and Full Year 2022 Earnings Conf ...

Part I [Business](index=10&type=section&id=Item%201.%20Business) Vital Energy, Inc. is an independent energy company focused on the acquisition, exploration, and development of oil and natural gas properties exclusively in the Permian Basin of West Texas [Overview and Strategy](index=10&type=section&id=1.1%20Overview%20and%20Strategy) Vital Energy is an independent energy company focused on oil and natural gas properties in the Permian Basin, holding 163,286 net acres as of December 31, 2022 - Vital Energy is an independent energy company focused on the acquisition, exploration, and development of oil and natural gas properties in the Permian Basin of West Texas, with **163,286 net acres** as of December 31, 2022[39](index=39&type=chunk) - The company's strategy focuses on creating long-term value through efficient development, prudent balance sheet management, and sustainable environmental practices[40](index=40&type=chunk) - In 2022, the company utilized Free Cash Flow and divestiture proceeds to repurchase and retire **$284.8 million** in senior unsecured notes, reducing its consolidated total leverage ratio to **1.2 times**[43](index=43&type=chunk) - An equity repurchase program was initiated in May 2022, resulting in the repurchase of **$37.3 million** of equity, reducing outstanding shares by **490,536**[43](index=43&type=chunk) - The company has established ESG goals, including targets for reducing greenhouse gas intensity, methane emissions, eliminating routine flaring by 2025, and increasing recycled water use[46](index=46&type=chunk) [Operations and Properties](index=12&type=section&id=1.2%20Operations%20and%20Properties) The company's operations are concentrated in the Permian Basin, focusing on horizontal drilling in the Wolfcamp and Spraberry formations Productive Wells as of December 31, 2022 | | **Gross** | **Net** | **Average WI %** | | :--- | :--- | :--- | :--- | | **Operated** | 1,689 | 1,235 | 73% | | **Non-operated** | 227 | 57 | 25% | | **Total** | 1,916 | 1,292 | 67% | Drilling Activity (Completed Wells) | | **2022** | **2021** | **2020** | | :--- | :--- | :--- | :--- | | **Gross** | 49 | 71 | 48 | | **Net** | 47.1 | 70.1 | 47.3 | Key Financial and Operational Metrics (2022 vs 2021) | Metric | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | **Sales Volumes (MBOE)** | 30,076 | 29,827 | 1% | | **Oil Sales Volumes (MBbl)** | 13,838 | 11,619 | 19% | | **Average Sales Price ($/BOE)** | $59.66 | $38.46 | 55% | | **Average Oil Sales Price ($/Bbl)** | $97.65 | $69.32 | 41% | | **Lease Operating Expenses ($/BOE)** | $5.78 | $3.42 | 69% | | **DD&A ($/BOE)** | $10.36 | $7.22 | 43% | [Reserves](index=15&type=section&id=1.3%20Reserves) As of December 31, 2022, Vital Energy's total estimated net proved reserves were 302.3 million barrels of oil equivalent (MMBoe) Estimated Proved Reserves (as of Dec 31) | Reserve Category | 2022 (MBOE) | 2021 (MBOE) | | :--- | :--- | :--- | | **Total Proved Developed** | 222,917 | 232,048 | | **Total Proved Undeveloped** | 79,401 | 86,592 | | **Total Estimated Proved Reserves** | **302,318** | **318,640** | | **Percent Developed** | 74% | 73% | - Independent reserve engineers, Ryder Scott Company, L.P., estimated **100%** of the company's proved reserve information as of December 31, 2022, 2021, and 2020[66](index=66&type=chunk) - In 2022, the company incurred **$337.9 million** to convert **23,722 MBOE** of proved undeveloped reserves to proved developed reserves, with **30,291 MBOE** of new PUDs added during the year[70](index=70&type=chunk) - The estimated total future cost to develop proved undeveloped reserves is **$1.3 billion**, with all **153 PUD locations** scheduled to be developed within five years from their initial recording date[71](index=71&type=chunk)[70](index=70&type=chunk) [Acreage and Marketing](index=18&type=section&id=1.4%20Acreage%20and%20Marketing) As of year-end 2022, the company held 163,286 net acres in the Permian-Midland Basin, with 98% of this acreage held by production (HBP) Acreage as of December 31, 2022 | Basin | Developed Net Acres | Undeveloped Net Acres | Total Net Acres | % HBP | | :--- | :--- | :--- | :--- | :--- | | Permian-Midland | 160,496 | 2,790 | 163,286 | 98% | Material Firm Commitments as of December 31, 2022 | Commitment Type | 2023 | 2024 | 2025 | 2026 and after | | :--- | :--- | :--- | :--- | :--- | | **Crude Oil Sales (MBbl)** | 7,875 | — | — | — | | **Crude Oil Transportation (MBbl)** | 23,725 | 23,790 | 12,775 | 15,925 | | **Natural Gas Sales (MMcf)** | 11,402 | 8,435 | 7,378 | 27,163 | - The company has a transportation commitment with Gray Oak Pipeline, LLC extending into 2027 to transport **35,000 barrels of oil per day** from Crane, Texas to the U.S. Gulf Coast[78](index=78&type=chunk) [Regulation](index=19&type=section&id=1.5%20Regulation) Vital's operations are substantially affected by federal, state, and local laws governing conservation, waste disposal, and environmental protection - Operations are significantly affected by federal, state (primarily Texas), and local regulations governing drilling, production rates, well spacing, waste disposal, and environmental matters[84](index=84&type=chunk)[86](index=86&type=chunk) - Hydraulic fracturing is subject to state regulations, including chemical disclosure requirements in Texas, with ongoing governmental review and proposed federal legislation potentially increasing costs[103](index=103&type=chunk)[106](index=106&type=chunk)[112](index=112&type=chunk) - The company is subject to air quality regulations under the Clean Air Act and EPA rules, which require permits and emission controls for facilities, with expanding standards for methane and VOCs[114](index=114&type=chunk)[117](index=117&type=chunk) - The Inflation Reduction Act of 2022 (IRA) imposes a new federal fee on methane emissions starting in 2024 and provides incentives for renewable energy, which could decrease demand for oil and gas[123](index=123&type=chunk) - The company's use of derivatives is subject to regulation under the Dodd-Frank Act, but it qualifies for the "End User Exception" to mandatory clearing rules[132](index=132&type=chunk)[136](index=136&type=chunk) [Human Capital](index=37&type=section&id=1.6%20Human%20Capital) As of December 31, 2022, Vital Energy employed 289 full-time employees, focusing on talent development and diversity - As of December 31, 2022, the company employed **289 full-time employees**, with **141** based in field offices[138](index=138&type=chunk) Workforce Diversity (FY 2022) | Metric | Percentage | | :--- | :--- | | **Diverse based on ethnicity** | 28% | | **Diverse based on gender** | 28% | | **US military veterans** | 3% | | **Women in professional roles or higher** | 37% | - The company offers a comprehensive total rewards program, including competitive salaries, short and long-term incentives, a company-matched 401K, and flexible working schedules[142](index=142&type=chunk) [Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) The company faces high risks across business, financial operations, and regulatory environments, including commodity price volatility and extensive regulations [Risks Related to Business](index=40&type=section&id=1A.1%20Risks%20Related%20to%20Business) The company's business is exposed to significant operational risks, including commodity price volatility, inflation, and intense competition - Inflationary pressures have increased and may continue to increase drilling, completion, and operating costs, potentially hurting financial results[146](index=146&type=chunk)[147](index=147&type=chunk) - The volatility of oil, NGL, and natural gas prices heavily influences revenue, profitability, and access to capital, with lower prices potentially reducing cash flows and borrowing ability[149](index=149&type=chunk)[150](index=150&type=chunk) - The company's producing properties are geographically concentrated in the Permian Basin, exposing it disproportionately to regional risks like transportation constraints, weather events, and regulatory changes[187](index=187&type=chunk) - Reserve estimation is a subjective process with numerous uncertainties, and negative revisions could lead to increased depletion expenses or impairment charges[167](index=167&type=chunk)[168](index=168&type=chunk) - The company faces security threats, including cyber-security attacks, which could lead to disruptions in critical systems, loss of sensitive information, and have a material adverse effect on operations[183](index=183&type=chunk) [Risks Related to Financing and Indebtedness](index=51&type=section&id=1A.2%20Risks%20Related%20to%20Financing%20and%20Indebtedness) Vital Energy's business requires substantial capital, with significant indebtedness and restrictive covenants limiting operational flexibility - As of December 31, 2022, the company had total long-term indebtedness of **$1.12 billion** and may incur substantial additional debt in the future[204](index=204&type=chunk) - Debt agreements contain restrictive covenants that limit the ability to incur more debt, pay dividends, sell assets, and engage in other specified transactions, with a breach potentially leading to default and acceleration of debt[215](index=215&type=chunk)[216](index=216&type=chunk) - Availability under the Senior Secured Credit Facility is subject to a borrowing base that is redetermined semi-annually and can be reduced by factors like lower commodity prices, potentially impacting liquidity[210](index=210&type=chunk) - Borrowings under the Senior Secured Credit Facility expose the company to floating interest rate risk, and recent rate increases by the U.S. Federal Reserve have increased borrowing costs[208](index=208&type=chunk) [Risks Related to Regulation](index=57&type=section&id=1A.3%20Risks%20Related%20to%20Regulation) The company's operations are subject to significant regulatory risks that could increase costs and restrict activities, including climate change legislation - Federal and state legislation relating to hydraulic fracturing and water disposal could result in materially increased costs, operating restrictions, or delays[218](index=218&type=chunk) - Regulatory initiatives intended to address seismic activity, particularly in the Permian Basin, could restrict drilling and the disposal of produced water, increasing operating costs[223](index=223&type=chunk)[224](index=224&type=chunk) - The adoption of climate change legislation like the IRA, which includes a methane emissions fee, could increase operating costs and reduce demand for the company's products[228](index=228&type=chunk)[229](index=229&type=chunk) - Derivatives reform legislation (Dodd-Frank Act) could increase the cost and reduce the availability of derivative contracts used to hedge commodity price and interest rate risks[236](index=236&type=chunk) [Risks Related to Common Stock](index=65&type=section&id=1A.4%20Risks%20Related%20to%20Common%20Stock) Investors face risks related to corporate governance, anti-takeover provisions, no dividend policy, and potential future stock dilution - The company has no plans to pay cash dividends on its common stock and is restricted from doing so by covenants in its debt agreements[245](index=245&type=chunk) - Provisions in the company's charter, bylaws, and Delaware law could make it more difficult for a third party to acquire control, potentially affecting the stock price[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk) - Future sales of common stock to raise cash for acquisitions or other purposes could dilute ownership and have an adverse impact on the stock price[244](index=244&type=chunk) [Unresolved Staff Comments](index=66&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) Not applicable. The company reports no unresolved staff comments - The company has no unresolved staff comments from the SEC[246](index=246&type=chunk) [Properties](index=66&type=section&id=Item%202.%20Properties) Information regarding the company's properties is contained in Item 1 of this report - The information required for this item is located in "Item 1. Business"[247](index=247&type=chunk) [Legal Proceedings](index=66&type=section&id=Item%203.%20Legal%20Proceedings) The company is subject to various legal proceedings in the ordinary course of business, none expected to be material - The company is subject to various legal proceedings from time to time, but does not currently believe any will have a material adverse effect on its financial condition or operations[247](index=247&type=chunk) [Mine Safety Disclosures](index=66&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company's Howard County sand mine operations are subject to MSHA regulation, with disclosures in Exhibit 95.1 - The company's Howard County sand mine operations are subject to MSHA regulation, with required mine safety disclosures provided in Exhibit 95.1[248](index=248&type=chunk)[249](index=249&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=67&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Vital Energy's common stock trades on NYSE under 'VTLE'; the company has not paid dividends and initiated a share repurchase program - The company's common stock is listed on the New York Stock Exchange under the symbol **"VTLE"**[252](index=252&type=chunk) - The company has not paid any cash dividends and is restricted from doing so by covenants in its debt agreements[253](index=253&type=chunk) Issuer Purchases of Common Stock (Q4 2022) | Period | Total Shares Purchased | Weighted Average Price Paid | Maximum Value Remaining in Program | | :--- | :--- | :--- | :--- | | Oct 2022 | 100,749 | $66.87 | $166,676,279 | | Nov 2022 | 59,939 | $66.17 | $162,710,185 | | Dec 2022 | — | $— | $162,710,185 | | **Total Q4** | **160,688** | | | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=69&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2022, Vital Energy's financial performance improved significantly due to higher commodity prices and increased oil production, driving net income and Free Cash Flow growth [Executive Overview](index=69&type=section&id=7.1%20Executive%20Overview) In 2022, Vital Energy saw significant financial performance increases, driven by higher sales and oil volumes, with a corporate name change in January 2023 Financial and Operating Performance Summary | Metric (in thousands) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | **Oil, NGL and natural gas sales** | $1,794,374 | $1,147,143 | 56% | | **Net income** | $631,512 | $145,008 | 336% | | **Net cash provided by operating activities** | $829,620 | $496,671 | 67% | | **Free Cash Flow (non-GAAP)** | $219,941 | $(2,829) | 7,875% | | **Adjusted EBITDA (non-GAAP)** | $913,482 | $505,917 | 81% | - Effective January 9, 2023, the company changed its corporate name from Laredo Petroleum, Inc. to **Vital Energy, Inc.**[264](index=264&type=chunk) - Expected capital expenditures for full-year 2023 are projected to be in the range of **$625.0 million to $675.0 million**[262](index=262&type=chunk) [Results of Operations](index=72&type=section&id=7.2%20Results%20of%20Operations) For 2022, total revenues from oil, NGL, and natural gas sales increased by 56% to $1.8 billion, driven by higher prices and oil volumes Revenue Analysis (2022 vs 2021) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Total Oil, NGL, Gas Sales (in thousands)** | $1,794,374 | $1,147,143 | $647,231 | 56% | | **Average Sales Price ($/BOE)** | $59.66 | $38.46 | $21.20 | 55% | | **Oil Sales Volumes (MBbl)** | 13,838 | 11,619 | 2,219 | 19% | Selected Costs and Expenses (2022 vs 2021) | Expense (in thousands) | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | **Lease operating expenses** | $173,983 | $101,994 | $71,989 | 71% | | **Production and ad valorem taxes** | $110,997 | $68,742 | $42,255 | 61% | | **Depletion, depreciation and amortization** | $311,640 | $215,355 | $96,285 | 45% | | **General and administrative (excluding LTIP)** | $57,501 | $45,906 | $11,595 | 25% | - Lease operating expenses (LOE) increased primarily due to inflationary pressures and costs associated with integrating newly acquired assets[279](index=279&type=chunk) - The net loss on derivatives decreased to **$298.7 million** in 2022 from **$452.2 million** in 2021, mainly due to a smaller non-cash mark-to-market loss, partially offset by higher cash settlement payments[292](index=292&type=chunk)[293](index=293&type=chunk) [Liquidity and Capital Resources](index=82&type=section&id=7.3%20Liquidity%20and%20Capital%20Resources) As of December 31, 2022, Vital Energy had total liquidity of $974.4 million, driven by strong operating cash flow used for capital expenditures and debt reduction - As of December 31, 2022, total liquidity was **$974.4 million**, consisting of **$44.4 million** in cash and **$930.0 million** available under the Senior Secured Credit Facility[307](index=307&type=chunk) Cash Flow Summary (in thousands) | Cash Flow Activity | 2022 | 2021 | Change ($) | | :--- | :--- | :--- | :--- | | **Net cash provided by operating activities** | $829,620 | $496,671 | $332,949 | | **Net cash used in investing activities** | $(475,952) | $(796,811) | $320,859 | | **Net cash (used in) provided by financing activities** | $(366,031) | $308,181 | $(674,212) | Incurred Capital Expenditures (in thousands) | Category | 2022 | 2021 | | :--- | :--- | :--- | | **Oil and natural gas properties** | $566,831 | $444,337 | | **Midstream service assets** | $1,595 | $2,842 | | **Other fixed assets** | $12,150 | $6,807 | | **Total** | **$580,576** | **$453,986** | - As of December 31, 2022, the company had **$1.12 billion** in total long-term debt, including **$1.05 billion** in senior unsecured notes and **$70.0 million** outstanding on its Senior Secured Credit Facility[320](index=320&type=chunk)[322](index=322&type=chunk)[515](index=515&type=chunk) [Non-GAAP Financial Measures](index=87&type=section&id=7.4%20Non-GAAP%20Financial%20Measures) The company uses non-GAAP measures like Free Cash Flow ($219.9 million) and Adjusted EBITDA ($913.5 million) to evaluate performance Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow (in thousands) | Line Item | 2022 | 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities (GAAP)** | **$829,620** | **$496,671** | | Less: Changes in operating assets and liabilities, net | (29,103) | (45,514) | | Cash flows from operating activities before changes | 800,517 | 451,157 | | Less: Incurred capital expenditures | (580,576) | (453,986) | | **Free Cash Flow (non-GAAP)** | **$219,941** | **$(2,829)** | Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | 2022 | 2021 | | :--- | :--- | :--- | | **Net income (GAAP)** | **$631,512** | **$145,008** | | Plus: Share-settled equity-based compensation, net | 8,403 | 7,675 | | Plus: DD&A | 311,640 | 215,355 | | Plus: Mark-to-market on derivatives adjustments | (185,573) | 89,754 | | Plus: Interest expense | 125,121 | 113,385 | | Plus: Income tax expense | 5,502 | 3,645 | | Plus: Other adjustments | 16,877 | (68,905) | | **Adjusted EBITDA (non-GAAP)** | **$913,482** | **$505,917** | [Quantitative and Qualitative Disclosures About Market Risk](index=90&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to market risks from commodity price volatility and interest rate changes, managed through derivatives - The company's primary market risks are from adverse changes in oil, NGL, and natural gas prices, and in interest rates[339](index=339&type=chunk) Commodity Derivative Sensitivity Analysis (as of Dec 31, 2022) | Scenario | Impact on Income Before Taxes | | :--- | :--- | | **Commodity derivative asset position** | $16,433,000 | | **Impact of a 10% increase in forward prices** | $(27,299,000) | | **Impact of a 10% decrease in forward prices** | $25,878,000 | - The Senior Secured Credit Facility bears a floating interest rate, exposing the company to interest rate risk, with the rate was **6.897%** as of December 31, 2022[342](index=342&type=chunk) [Financial Statements and Supplementary Data](index=92&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section includes consolidated financial statements and Management's Report on Internal Control over Financial Reporting, asserting effectiveness - Management assessed the company's internal control over financial reporting as effective as of December 31, 2022[347](index=347&type=chunk) - Ernst & Young LLP, the independent auditor, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2022[349](index=349&type=chunk)[351](index=351&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=95&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company changed its independent auditor to Ernst & Young LLP on June 3, 2022, with no reported disagreements with the former auditor - On June 3, 2022, the company changed its independent registered public accounting firm from Grant Thornton LLP to Ernst & Young LLP[358](index=358&type=chunk) - There were no disagreements with the former auditor, Grant Thornton, on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure[360](index=360&type=chunk) [Controls and Procedures](index=95&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded the company's disclosure controls and procedures were effective as of December 31, 2022, with no material changes - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[362](index=362&type=chunk) - No material changes were made to the company's internal controls over financial reporting during the fourth quarter of 2022[364](index=364&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=98&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's definitive proxy statement to be filed within 120 days of year-end[369](index=369&type=chunk) [Executive Compensation](index=98&type=section&id=Item%2011.%20Executive%20Compensation) Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting - Information regarding executive compensation is incorporated by reference from the company's definitive proxy statement[370](index=370&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=98&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting - Information regarding security ownership is incorporated by reference from the company's definitive proxy statement[371](index=371&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=98&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting - Information regarding related transactions and director independence is incorporated by reference from the company's definitive proxy statement[372](index=372&type=chunk) [Principal Accounting Fees and Services](index=98&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information for this item is incorporated by reference from the company's definitive proxy statement for the 2023 Annual Meeting - Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement[373](index=373&type=chunk) Part IV [Exhibits, Financial Statement Schedules](index=99&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists the financial statements, schedules, and exhibits filed as part of the Annual Report, with consolidated financials in Item 8 - This item contains a list of all financial statements, schedules, and exhibits filed with the Form 10-K[376](index=376&type=chunk)[379](index=379&type=chunk) [Form 10-K Summary](index=102&type=section&id=Item%2016.%20Form%2010-K%20Summary) No Form 10-K summary is provided in this report - The company has not provided a Form 10-K summary[383](index=383&type=chunk)

Laredo Petroleum, Inc. (LPI) Q3 2022 Results Conference Call November 4, 2022 8:30 AM ET Company Participants Ron Hagood - IR Jason Pigott - President and CEO Bryan Lemmerman - CFO Kyle Coldiron - VP of Development & Production Conference Call Participants John Annis - Stifel Karl Blunden - Goldman Sachs Zach Parham - JPMorgan Operator Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2022 Laredo Petroleum, Inc. Earnings Conference Call. I would now like to turn the call over to Ron Hag ...

[Form 10-Q Filing Information](index=1&type=section&id=Form%2010-Q) This section provides essential filing details for Laredo Petroleum, Inc.'s Form 10-Q, including its quarterly report status, incorporation, and stock exchange listing [Filing Details](index=1&type=section&id=Filing%20Details) This section provides the basic filing information for Laredo Petroleum, Inc.'s Form 10-Q, indicating it is a quarterly report for the period ended September 30, 2022. The company is registered in Delaware and its common stock is listed on the New York Stock Exchange - The document is a Quarterly Report (Form 10-Q) for the period ended September 30, 2022[2](index=2&type=chunk) - Laredo Petroleum, Inc. is incorporated in Delaware and its common stock (LPI) is registered on the New York Stock Exchange[3](index=3&type=chunk) Registrant Status as of November 1, 2022 | Indicator | Status | | :-------------------------- | :----- | | Large accelerated filer | ☒ | | Common stock outstanding | 16,813,540 | | Shell company | No | [Glossary of Oil and Natural Gas Terms](index=4&type=section&id=Glossary%20of%20Oil%20and%20Natural%20Gas%20Terms) This section provides a comprehensive glossary of essential oil and natural gas industry terms to ensure consistent understanding throughout the report [Key Industry Definitions](index=4&type=section&id=Key%20Industry%20Definitions) This section provides definitions for key terms used throughout the Quarterly Report, specifically related to the oil and natural gas industry, ensuring clarity and consistent understanding of technical and financial terminology - The glossary defines terms such as 'Bbl' (barrel), 'BOE' (barrel of oil equivalent), 'Benchmark Prices', 'Completion', 'Developed acreage', 'Dry hole', 'Fracturing', 'GAAP', 'Horizontal drilling', 'Initial Production', 'Liquids', 'Mcf' (thousand cubic feet), 'Natural gas liquids' (NGL), 'Net acres', 'Proved reserves', 'Realized Prices', 'Reservoir', 'Royalty interest', 'Standardized measure', 'Undeveloped acreage', 'Working interest', 'WTI', and 'Brent'[9](index=9&type=chunk)[10](index=10&type=chunk)[11](index=11&type=chunk)[12](index=12&type=chunk)[13](index=13&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk)[17](index=17&type=chunk)[18](index=18&type=chunk)[19](index=19&type=chunk)[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk)[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) [Cautionary Statement Regarding Forward-Looking Statements](index=7&type=section&id=CAUTIONARY%20STATEMENT%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This section details the company's forward-looking statements and associated risks, highlighting potential material differences in actual results due to market, economic, and operational uncertainties [Forward-Looking Statements and Risk Factors](index=7&type=section&id=Forward-Looking%20Statements%20and%20Risk%20Factors) This section outlines the company's forward-looking statements, projections, and estimates, emphasizing that actual results may differ materially due to various risks and uncertainties. Key risk factors include market volatility, economic conditions, regulatory changes, and operational challenges in the oil and natural gas industry - Forward-looking statements cover operations, performance, business strategy, reserves, drilling programs, capital expenditures, liquidity, litigation outcomes, and derivative activities[26](index=26&type=chunk) - Significant risk factors include instability in energy, financial, and consumer markets, changes in supply and demand for oil, NGL, and natural gas, price volatility (especially in the Permian Basin), and the impact of suspending drilling or completion activities[27](index=27&type=chunk) - Additional risks include U.S. and international economic conditions, legal/tax/political developments, the war in Ukraine, rising interest rates, inflation, supply chain disruptions, regulatory compliance, water use restrictions, acquisition integration, competition, and the ability to maintain borrowing capacity and generate sufficient cash flow[27](index=27&type=chunk)[30](index=30&type=chunk) [Part I - Financial Information](index=10&type=section&id=Part%20I) This part presents the unaudited consolidated financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures for the reporting period [Item 1. Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for Laredo Petroleum, Inc., including balance sheets, statements of operations, stockholders' equity, and cash flows, along with condensed notes providing details on organization, accounting policies, acquisitions, debt, equity, derivatives, and other financial matters [Consolidated Balance Sheets](index=10&type=section&id=Consolidated%20balance%20sheets) This section presents the company's financial position, highlighting significant increases in total assets and stockholders' equity from December 2021 to September 2022 Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Total current assets | $248,061 | $235,857 | | Property and equipment, net | $2,475,912 | $2,250,149 | | Total assets | $2,805,925 | $2,551,824 | | Total current liabilities | $527,273 | $526,913 | | Long-term debt, net | $1,181,584 | $1,425,858 | | Total liabilities | $1,805,255 | $2,038,044 | | Total stockholders' equity | $1,000,670 | $513,780 | - Total assets increased by **$254.1 million (9.96%)** from December 31, 2021, to September 30, 2022, primarily driven by an increase in net property and equipment[33](index=33&type=chunk) - Total stockholders' equity significantly increased by **$486.89 million (94.77%)** from December 31, 2021, to September 30, 2022, indicating improved financial health[33](index=33&type=chunk) [Consolidated Statements of Operations](index=11&type=section&id=Consolidated%20statements%20of%20operations) This section details the company's financial performance, showing significant increases in net income and total revenues for both the three and nine months ended September 30, 2022 Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenues | $464,114 | $379,250 | $1,556,665 | $923,851 | | Total costs and expenses | $205,073 | $208,737 | $658,824 | $540,447 | | Operating income | $263,323 | $265,714 | $902,793 | $476,858 | | Net income (loss) | $337,523 | $136,832 | $513,288 | $(71,268) | | Basic EPS | $20.27 | $8.68 | $30.64 | $(5.29) | | Diluted EPS | $20.08 | $8.56 | $30.26 | $(5.29) | - Net income for the three months ended September 30, 2022, increased by **146.68% YoY to $337.5 million**, and for the nine months, it swung from a loss of **$71.3 million to a profit of $513.3 million**[35](index=35&type=chunk) - Total revenues for the nine months ended September 30, 2022, increased by **68.5% YoY to $1.56 billion**, primarily driven by higher oil, NGL, and natural gas sales[35](index=35&type=chunk) [Consolidated Statements of Stockholders' Equity](index=12&type=section&id=Consolidated%20statements%20of%20stockholders'%20equity) This section outlines changes in stockholders' equity, demonstrating a substantial increase driven by net income, partially offset by share repurchases and treasury stock retirement Stockholders' Equity Changes (in thousands) | Metric | Balance, Dec 31, 2021 | Net Income (9M 2022) | Share Repurchases (9M 2022) | Retirement of Treasury Stock (9M 2022) | Balance, Sep 30, 2022 | | :-------------------------------- | :-------------------- | :------------------- | :-------------------------- | :------------------------------------- | :-------------------- | | Common stock (Amount) | $171 | $1 | $(4) | $(4) | $169 | | Additional paid-in capital | $2,788,628 | $7,630 | $(26,586) | $(34,024) | $2,762,232 | | Accumulated deficit | $(2,275,019) | $513,288 | — | — | $(1,761,731) | | Total stockholders' equity | $513,780 | $513,288 | $(26,586) | — | $1,000,670 | - Total stockholders' equity increased significantly from **$513.8 million** at December 31, 2021, to **$1.001 billion** at September 30, 2022, primarily due to net income of **$513.3 million**[41](index=41&type=chunk) - The company repurchased **$26.6 million** of shares and retired treasury stock, impacting additional paid-in capital and common stock[41](index=41&type=chunk) [Consolidated Statements of Cash Flows](index=14&type=section&id=Consolidated%20statements%20of%20cash%20flows) This section details the company's cash flow activities, showing a substantial increase in operating cash flow and a shift to cash usage in financing activities for the nine months ended September 30, 2022 Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $720,702 | $287,112 | | Net cash used in investing activities | $(443,475) | $(517,750) | | Net cash (used in) provided by financing activities | $(284,084) | $233,277 | | Net (decrease) increase in cash and cash equivalents | $(6,857) | $2,639 | | Cash and cash equivalents, end of period | $49,941 | $51,396 | - Net cash provided by operating activities increased by **151% to $720.7 million** for the nine months ended September 30, 2022, compared to **$287.1 million** in the prior year[44](index=44&type=chunk) - Net cash used in financing activities was **$284.1 million** for the nine months ended September 30, 2022, a significant shift from **$233.3 million** provided in the prior year, reflecting debt extinguishment and share repurchases[44](index=44&type=chunk) [Note 1—Organization and Basis of Presentation](index=15&type=section&id=Note%201%E2%80%94Organization%20and%20basis%20of%20presentation) This note describes Laredo Petroleum, Inc.'s business as an independent energy company in the Permian Basin and confirms the GAAP-compliant preparation of its unaudited financial statements - Laredo Petroleum, Inc. is an independent energy company focused on oil and natural gas properties in the Permian Basin of West Texas, operating as a single exploration and production segment[46](index=46&type=chunk) - The unaudited consolidated financial statements are prepared in accordance with GAAP and reflect all necessary adjustments for fair presentation[47](index=47&type=chunk)[48](index=48&type=chunk) [Note 2—New Accounting Standards](index=15&type=section&id=Note%202%E2%80%94New%20accounting%20standards) This note confirms that no new accounting standard updates requiring material disclosure have been identified or adopted as of September 30, 2022 - The Company determined there are no new accounting standard updates (ASUs) that are not yet adopted and meaningful to disclose as of September 30, 2022[54](index=54&type=chunk) [Note 3—Acquisitions and Divestiture](index=16&type=section&id=Note%203%E2%80%94Acquisitions%20and%20divestiture) This note details significant acquisitions of oil and natural gas properties in 2021 and a working interest divestiture, including a contingent consideration derivative, generating substantial cash and gains - In 2021, Laredo completed the Pioneer Acquisition for **$210.1 million** (cash and common stock) and the Sabalo/Shad Acquisition for **$863.1 million** (cash and common stock), both involving oil and natural gas properties in the Midland Basin[57](index=57&type=chunk)[58](index=58&type=chunk)[64](index=64&type=chunk)[66](index=66&type=chunk) - The company also completed a Working Interest Sale to Sixth Street for **$405.0 million** in cash, divesting **37.5%** of its working interest in certain producing wellbores, resulting in a **$94.3 million** gain[67](index=67&type=chunk)[68](index=68&type=chunk)[73](index=73&type=chunk) - The Working Interest Sale included a contingent consideration derivative, allowing Laredo to receive up to **$93.7 million** in additional cash if certain cash flow targets are met[68](index=68&type=chunk)[71](index=71&type=chunk) [Note 4—Debt](index=20&type=section&id=Note%204%E2%80%94Debt) This note provides details on the company's long-term debt, including senior unsecured notes and the Senior Secured Credit Facility, highlighting debt repurchases and facility terms Long-Term Debt, Net (in thousands) | Debt Type | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------- | :----------- | :----------- | | January 2025 Notes | $525,109 | $571,568 | | January 2028 Notes | $322,778 | $356,020 | | July 2029 Notes | $293,697 | $393,270 | | Senior Secured Credit Facility | $40,000 | $105,000 | | Total | $1,181,584 | $1,425,858 | - The company repurchased **$152.5 million** in principal amount of senior unsecured notes during Q3 2022, resulting in a **$0.55 million** gain on extinguishment of debt[75](index=75&type=chunk) - The Senior Secured Credit Facility had a **$40.0 million** balance outstanding as of September 30, 2022, with a borrowing base of **$1.25 billion** and an aggregate elected commitment of **$1.0 billion**[78](index=78&type=chunk) [Note 5—Stockholders' Equity](index=21&type=section&id=Note%205%E2%80%94Stockholders'%20equity) This note details changes in stockholders' equity, including an increase in authorized common stock, the initiation of a share repurchase program, and the completion of an ATM program - Stockholders approved an increase in authorized common stock from **22.5 million to 40 million shares** on May 26, 2022[79](index=79&type=chunk) - A **$200.0 million** share repurchase program was authorized on May 31, 2022, under which **244,687 shares** were repurchased for **$17.5 million** during Q3 2022[80](index=80&type=chunk)[81](index=81&type=chunk) - The ATM Program, which sold **1,438,105 shares** for **$72.5 million** in net proceeds during the nine months ended September 30, 2021, was completed[84](index=84&type=chunk)[86](index=86&type=chunk) [Note 6—Equity Incentive Plan](index=23&type=section&id=Note%206%E2%80%94Equity%20Incentive%20Plan) This note outlines the company's Equity Incentive Plan, including an increase in authorized shares, and details the equity-based compensation expense and unrecognized costs - The Equity Incentive Plan's maximum number of issuable shares was increased from **1,492,500 to 2,432,500 shares** on May 20, 2021[87](index=87&type=chunk) Equity-Based Compensation Expense (in thousands) | Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total share-settled, net | $1,638 | $1,811 | $6,295 | $5,609 | | Total cash-settled, net | $(4,157) | $1,589 | $2,426 | $9,401 | | Total equity-based compensation, net | $(2,519) | $3,400 | $8,721 | $15,010 | - Total unrecognized cost related to equity-based compensation awards was **$23.2 million** as of September 30, 2022, with **$5.3 million** attributable to cash-settled liability awards[89](index=89&type=chunk) [Note 7—Net Income (Loss) Per Common Share](index=24&type=section&id=Note%207%E2%80%94Net%20income%20(loss)%20per%20common%20share) This note presents the basic and diluted net income (loss) per common share, highlighting a significant improvement and return to profitability for the nine months ended September 30, 2022 Net Income (Loss) Per Common Share | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $20.27 | $8.68 | $30.64 | $(5.29) | | Diluted EPS | $20.08 | $8.56 | $30.26 | $(5.29) | | Basic weighted-average shares | 16,650 | 15,756 | 16,750 | 13,464 | | Diluted weighted-average shares | 16,809 | 15,993 | 16,963 | 13,464 | - Diluted EPS for the nine months ended September 30, 2022, was **$30.26**, a significant improvement from a loss of **$5.29** in the prior year, reflecting the company's return to profitability[93](index=93&type=chunk) [Note 8—Derivatives](index=25&type=section&id=Note%208%E2%80%94Derivatives) This note details the company's use of commodity and contingent consideration derivatives to manage price risk, reporting a significant net gain on derivatives for the three months ended September 30, 2022 - The company uses commodity derivatives (puts, swaps, collars, basis swaps) to hedge price risk for oil, NGL, and natural gas, and a contingent consideration derivative related to the Sixth Street PSA[95](index=95&type=chunk)[97](index=97&type=chunk) Gain (Loss) on Derivatives, Net (in thousands) | Derivative Type | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Commodity | $110,356 | $(101,394) | $(285,715) | $(472,296) | | Interest rate | — | $(17) | $14 | $(43) | | Contingent consideration | $(9,608) | $5,171 | $(5,294) | $4,792 | | Total | $100,748 | $(96,240) | $(290,995) | $(467,547) | - For the three months ended September 30, 2022, the company reported a net gain on derivatives of **$100.7 million**, a significant improvement from a **$96.2 million** loss in the prior year[96](index=96&type=chunk) [Note 9—Fair Value Measurements](index=27&type=section&id=Note%209%E2%80%94Fair%20value%20measurements) This note provides fair value measurements for financial instruments, including the contingent consideration derivative and debt, detailing changes in derivative liability positions - The fair value of the Sixth Street Contingent Consideration, classified as Level 3, was **$28.7 million** as of September 30, 2022, down from **$35.9 million** at December 31, 2021[102](index=102&type=chunk)[111](index=111&type=chunk) Net Derivative Liability Positions (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Net derivative liability positions | $(11,383) | $(142,500) | Fair Values of Debt (in thousands) | Debt Type | Carrying Amount (Sep 30, 2022) | Fair Value (Sep 30, 2022) | | :-------------------------- | :----------------------------- | :------------------------ | | January 2025 Notes | $529,464 | $525,059 | | January 2028 Notes | $326,756 | $313,686 | | July 2029 Notes | $298,214 | $274,771 | | Senior Secured Credit Facility | $40,000 | $39,959 | | Total | $1,194,434 | $1,153,475 | [Note 10—Commitments and Contingencies](index=29&type=section&id=Note%2010%E2%80%94Commitments%20and%20contingencies) This note outlines the company's legal proceedings, firm transportation commitments, and associated liabilities, affirming no material adverse effects are anticipated from current legal matters - The company is subject to various legal proceedings in the ordinary course of business, but does not believe they will have a material adverse effect on its financial position[114](index=114&type=chunk)[117](index=117&type=chunk) - Firm transportation payments on excess pipeline capacity were **$7.7 million** for the nine months ended September 30, 2022, up from **$2.8 million** in 2021, due to unfulfilled commitments[118](index=118&type=chunk) - Estimated aggregate liability for firm transportation payments on excess capacity was **$8.6 million** as of September 30, 2022[118](index=118&type=chunk) [Note 11—Supplemental Cash Flow and Non-Cash Information](index=31&type=section&id=Note%2011%E2%80%94Supplemental%20cash%20flow%20and%20non-cash%20information) This note provides supplemental cash flow details, including cash paid for interest and right-of-use assets obtained, for the nine months ended September 30, 2022 Supplemental Cash Flow Information (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Cash paid for interest, net | $130,082 | $95,684 | | Right-of-use assets obtained | $34,532 | $7,532 | | Fair value of contingent consideration asset | — | $33,832 | [Note 12—Income Taxes](index=31&type=section&id=Note%2012%E2%80%94Income%20taxes) This note details the company's income tax position, including significant NOL carryforwards, a valuation allowance against deferred tax assets, and the potential impact of the U.S. Inflation Reduction Act - As of September 30, 2022, the company had federal net operating loss (NOL) carryforwards totaling **$1.6 billion** and Oklahoma NOL carryforwards of **$34.4 million**[121](index=121&type=chunk) - A total valuation allowance of **$325.7 million** has been recorded against federal and Oklahoma net deferred tax assets, resulting in a **1%** effective tax rate due to Texas franchise tax[126](index=126&type=chunk)[127](index=127&type=chunk) - The company is evaluating the potential impact of the U.S. Inflation Reduction Act of 2022, which includes a **1%** excise tax on stock repurchases and a **15%** corporate alternative minimum tax[128](index=128&type=chunk)[191](index=191&type=chunk) [Note 13—Related Parties](index=33&type=section&id=Note%2013%E2%80%94Related%20parties) This note discloses related party transactions, specifically capital expenditures paid to Halliburton, where a board member holds a dual directorship - The Chairman of Laredo's board of directors also serves on the board of Halliburton Company, which provides drilling and completions services to Laredo[129](index=129&type=chunk) Capital Expenditures Paid to Halliburton (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | | Capital expenditures for oil and natural gas properties | $78,749 | $42,074 | [Note 14—Organizational Restructurings](index=33&type=section&id=Note%2014%E2%80%94Organizational%20restructurings) This note details organizational restructuring events, including one-time charges incurred from executive departures in Q3 2022 and a company-wide workforce reduction in Q2 2021 - In Q3 2022, the company incurred **$10.4 million** in one-time charges due to the departure of its Senior Vice President and Chief Operating Officer, with **$4.9 million** in equity-based compensation reversed[130](index=130&type=chunk) - In Q2 2021, a company-wide reorganization resulted in a workforce reduction of **14 individuals** and **$9.8 million** in one-time charges, with **$1.1 million** in equity-based compensation reversed[131](index=131&type=chunk) [Note 15—Subsequent Events](index=34&type=section&id=Note%2015%E2%80%94Subsequent%20events) This note reports significant events occurring after the reporting period, including a working interest sale, debt repayments, an increased credit facility borrowing base, and further share and note repurchases - The NOG Working Interest Sale closed on October 3, 2022, for **$110.0 million**, divesting working interests in non-operated oil and gas properties[133](index=133&type=chunk) - The company repaid **$40.0 million** on the Senior Secured Credit Facility on October 7, 2022, bringing the outstanding balance to zero as of November 2, 2022[134](index=134&type=chunk) - The Tenth Amendment to the Senior Secured Credit Facility, effective November 1, 2022, increased the borrowing base from **$1.25 billion to $1.3 billion** and permits additional senior note buybacks[135](index=135&type=chunk) - Subsequent to September 30, 2022, the company repurchased an additional **$50.9 million** of January 2025 Notes and **$9.9 million** of January 2028 Notes, and **112,049 common shares** for **$7.5 million**[136](index=136&type=chunk)[137](index=137&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and operational results for the three and nine months ended September 30, 2022, compared to the same periods in 2021. It covers revenues, costs, non-operating items, liquidity, capital resources, and non-GAAP financial measures [Executive Overview](index=35&type=section&id=Executive%20overview) This overview highlights Laredo Petroleum's operational focus in the Permian Basin, its drilling activities, and key financial and operating performance metrics for the three and nine months ended September 30, 2022 - Laredo Petroleum, Inc. is an independent energy company focused on oil and natural gas properties in the Permian Basin of West Texas, holding **165,359 net acres** as of September 30, 2022[140](index=140&type=chunk) - The company is operating two drilling rigs and one completions crew, with planned Q4 2022 capital expenditures of **$135.0 million to $145.0 million**[141](index=141&type=chunk) Key Financial and Operating Performance (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Oil sales volumes (MBbl) | 3,219 | 3,250 | (1)% | | Oil equivalents sales volumes (MBOE) | 7,324 | 7,057 | 4% | | Oil, NGL and natural gas sales | $444,948 | $311,276 | 43% | | Net income | $337,523 | $136,832 | 147% | | Net cash provided by operating activities | $182,615 | $97,674 | 87% | | Free Cash Flow (non-GAAP) | $51,361 | $(19,895) | 358% | | Adjusted EBITDA (non-GAAP) | $222,790 | $133,441 | 67% | Key Financial and Operating Performance (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Oil sales volumes (MBbl) | 10,536 | 7,840 | 34% | | Oil equivalents sales volumes (MBOE) | 22,905 | 21,985 | 4% | | Oil, NGL and natural gas sales | $1,445,605 | $746,059 | 94% | | Net income (loss) | $513,288 | $(71,268) | 820% | | Net cash provided by operating activities | $720,702 | $287,112 | 151% | | Free Cash Flow (non-GAAP) | $183,404 | $(27,585) | 765% | | Adjusted EBITDA (non-GAAP) | $722,377 | $323,755 | 123% | [Recent Developments](index=36&type=section&id=Recent%20developments) This section discusses recent market and economic developments, including strong commodity prices, rising operational costs due to inflation, and potential increases in borrowing costs from rising interest rates - Commodity prices remained strong in Q3 2022, with demand outpacing supply, despite recessionary concerns and the Russian-Ukrainian conflict causing volatility[145](index=145&type=chunk) - Drilling and completions costs, oilfield services, equipment, and materials costs have risen due to inflationary pressures, labor tightening, and supply chain disruptions[146](index=146&type=chunk) - Rising interest rates from the Federal Reserve's monetary policy tightening have the potential to increase borrowing costs on the Senior Secured Credit Facility[146](index=146&type=chunk) [Pricing and Reserves](index=36&type=section&id=Pricing%20and%20reserves) This section covers the company's commodity derivatives strategy to manage price risk, presents realized prices for proved reserves, and confirms no full cost ceiling impairments were recorded - The company maintains an active, multi-year commodity derivatives strategy to minimize price volatility and support cash flows[148](index=148&type=chunk) Realized Prices for Proved Reserves as of September 30, 2022 | Commodity | Price | | :---------- | :---- | | Oil | $92.54 | | NGL | $32.38 | | Natural gas | $4.34 | - No full cost ceiling impairments were recorded during the nine months ended September 30, 2022, or 2021, and none are anticipated in the foreseeable future if prices remain at current levels[151](index=151&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20operations) This section analyzes the company's financial performance by examining revenues, costs, non-operating income and expenses, and income tax impacts for the reporting periods [Revenues](index=38&type=section&id=Revenues) This section analyzes the company's revenue performance, highlighting significant increases in oil, NGL, and natural gas sales driven by higher average prices, while sales of purchased oil decreased - Total oil, NGL, and natural gas sales revenues increased by **43% to $444.9 million** for Q3 2022 and by **94% to $1.45 billion** for the nine months ended September 30, 2022, primarily due to higher average sales prices[155](index=155&type=chunk)[159](index=159&type=chunk)[163](index=163&type=chunk) Average Sales Prices (Unaffected by Derivatives) | Commodity | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | | :---------- | :-------------------------- | :-------------------------- | :--------- | | Oil ($/Bbl) | $96.83 | $70.56 | 37% | | NGL ($/Bbl) | $29.20 | $26.20 | 11% | | Natural gas ($/Mcf) | $5.94 | $2.87 | 107% | | Average sales price ($/BOE) | $60.75 | $44.11 | 38% | Average Sales Prices (Unaffected by Derivatives) | Commodity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :---------- | :-------------------------- | :-------------------------- | :--------- | | Oil ($/Bbl) | $101.51 | $65.66 | 55% | | NGL ($/Bbl) | $32.16 | $19.86 | 62% | | Natural gas ($/Mcf) | $4.78 | $2.20 | 117% | | Average sales price ($/BOE) | $63.11 | $33.94 | 86% | - Sales of purchased oil decreased by **72%** for Q3 2022 and **39%** for the nine months ended September 30, 2022, primarily due to the end of the Bridgetex pipeline commitment[165](index=165&type=chunk)[166](index=166&type=chunk) [Costs and Expenses](index=43&type=section&id=Costs%20and%20expenses) This section analyzes the company's operating and non-operating costs, detailing increases in lease operating expenses and taxes, and a decrease in costs of purchased oil Total Costs and Expenses (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Lease operating expenses | $44,246 | $29,837 | 48% | | Production and ad valorem taxes | $29,024 | $17,937 | 62% | | Transportation and marketing expenses | $13,285 | $11,660 | 14% | | Costs of purchased oil | $18,772 | $68,805 | (73)% | | General and administrative (excluding LTIP) | $14,831 | $11,332 | 31% | | Organizational restructuring expenses | $10,420 | — | 100% | | Depletion, depreciation and amortization | $74,928 | $62,678 | 20% | | Total costs and expenses | $205,073 | $208,737 | (2)% | Total Costs and Expenses (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Lease operating expenses | $127,136 | $68,526 | 86% | | Production and ad valorem taxes | $89,512 | $45,957 | 95% | | Transportation and marketing expenses | $39,022 | $34,477 | 13% | | Costs of purchased oil | $108,516 | $183,458 | (41)% | | General and administrative (excluding LTIP) | $41,729 | $33,479 | 25% | | Organizational restructuring expenses | $10,420 | $9,800 | 6% | | Depletion, depreciation and amortization | $226,555 | $140,763 | 61% | | Total costs and expenses | $658,824 | $540,447 | 22% | - Lease operating expenses (LOE) increased due to inflationary pressures and costs associated with integrating assets from the Sabalo/Shad and Pioneer Acquisitions[171](index=171&type=chunk) - Gain on disposal of assets, net, decreased significantly due to a large gain recorded in Q3 2021 from the Working Interest Sale[179](index=179&type=chunk) [Non-Operating Income (Expense)](index=46&type=section&id=Non-operating%20income%20(expense)) This section analyzes non-operating income and expenses, highlighting a significant shift from a net loss to a net gain on derivatives for the three months ended September 30, 2022 Non-Operating Income (Expense) (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Gain (loss) on derivatives, net | $100,748 | $(96,240) | 205% | | Interest expense | $(30,967) | $(30,406) | (2)% | | Gain extinguishment of debt, net | $553 | — | 100% | | Total non-operating expense, net | $70,432 | $(126,205) | 156% | Non-Operating Income (Expense) (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Loss on derivatives, net | $(290,995) | $(467,547) | 38% | | Interest expense | $(96,251) | $(82,222) | (17)% | | Loss extinguishment of debt, net | $(245) | — | (100)% | | Total non-operating expense, net | $(387,058) | $(547,533) | 29% | - Non-cash gain (loss) on derivatives, net, was **$225.0 million** for Q3 2022, a significant increase from a **$3.5 million** loss in Q3 2021, driven by changes in market prices relative to outstanding contract prices[183](index=183&type=chunk) [Income Tax Benefit (Expense)](index=47&type=section&id=Income%20tax%20benefit%20(expense)) This section details the company's income tax benefit or expense, primarily driven by Texas franchise tax and a valuation allowance, with potential for future release based on profitability Income Tax Benefit (Expense) (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Current | $960 | $(1,300) | 174% | | Deferred | $2,808 | $(1,377) | 304% | Income Tax Benefit (Expense) (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Current | $(4,771) | $(1,300) | (267)% | | Deferred | $2,324 | $707 | 229% | - The income tax benefit/expense is primarily attributed to Texas franchise tax due to a full valuation allowance against federal and Oklahoma deferred tax assets[186](index=186&type=chunk) - The company believes it is reasonably possible to achieve a three-year cumulative level of profitability within the next 12 months, which could support a release of the valuation allowance on deferred tax assets[190](index=190&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20capital%20resources) This section assesses the company's liquidity and capital resources, including cash requirements, cash flow analysis, and available funding sources [Cash Requirements for Known Contractual and Other Obligations](index=51&type=section&id=Cash%20requirements%20for%20known%20contractual%20and%20other%20obligations) This section details the company's significant short-term and long-term cash requirements for contractual and other obligations, including debt, asset retirement, and lease commitments Significant Cash Requirements as of September 30, 2022 (in thousands) | Obligation | Short-term | Long-term | Total | | :-------------------------- | :--------- | :-------- | :------ | | Senior unsecured notes | $106,495 | $1,517,430 | $1,623,925 | | Senior Secured Credit Facility | — | $40,000 | $40,000 | | Asset retirement obligations | $3,183 | $70,063 | $73,246 | | Firm transportation commitments | $17,217 | $60,282 | $77,499 | | Performance unit award cash payouts | $6,644 | $7,926 | $14,570 | | Lease commitments | $18,906 | $14,762 | $33,668 | | Total | $152,445 | $1,710,463 | $1,862,908 | - Short-term contractual obligations are expected to be satisfied with cash flows from operations[198](index=198&type=chunk) [Cash Flows](index=52&type=section&id=Cash%20flows) This section summarizes the company's cash flow activities, highlighting a substantial increase in operating cash, reduced cash used in investing, and a shift to cash usage in financing Cash Flow Summary (in thousands) | Activity | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :-------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net cash provided by operating activities | $720,702 | $287,112 | 151% | | Net cash used in investing activities | $(443,475) | $(517,750) | 14% | | Net cash (used in) provided by financing activities | $(284,084) | $233,277 | (222)% | | Net (decrease) increase in cash and cash equivalents | $(6,857) | $2,639 | (360)% | - Operating cash flows increased significantly due to higher oil, NGL, and natural gas sales revenues, partially offset by changes in derivative settlements and increased operating expenses[201](index=201&type=chunk) - Investing activities saw a decrease in cash used, mainly due to fewer acquisitions of oil and natural gas properties, despite increased capital expenditures for oil and natural gas properties[202](index=202&type=chunk)[203](index=203&type=chunk) - Financing activities shifted from providing cash to using cash, reflecting debt extinguishment and share repurchases as part of the strategy to return cash to shareholders[207](index=207&type=chunk) [Sources of Liquidity](index=54&type=section&id=Sources%20of%20Liquidity) This section identifies the company's liquidity sources, including cash and available credit facility capacity, and details outstanding senior unsecured notes - As of September 30, 2022, total liquidity was **$1.0 billion**, comprising **$49.9 million** in cash and **$960.0 million** in available capacity under the Senior Secured Credit Facility[195](index=195&type=chunk) - The Senior Secured Credit Facility had a **$40.0 million** balance outstanding as of September 30, 2022, with a borrowing base of **$1.25 billion** and an aggregate elected commitment of **$1.0 billion**[208](index=208&type=chunk) Outstanding Senior Unsecured Notes as of September 30, 2022 (in millions) | Note Type | Principal | Interest Rate | | :-------------------------- | :-------- | :------------ | | January 2025 Notes | $529.5 | 9.500% | | January 2028 Notes | $326.8 | 10.125% | | July 2029 Notes | $298.2 | 7.750% | | Total | $1,154.5 | | [Supplemental Guarantor Information](index=55&type=section&id=Supplemental%20Guarantor%20information) This section provides supplemental information regarding Laredo's subsidiaries as guarantors for certain notes, confirming their financial statements are not materially different from the consolidated report - Laredo's wholly-owned subsidiaries, LMS and GCM, jointly and severally guarantee the January 2025, January 2028, and July 2029 Notes[214](index=214&type=chunk) - The assets, liabilities, and results of operations of the combined issuer and Guarantors are not materially different from the consolidated financial statements[216](index=216&type=chunk) [Non-GAAP Financial Measures](index=55&type=section&id=Non-GAAP%20financial%20measures) This section presents and reconciles non-GAAP financial measures, specifically Free Cash Flow and Adjusted EBITDA, used by management and investors to evaluate performance [Free Cash Flow](index=55&type=section&id=Free%20Cash%20Flow) This section defines and reconciles Free Cash Flow, a non-GAAP measure, demonstrating a significant improvement for the nine months ended September 30, 2022, reflecting strong operating performance - Free Cash Flow (non-GAAP) is defined as net cash provided by operating activities before changes in operating assets and liabilities, net, less incurred capital expenditures, excluding non-budgeted acquisition costs[218](index=218&type=chunk) Free Cash Flow Reconciliation (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by operating activities | $182,615 | $97,674 | $720,702 | $287,112 | | Cash flows from operating activities before changes in operating assets and liabilities, net | $191,461 | $117,531 | $632,366 | $284,511 | | Total incurred capital expenditures, excluding non budgeted acquisition costs | $140,100 | $137,426 | $448,962 | $312,096 | | Free Cash Flow (non-GAAP) | $51,361 | $(19,895) | $183,404 | $(27,585) | - Free Cash Flow significantly improved to **$183.4 million** for the nine months ended September 30, 2022, compared to a negative **$27.6 million** in the prior year, reflecting strong operating performance[220](index=220&type=chunk) [Adjusted EBITDA](index=56&type=section&id=Adjusted%20EBITDA) This section defines and reconciles Adjusted EBITDA, a non-GAAP measure, demonstrating a significant increase for the nine months ended September 30, 2022, reflecting strong operational profitability - Adjusted EBITDA (non-GAAP) is used by management and investors to evaluate operating performance by removing the effect of capital structure and certain non-recurring items[221](index=221&type=chunk)[223](index=223&type=chunk) Adjusted EBITDA Reconciliation (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $337,523 | $136,832 | $513,288 | $(71,268) | | Share-settled equity-based compensation, net | $1,638 | $1,811 | $6,295 | $5,609 | | Depletion, depreciation and amortization | $74,928 | $62,678 | $226,555 | $140,763 | | Organizational restructuring expenses | $10,420 | — | $10,420 | $9,800 | | (Gain) loss on derivatives, net | $(100,748) | $96,240 | $290,995 | $467,547 | | Interest expense | $30,967 | $30,406 | $96,251 | $82,222 | | Income tax (benefit) expense | $(3,768) | $2,677 | $2,447 | $593 | | Adjusted EBITDA (non-GAAP) | $222,790 | $133,441 | $722,377 | $323,755 | - Adjusted EBITDA increased by **123% to $722.4 million** for the nine months ended September 30, 2022, compared to **$323.8 million** in the prior year, indicating strong operational profitability[224](index=224&type=chunk) [Critical Accounting Estimates](index=57&type=section&id=Critical%20accounting%20estimates) This section acknowledges the use of estimates in financial reporting and confirms no material changes to critical accounting estimates during the nine months ended September 30, 2022 - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses[225](index=225&type=chunk) - There have been no material changes in critical accounting estimates during the nine months ended September 30, 2022[226](index=226&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=58&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section provides information on the company's exposure to market risks, specifically related to commodity prices and interest rates, and how these risks are managed through derivative instruments [Commodity Price Exposure](index=58&type=section&id=Commodity%20price%20exposure) This section details the company's commodity price exposure and its use of derivative instruments to hedge price risk for oil, NGL, and natural gas sales - The company uses commodity derivative transactions (puts, swaps, collars, basis swaps) to hedge price risk for anticipated sales volumes of oil, NGL, and natural gas[228](index=228&type=chunk) Sensitivity Analysis of Commodity Derivative Liability (in thousands) | Metric | As of September 30, 2022 | | :-------------------------------- | :----------------------- | | Commodity derivative liability position | $(40,073) | | Impact of a 10% increase in forward commodity prices | $(44,477) | | Impact of a 10% decrease in forward commodity prices | $60,771 | [Interest Rate Risk](index=58&type=section&id=Interest%20rate%20risk) This section describes the company's interest rate risk, distinguishing between the floating rate Senior Secured Credit Facility and fixed-rate senior unsecured notes - The Senior Secured Credit Facility bears interest at a floating rate (**5.379%** as of September 30, 2022), while senior unsecured notes bear fixed rates[230](index=230&type=chunk) - Interest rates on the Senior Secured Credit Facility are based on an alternate base rate or Term SOFR, with applicable margins varying based on utilization[230](index=230&type=chunk) [Item 4. Controls and Procedures](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the company's disclosure controls and procedures and internal control over financial reporting, concluding that disclosure controls were effective as of September 30, 2022, with no material changes to internal controls - Laredo's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[231](index=231&type=chunk) - There were no material changes in internal controls over financial reporting during the quarter ended September 30, 2022[232](index=232&type=chunk) [Part II - Other Information](index=60&type=section&id=Part%20II) This part includes disclosures on legal proceedings, risk factors, equity security purchases, defaults, mine safety, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) This section states that the company is involved in various legal proceedings in the ordinary course of business but does not anticipate any material adverse effects on its financial position or operations - The company is subject to various legal proceedings arising in the ordinary course of business[235](index=235&type=chunk) - Management does not currently believe that any such legal proceedings will have a material adverse effect on the company's business, financial position, results of operations, or liquidity[235](index=235&type=chunk) [Item 1A. Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) This section highlights that, apart from a new risk factor concerning inflationary pressures and monetary policy, there have been no material changes to the risk factors previously disclosed in earlier reports - No material changes in risk factors from previous reports, except for a new risk related to continuing or worsening inflationary pressures and associated changes in monetary policy[236](index=236&type=chunk)[237](index=237&type=chunk) - Inflationary pressures have led to and may continue to cause increases in drilling and completions costs, oilfield services, equipment, and materials, impacting capital expenditures and operating costs[237](index=237&type=chunk) - Rising interest rates due to monetary policy tightening could increase the cost of capital and depress economic growth, negatively affecting financial and operating results[237](index=237&type=chunk) [Item 2. Purchases of Equity Securities](index=60&type=section&id=Item%202.%20Purchases%20of%20Equity%20Securities) This section details the company's common stock repurchase activities during the third quarter of 2022 under its authorized share repurchase program Common Stock Purchases (July 1, 2022 - September 30, 2022) | Period | Total Shares Purchased | Weighted Average Price Paid Per Share | Shares Purchased Under Publicly Announced Plans | Maximum Value Remaining Under Program | | :-------------------------- | :--------------------- | :------------------------------------ | :---------------------------------------------- | :------------------------------------ | | July 1, 2022 - July 31, 2022 | 102,244 | $70.53 | 94,031 | $184,283,901 | | August 1, 2022 - August 31, 2022 | 105,772 | $72.18 | 105,772 | $176,648,973 | | September 1, 2022 - September 30, 2022 | 48,867 | $72.07 | 44,884 | $173,413,515 | | Total | 256,883 | | 244,687 | | - During the three months ended September 30, 2022, the company repurchased **244,687 shares** under its **$200 million** share repurchase program for a total cost of **$17.5 million**[240](index=240&type=chunk) [Item 3. Defaults Upon Senior Securities](index=60&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[241](index=241&type=chunk) [Item 4. Mine Safety Disclosures](index=60&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section addresses the company's compliance with mine safety regulations for its Howard County, Texas sand mine, noting that while mining operations are contracted, the company may still be considered an 'operator' under the Mine Act - The company's Howard County, Texas sand mine is subject to regulation by the Federal Mine Safety and Health Administration (MSHA) under the Mine Act[242](index=242&type=chunk) - Despite contracting mining operations, Laredo may be considered an 'operator' and could be issued citations for violations[244](index=244&type=chunk) [Item 5. Other Information](index=62&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report under this item - No other information is applicable for this item[246](index=246&type=chunk) [Item 6. Exhibits](index=63&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, certifications, and mine safety disclosures - The exhibits include amendments to the Certificate of Incorporation and Bylaws, the Omnibus Equity Incentive Plan, and the Ninth and Tenth Amendments to the Senior Secured Credit Facility[248](index=248&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer, along with Mine Safety Disclosures and Inline XBRL financial information, are also included[248](index=248&type=chunk) [Signatures](index=64&type=section&id=Signatures) This section contains the official signatures of the company's principal executive, financial, and accounting officers, certifying the report's submission [Company Signatures](index=64&type=section&id=Company%20Signatures) This section contains the official signatures of Laredo Petroleum, Inc.'s principal executive officer, principal financial officer, and principal accounting officer, certifying the report's submission - The report is signed by Jason Pigott (President and CEO), Bryan J. Lemmerman (SVP and CFO), and Jessica R. Wren (Senior Director of Financial Accounting and SEC Reporting) on November 3, 2022[253](index=253&type=chunk)

ILAREDO PETROLEUM 2Q-2022 Earnings Presentation Forward-Looking / Cautionary Statements This presentation, including any oral statements made regarding the contents of this presentation, contains forward-looking statements as defined under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that address activities that Laredo Petroleum, Inc. (together with its subsidiaries, the " ...