Sitio Royalties (STR) - 2025 Q2 - Quarterly Report

GLOSSARY Defines key terminology used within the oil and natural gas industry - The glossary provides definitions for key terms commonly used in the oil and natural gas industry, such as Barrel (Bbl), BOE (Barrel of Oil Equivalent), Completion, Crude oil, Development costs, Economically producible, Proved reserves, Royalty, and Working interest[9][10][11][12][13][14][15][16][17][18][19][20][21][22][23][24][25][26][27] PART I. FINANCIAL INFORMATION Presents unaudited financial statements and management's analysis of financial condition and results of operations Item 1. Financial Statements (Unaudited) Presents unaudited condensed consolidated financial statements for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets Details the company's assets, liabilities, and equity at the end of the reporting periods Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :------------------ | | ASSETS | | | | Total current assets | $134,643 | $135,222 | | Total property and equipment, net | $4,460,539 | $4,591,287 | | Total long-term assets | $15,233 | $17,211 | | TOTAL ASSETS | $4,610,415 | $4,743,720 | | LIABILITIES AND EQUITY | | | | Total current liabilities | $33,348 | $48,031 | | Total long-term liabilities | $1,333,087 | $1,338,571 | | Total liabilities | $1,366,435 | $1,386,602 | | Total equity | $3,243,980 | $3,357,118 | | TOTAL LIABILITIES AND EQUITY | $4,610,415 | $4,743,720 | - Total assets decreased by $133.3 million (2.8%) from $4,743,720 thousand at December 31, 2024, to $4,610,415 thousand at June 30, 2025[30] - Total liabilities decreased by $20.1 million (1.4%) from $1,386,602 thousand at December 31, 2024, to $1,366,435 thousand at June 30, 2025[30] - Total equity decreased by $113.1 million (3.4%) from $3,357,118 thousand at December 31, 2024, to $3,243,980 thousand at June 30, 2025[30] Condensed Consolidated Statements of Operations Summarizes revenues, expenses, and net income for the three and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $145,659 | $168,548 | $309,174 | $319,939 | | Income from operations | $37,205 | $57,174 | $94,497 | $107,210 | | Net income | $14,548 | $29,041 | $40,832 | $47,733 | | Net income attributable to Class A stockholders | $7,273 | $12,854 | $17,539 | $21,322 | | Net income per share of Class A Common Stock - Basic | $0.08 | $0.16 | $0.20 | $0.25 | | Net income per share of Class A Common Stock - Diluted | $0.08 | $0.15 | $0.20 | $0.25 | - Total revenues decreased by 14% for the three months ended June 30, 2025, and by 3% for the six months ended June 30, 2025, compared to the respective prior periods[33] - Net income attributable to Class A stockholders decreased by 43% for the three months ended June 30, 2025, and by 18% for the six months ended June 30, 2025, compared to the respective prior periods[33] Condensed Consolidated Statements of Cash Flows Reports cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $188,970 | $218,052 | | Net cash used in investing activities | $(22,631) | $(177,661) | | Net cash used in financing activities | $(169,246) | $(39,238) | | Net change in cash and cash equivalents | $(2,907) | $1,153 | | Cash and cash equivalents, end of period | $383 | $16,348 | - Net cash provided by operating activities decreased by 13% to $188.97 million for the six months ended June 30, 2025, from $218.05 million in the prior year[35] - Net cash used in investing activities significantly decreased by 87% to $22.63 million for the six months ended June 30, 2025, from $177.66 million in the prior year, primarily due to lower oil and gas property acquisitions[35] - Net cash used in financing activities increased by 331% to $169.25 million for the six months ended June 30, 2025, from $39.24 million in the prior year[35] Condensed Consolidated Statements of Equity Shows changes in the company's equity accounts over the reporting periods Condensed Consolidated Statements of Equity (in thousands) | Metric | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :--------------------------------- | :------------ | :---------------- | :------------ | | Total Equity | $3,243,980 | $3,357,118 | $3,431,592 | - Total equity decreased by $113.1 million from December 31, 2024, to June 30, 2025, primarily due to dividends to Class A stockholders, distributions to noncontrolling interest, and repurchases of Class A Common Stock[37] Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations of accounting policies and specific items in the financial statements Note 1. Basis of Presentation Explains the preparation basis of the interim financial statements and the use of management estimates - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules for interim financial information, reflecting all necessary adjustments for fair presentation[41] - Management's estimates and assumptions are used in preparing the financial statements, and actual results may differ[42] Note 2. Merger Agreement Details the terms of the pending all-equity merger agreement with Viper Energy, Inc - On June 2, 2025, Sitio entered into a Merger Agreement with Viper Energy, Inc for an all-equity transaction[44][45] - Sitio Class A Common Stock will convert into 0.4855 shares of New Viper Class A Common Stock, and Sitio Class C Common Stock will be cancelled[46] - Post-merger, Sitio stockholders will own approximately 20% of New Viper Common Stock, and Viper stockholders will own approximately 80%[47] - The Mergers are subject to regulatory clearance and Sitio shareholder approvals, with $3.6 million in transaction costs incurred for the three and six months ended June 30, 2025[48] Note 3. Summary of Significant Accounting Policies Confirms no material changes to accounting policies and notes the evaluation of new standards - No material changes in significant accounting policies during the six months ended June 30, 2025[49] - The Company is evaluating the impact of new accounting standards ASU 2023-09 (Income Taxes) and ASU 2024-03 (Reporting Comprehensive Income - Expense Disaggregation Disclosures), effective for annual periods beginning after December 15, 2024, and December 15, 2026, respectively[50][51] Note 4. Revenue from Contracts with Customers Disaggregates revenue by commodity type, including crude oil, natural gas, and NGLs Disaggregated Revenues from Sales of Oil, Natural Gas and NGLs (in thousands) | Revenue Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Crude oil sales | $110,833 | $143,496 | $230,369 | $270,789 | | Natural gas sales | $9,992 | $5,945 | $26,310 | $11,732 | | NGLs sales | $19,980 | $16,075 | $42,439 | $30,966 | | Total royalty revenues | $140,805 | $165,516 | $299,118 | $313,487 | - Crude oil sales decreased by 23% for the three months and 15% for the six months ended June 30, 2025, compared to the prior year[52] - Natural gas sales increased significantly by 68% for the three months and 124% for the six months ended June 30, 2025, compared to the prior year[52] Note 5. Oil and Natural Gas Properties Outlines the value and changes in the company's proved and unproved oil and gas properties Oil and Natural Gas Properties (in thousands) | Property Type | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :------------------ | | Unproved properties | $2,373,097 | $2,464,836 | | Proved properties | $3,055,145 | $2,941,347 | | Oil and natural gas properties, gross | $5,428,242 | $5,406,183 | | Accumulated depletion and impairment | $(969,796) | $(816,664) | | Oil and natural gas properties, net | $4,458,446 | $4,589,519 | - Purchases of oil and gas properties, net of post-close adjustments, were $22.4 million for the six months ended June 30, 2025, a significant decrease from $189.0 million (before adjustments) in the prior year[53] - Depletion expense decreased to $75.8 million for Q2 2025 (from $85.4 million in Q2 2024) and to $153.1 million for the six months ended June 30, 2025 (from $161.5 million in the prior year)[54] Note 6. Acquisitions and Divestitures Reports on the acquisition of oil and gas properties during the first half of 2025 - For the six months ended June 30, 2025, the Company completed acquisitions of oil and gas properties for an aggregate purchase price of $26.6 million[55] Note 7. Debt Summarizes the company's long-term debt, including the revolving credit facility and senior notes Long-Term Debt Summary (in thousands) | Debt Type | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :------------------ | | Sitio Revolving Credit Facility | $488,150 | $487,800 | | 2028 Senior Notes | $600,000 | $600,000 | | Less: 2028 Senior Notes unamortized issuance costs | $(8,532) | $(9,619) | | Total long-term debt | $1,079,618 | $1,078,181 | - The Sitio Revolving Credit Facility had an outstanding balance of $488.2 million as of June 30, 2025, with a borrowing base of $925.0 million[57] - The weighted average interest rate on the Sitio Revolving Credit Facility was 7.44% at June 30, 2025 (down from 7.50% at Dec 31, 2024)[58] - The Company was in compliance with all terms and covenants of both the Sitio Revolving Credit Facility and the 2028 Senior Notes as of June 30, 2025[61][63] Note 8. Accounts Payable and Accrued Expenses Provides a breakdown of current liabilities, including accrued interest and taxes Accounts Payable and Accrued Expenses (in thousands) | Item | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :------------------ | | Accrued interest expense | $10,025 | $9,060 | | Ad valorem taxes payable | $6,120 | $12,280 | | Payable to seller for pre-effective monies | $3,998 | $3,390 | | Accrued general and administrative | $7,098 | $2,000 | | Income taxes payable | $2,408 | $16,910 | | Other taxes payable | $891 | $1,110 | | Other | $1,016 | $1,600 | | Total accounts payable and accrued expenses | $31,556 | $46,380 | - Total accounts payable and accrued expenses decreased by $14.8 million (31.9%) from December 31, 2024, to June 30, 2025[64] Note 9. Equity Details changes in equity, including share structure, repurchase programs, and dividend payments - As of June 30, 2025, there were 77,578,656 shares of Class A Common Stock and 73,367,602 shares of Class C Common Stock outstanding[65][66] - The Board authorized an additional $300.0 million for the Share Repurchase Program on May 7, 2025, bringing the total authorization to $500.0 million[67] Share Repurchase Program Activity | Period | Class A Common Stock Repurchased (shares) | Weighted Average Price | | :--------------------------------- | :-------------------------------------- | :--------------------- | | Three months ended June 30, 2025 | 548,266 | $16.30 | | Six months ended June 30, 2025 | 1,651,093 | $18.90 | | Three months ended June 30, 2024 | 1,684,610 | $24.41 | | Six months ended June 30, 2024 | 2,230,137 | $24.25 | Quarterly Dividends per Class A Common Share | Quarter Ended | Quarterly Dividend per Class A Common Share | | :-------------- | :------------------------------------------ | | March 31, 2025 | $0.35 | | December 31, 2024 | $0.41 | | September 30, 2024 | $0.28 | | June 30, 2024 | $0.30 | Net Income per Share of Class A Common Stock | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $0.08 | $0.16 | $0.20 | $0.25 | | Diluted EPS | $0.08 | $0.15 | $0.20 | $0.25 | Note 10. Noncontrolling Interest Specifies the economic interest in Sitio OpCo not owned by the company - Noncontrolling interest represents the 48.6% economic interest of Sitio OpCo Partnership Units not owned by Sitio as of June 30, 2025[74] Note 11. Share-Based Compensation Reports on the expense and status of share-based compensation awards like RSUs and PSUs Share-Based Compensation Expense (in thousands) | Award Type | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | RSUs | $2,170 | $1,565 | $4,292 | $2,893 | | PSUs | $4,115 | $3,375 | $7,733 | $5,912 | | DSUs | $616 | $614 | $1,219 | $1,205 | | Sitio OpCo Restricted Stock Awards | $561 | $561 | $1,117 | $1,122 | | RSUs Converted in Brigham Merger | — | $62 | $53 | $123 | | PSUs Converted in Brigham Merger | — | $26 | $22 | $52 | | Total | $7,462 | $6,203 | $14,436 | $11,307 | - Total share-based compensation expense increased by 20.3% to $7.46 million for the three months ended June 30, 2025, and by 27.7% to $14.44 million for the six months ended June 30, 2025, compared to the prior year periods[76] - As of June 30, 2025, there was approximately $11.5 million of unamortized equity-based compensation expense related to unvested RSUs, $2.1 million for DSUs, and $22.8 million for PSUs[78][80][82] Note 12. Derivative Instruments Discloses the status of derivative instruments and the gains or losses recognized during the period - As of June 30, 2025, the Company did not have any outstanding derivative financial instruments[85][87] Commodity Derivatives Gains (Losses) (in thousands) | Period | Commodity Derivatives Gains (Losses) | | :------------------------------- | :----------------------------------- | | Three Months Ended June 30, 2025 | $807 | | Three Months Ended June 30, 2024 | $(607) | | Six Months Ended June 30, 2025 | $(101) | | Six Months Ended June 30, 2024 | $(10,657) | - The Company recognized commodity derivatives gains of $0.8 million for the three months ended June 30, 2025, compared to losses of $0.6 million in the prior year, primarily due to commodity price decreases[87] Note 13. Fair Value Measurement Discusses the fair value measurement of financial instruments and property impairment assessments - No impairment of proved oil and gas properties was recorded for the three and six months ended June 30, 2025 and 2024[88] - The fair value of 2028 Senior Notes was $628.7 million as of June 30, 2025, and the Sitio Revolving Credit Facility's fair value approximated its carrying amount of $488.2 million[89] Note 14. Income Taxes Details the income tax expense for the reported periods and reasons for changes Income Tax Expense (in thousands) | Period | Income Tax Expense | | :------------------------------- | :----------------- | | Three Months Ended June 30, 2025 | $415 | | Three Months Ended June 30, 2024 | $4,838 | | Six Months Ended June 30, 2025 | $7,246 | | Six Months Ended June 30, 2024 | $7,622 | - Income tax expense decreased by $4.4 million for the three months and $0.4 million for the six months ended June 30, 2025, primarily due to a decrease in income before income tax expense[90] Note 15. Commitments and Contingencies Addresses potential liabilities from legal proceedings and other commitments - Management does not believe that the resolution of current legal proceedings will have a material adverse impact on the Company's financial condition, results of operations, or cash flows[91] Note 16. Segments Confirms the company operates as a single reportable segment in oil and natural gas minerals - The Company operates and assesses financial performance as a single reportable segment: oil and natural gas minerals[92] Note 17. Subsequent Events Discloses significant events occurring after the balance sheet date, including tax law changes and dividends - On July 4, 2025, the United States Congress enacted the One Big Beautiful Bill Act, which includes corporate income tax changes, with financial statement impact to be recognized starting in Q3 2025[94] - On August 4, 2025, the Board declared a cash dividend of $0.36 per share of Class A Common Stock for Q2 2025, payable on August 19, 2025[95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's perspective on financial condition, operational results, and key business developments Overview Summarizes the company's mineral and royalty interests, production levels, and business model - As of June 30, 2025, the Company owned mineral and royalty interests representing approximately 275,071 Net Royalty Acres (NRAs)[105] - Average net daily production for the six months ended June 30, 2025, was 42,007 BOE/d, consisting of 19,096 Bbls/d of oil, 77,823 Mcf/d of natural gas, and 9,940 Bbls/d of NGLs[105] - The Company has completed 215 acquisitions of mineral and royalty interests since November 2016[105] - The business model involves receiving a fixed percentage of revenue from production without incurring drilling, completion, plugging, abandonment, or lease operating expenses, allowing for significant cash flow return to stockholders[106] Recent Developments Details recent corporate actions including the pending merger, share repurchases, and credit facility amendments Pending Merger with Viper Outlines the terms and status of the all-equity merger with Viper Energy, Inc - Sitio and Viper Energy, Inc entered into an all-equity Merger Agreement on June 2, 2025, to combine operations[107][108] - Sitio Class A Common Stock will convert into 0.4855 shares of New Viper Class A Common Stock, and Sitio OpCo Partnership Units will convert into 0.4855 Viper Opco Units and 0.4855 shares of New Viper Class B Common Stock[109][110] - Sitio stockholders will own approximately 20% of New Viper Common Stock post-merger, and Viper stockholders will own approximately 80%[110] - The Mergers have been unanimously approved by both boards and are subject to regulatory clearance and shareholder approvals[111] Share Repurchase Program Reports on the expansion and activity of the company's share repurchase program - The Board extended the Share Repurchase Program on May 7, 2025, with an additional $300.0 million authorization, totaling $500.0 million[112] Class A Common Stock Repurchases | Period | Shares Repurchased | Weighted Average Price | | :------------------------------- | :----------------- | :--------------------- | | Three months ended June 30, 2025 | 548,266 | $16.30 | | Six months ended June 30, 2025 | 1,651,093 | $18.90 | - As of June 30, 2025, the Company had $350.7 million remaining authorization under the Share Repurchase Program[112] Sitio Revolving Credit Facility Notes the recent amendment to the company's revolving credit facility - On May 8, 2025, the Sitio Revolving Credit Facility was amended to reaffirm the borrowing base at $925.0 million and adjust semi-annual redetermination dates[113] Acquisitions Highlights the company's ongoing strategy of acquiring mineral and royalty interests - Through June 30, 2025, the Company has evaluated over 1,000 potential mineral and royalty interest acquisitions and completed 215 acquisitions[114] Production and Operations Provides an update on production volumes, realized prices, and operational activity Average Daily Production and Realized Prices (Q2 2025 vs Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change | | :--------------------------------- | :------ | :------ | :----- | | Average daily production (BOE/d) | 41,879 | 39,231 | +7% | | Crude oil (per Bbl) | $63.03 | $79.85 | -21% | | Natural gas (per Mcf) | $1.43 | $1.01 | +42% | | NGLs (per Bbl) | $22.57 | $20.32 | +11% | | Combined (per BOE) | $36.95 | $46.36 | -20% | - As of June 30, 2025, the Company had 50,536 gross (378.3 net) producing horizontal wells, 4,766 gross (27.6 net) wells in drilling/completion, and 3,677 gross (20.5 net) active drilling permits on its acreage[116] - Anticipated lower crude oil price realizations are driven by OPEC's decision to accelerate the removal of production curtailments and concerns over global oil demand[115] Economic Indicators Discusses key macroeconomic factors affecting the business, including interest rates and geopolitical events - The Company's exposure to interest rate risk is primarily from its floating-rate Sitio Revolving Credit Facility, with elevated interest rates impacting borrowing costs[117][118] - Geopolitical events (Ukraine war, Israel-Gaza conflict, Middle East hostilities) and global central bank monetary policy contribute to elevated economic uncertainty, potentially impacting the world economy and the Company's financial condition[120] - Changes in U.S. trade policies, including tariffs, could adversely affect the business by increasing E&P operators' costs or reducing global oil demand[119] - U.S. energy industry regulatory changes, including recent Executive Orders aimed at increasing oil production and addressing state laws on climate change, could impact operators and the Company's financial results[121] Results of Operations Provides a comparative analysis of operating results for the three and six months ended June 30, 2025 and 2024 Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024 Analyzes financial performance for the second quarter of 2025 versus the same period in 2024 Consolidated Revenue and Expenses (Three Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Variance | % Change | | :--------------------------------- | :----- | :----- | :------- | :------- | | Total revenues | $145,659 | $168,548 | $(22,889) | (14)% | | Income from operations | $37,205 | $57,174 | $(19,969) | (35)% | | Net income attributable to Class A stockholders | $7,273 | $12,854 | $(5,581) | (43)% | | Depreciation, depletion and amortization | $75,901 | $85,485 | $(9,584) | (11)% | | General and administrative | $20,099 | $13,456 | $6,643 | 49% | | Production taxes and other | $12,454 | $12,433 | $21 | —% | | Interest expense, net | $(23,049) | $(22,688) | $361 | 2% | | Commodity derivatives gains (losses) | $807 | $(607) | $1,414 | * | | Income tax expense | $(415) | $(4,838) | $(4,423) | (91)% | Production Data and Average Realized Prices (Three Months Ended June 30) | Metric | 2025 | 2024 | Variance | % Change | | :--------------------------------- | :----- | :----- | :------- | :------- | | Crude oil (MBbls) | 1,758 | 1,797 | (39) | (2)% | | Natural gas (MMcf) | 7,004 | 5,892 | 1,112 | 19% | | NGLs (MBbls) | 885 | 791 | 94 | 12% | | Total (MBOE) | 3,811 | 3,570 | 241 | 7% | | Crude oil (per Bbl) | $63.03 | $79.85 | $(16.82) | (21)% | | Natural gas (per Mcf) | $1.43 | $1.01 | $0.42 | 42% | | NGLs (per Bbl) | $22.57 | $20.32 | $2.25 | 11% | | Combined (per BOE) | $36.95 | $46.36 | $(9.41) | (20)% | - The decrease in total revenues was primarily due to a 20% decrease in average realized price, partially offset by a 7% increase in production volumes[125] - General and administrative expense increased by 49% due to higher merger-related transaction costs, share-based compensation, and employee compensation[132] Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024 Analyzes financial performance for the first half of 2025 versus the same period in 2024 Consolidated Revenue and Expenses (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | Variance | % Change | | :--------------------------------- | :----- | :----- | :------- | :------- | | Total revenues | $309,174 | $319,939 | $(10,765) | (3)% | | Income from operations | $94,497 | $107,210 | $(12,713) | (12)% | | Net income attributable to Class A stockholders | $17,539 | $21,322 | $(3,783) | (18)% | | Depreciation, depletion and amortization | $153,380 | $161,803 | $(8,423) | (5)% | | General and administrative | $35,861 | $26,467 | $9,394 | 35% | | Production taxes and other | $25,436 | $24,459 | $977 | 4% | | Interest expense, net | $(46,318) | $(41,198) | $5,120 | 12% | | Commodity derivatives gains (losses) | $(101) | $(10,657) | $(10,556) | (99)% | | Income tax expense | $(7,246) | $(7,622) | $(376) | (5)% | Production Data and Average Realized Prices (Six Months Ended June 30) | Metric | 2025 | 2024 | Variance | % Change | | :--------------------------------- | :----- | :----- | :------- | :------- | | Crude oil (MBbls) | 3,456 | 3,459 | (3) | —% | | Natural gas (MMcf) | 14,086 | 10,908 | 3,178 | 29% | | NGLs (MBbls) | 1,799 | 1,510 | 289 | 19% | | Total (MBOE) | 7,603 | 6,787 | 816 | 12% | | Crude oil (per Bbl) | $66.65 | $78.29 | $(11.64) | (15)% | | Natural gas (per Mcf) | $1.87 | $1.08 | $0.79 | 73% | | NGLs (per Bbl) | $23.59 | $20.51 | $3.08 | 15% | | Combined (per BOE) | $39.34 | $46.19 | $(6.85) | (15)% | - Total revenues decreased by 3% due to a 15% decrease in average realized price, partially offset by a 12% increase in production volumes[141] - Natural gas revenue increased by 124% due to a 73% increase in average realized price and a 29% increase in production volumes, driven by relief of pipeline capacity constraints in the Permian Basin and higher Henry Hub prices[143] - Commodity derivatives losses significantly decreased by 99% due to less adverse commodity price changes and a smaller volume of outstanding contracts[151] Liquidity and Capital Resources Details the company's sources and uses of cash, cash flow activities, and debt facilities Overview Outlines the primary sources and uses of cash and the company's overall liquidity position - Primary liquidity sources are cash flows from operations, borrowings under the Sitio Revolving Credit Facility, and 2028 Senior Notes[153] - Primary uses of cash include mineral and royalty interest acquisitions, debt reduction, share repurchases, and dividend/distribution payments[153] - As of June 30, 2025, liquidity was $437.2 million, comprising $0.4 million in cash and $436.8 million in available borrowing capacity[155] Cash Flows for the Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024 Compares cash flow activities for the first half of 2025 versus the same period in 2024 Cash Flows Summary (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2025 | 2024 | Variance | % Change | | :--------------------------------- | :----- | :----- | :------- | :------- | | Operating activities | $188,970 | $218,052 | $(29,082) | -13% | | Investing activities | $(22,631) | $(177,661) | $155,030 | -87% | | Financing activities | $(169,246) | $(39,238) | $(130,008) | 331% | | Net change in cash and cash equivalents | $(2,907) | $1,153 | $(4,060) | -352% | - Operating cash flows decreased due to variability in royalty revenue timing, lower cash from commodity derivative settlements, and income tax payments[157] - Investing cash flows decreased significantly due to lower spending on oil and gas property acquisitions[158] - Financing cash flows increased due to lower net borrowings on the revolving credit facility and reduced dividends/distributions and share repurchases compared to the prior year[159] Sitio Revolving Credit Facility Describes the key terms, interest rates, and covenants of the revolving credit facility - The facility matures on June 30, 2027, with a borrowing base of $925.0 million[161] - Interest rates are variable, based on an adjusted Term SOFR rate or base rate plus an applicable margin (1.500% to 2.500% for base rate, 2.500% to 3.500% for Term SOFR)[162] - The facility is collateralized by substantially all assets of Sitio OpCo and its restricted subsidiaries and includes financial covenants for Total Net Debt to EBITDA (not more than 3.50 to 1.00) and current assets to current liabilities (not less than 1.00 to 1.00)[164][165] 2028 Senior Notes Details the terms of the outstanding 7.875% Senior Notes due 2028 - As of June 30, 2025, $600.0 million aggregate principal amount of 7.875% Senior Notes due 2028 were outstanding[166] - Interest is payable semi-annually on May 1 and November 1[166] - The Company was in compliance with all terms and covenants of the 2028 Senior Notes as of June 30, 2025[167] Critical Accounting Policies and Related Estimates Confirms no material changes to critical accounting policies and estimates - There have been no material changes to the Company's critical accounting policies and estimates from those disclosed in the 2024 Annual Report on Form 10-K[168] Contractual Obligations Discloses the company's material contractual obligations as of the reporting date - As of June 30, 2025, the Company had no material capital lease obligations, operating lease obligations, debt, or long-term liabilities, other than borrowings under the Sitio Revolving Credit Facility, 2028 Senior Notes, and operating lease agreements for office space[169] Item 3. Quantitative and Qualitative Disclosures About Market Risk Outlines the Company's exposure to market risks, primarily commodity price volatility and interest rate fluctuations Commodity Price Risk Analyzes the impact of volatile oil, natural gas, and NGL prices on the company's revenues - The Company's primary market risk is from volatile oil, natural gas, and NGLs prices, which directly impact royalty payments[171] Revenue Sensitivity to Price Changes (Six Months Ended June 30, 2025) | Commodity | Price Change | Revenue Impact | | :---------- | :----------- | :------------- | | Oil | $1.00/Bbl | $3.5 million | | Natural Gas | $0.10/Mcf | $1.4 million | | NGLs | $1.00/Bbl | $1.8 million | - Royalties from oil, natural gas, and NGLs sales contributed 77%, 9%, and 14% of mineral and royalty revenues, respectively, for the six months ended June 30, 2025[172] - Derivative instruments like collars, swaps, and basis swaps may be used to partially mitigate commodity price volatility and provide cash flow certainty[173] Counterparty and Customer Credit Risk Discusses credit risk associated with receivables from E&P operators - Credit risk primarily arises from receivables generated by the production activities of E&P operators; their inability to meet obligations could adversely affect financial results[174] Interest Rate Risk Details the company's exposure to interest rate fluctuations from its variable-rate debt - The primary exposure to interest rate risk is from outstanding borrowings under the floating-rate Sitio Revolving Credit Facility[175] - An estimated 1.0% increase in the average interest rate would have resulted in approximately $2.5 million of additional interest expense for the six months ended June 30, 2025[175] Item 4. Controls and Procedures Details the evaluation of the Company's disclosure controls and reports on internal control over financial reporting Evaluation of Disclosure Controls and Procedures Confirms the effectiveness of the company's disclosure controls and procedures - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[177] Changes in Internal Control Over Financial Reporting Reports on any material changes to internal controls over financial reporting - There have been no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025[178] PART II. OTHER INFORMATION Contains other required disclosures, including legal proceedings, risk factors, and share repurchase details Item 1. Legal Proceedings States that current legal proceedings are not expected to have a material adverse impact - The Company is involved in various legal claims in the ordinary course of business, but management does not believe their resolution will have a material adverse impact on financial condition or results of operations[180] Item 1A. Risk Factors Updates risk factors, focusing on trade measures and risks related to the pending Viper merger Tariffs and other trade measures could adversely affect our results of operations, financial position and cash flows. Discusses potential negative impacts from U.S. tariffs and other trade policies - New U.S. baseline tariffs and potential retaliatory measures could increase E&P operators' costs and reduce oil and natural gas demand, adversely affecting the Company's financial results[183][184] - The ultimate impact of these trade measures is uncertain and depends on their implementation, timing, scope, and the Company's mitigation strategies[185] Risks Related to the Pending Mergers with Viper Outlines the various risks and uncertainties associated with the pending merger with Viper - The fixed exchange ratio means Sitio stockholders cannot be certain of the precise value of merger consideration due to potential fluctuations in stock prices[186] - Failure to complete the Mergers could negatively impact Sitio's stock price, business, and financial results, and may incur significant legal, financing, and accounting costs[189][195] - The Merger Agreement contains provisions limiting Sitio's ability to pursue alternative transactions and imposes business uncertainties during the pendency of the Mergers, potentially affecting employee retention and business relationships[191][193][194] - Sitio stockholders will receive New Viper Common Stock with different rights, and litigation related to the Mergers could result in substantial costs or delays[196][197] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details the company's share repurchase activity for the quarter ended June 30, 2025 Issuer Purchases of Equity Securities (April 1, 2025 - June 30, 2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Repurchased as Part of Publicly Announced Plans | Maximum Dollar Value of Shares That May Yet be Repurchased as Part of Publicly Announced Plans (in thousands) | | :------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------- | :----------------------------------------------------------------------------------------------------------- | | April 1, 2025 - April 30, 2025 | 466,006 | $16.09 | 466,006 | $352,082 | | May 1, 2025 - May 31, 2025 | 82,951 | $17.33 | 82,260 | $350,654 | | June 1, 2025 - June 30, 2025 | 73,721 | $19.95 | — | $350,654 | | Total | 622,678 | | 548,266 | | - During the three months ended June 30, 2025, the Company repurchased 548,266 shares of Class A Common Stock for approximately $8.9 million under the Share Repurchase Program[201] - The Board authorized an additional $300.0 million for the Share Repurchase Program on May 7, 2025, resulting in a total authorization of $500.0 million[201] Item 3. Defaults Upon Senior Securities Confirms no defaults on senior securities occurred during the reporting period - The Company reported no defaults upon senior securities[202] Item 4. Mine Safety Disclosures States that mine safety disclosures are not applicable to the company's operations - Mine Safety Disclosures are not applicable to the Company[203] Item 5. Other Information Reports no adoption or termination of Rule 10b5-1 trading arrangements by directors or officers - No director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or 'non-Rule 10b5-1 trading arrangement' during the three months ended June 30, 2025[204] Item 6. Exhibits Lists all documents filed as exhibits with this quarterly report - The exhibits include the Agreement and Plan of Merger with Viper Energy, Inc, Amended and Restated Certificate of Incorporation and Bylaws, Fifth Amendment to the Sitio Revolving Credit Facility, various Voting and Support Agreements, and certifications from the Principal Executive and Financial Officers[208] SIGNATURES Contains the formal signatures of the company's certifying officers - The report is signed by Christopher L Conoscenti (Chief Executive Officer), Carrie L Osicka (Chief Financial Officer), and Ward R Bass (Chief Accounting Officer) on August 4, 2025[210][212]