Civitas Resources(CIVI) - 2022 Q1 - Quarterly Report

Information Regarding Forward-Looking Statements This section outlines forward-looking statements based on management's current beliefs, subject to various risks and uncertainties - Forward-looking statements are based on management's current beliefs and cover business strategies, reserves, sales volumes, capital expenditures, costs, compliance, and market impacts[6][7] - Actual results may differ materially due to factors like commodity price volatility, economic conditions, COVID-19 effects, access to capital, and geopolitical factors[9][10][12] - The company disclaims any obligation to update or revise these statements unless required by law and advises against undue reliance on these forward-looking statements[12] Part I. Financial Information This part presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis - The financial statements are unaudited and prepared in accordance with GAAP for interim financial information, condensing certain disclosures[25] - The results of operations for the three months ended March 31, 2022, are not necessarily indicative of the results that may be expected for the full year or any other future period[26] Item 1. Financial Statements (Unaudited) This section presents Civitas Resources, Inc.'s unaudited condensed consolidated financial statements and detailed notes Condensed Consolidated Balance Sheets The balance sheets provide a snapshot of the company's financial position as of March 31, 2022, and December 31, 2021 | Metric | March 31, 2022 (USD thousands) | December 31, 2021 (USD thousands) | Change (USD thousands) | | :----- | :------------- | :---------------- | :----- | | ASSETS | | | | | Total current assets | $674,103 | $719,937 | $(45,834) | | Total property and equipment, net | $6,310,731 | $5,944,842 | $365,889 | | Total assets | $7,033,747 | $6,741,033 | $292,714 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | Total current liabilities | $1,335,531 | $1,119,506 | $216,025 | | Total liabilities | $2,396,214 | $2,086,035 | $310,179 | | Total stockholders' equity | $4,637,533 | $4,654,998 | $(17,465) | | Total liabilities and stockholders' equity | $7,033,747 | $6,741,033 | $292,714 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) This statement details revenues, expenses, and net income (loss) for Q1 2022 and 2021, showing a shift to net income | Metric | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | Change (USD thousands) | | :----- | :-------------------------------- | :-------------------------------- | :----- | | Oil, natural gas, and NGL sales | $817,810 | $74,159 | $743,651 | | Total operating expenses | $415,831 | $50,672 | $365,159 | | Derivative loss | $(295,493) | $(23,419) | $(272,074) | | Income (loss) from operations before income taxes | $115,000 | $(163) | $115,163 | | Net income (loss) | $91,639 | $(119) | $91,758 | | Basic Net income (loss) per common share | $1.08 | $(0.01) | $1.09 | | Diluted Net income (loss) per common share | $1.07 | $(0.01) | $1.08 | Condensed Consolidated Statements of Stockholders' Equity This statement tracks changes in stockholders' equity for Q1 2022 and 2021, including common stock and retained earnings | Metric | December 31, 2021 (USD thousands) | March 31, 2022 (USD thousands) | | :----- | :---------------- | :------------- | | Balances, December 31, 2021 | $4,654,998 | | | Restricted common stock issued | $6 | | | Stock used for tax withholdings | $(12,934) | | | Exercise of stock options | $178 | | | Stock-based compensation | $8,090 | | | Cash dividends, $1.2125 per share | $(104,444) | | | Net income | $91,639 | | | Balances, March 31, 2022 | | $4,637,533 | Condensed Consolidated Statements of Cash Flows This statement summarizes cash flows from operating, investing, and financing activities for Q1 2022 and 2021 | Metric | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | | :----- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $532,541 | $42,964 | | Net cash used in investing activities | $(516,300) | $(28,948) | | Net cash used in financing activities | $(116,346) | $(64) | | Net change in cash, cash equivalents, and restricted cash | $(100,105) | $13,952 | | Cash, cash equivalents, and restricted cash: End of period | $154,451 | $38,797 | Notes to the Condensed Consolidated Financial Statements This section provides detailed notes on accounting policies, acquisitions, revenue, debt, compensation, and other financial items NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note describes the company's E&P operations and the basis of presentation for its unaudited financial statements - Civitas Resources, Inc. is an independent Denver-based E&P company focused on oil and associated liquids-rich natural gas in the Wattenberg Field of the DJ Basin[24] - The financial statements are unaudited and prepared in accordance with GAAP for interim information, with certain notes and financial information condensed or omitted[25] - The company is assessing the impact of the LIBOR transition on its financial statements, with amendments effective upon issuance and expiring December 31, 2022[28] NOTE 2 - ACQUISITIONS AND DIVESTITURES This note details significant mergers and acquisitions, including HighPoint, Extraction, Crestone Peak, and Bison, and their financial impact - Civitas completed the acquisition of HighPoint Resources Corporation on April 1, 2021, issuing 487,952 shares of common stock to HighPoint stockholders and 9,314,214 shares plus $100.0 million in 7.5% Senior Notes to HighPoint Senior Note holders[32][33][34] - The Extraction Merger was completed on November 1, 2021, converting each Extraction Common Stock share into 1.1711 shares of Civitas Common Stock, and involved the issuance of Replacement Warrants[39][41][42] - The Crestone Peak Merger was completed on November 1, 2021, with Civitas issuing 22.5 million shares of its common stock as consideration[50][51] - On March 1, 2022, Civitas acquired privately held DJ Basin operator Bison Oil & Gas II, LLC for approximately $279.7 million, resulting in a bargain purchase gain of $14.5 million[61] | Metric | As reported (USD thousands) | HighPoint (USD thousands) | Extraction (USD thousands) | Crestone Peak (USD thousands) | Civitas Pro Forma Combined (USD thousands) | | :----- | :---------- | :-------- | :--------- | :------------ | :------------------------- | | Total revenue | $74,159 | $72,019 | $292,484 | $126,654 | $565,316 | | Net income (loss) | $(119) | $(46,434) | $983,201 | $(78,552) | $858,096 | NOTE 3 - REVENUE RECOGNITION This note explains revenue recognition policy for oil, natural gas, and NGL sales, and disaggregates revenue by product type - Revenue from oil, natural gas, and NGL sales is recognized at the point control transfers to the purchaser, with gathering, transportation, and processing expenses recorded gross or net depending on the timing of control transfer[65] | Revenue Stream | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | | :------------- | :-------------------------------- | :-------------------------------- | | Oil sales | $549,502 | $50,064 | | Natural gas sales | $113,161 | $13,132 | | NGL sales | $155,147 | $10,963 | | Total Oil, natural gas, and NGL sales | $817,810 | $74,159 | - Receivables from contracts with customers increased from $362.3 million at December 31, 2021, to $410.4 million at March 31, 2022[66] NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES This note breaks down accounts payable and accrued expenses, showing increases in trade payables and hedging liabilities | Category | March 31, 2022 (USD thousands) | December 31, 2021 (USD thousands) | | :------- | :------------- | :---------------- | | Accounts payable trade | $29,425 | $19,623 | | Accrued drilling and completion costs | $101,415 | $129,430 | | Accrued lease operating expense and gathering, transportation, and processing | $53,597 | $19,077 | | Accrued oil and NGL hedging | $65,418 | $26,601 | | Accrued interest expense | $13,516 | $6,303 | | Total accounts payable and accrued expenses | $296,433 | $246,188 | NOTE 5 - LONG-TERM DEBT This note details the company's long-term debt, including Senior Notes and the Credit Facility, and recent amendments - The company issued $400.0 million aggregate principal amount of 5.0% Senior Notes due 2026 on October 13, 2021, with interest accruing at 5.0% per annum, payable semiannually[68] - The $100.0 million aggregate principal amount of 7.5% Senior Notes due 2026, issued in conjunction with the HighPoint Merger, was fully redeemed on May 1, 2022[74][77] - On April 20, 2022, the Credit Facility's borrowing base was increased from $1.0 billion to $1.7 billion, and the aggregate elected commitment amount was increased from $800.0 million to $1.0 billion[88] | Senior Notes | Principal Amount (March 31, 2022) (USD thousands) | Unamortized Deferred Financing Costs (March 31, 2022) (USD thousands) | Net Amount (March 31, 2022) (USD thousands) | Principal Amount (December 31, 2021) (USD thousands) | Unamortized Deferred Financing Costs (December 31, 2021) (USD thousands) | Net Amount (December 31, 2021) (USD thousands) | | :----------- | :-------------------------------- | :---------------------------------------------------- | :-------------------------- | :----------------------------------- | :------------------------------------------------------- | :----------------------------- | | 7.5% Senior Notes | $100,000 | $0 | $100,000 | $100,000 | $0 | $100,000 | | 5.0% Senior Notes | $400,000 | $7,877 | $392,123 | $400,000 | $8,290 | $391,710 | | Metric | May 4, 2022 (USD thousands) | March 31, 2022 (USD thousands) | December 31, 2021 (USD thousands) | | :----- | :---------- | :------------- | :---------------- | | Revolving credit facility | $0 | $0 | $0 | | Letters of credit | $12,393 | $12,393 | $21,656 | | Available borrowing capacity | $987,607 | $787,607 | $778,344 | | Total aggregate elected commitments | $1,000,000 | $800,000 | $800,000 | NOTE 6 - COMMITMENTS AND CONTINGENCIES This note addresses legal proceedings, including litigation with Boulder County, and various contractual commitments - The company is involved in ongoing litigation with Boulder County regarding oil and gas operations, where the Colorado Court of Appeals issued a unanimous opinion rejecting Boulder County's claims on March 3, 2022[92][96] - The company has accrued approximately $1.0 million associated with Notices of Alleged Violations from the COGCC and Colorado Air Pollution Control Division notices as of March 31, 2022[98] - The company has firm transportation agreements with an aggregate financial commitment of $44.7 million and minimum volume agreements for oil, gas, and NGLs with an aggregate financial commitment of $189.8 million as of March 31, 2022[99][100][101][103][105] | Year | Firm Transportation (USD thousands) | Minimum Volume (USD thousands) | | :--- | :------------------ | :------------- | | Remainder of 2022 | $10,616 | $42,589 | | 2023 | $14,600 | $32,241 | | 2024 | $14,640 | $22,298 | | 2025 | $4,800 | $20,400 | | 2026 | $0 | $19,553 | | 2027 and thereafter | $0 | $52,716 | | Total | $44,656 | $189,797 | NOTE 7 - STOCK-BASED COMPENSATION This note describes the company's Long Term Incentive Plans (LTIP), including RSUs, DSUs, PSUs, and stock options - The LTIP includes RSUs, DSUs, PSUs, and stock options, with 2,467,430 shares reserved under 2017 LTIP, 700,000 under 2021 LTIP, and 3,305,080 assumed from Extraction Equity Plan[108] | Category | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | | :------- | :-------------------------------- | :-------------------------------- | | Restricted and deferred stock units | $5,265 | $1,321 | | Performance stock units | $2,825 | $291 | | Total stock-based compensation | $8,090 | $1,612 | | Category | Unrecognized Compensation Expense (USD thousands) | Final Year of Recognition | | :------- | :-------------------------------- | :------------------------ | | Restricted and deferred stock units | $21,532 | 2025 | | Performance stock units | $15,685 | 2024 | | Total unrecognized stock-based compensation | $37,217 | | - PSUs tied to TSR performance granted in 2019 vested as of December 31, 2021, with a 200% distribution of shares, while PSUs tied to ROCE performance expired with zero distribution[121] NOTE 8 - FAIR VALUE MEASUREMENTS This note explains fair value measurements, classifying assets and liabilities into a three-level hierarchy based on input observability - The company uses Level 2 inputs to measure the fair value of oil, gas, and NGL commodity price derivatives, utilizing industry-standard models and market data[129] | Category | March 31, 2022 (Level 2) (USD thousands) | December 31, 2021 (Level 2) (USD thousands) | | :------- | :----------------------- | :-------------------------- | | Derivative assets | $0 | $3,393 | | Derivative liabilities | $430,805 | $239,763 | - Warrants issued in connection with the Extraction Merger are classified as equity instruments and recorded within additional paid-in capital at a fair value of $77.5 million, with no recurring fair value measurement[132][133] - Proved and unproved properties acquired are valued based on a discounted cash flow approach utilizing Level 3 inputs, and unproved properties are routinely evaluated for impairment[134][136] NOTE 9 - DERIVATIVES This note details the company's use of commodity derivative contracts to mitigate price volatility, not designated as hedging instruments - The company uses commodity derivative contracts (swaps, two-way collars, three-way collars, roll differential swaps) to manage commodity price risk for oil, natural gas, and NGL production[137][138][139][140] - All derivative counterparties are members of the Credit Facility lender group, and contracts are entered into for other-than-trading purposes, not designated as hedging instruments[137] | Category | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | | :------- | :-------------------------------- | :-------------------------------- | | Derivative cash settlement loss | $(166,578) | $(3,791) | | Change in fair value loss | $(128,915) | $(19,628) | | Total derivative loss | $(295,493) | $(23,419) | NOTE 10 - ASSET RETIREMENT OBLIGATIONS This note explains the company's accounting for asset retirement obligations (AROs) related to oil and gas property abandonment - The company recognizes an estimated liability for future costs associated with the abandonment of its oil and gas properties, recorded at fair value with a corresponding increase to the related long-lived asset[145] - The liability is discounted using a credit-adjusted risk-free rate and is based on historical experience, estimated economic lives, and regulatory requirements[146] | Metric | Amount (USD thousands) | | :----- | :----- | | Balance as of December 31, 2021 | $225,315 | | Additional liabilities incurred | $1,767 | | Accretion expense | $1,000 | | Liabilities settled | $(5,131) | | Balance as of March 31, 2022 | $222,951 | | Current portion | $24,000 | | Long-term portion | $198,951 | NOTE 11 - EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share (EPS) using the treasury stock method - Basic EPS is calculated by dividing net income (loss) by basic weighted-average common shares outstanding, while diluted EPS includes the effect of potentially dilutive securities[149] - Potentially dilutive securities include unvested RSUs, DSUs, PSUs, and in-the-money stock options and warrants; anti-dilutive shares are excluded[149][150] | Metric | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | | :----- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $91,639 | $(119) | | Basic net income (loss) per common share | $1.08 | $(0.01) | | Diluted net income (loss) per common share | $1.07 | $(0.01) | | Weighted-average shares outstanding - basic (shares in thousands) | 84,840 | 20,839 | | Add: dilutive effect of contingent stock awards (shares in thousands) | 486 | 0 | | Weighted-average shares outstanding - diluted (shares in thousands) | 85,326 | 20,839 | - Warrants were excluded from the earnings per share calculation for the three months ended March 31, 2022, as their exercise price exceeded the company's stock price[152] NOTE 12 - INCOME TAXES This note discusses deferred tax assets and liabilities, federal NOL carryforwards, and the company's income tax expense - Deferred tax assets and liabilities are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years related to cumulative temporary differences[154] | Metric | HighPoint Merger (USD millions) | Extraction Merger (USD millions) | Crestone Peak Merger (USD millions) | | :----- | :--------------- | :---------------- | :------------------- | | Federal NOL carryforwards | $219.0 | $479.9 | $555.7 | | Deferred tax asset (liability) | $110.5 | $49.2 | $(125.1) | | Valuation allowance | $(48.1) | $0 | $0 | | Net | $62.4 | $49.2 | $(125.1) | - The net deferred tax liability as of March 31, 2022, was $5.8 million, compared to a net deferred tax asset of $22.3 million as of December 31, 2021[155] - The company recorded income tax expense of $23.4 million for the three months ended March 31, 2022, compared to an income tax benefit of less than $0.1 million in the prior year[156] NOTE 13 - LEASES This note outlines the company's operating lease commitments, including field equipment, corporate leases, and vehicles | Category | March 31, 2022 (USD thousands) | December 31, 2021 (USD thousands) | | :------- | :------------- | :---------------- | | Total right-of-use asset | $36,054 | $39,885 | | Total lease liability | $36,508 | $40,271 | - The company incurred gross short-term lease costs of $9.0 million for the three months ended March 31, 2022, a significant increase from less than $0.1 million in the prior year[159] | Year | Operating Leases (USD thousands) | | :--- | :--------------- | | Remainder of 2022 | $15,271 | | 2023 | $13,389 | | 2024 | $5,333 | | 2025 | $1,695 | | 2026 | $1,195 | | Thereafter | $1,586 | | Total lease payments | $38,469 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operating results, and outlook - Civitas is an independent Denver-based exploration and production company focused on the acquisition, development, and production of oil and associated liquids-rich natural gas in the Rocky Mountain region, primarily in the Wattenberg Field of the Denver-Julesburg (DJ) Basin of Colorado[163] - The company's primary objective is to maximize shareholder returns by responsibly developing its oil and natural gas resources, focusing on multi-well pad development, continuous safety improvement, environmental stewardship, disciplined capital allocation, and prudent risk management[164] Executive Summary The executive summary introduces Civitas as an independent E&P company focused on maximizing shareholder returns - Civitas Resources, Inc. is an independent Denver-based exploration and production company focused on the acquisition, development, and production of oil and associated liquids-rich natural gas in the Wattenberg Field of the DJ Basin, Colorado[163] - The company's primary objective is to maximize shareholder returns through multi-well pad development, continuous safety improvement, strict adherence to health and safety regulations, environmental stewardship, disciplined acquisitions/divestitures and capital allocation, and prudent risk management[164] Financial and Operating Results This section highlights key financial and operational achievements for Q1 2022, including increased sales volumes and cash flows - Crude oil equivalent sales volumes increased 663% for the three months ended March 31, 2022, compared to the same period in 2021, primarily due to the HighPoint, Extraction, and Crestone Peak mergers, as well as the Bison Acquisition[165] - General and administrative expense per Boe decreased by 49%, and lease operating expense per Boe decreased by 17% for the three months ended March 31, 2022, due to synergies achieved through the aforementioned mergers[165] - Cash flows provided by operating activities for the three months ended March 31, 2022, were $532.5 million, a substantial increase from $43.0 million during the three months ended March 31, 2021[165] - Total liquidity was $0.9 billion at March 31, 2022, consisting of cash on hand plus funds available under the Credit Facility. Capital expenditures, inclusive of accruals, were $234.5 million[165] Midstream Assets This section describes the company's midstream assets, providing reliable gathering, treating, and storage capabilities - The company's midstream assets, including Rocky Mountain Infrastructure (RMI) and adjacent gathering assets acquired from HighPoint, provide reliable gathering, treating, and storage, reducing facility site footprints and ensuring cost-efficient operations and reduced emissions[166][168] - The Crestone Peak Merger added a gas gathering system and an oil gathering system, with ongoing expansion of the gas system and additions to the oil gathering infrastructure[169] - The net book value of the company's midstream assets was $286.0 million as of March 31, 2022[170] Current Events and Outlook This section discusses market conditions, including COVID-19 and geopolitical impacts, and outlines the 2022 capital budget - Oil and natural gas prices are impacted by efforts to contain COVID-19, the pace of economic recovery, changes to OPEC+ production levels, and geopolitical events like Russia's invasion of Ukraine, leading to increased volatility[171] - West Texas Intermediate (WTI) oil prices averaged approximately $94 per barrel during the first quarter of 2022, recovering to pre-pandemic levels due to energy shortages and global economic emergence[171] - The company successfully integrated the operations, production, and accounting databases derived from the HighPoint, Extraction, Crestone Peak, and Bison mergers and acquisitions[172] - The company's 2022 drilling and completion capital budget is $825 million to $950 million, targeting 190 to 210 drilled wells and 165 to 175 completed wells, with an additional $70 million to $90 million for land, midstream, and other capital activity[173] Results of Operations This section analyzes revenues and operating expenses for Q1 2022 vs. 2021, highlighting merger impacts and price changes | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change | Percent Change | | :----- | :-------------------------------- | :-------------------------------- | :----- | :------------- | | Product revenue (USD thousands) | $816,543 | $73,049 | $743,494 | 1,018% | | Crude oil (MBbls) | 6,123.5 | 942.7 | 5,180.8 | 550% | | Natural gas (MMcf) | 26,786.4 | 3,213.9 | 23,572.5 | 733% | | Natural gas liquids (MBbls) | 3,722.7 | 398.1 | 3,324.6 | 835% | | Crude oil equivalent (MBoe) | 14,310.6 | 1,876.5 | 12,434.1 | 663% | | Metric | Three Months Ended March 31, 2022 (USD per unit) | Three Months Ended March 31, 2021 (USD per unit) | Change (USD per unit) | Percent Change | | :----- | :-------------------------------- | :-------------------------------- | :----- | :------------- | | Crude oil (per Bbl) | $89.65 | $52.83 | $36.82 | 70% | | Natural gas (per Mcf) | $4.20 | $3.82 | $0.38 | 10% | | Natural gas liquids (per Bbl) | $41.68 | $27.54 | $14.14 | 51% | | Crude oil equivalent (per Boe) | $57.06 | $38.93 | $18.13 | 47% | | Expense Category | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | Change (USD thousands) | Percent Change | | :--------------- | :-------------------------------- | :-------------------------------- | :----- | :------------- | | Lease operating expense | $36,019 | $5,731 | $30,288 | 528% | | Midstream operating expense | $5,712 | $3,905 | $1,807 | 46% | | Gathering, transportation, and processing | $50,403 | $4,967 | $45,436 | 915% | | Severance and ad valorem taxes | $63,304 | $4,604 | $58,700 | 1,275% | | Depreciation, depletion, and amortization | $184,860 | $18,823 | $166,037 | 882% | | Abandonment and impairment of unproved properties | $17,975 | $0 | $17,975 | 100% | | Merger transaction costs | $20,534 | $3,295 | $17,239 | 523% | | General and administrative expense | $35,720 | $9,251 | $26,469 | 286% | | Total Operating expenses | $415,831 | $50,672 | $365,159 | 721% | | Expense Category | Three Months Ended March 31, 2022 (USD per Boe) | Three Months Ended March 31, 2021 (USD per Boe) | Change (USD per Boe) | Percent Change | | :--------------- | :-------------------------------- | :-------------------------------- | :----- | :------------- | | Lease operating expense | $2.52 | $3.05 | $(0.53) | (17)% | | Midstream operating expense | $0.40 | $2.08 | $(1.68) | (81)% | | Gathering, transportation, and processing | $3.52 | $2.65 | $0.87 | 33% | | Severance and ad valorem taxes | $4.42 | $2.45 | $1.97 | 80% | | Depreciation, depletion, and amortization | $12.92 | $10.03 | $2.89 | 29% | | Abandonment and impairment of unproved properties | $1.26 | $0 | $1.26 | 100% | | Merger transaction costs | $1.43 | $1.76 | $(0.33) | (19)% | | General and administrative expense | $2.50 | $4.93 | $(2.43) | (49)% | | Total Operating expenses | $29.06 | $27.00 | $2.06 | 8% | - Product revenues increased by 1,018% to $816.5 million, driven by a 663% increase in sales volumes and a 47% increase in oil equivalent pricing (excluding derivatives), primarily due to recent mergers and acquisitions[176] - Derivative loss for the three months ended March 31, 2022, was $295.5 million, up from $23.4 million in the prior year, due to settlements and fair market value adjustments from market prices exceeding contracted hedge prices[186] | Component | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | | :-------- | :-------------------------------- | :-------------------------------- | | Senior Notes | $6,875 | $0 | | Commitment fees on Credit Facility | $982 | $326 | | Letter of credit fees | $131 | $0 | | Amortization of deferred financing costs | $1,078 | $93 | | Total interest expense | $9,066 | $419 | Liquidity and Capital Resources This section discusses liquidity sources, including cash from operations and the Credit Facility, and cash flow activities - The company's anticipated sources of liquidity include cash from operating activities, borrowings under the Credit Facility, potential proceeds from asset sales, and potential equity/debt capital markets transactions, with cash flows subject to commodity price volatility[189] - Total liquidity was $0.9 billion at March 31, 2022, consisting of $154.3 million cash on hand and $0.8 billion of available borrowing capacity on the Credit Facility[191] - On April 20, 2022, the borrowing base of the Credit Facility was increased to $1.7 billion, and elected commitments to $1.0 billion. The 7.5% Senior Notes were redeemed on May 1, 2022[193] | Metric | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | | :----- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $532,541 | $42,964 | | Net cash used in investing activities | $(516,300) | $(28,948) | | Net cash used in financing activities | $(116,346) | $(64) | | Cash, cash equivalents, and restricted cash (End of period) | $154,451 | $38,797 | - Net cash used in investing activities was primarily driven by $300.1 million of acquisitions of oil and gas properties and $260.7 million for exploration and development[196] - Net cash used in financing activities increased significantly due to $103.6 million in dividends paid and $12.9 million for employee tax withholdings[197] Non-GAAP Financial Measures This section defines Adjusted EBITDAX as a non-GAAP measure used to assess operational funds and industry performance - Adjusted EBITDAX represents earnings before interest, income taxes, depreciation, depletion, and amortization, exploration expense, and other non-cash and non-recurring charges[199] - Adjusted EBITDAX is used by management and investors for analysis of the company's ability to internally generate funds for exploration, development, acquisitions, and to service debt, and for industry comparisons, but should not be considered in isolation or as a substitute for GAAP measures[199] | Metric | Three Months Ended March 31, 2022 (USD thousands) | Three Months Ended March 31, 2021 (USD thousands) | | :----- | :-------------------------------- | :-------------------------------- | | Net income (loss) | $91,639 | $(119) | | Exploration | $528 | $96 | | Depreciation, depletion, and amortization | $184,860 | $18,823 | | Abandonment and impairment of unproved properties | $17,975 | $0 | | Stock-based compensation | $8,090 | $1,612 | | Merger transaction costs | $20,534 | $3,295 | | Interest expense | $9,066 | $419 | | Derivative loss | $295,493 | $23,419 | | Derivative cash settlements loss | $(166,578) | $(3,791) | | Income tax (benefit) expense | $23,361 | $(44) | New Accounting Pronouncements This section refers to Note 1 for information on recently issued or adopted accounting standards - Refer to Note 1 - Summary of Significant Accounting Policies for details on new accounting pronouncements[201] Critical Accounting Policies and Estimates This section indicates no significant changes in critical accounting policies during Q1 2022, referring to the 2021 Form 10-K - There were no significant changes in the application of critical accounting policies and estimates during the three months ended March 31, 2022[202] Material Commitments This section states no significant changes in material commitments from the 2021 Form 10-K, except as disclosed - There have been no significant changes to material commitments from the 2021 Form 10-K, other than what is disclosed within Note 6 - Commitments and Contingencies and Note 13 - Leases of this report[203] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, including commodity prices, interest rates, and credit risk - The company's financial condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of oil and natural gas, which are subject to wide fluctuations and market uncertainties beyond its control[205] - The company uses commodity price derivative contracts to mitigate exposure to adverse market changes and reduce cash flow volatility, but these may also prevent realizing benefits from favorable price changes[206][208] - The company is exposed to counterparty credit risk from derivative transactions with 10 financial institutions, all members of its Credit Facility syndicate with investment-grade credit ratings, and customer credit risk from significant oil and natural gas receivables[212][213] - The marketability of the company's production relies on third-party infrastructure, and any disruptions could adversely affect prices or production[214] Oil and Natural Gas Price Risk This sub-section elaborates on the company's high dependency on fluctuating oil and natural gas prices - The company's financial condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of oil and natural gas, which are subject to wide fluctuations and market uncertainties beyond its control[205] - Sustained weakness in oil and natural gas prices may adversely affect the company's financial condition and results of operations, and may also reduce the amount of economically producible reserves, impacting capital for exploration and development activities[205] Commodity Price Derivative Contracts This sub-section explains the company's use of derivative contracts to manage commodity price risk and reduce cash flow volatility - The company's primary commodity risk management objective is to protect its balance sheet via the reduction in cash flow volatility by entering into derivative contracts for oil, natural gas, and natural gas liquids using NYMEX futures or over-the-counter derivative financial instruments[206] - Upon settlement, if the market commodity price exceeds the contracted swap price or collar's ceiling strike price, the company is required to pay the counterparty, which could adversely impact cash flows[207] - While derivatives reduce the potential negative impact of lower commodity prices, they may also prevent the company from realizing the benefits of favorable price changes in the physical market[208] Interest Rates This sub-section addresses the risk associated with fluctuating interest rates on borrowings under the Credit Facility - Borrowings under the Credit Facility bear interest at a fluctuating rate tied to an adjusted Base Rate or LIBOR, and any increases in these interest rates can have an adverse impact on the company's results of operations and cash flows[211] - As of March 31, 2022, and the filing date, the company had a zero balance on its Credit Facility and was in compliance with all financial and non-financial covenants[211] Counterparty and Customer Credit Risk This sub-section outlines the company's exposure to credit risk from derivative counterparties and significant customers - The company has exposure to financial institutions in the form of derivative transactions with 10 counterparties, all members of its Credit Facility syndicate and possessing investment grade credit ratings[212] - The company is also subject to credit risk due to concentration of its oil and natural gas receivables with certain significant customers, whose inability to meet obligations may adversely affect financial results[213] Marketability of Our Production This sub-section discusses how the marketability of production relies on third-party infrastructure availability and capacity - The marketability of the company's production depends on the availability, proximity, and capacity of third-party refineries, trucking, pipeline, rail infrastructure, natural gas gathering systems, and processing facilities[214] - Lack of availability or capacity on these systems and facilities, or operational interruptions due to accidents, weather, or labor issues, could reduce prices, shut in producing wells, or delay development plans[214][216] - Currently, there are no pipeline systems servicing wells in the French Lake area of the Wattenberg Field, which could prevent full testing or development of resources there[217] Item 4. Controls and Procedures This section reports on the effectiveness of disclosure controls and internal control over financial reporting - Management, including the CEO and CFO, evaluated and concluded that disclosure controls and procedures were effective at a reasonable assurance level as of March 31, 2022[218] - No material changes in internal control over financial reporting were identified during the quarter ended March 31, 2022[220] Evaluation of Disclosure Controls and Procedures Management evaluated the effectiveness of the company's disclosure controls and procedures - Management, including the principal executive officer and principal financial officer, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2022[218] Changes in Internal Control over Financial Reporting This sub-section reports on any changes in the company's internal control over financial reporting during the quarter - There were no changes in the company's internal control over financial reporting identified during the quarter ended March 31, 2022, that materially affected, or are reasonably likely to materially affect, internal control over financial reporting[220] Part II. Other Information This part contains information on legal proceedings, risk factors, equity sales, and other miscellaneous disclosures Item 1. Legal Proceedings This section refers to Note 6 - Commitments and Contingencies for information regarding legal proceedings - Information regarding legal proceedings can be found in Note 6 - Commitments and Contingencies of Part I, Item 1 of this report[222] Item 1A. Risk Factors This section states that the business faces many risks, referring to the risk factors discussed in the 2021 Form 10-K - The company's business faces many risks, and any of the risk factors discussed in this report or its other SEC filings could have a material impact on its business, financial position, or results of operations[223] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no unregistered sales of equity securities and details issuer purchases and dividend policy - There were no unregistered sales of equity securities during the three-month period ended March 31, 2022[225] - The company purchased 215,811 shares of equity securities at an average price of $54.56 during Q1 2022, primarily for employee tax withholdings related to restricted stock awards[227] - The company's dividend policy includes a fixed annual cash dividend (increased to $1.85/share for Q4 2021) and a quarterly variable cash dividend (50% of free cash flow after fixed dividend), resulting in a total Q1 2022 dividend of $1.2125 per share[227] Unregistered sales of securities This sub-section confirms that there were no unregistered sales of equity securities during the reporting period - There were no sales of unregistered equity securities during the three-month period ended March 31, 2022[225] Issuer Purchases of Equity Securities This sub-section provides a table detailing the company's acquisition of equity securities, primarily for tax withholding | Period | Total Number of Shares Purchased (shares) | Average Price per Share (USD) | | :----- | :------------------------------- | :---------------------- | | January 1, 2022 - January 31, 2022 | 149,126 | $54.92 | | February 1, 2022 - February 28, 2022 | 66,685 | $52.07 | | March 1, 2022 - March 31, 2022 | 0 | $0 | | Total | 215,811 | $54.56 | - The purchased shares represent those surrendered by employees for payroll tax withholding obligations upon the vesting of restricted stock awards, and these repurchases were not part of a publicly announced plan[227] Dividend Policy This sub-section outlines the company's dividend policy, including the initiation of fixed and variable cash dividends - The company initiated an annual cash dividend of $1.40 per share in May 2021, increased it to $1.85 per share for Q4 2021, and approved a quarterly variable cash dividend (50% of free cash flow after fixed dividend) in March 2022[227] - The inaugural quarterly variable cash dividend was declared at $0.75 per share and paid in combination with the fixed cash dividend on March 30, 2022, resulting in a total quarterly dividend of $1.2125 per share[227] - Future dividend payments are at the sole discretion of the Board and subject to profitability, financial condition, contractual restrictions, and applicable law[227] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities - No defaults upon senior securities were reported[228] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable - Mine safety disclosures are not applicable to the company[230] Item 5. Other Information This section states that there is no other information to report - No other information to report[232] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including corporate documents and certifications - The exhibits include corporate governance documents (e.g., Certificate of Amendment to the Third Amended and Restated Certificate of Incorporation, Fifth Amended and Restated Bylaws), merger-related agreements (e.g., Membership Interest Purchase Agreement for Bison Oil & Gas II, LLC), long-term incentive plans, credit agreement amendments, and CEO/CFO certifications[234] SIGNATURES This section contains the signatures of the company's President, CEO, CFO, and Chief Accounting Officer, certifying the report - The report is duly signed by Chris Doyle (President and Chief Executive Officer), Marianella Foschi (Chief Financial Officer), and Sandi K. Garbiso (Chief Accounting Officer and Treasurer) on May 4, 2022[239]