Sitio Royalties (STR)2023-03-08 21:15Production and Revenue - For the year ended December 31, 2022, Sitio's average net daily production was 30,782 barrels of oil equivalent per day (BOE/d), consisting of 15,662 Bbls/d of oil, 53,452 thousand cubic feet per day (Mcf/d) of natural gas, and 6,211 Bbls/d of natural gas liquids (NGLs) on a pro forma basis[74]. - Sitio's pro forma revenue from mineral and royalty interests was approximately $756.6 million for the year ended December 31, 2022, compared to $389.6 million for 2021[90]. - Approximately 80% of Sitio's 2022 revenue was derived from the sale of oil and NGLs on a pro forma basis[90]. - Sitio's total revenue for 2022 was primarily driven by crude oil, natural gas, and NGL sales, which accounted for 96% of total revenue[124]. - The average realized price for crude oil in 2022 was $93.05 per Bbl, while natural gas averaged $5.50 per Mcf, and NGLs averaged $33.51 per Bbl[124]. - Sitio's production for 2022 included 2,861 MBbls of crude oil, 9,531 MMcf of natural gas, and 1,100 MBbls of NGLs, resulting in a total production of 5,550 MBOE[124]. Reserves and Assets - As of December 31, 2022, Sitio's estimated proved reserves were 79,989 MBOE, with 67% classified as liquids (44% crude oil and 23% NGLs)[97]. - Approximately 81% of the proved reserves were classified as proved developed reserves, while 19% were classified as proved undeveloped reserves[97]. - Sitio's estimated proved undeveloped reserves (PUDs) as of December 31, 2022, were 7,650 MBbls of crude oil, 25,953 MMcf of natural gas, and 3,190 MBbls of NGLs, totaling 15,165 MBOE[118]. - The company identified 50,358 undeveloped locations across its gross DSU acreage as of December 31, 2022, with 89% located in the Permian Basin[121]. - Sitio's total net mineral acres amounted to 143,189, with a total of 260,607 net royalty acres[95]. Acquisitions and Growth Strategy - Sitio completed a total of 187 acquisitions since its formation in November 2016, with 19 transactions larger than 1,500 NRAs accounting for approximately 93% of its NRAs[76]. - Sitio expects to continue adding to its mineral and royalty asset base through acquisitions that meet its investment criteria for geologic quality and rate of return[74]. - The company completed the Falcon Merger, contributing 34,000 net royalty acres (NRAs) in the Eagle Ford and Appalachia Basin[189]. - The Brigham Merger added approximately 86,500 NRAs, including 30,300 NRAs in the Delaware Basin and 13,200 NRAs in the Midland Basin[190]. - For the year ended December 31, 2022, Sitio completed additional acquisitions totaling approximately 26,800 NRAs in the Delaware Basin and 7,700 NRAs in the Midland Basin[191]. Financial Position and Risks - The company reduced its indebtedness from $66.0 million as of March 31, 2020, to $25.0 million as of March 31, 2021, utilizing free cash flow[76]. - Sitio's revenues are significantly dependent on royalty payments from crude oil, natural gas, and NGLs, which are influenced by volatile market prices[195]. - A substantial decline in crude oil, natural gas, and NGL prices could materially adversely affect Sitio's business, financial condition, and cash flows, potentially leading to downward adjustments in estimated proved reserves[199]. - The company relies on external debt and equity financing, which may be adversely affected by rising interest rates and inflationary pressures[229]. - Sitio's financial results have been adversely impacted by the COVID-19 pandemic, with ongoing uncertainty affecting business operations and liquidity[234]. Environmental and Regulatory Compliance - The company has no environmental liabilities and minimal Scope 2 emissions, reflecting its commitment to responsible environmental practices[101]. - Sitio's operations are subject to stringent environmental laws and regulations, which could materially adversely affect its business and prospects[130]. - The Resource Conservation and Recovery Act (RCRA) imposes requirements on waste management, and changes in regulations could increase capital and operating expenses for Sitio's properties[132]. - The Clean Water Act (CWA) and related regulations impose strict controls on pollutant discharges, with potential legal challenges affecting compliance costs for Sitio's operators[134]. - Climate change regulations are evolving, with potential federal and state initiatives aimed at reducing greenhouse gas emissions, which could impact Sitio's operations[140]. Market Conditions and Competition - The crude oil and natural gas industry is highly competitive, with Sitio competing against larger public and private companies for mineral and royalty interests[181]. - The price of WTI light sweet crude oil has fluctuated from a historic low of negative $36.98 per Bbl in April 2020 to a high of $123.64 per Bbl in March 2022, indicating significant market volatility[198]. - The Henry Hub spot market price for natural gas ranged from a low of $1.33 per MMBtu in September 2020 to a high of $23.86 per MMBtu in February 2021, reflecting extreme price fluctuations[198]. - The company faces intense competition for acquisition opportunities, which may increase costs or limit its ability to complete acquisitions[216]. - Negative sentiment towards the oil and gas sector among certain investors may reduce the availability of capital funding for Sitio's development projects[271]. Operational Challenges - The company faces risks related to title defects that could impair its mineral and royalty interests, potentially leading to financial losses[201]. - The unavailability or high cost of drilling rigs and services may restrict E&P operators, impacting Sitio's financial condition[248]. - Seasonal weather conditions can disrupt drilling activities and affect the demand for natural gas, particularly in winter[183]. - The company cannot predict the impact of new legislation on its operations, as current sales of crude oil and natural gas are made at market prices without regulation[160]. - The development of Sitio's properties may require higher capital expenditures than currently anticipated, affecting future cash flows[231].