CRUDE OIL AND NATURAL GAS PROPERTIES

12 Months Ended

Dec. 31, 2024

Oil and Gas Disclosure [Abstract]

CRUDE OIL AND NATURAL GAS PROPERTIES

CRUDE OIL AND NATURAL GAS PROPERTIES

The book value of the Company’s crude oil and natural gas properties consists of all acquisition costs (including cash expenditures and the value of stock consideration), drilling costs and other associated capitalized costs.  Acquisitions are accounted for as purchases and, accordingly, the results of operations are included in the accompanying statements of operations from the closing date of the acquisition. Acquired assets and liabilities assumed are recorded based on their estimated fair value at the time of the acquisition.

2024 Acquisitions

In addition to the closing of the Delaware Acquisition, the Point Acquisition and the XCL Acquisition (each as defined below), during 2024, the Company acquired oil and natural gas properties through a number of smaller independent transactions for a total of $53.1 million.

Delaware Acquisition

In January 2024, the Company completed its acquisition of certain oil and natural gas properties, interests and related assets in the Delaware Basin from a private seller, effective as of November 1, 2023 (the “Delaware Acquisition”).

The total consideration paid to the seller at closing included 107,657 shares of common stock and $147.8 million in cash, a portion of which was funded by a $17.1 million deposit paid at signing in November 2023.

The results of operations from the date of the Delaware Acquisition through December 31, 2024 represented approximately $43.4 million of revenue and $17.6 million of income from operations.

The Company accounted for the Delaware Acquisition as a business combination. Accordingly, transaction costs of approximately $0.6 million were included in general and administrative expense in the Company’s statements of operations. The following table reflects the fair values of the net assets and liabilities as of the closing date of the acquisition:

	(In thousands)
Fair value of net assets:
Proved oil and natural gas properties	$	151,912
Total assets acquired	151,912
Asset retirement obligations	(380)
Net assets acquired	$	151,531
Fair value of consideration paid for net assets:
Cash consideration	$	147,794
Non-cash consideration	$	3,737
Total fair value of consideration transferred	$	151,531

Point Acquisition

In September 2024, the Company completed its acquisition of certain oil and natural gas properties located in the Delaware Basin from Point Energy Partners, LLC (“Point”), effective as of April 1, 2024 (the “Point Acquisition”). At closing, the Company acquired a 20% undivided working interest in the assets sold by Point, with Vital Energy, Inc., an unaffiliated third party, acquiring the other 80% and becoming the operator of the acquired assets.

The total consideration paid to the seller at closing, net to the Company, was $205.1 million in cash, a portion of which was funded by a $22.0 million acquisition deposit paid in July 2024. As a result of customary post-closing adjustments, the Company reduced its proved oil and natural gas properties and total consideration by $7.2 million subsequent to closing.

The Company accounted for the Point Acquisition as an asset acquisition, as substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets. Accordingly, approximately $2.8 million transaction costs were capitalized to the full cost pool of the oil and natural gas properties acquired.

XCL Acquisition

In October 2024, the Company completed its acquisition of certain oil and natural gas properties in the Uinta Basin from XCL Resources, LLC and certain affiliated entities (“XCL”), effective as of May 1, 2024 (the “XCL Acquisition”). At closing, the Company acquired a 20% undivided working interest in the assets sold by XCL, with SM Energy Company, an unaffiliated third party, acquiring the other 80% and becoming the operator of the acquired assets.

The total consideration paid to the seller at closing, net to the Company, was $511.3 million in cash, a portion of which was funded by a $25.5 million acquisition deposit paid in June 2024.

The Company accounted for the XCL Acquisition as an asset acquisition, as substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets. Accordingly, approximately $9.4 million transaction costs were capitalized to the full cost pool of the oil and natural gas properties acquired.

2023 Acquisitions

During 2023, the Company completed the following larger bolt-on acquisitions (each as defined and described below): the MPDC Acquisition, the Forge Acquisition and the Novo Acquisition (collectively, the “2023 Bolt-on Acquisitions”).

During 2023, in addition to the 2023 Bolt-on Acquisitions, the Company acquired oil and natural gas properties through a number of smaller independent transactions for a total of $277.9 million.

MPDC Acquisition

In January 2023, the Company completed its acquisition (the “MPDC Acquisition”) of certain oil and natural gas properties, interests and related assets from Midland Petro D.C. Partners, LLC and Collegiate Midstream LLC (collectively, “MPDC”), effective as of August 1, 2022. At closing, the Company acquired a 39.958% working interest in MPDC’s four-unit development project in the Permian Midland Basin, which includes an interest in gathering assets associated with the project.

The total consideration at closing was $319.9 million in cash. As a result of customary post-closing adjustments, the Company reduced its proved oil and natural gas properties and total consideration by $8.2 million subsequent to closing.

The results of operations from the date of the MPDC Acquisition through December 31, 2023, represented approximately $157.0 million of revenue and $102.3 million of income from operations. The Company accounted for the MPDC Acquisition as a business combination. Accordingly, transaction costs of approximately $3.5 million were included in general and administrative expense in the Company’s statements of operations. The following table reflects the fair values of the net assets and liabilities as of the closing date of the acquisition:

	(In thousands)
Fair value of net assets:
Proved oil and natural gas properties	$	320,395
Total assets acquired	320,395
Asset retirement obligations	(451)
Net assets acquired	$	319,944
Fair value of consideration paid for net assets:
Cash consideration	$	319,944
Total fair value of consideration transferred	$	319,944

Forge Acquisition

In June 2023, the Company completed its acquisition (the “Forge Acquisition”) of certain Permian Delaware Basin assets from Forge Energy II Delaware, LLC (“Forge”), effective as of March 1, 2023. At closing, the Company acquired a 30% undivided stake in the assets sold by Forge, with Vital Energy, Inc., an unaffiliated third party, acquiring the other 70% and becoming the operator of the acquired assets.

The total consideration at closing, net to the Company, was $167.9 million in cash. As a result of customary post-closing adjustments, the Company reduced its proved oil and natural gas properties and total consideration by $0.7 million subsequent to closing.

The results of operations from the date of the Forge Acquisition through December 31, 2023, represented approximately $46.0 million of revenue and $29.3 million of income from operations. The Company accounted for the Forge Acquisition as a business combination. Accordingly, transactions costs of approximately $2.3 million were included in general and administrative expense in the Company’s statements of operations. The following table reflects the fair values of the net assets and liabilities as of the closing date of the acquisition:

	(In thousands)
Fair value of net assets:
Proved oil and natural gas properties	$	164,925
Unproved oil and natural gas properties	3,892
Total assets acquired	168,817
Asset retirement obligations	(889)
Net assets acquired	$	167,928
Fair value of consideration paid for net assets:
Cash consideration	$	167,928
Total fair value of consideration transferred	$	167,928

Novo Acquisition

In August 2023, the Company completed its acquisition (the “Novo Acquisition”) of certain Permian Delaware Basin assets of Novo Oil & Gas Holdings, LLC (“Novo”), effective as of May 1, 2023. At closing, the Company acquired a 33.33% undivided stake in the assets sold by Novo to Earthstone Energy Holdings, LLC (“Earthstone”), an unaffiliated third party, with Earthstone retaining the other 66.67% and becoming operator of the acquired assets.

The total consideration at closing, net to the Company, was $468.4 million in cash. As a result of customary post-closing adjustments, the Company reduced its proved oil and natural gas properties and total consideration by $1.2 million subsequent to closing.

The results of operations from the date of the Novo Acquisition through December 31, 2023, represented approximately $78.5 million of revenue and $40.9 million of income from operations. The Company accounted for the Novo Acquisition as a business combination. Accordingly, transaction costs of approximately $4.6 million were included in general and administrative expense in the Company’s statement of operations. The following table reflects the fair values of the net assets and liabilities as of the closing date of the acquisition:

	(In thousands)
Fair value of net assets:
Proved oil and natural gas properties	$	474,417
Total assets acquired	474,417
Asset retirement obligations	(813)
Accrued Liabilities	(5,168)
Net assets acquired	$	468,436
Fair value of consideration paid for net assets:
Cash consideration	$	468,436
Total fair value of consideration transferred	$	468,436

Pro Forma Information

The following summarized unaudited pro forma statements of operations information for the years ended December 31, 2024 and December 31, 2023 provides summarized information for the acquisitions accounted for as business combinations. The information provided assumes that the acquisitions accounted for as business combinations occurred as of January 1, 2023. The Company prepared the following summarized unaudited pro forma financial results for comparative purposes only. The summarized unaudited pro forma information may not be indicative of the results that would have occurred had the Company completed the acquisitions as of January 1, 2023, or that would be attained in the future.

	Year Ended December 31,		Year Ended December 31,
(In thousands)	2024		2023
Total Revenues	$	2,228,937	$	2,518,537
Net Income	$	520,816	$	1,240,032

Divestitures

From time-to-time the Company may divest assets. In addition, the Company may trade leasehold interests with operators to balance working interests in spacing units to facilitate and encourage a more expedited development of the Company’s acreage.

Unproved Properties

All properties that are not classified as proved properties are considered unproved properties and, thus, the costs associated with such properties are not subject to depletion until the properties are evaluated for reserves. Once a property is evaluated, all associated acreage and drilling costs are subject to depletion.

Unproved properties not being amortized comprise approximately 45,388 net acres and 25,880 net acres of undeveloped leasehold interests at December 31, 2024 and 2023, respectively.  The Company believes that the majority of its unproved costs will become subject to depletion within the next five years by proving up reserves relating to the acreage through exploration and development activities, by impairing the acreage that will expire before the Company can explore or develop it further or by determining that further exploration and development activity will not occur.  The timing by which all other unproved properties will become subject to depletion will be dependent upon the timing of future drilling activities and delineation of its reserves.

Excluded costs for unproved properties are accumulated by year.  Costs are reflected in the full cost pool as the drilling costs are incurred or as costs are evaluated and deemed impaired and transferred into the full cost pool.  The Company anticipates these excluded costs will be included in the depletion computation over the next five years.  The Company is unable to predict the future impact on depletion rates.   The following is a summary of capitalized costs excluded from depletion at December 31, 2024 by year incurred.

	December 31,
(In thousands)	2024		2023		2022		Prior Years
Property Acquisition	$	23,563	$	1,217	$	8,828	$	9,094
Total	$	23,563	$	1,217	$	8,828	$	9,094

The Company historically has acquired unproved properties by purchasing individual or small groups of leases directly from mineral owners, landmen or lease brokers, which leases historically have not been subject to specified drilling projects, and by purchasing lease packages in identified project areas controlled by specific operators.  The Company generally participates in drilling activities on a heads up basis by electing whether to participate in each well on a well-by-well basis at the time wells are proposed for drilling.

The Company assesses all items classified as unproved property on an annual basis, or if certain circumstances exist, more frequently, for possible impairment or reduction in value.  The assessment includes consideration of the following factors, among others:  intent to drill, remaining lease term, geological and geophysical evaluations, drilling results and activity, the assignment of proved reserves, and the economic viability of development if proved reserves are assigned.  During any period in which these factors indicate an impairment, the cumulative costs incurred to date for such property and all or a portion of the associated leasehold costs are transferred to the full cost pool and are then subject to depletion and amortization.