OIL AND NATURAL GAS PROPERTIES

12 Months Ended

Dec. 31, 2023

OIL AND NATURAL GAS PROPERTIES

OIL AND NATURAL GAS PROPERTIES

5. OIL AND NATURAL GAS PROPERTIES

Oil and natural gas properties as of December 31, 2023 and 2022 consisted of the following (in thousands):

	December 31, 2023		December 31, 2022
Subject to depletion	$	755,482	$	713,585
Not subject to depletion:
Other capital costs:
Incurred in 2023		31		—
Incurred in 2022		1,427		1,427
Incurred in 2021 and prior(1)		57,451		61,194
Total not subject to depletion		58,909		62,621
Gross oil and natural gas properties		814,391		776,206
Less accumulated depletion		(445,975)		(390,796)
Net oil and natural gas properties	$	368,416	$	385,410

(1) In 2019, with the adoption of fresh-start accounting, the Company’s unevaluated properties were recorded at fair value.

The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas reserves (including such costs as leasehold acquisition costs, geological expenditures, treating equipment and gathering support facilities costs, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred. Depletion for oil and natural gas properties is calculated using the unit of production method, which depletes the capitalized costs of evaluated properties plus future development costs based on the ratio of production for the current period to total reserve volumes of evaluated properties as of the beginning of the period. Depletion expense was $55.2 million and $51.0 million for the year ended December 31, 2023 and 2022, respectively. Depletion expense is recorded in “Depletion, depreciation and accretion” in the Company’s consolidated statements of operations.

The net capitalized costs of evaluated oil and natural gas properties are subject to a full cost ceiling limitation in which the costs are not allowed to exceed their related estimated future net revenues discounted at 10%, net of tax considerations. To the extent capitalized costs of evaluated oil and natural gas properties, net of accumulated depletion, exceed the discounted future net revenues of proved oil and natural gas reserves, net of deferred taxes, such excess capitalized costs are charged to expense.

The ceiling test value of the Company’s reserves was calculated based on the following prices:

	West Texas Intermediate (per barrel) (1)		Henry Hub (per MMBtu) (1)
December 31, 2023	$	78.21	$	2.64
December 31, 2022		94.14	$	6.36

(1) Unweighted average of the first day of the 12-months ended spot price, adjusted by lease or field for quality, transportation fees, and regional price differentials.

The Company's net book value of oil and natural gas properties for both 2023 and 2022 did not exceed the ceiling amount. Changes in commodity prices, production rates, levels of reserves, future development costs, transfers of

unevaluated properties to the full cost pool, capital spending, and other factors will determine the Company’s ceiling test calculation and impairment analyses in future periods.