UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 ☒      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the quarterly period ended March 31, 2023

 or

☐     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 For the transition period from                             to                            

Commission File Number: 001-35380

 Vital Energy, Inc.

(Exact name of registrant as specified in its charter)

Delaware	45-3007926
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

521 E. Second Street	Suite 1000
Tulsa	Oklahoma	74120
(Address of principal executive offices)		(Zip code)

(918) 513-4570

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, $0.01 par value per share	VTLE	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. 

Large accelerated filer ☒ Accelerated filer  ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐  No ☒ 

Number of shares of registrant's common stock outstanding as of May 4, 2023: 18,596,810

VITAL ENERGY, INC.

TABLE OF CONTENTS

	Page
Glossary of Oil and Natural Gas Terms and Certain Other Terms	iii
Cautionary Statement Regarding Forward-Looking Statements	v
Part I	1
Item 1.    Consolidated Financial Statements (Unaudited)	1
Consolidated balance sheets as of March 31, 2023 and December 31, 2022	1
Consolidated statements of operations for the three months ended March 31, 2023 and 2022	2
Consolidated statements of stockholders' equity for the three months ended March 31, 2023 and 2022	3
Consolidated statements of cash flows for the three months ended March 31, 2023 and 2022	4
Condensed notes to the consolidated financial statements:	5
Note 1—Organization and basis of presentation	5
Note 2—New accounting standards	6
Note 3—Acquisitions and divestiture	6
Note 4—Debt	7
Note 5—Equity Incentive Plan	7
Note 6—Net income (loss) per common share	9
Note 7—Derivatives	9
Note 8—Fair value measurements	11
Note 9—Commitments and contingencies	12
Note 10—Supplemental cash flow and non-cash information	13
Note 11—Income taxes	13
Note 12—Related parties	14
Note 13—Subsequent events	14
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.    Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.    Controls and Procedures	31
Part II	32
Item 1.    Legal Proceedings	32
Item 1A.    Risk Factors	32
Item 2.    Purchases of Equity Securities	32
Item 3.    Defaults Upon Senior Securities	32
Item 4.    Mine Safety Disclosures	32
Item 5.    Other Information	32
Item 6.    Exhibits	33
Signatures	34

ii

Glossary of Oil and Natural Gas Terms and Certain Other Terms

The following terms are used throughout this Quarterly Report on Form 10-Q (this "Quarterly Report"):

"Argus WTI Midland"—An index price reflecting the weighted average price of WTI at the pipeline and storage hub at Midland.

"Argus WTI Formula Basis"—The outright price at Cushing that is used as the basis for pricing all other Argus US Gulf coast physical crudes.

"Basin"—A large natural depression on the earth's surface in which sediments, generally brought by water, accumulate.

"Bbl" or "barrel"—One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate, natural gas liquids or water.

"Bbl/d"—Bbl per day.

"Benchmark Prices"—The unweighted arithmetic average first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period before differentials, as required by SEC guidelines.

"BOE"—One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil.

"BOE/d"—BOE per day.

"Btu"—British thermal unit, the quantity of heat required to raise the temperature of a one pound mass of water by one degree Fahrenheit.

"Completion"—The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

"Dry hole"—A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.

"Exchange Act" —The Securities Exchange Act of 1934, as amended.

"Formation"—A layer of rock which has distinct characteristics that differ from nearby rock.

"Fracturing" or "Frac"—The propagation of fractures in a rock layer by a pressurized fluid. This technique is used to release petroleum and natural gas for extraction.

"GAAP"—Generally accepted accounting principles in the United States.

"Gross acres"—The total acres or wells, as the case may be, in which a working interest is owned.

"Henry Hub"—A natural gas pipeline delivery point in south Louisiana that serves as the benchmark natural gas price underlying NYMEX natural gas futures contracts.

"Horizon" —A term used to denote a surface in or of rock, or a distinctive layer of rock that might be represented by a reflection in seismic data.

"Initial Production"—The measurement of production from an oil or gas well when first brought on stream. Often stated in terms of production during the first thirty days.

"Liquids"—Describes oil, condensate and natural gas liquids.

"MBbl"—One thousand barrels of crude oil, condensate or natural gas liquids.

"MBOE"—One thousand BOE.

"Mcf"—One thousand cubic feet of natural gas.

"MMBtu"—One million Btu.

"MMcf"—One million cubic feet of natural gas.

"Natural gas liquids" or "NGL"—Components of natural gas that are separated from the gas state in the form of liquids, which include propane, butanes and ethane, among others.

iii

"Net acres"—The percentage of gross acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100 acres owns 50 net acres.

"NYMEX"—The New York Mercantile Exchange.

"OPEC"—The Organization of the Petroleum Exporting Countries.

"Proved reserves"—The estimated quantities of oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.

"Realized Prices"—Prices which reflect adjustments to the Benchmark Prices for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the delivery point without giving effect to our commodity derivative transactions.

"Reservoir"—A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is separate from other reservoirs.

"SEC" — The U.S. Securities and Exchange Commission.

"Securities Act" — The Securities Act of 1933, as amended.

"Senior Secured Credit Facility" — The Fifth Amended and Restated Credit Agreement among Vital Energy, Inc., as borrower, Wells Fargo Bank, N.A., as administrative agent, Vital Midstream Services, LLC, as guarantor, and the banks signatory thereto.

"Spacing"—The distance between wells producing from the same reservoir.

"Standardized measure"—Discounted future net cash flows estimated by applying Realized Prices to the estimated future production of year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period end costs to determine pre-tax cash inflows. Future income taxes, if applicable, are computed by applying the statutory tax rate to the excess of pre-tax cash inflows over our tax basis in the oil and natural gas properties. Future net cash inflows after income taxes are discounted using a 10% annual discount rate.

"WAHA"—Waha West Texas Natural Gas Index price as quoted in Platt's Inside FERC.

"Working interest" or "WI"—The right granted to the lessee of a property to explore for and to produce and own crude oil, natural gas liquids, natural gas or other minerals. The working interest owners bear the exploration, development and operating costs on either a cash, penalty or carried basis.

"WTI"—West Texas Intermediate grade crude oil. A light (low density) and sweet (low sulfur) crude oil, used as a pricing benchmark for NYMEX oil futures contracts.

iv

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Various statements contained in or incorporated by reference into this Quarterly Report are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements include statements, projections and estimates concerning our operations, performance, business strategy, oil, NGLs and natural gas reserves, drilling program capital expenditures, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, derivative activities and potential financing. Forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "could," "may," "will," "foresee," "plan," "goal," "should," "intend," "pursue," "target," "continue," "suggest" or the negative thereof or other variations thereof or other words that convey the uncertainty of future events or outcomes. Forward-looking statements are not guarantees of performance. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Among the factors that significantly impact our business and could impact our business in the future are:

•continuing and worsening inflationary pressures and associated changes in monetary policy that may cause costs to rise;

•changes in domestic and global production, supply and demand for oil, NGL and natural gas, including as a result of the coronavirus ("COVID-19") pandemic and actions by the Organization of the Petroleum Exporting Countries members and other oil exporting nations ("OPEC+");

•the volatility of oil, NGL and natural gas prices, including our area of operation in the Permian Basin;

•reduced demand due to shifting market perception towards the oil and gas industry;

•our ability to optimize spacing, drilling and completions techniques in order to maximize our rate of return, cash flows from operations and shareholder value;

•the ongoing instability and uncertainty in the U.S. and international energy, financial and consumer markets that could adversely affect the liquidity available to us and our customers and the demand for commodities, including oil, NGL and natural gas;

•competition in the oil and gas industry;

•our ability to execute our strategies, including our ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to our financial results and to successfully integrate acquired businesses, assets and properties; our ability to realize the anticipated benefits of acquisitions, including effectively managing our expanded acreage;

•our ability to discover, estimate, develop and replace oil, NGL and natural gas reserves and inventory;

•insufficient transportation capacity in the Permian Basin and challenges associated with such constraint, and the availability and costs of sufficient gathering, processing, storage and export capacity;

•a decrease in production levels which may impair our ability to meet our contractual obligations and ability to retain our leases;

•risks associated with the uncertainty of potential drilling locations and plans to drill in the future;

•the inability of significant customers to meet their obligations;

•revisions to our reserve estimates as a result of changes in commodity prices, decline curves and other uncertainties;

•the availability and costs of drilling and production equipment, supplies, labor and oil and natural gas processing and other services;

•the effects, duration and other implications of, including government response to, COVID-19, or the threat and occurrence of other epidemic or pandemic diseases;

•ongoing war and political instability in Ukraine and Russian efforts to destabilize the government of Ukraine and the global hydrocarbon market;

v

•loss of senior management or other key personnel;

•risks related to the geographic concentration of our assets;

•capital requirements for our operations and projects;

•our ability to hedge commercial risk, including commodity price volatility, and regulations that affect our ability to hedge such risks;

•our ability to continue to maintain the borrowing capacity under our Senior Secured Credit Facility (as defined herein) or access other means of obtaining capital and liquidity, especially during periods of sustained low commodity prices;

•our ability to comply with restrictions contained in our debt agreements, including our Senior Secured Credit Facility and the indentures governing our senior unsecured notes, as well as debt that could be incurred in the future;

•our ability to generate sufficient cash to service our indebtedness, fund our capital requirements and generate future profits;

•drilling and operating risks, including risks related to hydraulic fracturing activities and those related to inclement or extreme weather, impacting our ability to produce existing wells and/or drill and complete new wells over an extended period of time;

•the impact of legislation or regulatory initiatives intended to address induced seismicity on our ability to conduct our operations;

•United States ("U.S.") and international economic conditions and legal, tax, political and administrative developments, including the effects of energy, trade and environmental policies and existing and future laws and government regulations;

•our ability to comply with federal, state and local regulatory requirements;

•the impact of repurchases, if any, of securities from time to time;

•our ability to maintain the health and safety of, as well as recruit and retain, qualified personnel necessary to operate our business;

•risks related to the geographic concentration of our assets;

•our ability to secure or generate sufficient electricity to produce our wells without limitations; and

•our belief that the outcome of any legal proceedings will not materially affect our financial results and operations.

These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations"and elsewhere in this Quarterly Report, and under "Part I, Item 1A. Risk Factors" and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the "2022 Annual Report") and those set forth from time to time in our other filings with the SEC. These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval system at http://www.sec.gov. In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.

vi

Part I

Item 1.    Consolidated Financial Statements (Unaudited)

Vital Energy, Inc.

Consolidated balance sheets

(in thousands, except share data)

(Unaudited)

	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	27,682	$	44,435
Accounts receivable, net	147,071		163,369
Derivatives	39,109		24,670
Other current assets	15,804		13,317
Total current assets	229,666		245,791
Property and equipment:
Oil and natural gas properties, full cost method:
Evaluated properties	9,735,559		9,554,706
Unevaluated properties not being depleted	50,142		46,430
Less: accumulated depletion and impairment	(7,401,480)		(7,318,399)
Oil and natural gas properties, net	2,384,221		2,282,737
Midstream and other fixed assets, net	128,012		127,803
Property and equipment, net	2,512,233		2,410,540
Derivatives	26,448		24,363
Operating lease right-of-use assets	138,513		23,047
Other noncurrent assets, net	36,384		22,373
Total assets	$	2,943,244	$	2,726,114
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities	$	91,688	$	102,516
Accrued capital expenditures	67,221		48,378
Undistributed revenue and royalties	148,199		160,023
Derivatives	1,686		5,960
Operating lease liabilities	48,434		15,449
Other current liabilities	34,279		82,950
Total current liabilities	391,507		415,276
Long-term debt, net	1,163,807		1,113,023
Asset retirement obligations	71,308		70,366
Operating lease liabilities	87,301		9,435
Other noncurrent liabilities	3,953		7,268
Total liabilities	1,717,876		1,615,368
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and zero issued as of March 31, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value, 40,000,000 shares authorized, and 17,024,976 and 16,762,127 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively	170		168
Additional paid-in capital	2,754,765		2,754,085
Accumulated deficit	(1,529,567)		(1,643,507)
Total stockholders' equity	1,225,368		1,110,746
Total liabilities and stockholders' equity	$	2,943,244	$	2,726,114

The accompanying notes are an integral part of these unaudited consolidated financial statements.

1

Vital Energy, Inc.

Consolidated statements of operations

(in thousands, except per share data)

(Unaudited)

	Three months ended March 31,
	2023		2022
Revenues:
Oil sales	$	266,731	$	347,443
NGL sales	33,006		65,155
Natural gas sales	18,074		38,589
Sales of purchased oil	13,851		78,864
Other operating revenues	845		2,344
Total revenues	332,507		532,395
Costs and expenses:
Lease operating expenses	50,181		40,876
Production and ad valorem taxes	20,531		27,487
Transportation and marketing expenses	10,915		14,743
Costs of purchased oil	14,167		82,964
General and administrative	25,930		21,944
Depletion, depreciation and amortization	86,779		73,492
Other operating expenses, net	1,484		138
Total costs and expenses	209,987		261,644
Gain (loss) on disposal of assets, net	237		(260)
Operating income	122,757		270,491
Non-operating income (expense):
Gain (loss) on derivatives, net	20,490		(325,816)
Interest expense	(28,554)		(32,477)
Other income, net	854		144
Total non-operating expense, net	(7,210)		(358,149)
Income (loss) before income taxes	115,547		(87,658)
Income tax benefit (expense):
Current	(1,331)		(1,218)
Deferred	(276)		2,095
Total income tax benefit (expense)	(1,607)		877
Net income (loss)	$	113,940	$	(86,781)
Net income (loss) per common share:
Basic	$	6.93	$	(5.18)
Diluted	$	6.89	$	(5.18)
Weighted-average common shares outstanding:
Basic	16,431		16,767
Diluted	16,545		16,767

The accompanying notes are an integral part of these unaudited consolidated financial statements.

2

Vital Energy, Inc.

Consolidated statements of stockholders' equity

(in thousands)

(Unaudited)

	Common stock			Additional paid-in capital		Treasury stock (at cost)			Accumulated deficit
	Shares	Amount				Shares	Amount				Total
Balance, December 31, 2022	16,762	$	168	$	2,754,085	—	$	—	$	(1,643,507)	$	1,110,746
Restricted stock awards	315	3		(3)		—	—		—		—
Restricted stock forfeitures	(3)	—		—		—	—		—		—
Stock exchanged for tax withholding	—	—		—		49	(2,459)		—		(2,459)
Retirement of treasury stock	(49)	(1)		(2,458)		(49)	2,459		—		—
Share-settled equity-based compensation	—	—		3,141		—	—		—		3,141
Net income	—	—		—		—	—		113,940		113,940
Balance, March 31, 2023	17,025	$	170	$	2,754,765	—	$	—	$	(1,529,567)	$	1,225,368
	Common stock			Additional paid-in capital		Treasury stock (at cost)			Accumulated deficit
	Shares	Amount				Shares	Amount				Total
Balance, December 31, 2021	17,075	$	171	$	2,788,628	—	$	—	$	(2,275,019)	$	513,780
Restricted stock awards	232	2		(2)		—	—		—		—
Restricted stock forfeitures	(4)	—		—		—	—		—		—
Stock exchanged for tax withholding	—	—		—		76	(5,847)		—		(5,847)
Retirement of treasury stock	(76)	(1)		(5,846)		(76)	5,847		—		—
Share-settled equity-based compensation	—	—		2,636		—	—		—		2,636
Performance share conversion	75	1		(1)		—	—		—		—
Net loss	—	—		—		—	—		(86,781)		(86,781)
Balance, March 31, 2022	17,302	$	173	$	2,785,415	—	$	—	$	(2,361,800)	$	423,788

The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

Vital Energy, Inc.

Consolidated statements of cash flows

(in thousands)

(Unaudited)

	Three months ended March 31,
	2023		2022
Cash flows from operating activities:
Net income (loss)	$	113,940	$	(86,781)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-settled equity-based compensation, net	2,572		2,053
Depletion, depreciation and amortization	86,779		73,492
(Gain) loss on disposal of assets, net	(237)		260
Mark-to-market on derivatives:
(Gain) loss on derivatives, net	(20,490)		325,816
Settlements paid for matured derivatives, net	(2,343)		(125,370)
Deferred income tax expense (benefit)	276		(2,095)
Other, net	2,384		6,731
Changes in operating assets and liabilities:
Accounts receivable, net	13,961		(61,742)
Other current assets	(7,464)		5,092
Other noncurrent assets, net	2,345		(15,227)
Accounts payable and accrued liabilities	(10,693)		1,842
Undistributed revenue and royalties	(11,825)		44,294
Other current liabilities	(48,650)		(1,471)
Other noncurrent liabilities	(4,430)		3,988
Net cash provided by operating activities	116,125		170,882
Cash flows from investing activities:
Acquisitions of oil and natural gas properties, net	—		(7,870)
Capital expenditures:
Oil and natural gas properties	(165,042)		(143,500)
Midstream and other fixed assets	(2,771)		(2,345)
Proceeds from dispositions of capital assets, net of selling costs	2,175		2,019
Settlements received for contingent consideration	2,035		—
Net cash used in investing activities	(163,603)		(151,696)
Cash flows from financing activities:
Borrowings on Senior Secured Credit Facility	95,000		50,000
Payments on Senior Secured Credit Facility	(45,000)		(55,000)
Stock exchanged for tax withholding	(2,459)		(5,847)
Other, net	(492)		—
Net cash provided by (used in) financing activities	47,049		(10,847)
Net (decrease) increase in cash, cash equivalents and restricted cash	(429)		8,339
Cash, cash equivalents and restricted cash, beginning of period	44,435		56,798
Cash, cash equivalents and restricted cash, end of period(1)	$	44,006	$	65,137

______________________________________________________________________________

(1)See Note 1 for further discussion of the Company's cash, cash equivalents and restricted cash.

 The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

Note 1—Organization and basis of presentation

Organization

Vital Energy, Inc. ("Vital" or the "Company"), together with its wholly-owned subsidiaries, is an independent energy company focused on the acquisition, exploration and development of oil and natural gas properties in the Permian Basin of West Texas. The Company has identified one operating segment: exploration and production. In these notes, the "Company" refers to Vital and its subsidiaries collectively, unless the context indicates otherwise. All amounts, dollars and percentages presented in these unaudited consolidated financial statements and the related notes are rounded and, therefore, approximate.

Basis of presentation

The unaudited consolidated financial statements were derived from the historical accounting records of the Company and reflect the historical financial position, results of operations and cash flows for the periods described herein. The unaudited consolidated financial statements have been prepared in accordance with GAAP. All material intercompany transactions and account balances have been eliminated in the consolidation of accounts.

The unaudited consolidated financial statements have not been audited by the Company's independent registered public accounting firm, except that the consolidated balance sheet as of December 31, 2022 is derived from the Company's audited consolidated financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all necessary adjustments to present fairly the Company's financial position as of March 31, 2023, results of operations for the three months ended March 31, 2023 and 2022 and cash flows for the three months ended March 31, 2023 and 2022. All adjustments are of a recurring nature unless otherwise disclosed herein.

Certain disclosures have been condensed or omitted from the unaudited consolidated financial statements. Accordingly, the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2022 Annual Report.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. There was no impact on previously reported total assets, total liabilities, net income (loss) or stockholders' equity for the periods presented.

Significant accounting policies

There have been no material changes in the Company's significant accounting policies during the three months ended March 31, 2023. See Note 2 in the 2022 Annual Report for discussion of significant accounting policies.

The following table presents the Company's cash, cash equivalents and restricted cash as of the dates presented:

	As of March 31,
(in thousands)	2023		2022
Cash and cash equivalents	$	27,682	$	65,137
Restricted cash(1)	16,324		—
Total cash, cash equivalents and restricted cash	$	44,006	$	65,137

______________________________________________________________________________

(1)Under the terms of the Driftwood PSA (defined below), the Company deposited $16.3 million into a third-party escrow account, which is included in "Other noncurrent assets, net" on the consolidated balance sheets as of March 31, 2023.

5

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

Use of estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ.

See Note 2 in the 2022 Annual Report for further information regarding the use of estimates and assumptions.

Note 2—New accounting standards

The Company considered the applicability and impact of all accounting standard updates ("ASU") issued by the Financial Accounting Standards Board to the Accounting Standards Codification ("ASC") and has determined there are no ASUs that are not yet adopted and meaningful to disclose as of March 31, 2023. Additionally, the Company did not adopt any new ASUs during the three months ended March 31, 2023.

Note 3—Acquisitions and divestitures

2023 Acquisition

On February 14, 2023, the Company entered into a purchase and sale agreement (the "Driftwood PSA") with Driftwood Energy Operating, LLC (the "Seller"), pursuant to which the Company agreed to purchase (the "Driftwood Acquisition") Seller's oil and gas properties in the Midland Basin, including approximately 11,200 net acres located in Upton and Reagan Counties and related assets and contracts, inclusive of derivatives, for a purchase price of (i) $127.6 million of cash, subject to customary closing price adjustments, and (ii) 1,578,948 shares of the Company's common stock. Under the terms of the Driftwood PSA, the Company deposited $16.3 million into a third-party escrow account, which is included in "Other noncurrent assets, net" on the consolidated balance sheets as of March 31, 2023. The Company funded the cash portion of the purchase price and related transaction costs with respect to the Driftwood Acquisition from cash on hand and borrowings under its Senior Secured Credit Facility.

The Company expects to finalize its allocation of the purchase consideration as soon as practicable after completion of the Driftwood Acquisition.

For income tax purposes, the Driftwood Acquisition will be treated as an asset purchase such that the tax basis in the assets and liabilities will generally reflect the allocated fair value at closing. Therefore, the Company does not anticipate a material tax consequence for deferred income taxes related to the Driftwood Acquisition.

See Note 13 for discussion of the April 3, 2023 closing of the Driftwood Acquisition.

2022 Divestiture

On August 16, 2022, the Company entered into a purchase and sale agreement with Northern Oil and Gas, Inc. ("NOG"), pursuant to which the Company agreed to sell to NOG the Company's working interests in certain specified non-operated oil and gas properties (the "NOG Working Interest Sale").

On October 3, 2022, the Company closed the NOG Working Interest Sale for an aggregate sales price of $106.1 million, inclusive of post-closing adjustments.

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Note 4—Debt

Long-term debt, net

The following table presents the Company's long-term debt and debt issuance costs, net included in "Long-term debt, net" on the consolidated balance sheets as of the dates presented:

	March 31, 2023						December 31, 2022
(in thousands)	Long-term debt		Debt issuance costs, net		Long-term debt, net		Long-term debt		Debt issuance costs, net		Long-term debt, net
January 2025 Notes	$	455,628	$	(2,854)	$	452,774	$	455,628	$	(3,297)	$	452,331
January 2028 Notes	300,309		(3,302)		297,007		300,309		(3,478)		296,831
July 2029 Notes	298,214		(4,188)		294,026		298,214		(4,353)		293,861
Senior Secured Credit Facility(1)	120,000		—		120,000		70,000		—		70,000
Total	$	1,174,151	$	(10,344)	$	1,163,807	$	1,124,151	$	(11,128)	$	1,113,023

______________________________________________________________________________

(1)Debt issuance costs, net related to the Senior Secured Credit Facility of $6.6 million and $7.3 million as of March 31, 2023 and December 31, 2022, respectively, are included in "Other noncurrent assets, net" on the consolidated balance sheets.

Senior Secured Credit Facility

As of March 31, 2023, the Senior Secured Credit Facility, which matures on July 16, 2025 (subject to a springing maturity date of July 29, 2024 if any of the January 2025 Notes are outstanding on such date), had a maximum credit amount of $2.0 billion, a borrowing base and an aggregate elected commitment of $1.3 billion and $1.0 billion, respectively, with a $120.0 million balance outstanding, and was subject to an interest rate of 7.385%. The Senior Secured Credit Facility contains both financial and non-financial covenants, all of which the Company was in compliance with for all periods presented. Additionally, the Senior Secured Credit Facility provides for the issuance of letters of credit, limited to the lesser of total capacity and $80.0 million. As of March 31, 2023 and December 31, 2022, the Company had no letters of credit outstanding under the Senior Secured Credit Facility. For additional information see Note 7 in the 2022 Annual Report. See Note 13 for discussion of (i) additional borrowings and repayments on and (ii) the reaffirmation of the borrowing base and aggregate commitment of the Senior Secured Credit Facility subsequent to March 31, 2023.

Note 5—Equity Incentive Plan

The Vital Energy, Inc. Omnibus Equity Incentive Plan (the "Equity Incentive Plan") provides for the granting of incentive awards in the form of restricted stock awards, stock option awards, performance share awards, performance unit awards, phantom unit awards and other awards. The Equity Incentive Plan allows for the issuance of up to 2,432,500 shares.

See Note 9 in the 2022 Annual Report for additional discussion of the Company's equity-based compensation awards.

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The following table presents activity for equity-based compensation awards for the three months ended March 31, 2023:

	Equity Awards			Liability Awards
(in thousands)	Restricted Stock Awards	Stock Option Awards	Performance Share Awards	Performance Unit Awards(1)(2)	Phantom Unit Awards(3)
Outstanding as of December 31, 2022	362	3	48	150	18
Granted	315	—	—	75	—
Forfeited	(3)	—	—	—	—
Vested	(133)	—	—	(67)	(16)
Expired or canceled	—	(1)	—	—	—
Outstanding as of March 31, 2023	541	2	48	158	2

_____________________________________________________________________________

(1)The performance unit awards granted on March 5, 2020 had a performance period of January 1, 2020 to December 31, 2022 and, as their market and performance criteria were satisfied, resulted in a 151% payout, or 101,368 units. As such, the granted awards vested and were paid out in cash on March 3, 2023 at $57.06 based on the Company's closing stock price on the vesting date.

(2)On February 15, 2023, the Company granted performance unit awards with a performance period of January 1, 2023 through December 31, 2025. The market criteria consists of: (i) annual relative total shareholder return comparing the Company's shareholder return to the shareholder return of the exploration and production companies listed in the Russel 2000 Index and (ii) annual absolute shareholder return. The performance criteria for these awards consists of: (i) earnings before interest, taxes, depreciation, amortization and exploration expense and three-year total debt reduction, (ii) growth in inventory and (iii) emissions reductions. Any units earned are expected to be paid in cash during the first quarter following the completion of the requisite service period, based on the achievement of market and performance criteria, and the payout can range from 0% to 225%.

(3)On March 1, 2023 and March 3, 2023, granted phantom unit awards vested and were paid out in cash at $52.56 and $57.06, respectively, based on the Company's closing stock price on the vesting date.

As of March 31, 2023, total unrecognized cost related to equity-based compensation awards was $34.4 million, of which $5.3 million was attributable to liability awards which will be settled in cash rather than shares. Such cost will be recognized on a straight-line basis over an expected weighted-average period of 2.35 years.

Equity-based compensation

The following table reflects equity-based compensation expense for the periods presented:

	Three months ended March 31,
(in thousands)	2023		2022
Equity awards:
Restricted stock awards	$	2,717	$	2,175
Performance share awards	424		461
Total share-settled equity-based compensation, gross	3,141		2,636
Less amounts capitalized	(569)		(583)
Total share-settled equity-based compensation, net	2,572		2,053
Liability awards:
Performance unit awards	497		5,566
Phantom unit awards	217		609
Total cash-settled equity-based compensation, gross	714		6,175
Less amounts capitalized	(50)		(47)
Total cash-settled equity-based compensation, net	664		6,128
Total equity-based compensation, net	$	3,236	$	8,181

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Note 6—Net income (loss) per common share

Basic and diluted net income (loss) per common share are computed by dividing net income (loss) by the weighted-average common shares outstanding for the period. Diluted net income (loss) per common share reflects the potential dilution of non-vested equity-based compensation awards. See Note 9 in the 2022 Annual Report for additional discussion of these awards. For the three months ended March 31, 2022, all of these awards were anti-dilutive due to the Company's net loss and, therefore, were excluded from the calculation of diluted net loss per common share.

The following table reflects the calculations of basic and diluted (i) weighted-average common shares outstanding and (ii) net income (loss) per common share for the periods presented:

	Three months ended March 31,
(in thousands, except for per share data)	2023		2022
Net income (loss)	$	113,940	$	(86,781)
Weighted-average common shares outstanding:
Basic	16,431		16,767
Dilutive non-vested restricted stock awards	114		—
Diluted	16,545		16,767
Net income (loss) per common share:
Basic	$	6.93	$	(5.18)
Diluted	$	6.89	$	(5.18)

Note 7—Derivatives

The Company has two types of derivative instruments as of March 31, 2023: (i) commodity derivatives and (ii) a contingent consideration derivative. In previous periods, the Company also engaged in an interest rate swap derivative, which concluded during the second quarter of 2022. See Note 8 for discussion of fair value measurement of derivatives on a recurring basis and Note 13 for discussion of derivatives subsequent events. The Company's derivatives were not designated as hedges for accounting purposes, and the Company does not enter into such instruments for speculative trading purposes. Accordingly, the changes in derivative fair values are recognized in "Gain (loss) on derivatives, net" under "Non-operating expense" on the consolidated statements of operations.

The following table summarizes components of the Company's gain (loss) on derivatives, net by type of derivative instrument for the periods presented:

	Three months ended March 31,
(in thousands)	2023		2022
Commodity	$	17,582	$	(329,724)
Contingent consideration	2,908		3,895
Interest rate	—		13
Gain (loss) on derivatives, net	$	20,490	$	(325,816)

Commodity

Due to the inherent volatility in oil, NGL and natural gas prices and the sometimes wide pricing differentials between where the Company produces and where the Company sells such commodities, the Company engages in commodity derivative transactions, such as puts, swaps, collars and basis swaps, to hedge price risk associated with a portion of the Company's anticipated sales volumes. By removing a portion of the price volatility associated with future sales volumes, the Company expects to mitigate, but not eliminate, the potential effects of variability in cash flows from operations. See Note 11 in the 2022 Annual Report for discussion of transaction types and settlement indexes. During the three months ended March 31, 2023, the Company’s derivatives were settled based on reported prices on commodity exchanges, with oil derivatives settled based on WTI NYMEX and natural gas derivatives settled based on Henry Hub NYMEX and Waha Inside FERC pricing.

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The following table summarizes open commodity derivative positions as of March 31, 2023, for commodity derivatives that were entered into through March 31, 2023, for the settlement periods presented:

	Remaining Year 2023		Year 2024
Oil:
WTI NYMEX - Collars:
Volume (Bbl)	3,658,000		—
Weighted-average floor price ($/Bbl)	$	69.00	$	—
Weighted-average ceiling price ($/Bbl)	$	85.47	$	—
Natural gas:
Henry Hub NYMEX - Collars:
Volume (MMBtu)	19,250,000		—
Weighted-average floor price ($/MMBtu)	$	4.14	$	—
Weighted-average ceiling price ($/MMBtu)	$	8.43	$	—
Waha Inside FERC to Henry Hub NYMEX - Basis Swaps:
Volume (MMBtu)	30,250,000		3,660,000
Weighted-average differential ($/MMBtu)	$	(1.53)	$	(0.75)

Contingent consideration

On May 7, 2021, the Company entered into a purchase and sale agreement (the "Sixth Street PSA"), to sell 37.5% of the Company's working interest in certain producing wellbores and the related properties primarily located within Glasscock and Reagan Counties, Texas. The Sixth Street PSA provides for potential contingent payments to be paid to the Company if certain cash flow targets are met related to divested oil and natural gas property operations (the "Sixth Street Contingent Consideration"). The Sixth Street Contingent Consideration provides the Company with the right to receive up to a maximum of $93.7 million in additional cash consideration, comprised of potential quarterly payments through June 2027 totaling up to $38.7 million and a potential balloon payment of $55.0 million in June 2027. As of March 31, 2023, the maximum remaining additional cash consideration of the contingent consideration was $87.8 million. The fair value of the Sixth Street Contingent Consideration was $28.1 million as of March 31, 2023 and $26.6 million as of December 31, 2022.

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Note 8—Fair value measurements

See the beginning of Note 12 in the 2022 Annual Report for information about the fair value hierarchy levels.

Fair value measurement on a recurring basis

See Note 7 for further discussion of the Company's derivatives.

Balance sheet presentation

The following tables present the Company's derivatives by (i) balance sheet classification, (ii) derivative type and (iii) fair value hierarchy level, and provide a total, on a gross basis and a net basis reflected in "Derivatives" on the consolidated balance sheets as of the dates presented:

	March 31, 2023
(in thousands)	Level 1		Level 2		Level 3		Total gross fair value		Amounts offset		Net fair value presented on the consolidated balance sheets
Assets:
Current:
Commodity	$	—	$	41,453	$	—	$	41,453	$	(4,353)	$	37,100
Contingent consideration	—		—		2,009		2,009		—		2,009
Noncurrent:
Commodity	—		364		—		364		—		364
Contingent consideration	—		—		26,084		26,084		—		26,084
Liabilities:
Current:
Commodity	—		(6,039)		—		(6,039)		4,353		(1,686)
Net derivative asset positions	$	—	$	35,778	$	28,093	$	63,871	$	—	$	63,871

	December 31, 2022
(in thousands)	Level 1		Level 2		Level 3		Total gross fair value		Amounts offset		Net fair value presented on the consolidated balance sheets
Assets:
Current:
Commodity	$	—	$	35,586	$	—	$	35,586	$	(13,193)	$	22,393
Contingent consideration	—		—		2,277		2,277		—		2,277
Noncurrent:
Contingent consideration	—		—		24,363		24,363		—		24,363
Liabilities:
Current:
Commodity	—		(19,153)		—		(19,153)		13,193		(5,960)
Net derivative asset positions	$	—	$	16,433	$	26,640	$	43,073	$	—	$	43,073

See Note 12 in the 2022 Annual Report for discussion of the significant Level 2 inputs used in the fair value mark-to-market analysis of commodity, interest rate and contingent consideration derivatives. The Company reviewed the third-party specialist's valuations of commodity, interest rate and contingent consideration derivatives, including the related inputs, and analyzed changes in fair values between reporting dates.

The Sixth Street Contingent Consideration associated with the Working Interest Sale was categorized as Level 3 of the fair value hierarchy, as the Company utilized its own cash flow projections along with a risk-adjusted discount rate generated by a third-party valuation specialist to determine the valuation. The Company reviewed the third-party specialist's valuation,

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including the related inputs, and analyzed changes in fair values between the divestiture closing date and the reporting dates. The fair value of the Sixth Street Contingent Consideration was recorded as part of the basis in the oil and natural gas properties divested and as a contingent consideration asset. At each quarterly reporting period, the Company remeasures contingent consideration with the change in fair values recognized in "Gain (loss) on derivatives, net" under "Non-operating expense" on the consolidated statement of operations.

The following table summarizes the changes in contingent consideration derivatives classified as Level 3 measurements for the periods presented:

	Three months ended March 31,
(in thousands)	2023		2022
Balance of Level 3 at beginning of period	$	26,640	$	35,861
Change in Sixth Street Contingent Consideration fair value	2,908		3,895
Settlements realized(1)	(1,455)		—
Balance of Level 3 at end of period	$	28,093	$	39,756

_____________________________________________________________________________

(1)For the three months ended March 31, 2023, the settlements are included in "Settlements received for contingent consideration" in cash flows from investing activities on the consolidated statements of cash flows.

Items not accounted for at fair value

The carrying amounts reported on the consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, accrued capital expenditures, undistributed revenue and royalties and other accrued assets and liabilities approximate their fair values.

The Company has not elected to account for its debt instruments at fair value. The following table presents the carrying amounts and fair values of the Company's debt as of the dates presented:

	March 31, 2023	December 31, 2022
(in thousands)