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 June 30, 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 August 3, 2023: 18,596,884

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 June 30, 2023 and December 31, 2022	1
Consolidated statements of operations for the three and six months ended June 30, 2023 and 2022	2
Consolidated statements of stockholders' equity for the three and six months ended June 30, 2023 and 2022	3
Consolidated statements of cash flows for the six months ended June 30, 2023 and 2022	5
Condensed notes to the consolidated financial statements:	6
Note 1—Organization and basis of presentation	6
Note 2—New accounting standards	6
Note 3—Acquisitions and divestiture	7
Note 4—Debt	9
Note 5—Stockholders' equity	10
Note 6—Equity Incentive Plan	10
Note 7—Net income per common share	12
Note 8—Derivatives	12
Note 9—Fair value measurements	14
Note 10—Commitments and contingencies	15
Note 11—Supplemental cash flow and non-cash information	16
Note 12—Income taxes	16
Note 13—Related parties	17
Note 14—Subsequent events	18
Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.    Quantitative and Qualitative Disclosures About Market Risk	34
Item 4.    Controls and Procedures	35
Part II	36
Item 1.    Legal Proceedings	36
Item 1A.    Risk Factors	36
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.    Defaults Upon Senior Securities	36
Item 4.    Mine Safety Disclosures	36
Item 5.    Other Information	37
Item 6.    Exhibits	38
Signatures	39

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:

•moderating but continuing 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 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 widespread 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 covenants and other terms and conditions 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;

•physical and transition risks relating to climate change;

•the impact of legislation or regulatory initiatives intended to address induced seismicity, including restrictions on the use of water, produced water and produced water wells, 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;

•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 https://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)

	June 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	71,696	$	44,435
Accounts receivable, net	143,672		163,369
Derivatives	11,942		24,670
Other current assets	15,619		13,317
Total current assets	242,929		245,791
Property and equipment:
Oil and natural gas properties, full cost method:
Evaluated properties	10,349,348		9,554,706
Unevaluated properties not being depleted	198,805		46,430
Less: accumulated depletion and impairment	(7,500,936)		(7,318,399)
Oil and natural gas properties, net	3,047,217		2,282,737
Midstream and other fixed assets, net	128,792		127,803
Property and equipment, net	3,176,009		2,410,540
Derivatives	24,314		24,363
Operating lease right-of-use assets	127,958		23,047
Deferred income taxes	222,217		—
Other noncurrent assets, net	22,002		22,373
Total assets	$	3,815,429	$	2,726,114
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued liabilities	$	84,803	$	102,516
Accrued capital expenditures	66,488		48,378
Undistributed revenue and royalties	166,663		160,023
Derivatives	2,338		5,960
Operating lease liabilities	48,961		15,449
Other current liabilities	64,492		82,950
Total current liabilities	433,745		415,276
Long-term debt, net	1,619,599		1,113,023
Derivatives	3,025		—
Asset retirement obligations	74,428		70,366
Operating lease liabilities	75,844		9,435
Other noncurrent liabilities	5,215		7,268
Total liabilities	2,211,856		1,615,368
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and zero issued as of June 30, 2023 and December 31, 2022	—		—
Common stock, $0.01 par value, 40,000,000 shares authorized, and 18,593,867 and 16,762,127 issued and outstanding as of June 30, 2023 and December 31, 2022, respectively	186		168
Additional paid-in capital	2,838,143		2,754,085
Accumulated deficit	(1,234,756)		(1,643,507)
Total stockholders' equity	1,603,573		1,110,746
Total liabilities and stockholders' equity	$	3,815,429	$	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 June 30,				Six months ended June 30,
	2023		2022		2023		2022
Revenues:
Oil sales	$	299,085	$	410,359	$	565,816	$	757,802
NGL sales	25,887		72,505		58,893		137,660
Natural gas sales	8,952		66,606		27,026		105,195
Sales of purchased oil	338		8,795		14,189		87,659
Other operating revenues	800		1,891		1,645		4,235
Total revenues	335,062		560,156		667,569		1,092,551
Costs and expenses:
Lease operating expenses	57,718		42,014		107,899		82,890
Production and ad valorem taxes	21,607		33,001		42,138		60,488
Transportation and marketing expenses	10,681		10,994		21,596		25,737
Costs of purchased oil	588		6,780		14,755		89,744
General and administrative	18,482		16,999		44,412		38,943
Depletion, depreciation and amortization	103,340		78,135		190,119		151,627
Other operating expenses, net	1,351		3,999		2,835		4,137
Total costs and expenses	213,767		191,922		423,754		453,566
Gain on disposal of assets, net	154		930		391		670
Operating income	121,449		369,164		244,206		639,655
Non-operating income (expense):
Gain (loss) on derivatives, net	(18,044)		(65,927)		2,446		(391,743)
Interest expense	(31,529)		(32,807)		(60,083)		(65,284)
Loss on extinguishment of debt, net	—		(798)		—		(798)
Other income, net	1,104		6		1,958		150
Total non-operating expense, net	(48,469)		(99,526)		(55,679)		(457,675)
Income before income taxes	72,980		269,638		188,527		181,980
Income tax benefit (expense):
Current	(503)		(4,513)		(1,834)		(5,731)
Deferred	222,334		(2,579)		222,058		(484)
Total income tax benefit (expense)	221,831		(7,092)		220,224		(6,215)
Net income	$	294,811	$	262,546	$	408,751	$	175,765
Net income per common share:
Basic	$	16.35	$	15.60	$	23.71	$	10.46
Diluted	$	16.30	$	15.41	$	23.60	$	10.31
Weighted-average common shares outstanding:
Basic	18,031		16,834		17,236		16,800
Diluted	18,085		17,039		17,319		17,040

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
Restricted stock awards	6	—		—		—	—		—		—
Restricted stock forfeitures	(9)	—		—		—	—		—		—
Stock exchanged for tax withholding	—	—		—		7	(385)		—		(385)
Retirement of treasury stock	(7)	—		(385)		(7)	385		—		—
Share-settled equity-based compensation	—	—		3,711		—	—		—		3,711
Equity issued for acquisition of oil and natural gas properties	1,579	16		80,052		—	—		—		80,068
Net income	—	—		—		—	—		294,811		294,811
Balance, June 30, 2023	18,594	$	186	$	2,838,143	—	$	—	$	(1,234,756)	$	1,603,573

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

3

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, 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
Restricted stock awards	5	—		—		—	—		—		—
Restricted stock forfeitures	(3)	—		—		—	—		—		—
Share repurchases	—	—		—		85	(9,071)		—		(9,071)
Stock exchanged for tax withholding	—	—		—		7	(742)		—		(742)
Retirement of treasury stock	(92)	(1)		(9,812)		(92)	9,813		—		—
Share-settled equity-based compensation	—	—		2,935		—	—		—		2,935
Net income	—	—		—		—	—		262,546		262,546
Balance, June 30, 2022	17,212	$	172	$	2,778,538	—	$	—	$	(2,099,254)	$	679,456

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

4

Vital Energy, Inc.

Consolidated statements of cash flows

(in thousands)

(Unaudited)

	Six months ended June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	408,751	$	175,765
Adjustments to reconcile net income to net cash provided by operating activities:
Share-settled equity-based compensation, net	5,465		4,657
Depletion, depreciation and amortization	190,119		151,627
Gain on disposal of assets, net	(391)		(670)
Mark-to-market on derivatives:
(Gain) loss on derivatives, net	(2,446)		391,743
Settlements received (paid) for matured derivatives, net	8,440		(297,824)
Loss on extinguishment of debt, net	—		798
Deferred income tax (benefit) expense	(222,058)		484
Other, net	5,147		15,964
Changes in operating assets and liabilities:
Accounts receivable, net	17,360		(53,960)
Other current assets	(8,230)		6,844
Other noncurrent assets, net	1,590		(34,057)
Accounts payable and accrued liabilities	(17,435)		(8,634)
Undistributed revenue and royalties	1,847		139,460
Other current liabilities	(18,647)		32,819
Other noncurrent liabilities	(4,499)		13,991
Net cash provided by operating activities	365,013		539,007
Cash flows from investing activities:
Acquisitions of oil and natural gas properties, net	(526,985)		(7,887)
Capital expenditures:
Oil and natural gas properties	(309,223)		(282,750)
Midstream and other fixed assets	(6,899)		(4,952)
Proceeds from dispositions of capital assets, net of selling costs	2,252		2,049
Settlements received for contingent consideration	2,035		—
Net cash used in investing activities	(838,820)		(293,540)
Cash flows from financing activities:
Borrowings on Senior Secured Credit Facility	595,000		135,000
Payments on Senior Secured Credit Facility	(90,000)		(240,000)
Extinguishment of debt	—		(32,334)
Share repurchases	—		(9,071)
Stock exchanged for tax withholding	(2,844)		(6,589)
Payments for debt issuance costs	—		(1,725)
Other, net	(1,088)		—
Net cash provided by (used in) financing activities	501,068		(154,719)
Net increase in cash and cash equivalents	27,261		90,748
Cash and cash equivalents, beginning of period	44,435		56,798
Cash and cash equivalents, end of period	$	71,696	$	147,546

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

5

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 June 30, 2023, results of operations for the three and six months ended June 30, 2023 and 2022 and cash flows for the six months ended June 30, 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 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 six months ended June 30, 2023. See Note 2 in the 2022 Annual Report for discussion of significant accounting policies.

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 and has determined there are no ASUs that are not yet adopted and meaningful to disclose as of June 30, 2023. Additionally, the Company did not adopt any new ASUs during the six months ended June 30, 2023.

6

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

Note 3—Acquisitions and divestitures

2023 Acquisitions

Forge Acquisition

On May 11, 2023, the Company entered into a purchase and sale agreement with Northern Oil and Gas, Inc. ("NOG") and Forge Energy II Delaware, LLC ("Forge"), pursuant to which the Company and NOG agreed to purchase Forge's oil and natural gas properties located in the Delaware Basin, including approximately 34,000 net acres in Pecos, Reeves and Ward Counties, and related assets and contracts, for an aggregate purchase price of $540.0 million of cash, subject to customary closing price adjustments. The Company agreed to purchase an undivided interest in 70% of the acquired assets and operate the assets and NOG agreed to purchase the remaining 30% of the assets (the "Forge Acquisition").

On June 30, 2023 ("Forge Closing Date"), the Company closed the Forge Acquisition for an aggregate purchase price of $397.2 million, comprised of (i) $391.6 million in cash, inclusive of customary closing price adjustments, subject to post-closing adjustments, and (ii) $5.7 million in transaction related expenses.

The Company determined that the Forge Acquisition was an asset acquisition, as substantially all of the gross assets acquired are concentrated in a group of similar identifiable assets. Accordingly, the consideration paid was allocated to the individual assets acquired and liabilities assumed based on their relative fair values and all transaction costs associated were capitalized.

The following table presents components of the purchase price, inclusive of customary closing adjustments:

(in thousands)	As of June 30, 2023
Cash consideration	$	391,586
Transaction costs	5,656
Total purchase price	$	397,242

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on the Forge Closing Date:

(in thousands)	As of June 30, 2023
Evaluated properties	$	249,831
Unevaluated properties	153,110
Revenue suspense liabilities assumed	(4,323)
Asset retirement obligation liabilities assumed	(1,376)
Allocated purchase price	$	397,242

The Company funded the cash purchase price and related transaction costs with respect to the Forge Acquisition with borrowings under its Senior Secured Credit Facility.

Driftwood Acquisition

On February 14, 2023, the Company entered into a purchase and sale agreement with Driftwood Energy Operating, LLC ("Driftwood"), pursuant to which the Company agreed to purchase (the "Driftwood Acquisition") Driftwood's oil and natural 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 (the "Driftwood Assets").

On April 3, 2023 ("Driftwood Closing Date"), the Company closed the Driftwood Acquisition for an aggregate purchase price of $201.3 million, comprised of (i) $117.3 million of cash, inclusive of customary closing price adjustments, subject to post-closing adjustments, (ii) 1,578,948 shares of the Company's common stock, par value $0.01 per share, based upon the share price as of the Driftwood Closing Date and (iii) $3.9 million in transaction related expenses.

The Company determined that the Driftwood Acquisition was an asset acquisition, as substantially all of the gross assets acquired are concentrated in a group of similar identifiable assets. Accordingly, the consideration paid was allocated to the individual assets acquired and liabilities assumed based on their relative fair values and all transaction costs associated were capitalized.

7

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

The following table presents components of the purchase price, inclusive of customary closing adjustments:

(in thousands, except for share price data)	As of April 3, 2023
Shares of Company common stock	1,578,948
Company common stock price at the Driftwood Closing Date	$	50.71
Value of the Company common stock consideration	$	80,068
Cash consideration	$	117,332
Transaction costs	3,857
Total purchase price	$	201,257

The following table presents the allocation of the purchase price to the assets acquired and liabilities assumed, based on their relative fair values, on the Driftwood Closing Date:

(in thousands)	As of April 3, 2023
Evaluated properties	$	147,622
Unevaluated properties	59,088
Revenue suspense liabilities assumed	(470)
Derivative liabilities assumed	(4,151)
Asset retirement obligation liabilities assumed	(832)
Allocated purchase price	$	201,257

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.

During the three months ended June 30, 2022, in connection with the Driftwood Acquisition, the Company acquired additional interests in the Driftwood Assets through additional sellers that exercised their "tag-along" sales rights, for total cash consideration of $8.6 million, excluding customary purchase price adjustments. These acquisitions were accounted for as asset acquisitions.

2022 Divestiture

On August 16, 2022, the Company entered into a purchase and sale agreement with 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.

8

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

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:

	June 30, 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	$	(2,407)	$	453,221	$	455,628	$	(3,297)	$	452,331
January 2028 Notes	300,309		(3,123)		297,186		300,309		(3,478)		296,831
July 2029 Notes	298,214		(4,022)		294,192		298,214		(4,353)		293,861
Senior Secured Credit Facility(1)	575,000		—		575,000		70,000		—		70,000
Total	$	1,629,151	$	(9,552)	$	1,619,599	$	1,124,151	$	(11,128)	$	1,113,023

______________________________________________________________________________

(1)Debt issuance costs, net related to the Senior Secured Credit Facility of $5.8 million and $7.3 million as of June 30, 2023 and December 31, 2022, respectively, are included in "Other noncurrent assets, net" on the consolidated balance sheets.

Senior unsecured notes repurchases

The following table presents the Company's repurchases of its senior unsecured notes and the related gain or loss on extinguishment of debt during the periods presented:

	Three months ended June 30,				Six months ended June 30,
(in thousands)	2023		2022		2023		2022
January 2025 Notes	$	—	$	—	$	—	$	—
January 2028 Notes	—		6,250		—		6,250
January 2029 Notes	—		25,776		—		25,776
Total principal amount repurchased	$	—	$	32,026	$	—	$	32,026
Less:
Consideration paid	$	—	$	32,334	$	—	$	32,334
Write off of debt issuance costs	—		490		—		490
Loss on extinguishment of debt, net(1)	$	—	$	(798)	$	—	$	(798)

______________________________________________________________________________

(1)Amounts are included in "Loss on extinguishment of debt, net" on the consolidated statements of operations.

Senior Secured Credit Facility

As of June 30, 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 $575.0 million balance outstanding, and was subject to an interest rate of 7.978%. 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 or $80.0 million. As of June 30, 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 14 for discussion of additional borrowings and repayments on the Senior Secured Credit Facility subsequent to June 30, 2023.

9

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

Note 5—Stockholders' equity

Shares issued for acquisition of oil and natural gas properties

On April 3, 2023, in connection with the Driftwood Acquisition, the Company issued 1,578,948 shares of its common stock as part of the purchase price. See Note 3 for additional information on the Driftwood Acquisition.

Authorized shares increase

On May 26, 2022, upon recommendation of the Company's board of directors, stockholders approved an amendment to the Company's Amended and Restated Certificate of Incorporation to increase the number of authorized shares of its common stock from 22,500,000 shares to 40,000,000 shares.

Share repurchase program

On May 31, 2022, the Company's board of directors authorized a $200.0 million share repurchase program. The repurchase program commenced in May 2022 and expires in May 2024. Share repurchases under the program may be made through a variety of methods, which may include open market purchases, including under plans complying with Rule 10b5-1 of the Exchange Act, and privately negotiated transactions. The timing and actual number of share repurchases will depend upon several factors, including market conditions, business conditions, the trading price of the Company's common stock and the nature of other investment opportunities available to the Company. The Company's board of directors may modify, increase, suspend or terminate the share repurchase program at any time at its discretion. During the six months ended June 30, 2022, the Company repurchased 85,161 shares of its common stock on the open market at a weighted-average price of $106.50 per common share for a total of $9.1 million under this program and, upon repurchase, the shares were retired. No shares were repurchased during the six months ended June 30, 2023. As of June 30, 2023, approximately $162.7 million remained available for future repurchases under the share repurchase program.

Note 6—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.

10

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

The following table presents activity for equity-based compensation awards for the six months ended June 30, 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	321	—	—	75	—
Forfeited	(12)	—	—	—	—
Vested	(158)	—	—	(67)	(16)
Expired or canceled	—	(1)	—	—	—
Outstanding as of June 30, 2023	513	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 June 30, 2023, total unrecognized cost related to equity-based compensation awards was $30.2 million, of which $4.8 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 2.14 years.

Equity-based compensation

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

	Three months ended June 30,				Six months ended June 30,
(in thousands)	2023		2022		2023		2022
Equity awards:
Restricted stock awards	$	3,322	$	2,435	$	6,039	$	4,610
Performance share awards	389		500		813		961
Total share-settled equity-based compensation, gross	3,711		2,935		6,852		5,571
Less amounts capitalized	(818)		(331)		(1,387)		(914)
Total share-settled equity-based compensation, net	2,893		2,604		5,465		4,657
Liability awards:
Performance unit awards	1,093		340		1,590		5,906
Phantom unit awards	18		270		235		879
Total cash-settled equity-based compensation, gross	1,111		610		1,825		6,785
Less amounts capitalized	—		(155)		(50)		(202)
Total cash-settled equity-based compensation, net	1,111		455		1,775		6,583
Total equity-based compensation, net	$	4,004	$	3,059	$	7,240	$	11,240

11

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

Note 7—Net income per common share

Basic and diluted net income per common share are computed by dividing net income by the weighted-average common shares outstanding for the period. Diluted net income 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.

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

	Three months ended June 30,				Six months ended June 30,
(in thousands, except for per share data)	2023		2022		2023		2022
Net income	$	294,811	$	262,546	$	408,751	$	175,765
Weighted-average common shares outstanding:
Basic	18,031		16,834		17,236		16,800
Dilutive non-vested restricted stock awards	54		205		83		216
Dilutive non-vested performance share awards(1)	—		—		—		24
Diluted	18,085		17,039		17,319		17,040
Net income per common share:
Basic	$	16.35	$	15.60	$	23.71	$	10.46
Diluted	$	16.30	$	15.41	$	23.60	$	10.31

_____________________________________________________________________________

(1)The dilutive effect of the non-vested performance shares for the three and six months ended June 30, 2022 was calculated assuming each respective performance period ended on June 30, 2022.

Note 8—Derivatives

The Company has two types of derivative instruments as of June 30, 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 9 for discussion of fair value measurement of derivatives on a recurring basis and Note 14 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 income (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 June 30,				Six months ended June 30,
(in thousands)	2023		2022		2023		2022
Commodity	$	(16,190)	$	(66,347)	$	1,392	$	(396,071)
Contingent consideration	(1,854)		419		1,054		4,314
Interest rate	—		1		—		14
Gain (loss) on derivatives, net	$	(18,044)	$	(65,927)	$	2,446	$	(391,743)

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 six months ended June 30, 2023, the Company’s derivatives were settled based on reported prices on commodity exchanges, with oil derivatives settled based on WTI NYMEX, Argus WTI Midland and Argus WTI Formula Basis pricing and natural gas derivatives settled based on Henry Hub NYMEX and Waha Inside FERC pricing.

12

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

The following table summarizes open commodity derivative positions as of June 30, 2023, for commodity derivatives that were entered into through June 30, 2023, for the settlement periods presented:

	Remaining Year 2023		Year 2024
Oil:
WTI NYMEX - Swaps:
Volume (Bbl)	2,024,000		3,260,950
Weighted-average price ($/Bbl)	$	72.83	$	69.56
WTI NYMEX - Collars:
Volume (Bbl)	1,793,400		—
Weighted-average floor price ($/Bbl)	$	69.58	$	—
Weighted-average ceiling price ($/Bbl)	$	87.01	$	—
WTI NYMEX - Three-way Collars:
Volume (Bbl)	191,500		217,350
Weighted-average sold put price ($/Bbl)	$	45.54	$	50.00
Weighted-average floor price ($/Bbl)	$	57.68	$	66.51
Weighted-average ceiling price ($/Bbl)	$	74.37	$	87.09
Argus WTI Midland to Argus WTI Formula Basis - Basis Swaps:
Volume (Bbl)	328,900		293,300
Weighted-average differential ($/Bbl)	$	0.18	$	0.11
Natural gas:
Henry Hub NYMEX - Swaps:
Volume (MMBtu)	78,100		22,415,700
Weighted-average price ($/MMBtu)	$	2.46	$	3.47
Henry Hub NYMEX - Collars:
Volume (MMBtu)	13,685,407		776,292
Weighted-average floor price ($/MMBtu)	$	4.11	$	3.40
Weighted-average ceiling price ($/MMBtu)	$	8.33	$	6.11
Henry Hub NYMEX - Three-way Collars:
Volume (MMBtu)	69,000		—
Weighted-average sold put price ($/MMBtu)	$	2.00	$	—
Weighted-average floor price ($/MMBtu)	$	2.50	$	—
Weighted-average ceiling price ($/MMBtu)	$	3.01	$	—
Waha Inside FERC to Henry Hub NYMEX - Basis Swaps:
Volume (MMBtu)	21,192,507		23,191,992
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 June 30, 2023, the maximum remaining additional cash consideration of the contingent consideration was $85.4 million. The fair value of the Sixth Street Contingent Consideration was $26.2 million as of June 30, 2023 and $26.6 million as of December 31, 2022.

13

Table of Contents Vital Energy, Inc.

Condensed notes to the consolidated financial statements

(Unaudited)

Note 9—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 8 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:

	June 30, 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	$	—	$	32,558	$	—	$	32,558	$	(22,541)	$	10,017
Contingent consideration	—		—		1,925		1,925		—		1,925
Noncurrent:
Commodity	—		416		—		416		(416)		—
Contingent consideration	—		—		24,314		24,314		—		24,314
Liabilities: