Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2023

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of the Company’s wholly-owned subsidiaries and any entities in which the Company owns a controlling interest. All intercompany accounts and transactions have been eliminated in consolidation. Noncontrolling interest in the Company’s condensed consolidated financial statements for periods prior to the Falcon Merger represented the ownership interests in a subsidiary of the Predecessor which were owned by outside parties. As a result of the Brigham Merger (as defined below), the holders of Class C Common Stock no longer hold a majority of the voting power of capital stock outstanding. Consequently, after December 29, 2022, interests held in the form of Class C Common Stock and Sitio OpCo Partnership Units are presented as noncontrolling interest in the condensed consolidated balance sheets. See “Note 10 – Noncontrolling Interest” for additional information.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

The Company’s estimates and classification of oil and natural gas reserves are, by necessity, projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering, and geological interpretation and judgment. Estimates of economically recoverable oil and natural gas reserves and future net cash flows necessarily depend upon several variable factors and assumptions. These factors and assumptions include historical production from the area compared with production from other producing areas, the assumed effect of regulations by governmental agencies, and assumptions governing future oil and natural gas prices. For these reasons, estimates of the economically recoverable quantities of expected oil and natural gas and estimates of the future net cash flows may vary substantially.

Any significant variance in the assumptions could materially affect the estimated quantity of reserves, which could affect the carrying value of the Company’s oil and natural gas properties and/or the rate of depletion related to oil and natural gas properties.

Significant Accounting Policies

Significant accounting policies are disclosed in the Company's audited consolidated financial statements and notes for the year ended December 31, 2022, presented in the Annual Report. There have been no material changes in such policies or the application of such policies during the three months ended March 31, 2023.

Accrued Revenue and Accounts Receivable

Accrued revenue and accounts receivable represent amounts due to the Company and are uncollateralized, consisting primarily of royalty revenue receivable. Royalty revenue receivable consists of royalties due from operators for oil, natural gas and NGL volumes sold to purchasers. Those purchasers remit payment for production to the operator of the properties and the operator, in turn, remits payment to the Company. Royalty revenue receivables from third parties for which we did not receive actual production information, either due to timing delays or due to the unavailability of data at the time when revenues are recognized, are estimated.

The Company’s accrued revenue and accounts receivable consisted of the following as of the dates indicated (in thousands):

	March 31, 2023		December 31, 2022
Accrued revenue	$	87,173	$	80,406
Accounts receivable		40,152		61,604
Total accrued revenue and accounts receivable	$	127,325	$	142,010

Accounts receivable at March 31, 2023 and December 31, 2022 are primarily composed of accrued revenue acquired in conjunction with the Brigham Merger. Refer to “Note 3 – Brigham Merger” for more information. The Company routinely assesses the recoverability of all material accounts receivable to determine their collectability, and records a reserve for amounts not expected to be fully recovered using a current expected credit loss model. As of March 31, 2023, and December 31, 2022, the Company had no reserves for amounts not expected to be fully recovered.

Accounts Payable and Accrued Expenses

The Company’s accounts payable and accrued expenses consisted of the following as of the dates indicated (in thousands):

	March 31, 2023		December 31, 2022
Ad valorem taxes payable	$	4,373	$	9,209
Brigham Merger accrued expenses		3,617		2,878
Other taxes payable		6,596		2,713
Interest expense		2,957		1,377
General and administrative		2,813		1,931
Payable to seller for pre-effective monies		2,569		2,243
Deferred financing costs and debt issuance costs		1,038		206
Accrued prepaids		457		1,330
Other		13		12
Total accounts payable and accrued expenses	$	24,433	$	21,899

Merger-Related Transaction Costs

General and administrative expense of $11.7 million and $4.1 million for the three months ended March 31, 2023 and 2022 included $779,000 and $1.2 million, respectively, of costs incurred by the Company in connection with the Falcon Merger and the Brigham Merger.

See “Note 3 – Brigham Merger” and “Note 4 – Falcon Reverse Merger” for additional disclosures regarding the Brigham Merger and Falcon Merger.