Long-Term Debt

3 Months Ended

Mar. 31, 2024

Debt Disclosure [Abstract]

Long-Term Debt

(6)          Long-Term Debt

    The Company's long-term debt consisted of the following (in thousands):

	March 31, 2024		December 31, 2023
Credit Facility Borrowings due 2026 (1)	$	596,000	$	722,000
Second Lien Notes due 2028	500,000		500,000
	1,096,000		1,222,000
Unamortized discount on Second Lien Notes due 2028	(7,401)		(7,820)
Unamortized debt issuance cost on Second Lien Notes due 2028	(11,630)		(12,289)
Total Debt	$	1,076,969	$	1,201,891
Less: Current portion of Second Lien Notes due 2028	37,500		28,125
Long-term debt, net	$	1,039,469	$	1,173,766

(1) Unamortized debt issuance costs on our Credit Facility borrowings are included in “Other Long-Term Assets” in our condensed consolidated balance sheet. As of March 31, 2024 and December 31, 2023, we had $22.7 million and $24.9 million, respectively, in unamortized debt issuance costs on our Credit Facility borrowings.

Revolving Credit Facility. Amounts outstanding under our Credit Facility (defined below) were $596.0 million and $722.0 million as of March 31, 2024 and December 31, 2023, respectively. The Company is a party to a First Amended and Restated Senior Secured Revolving Credit Agreement with JPMorgan Chase Bank, National Association, as administrative agent, and certain lenders party thereto, as amended (such agreement, the “Credit Agreement” and the borrowing facility provided thereby, the “Credit Facility”).

In conjunction with the closing of the South Texas Acquisition described further in Note 7, the Company executed the Eleventh Amendment to the Credit Agreement on November 30, 2023 (the “Eleventh Amendment”) which secured $425.0 million of incremental commitments under its Credit Facility from existing and new lenders, thereby increasing lender commitments and the borrowing base under the Credit Facility to $1.2 billion from $775.0 million. The Eleventh Amendment also permitted the issuance of up to $350.0 million principal amount of additional Second Lien Notes (as defined below), resulting in an aggregate principal amount of outstanding Second Lien Notes not to exceed $500.0 million and modified certain other terms of the Credit Agreement. Additionally, the Company incurred approximately $20.0 million in third party and legal fees in connection with the amendment.

The borrowing base is regularly redetermined on or about May and November of each calendar year and is subject to additional adjustments from time to time, including for asset sales, elimination or reduction of hedge positions and incurrence of other debt. Additionally, the Company and the administrative agent may request an unscheduled redetermination of the borrowing base between scheduled redeterminations. The amount of the borrowing base is determined by the lenders, in their discretion, in accordance with their oil and gas lending criteria at the time of the relevant redetermination. The Company may also request the issuance of letters of credit under the Credit Agreement in an aggregate amount up to $25.0 million, which reduces the amount of available borrowings under the borrowing base in the amount of such issued and outstanding letters of credit. There were no outstanding letters of credit as of March 31, 2024 and December 31, 2023. Maintaining or increasing our borrowing base under our Credit Facility is dependent on many factors, including commodity prices, our hedge positions, changes in our lenders' lending criteria and our ability to raise capital to drill wells to replace produced reserves. The Credit Facility matures October 19, 2026, and provides for a maximum credit amount of $2.0 billion, subject to the current borrowing base of $1.2 billion.

Interest under the Credit Facility is payable quarterly and accrues at the Company’s option either at an Alternative Base Rate plus the applicable margin (“ABR Loans”), the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus the applicable margin (“Term Benchmark Loans”) or Adjusted Daily Simple SOFR plus the applicable margin (“RFR Loans”). The applicable margin ranged from 1.75% to 2.75% based on borrowing base utilization for ABR Loans and 2.75% to 3.75% based on borrowing base utilization for Term Benchmark Loans and RFR Loans. The Alternate Base Rate and SOFR are defined, and the applicable margins are set forth, in the Credit Agreement. Undrawn amounts under the Credit Facility are subject to a 0.5% commitment fee. To the extent that a payment default exists and is continuing, all amounts outstanding under the Credit Facility will bear interest at 2.0% per annum above the rate and margin otherwise applicable thereto. As of March 31, 2024, the Company's weighted average interest rate on Credit Facility borrowings was 8.42%.

The obligations under the Credit Agreement are secured, subject to certain exceptions, by a first priority lien on substantially all assets of the Company and its subsidiary, including a first priority lien on properties attributed with at least 85% of estimated proved reserves of the Company and its subsidiary.

The Credit Agreement contains the following financial covenants:

•a ratio of total debt to earnings before interest, tax, depreciation and amortization (“EBITDA”), as defined in the Credit Agreement, for the most recently completed four fiscal quarters, not to exceed 3.00 to 1.00 as of the last day of each fiscal quarter; and

•a current ratio, as defined in the Credit Agreement, which includes in the numerator available borrowings undrawn under the borrowing base, of not less than 1.00 to 1.00 as of the last day of each fiscal quarter.

As of March 31, 2024, the Company was in compliance with all financial covenants under the Credit Agreement.

    Additionally, the Credit Agreement contains certain representations, warranties and covenants, including but not limited to, limitations on incurring debt and liens, limitations on making certain restricted payments, limitations on investments, limitations on asset sales and hedge unwinds, limitations on transactions with affiliates and limitations on modifying organizational documents and material contracts. The Credit Agreement contains customary events of default. If an event of default occurs and is continuing, the lenders may declare all amounts outstanding under the Credit Facility to be immediately due and payable.

Total interest expense on the Credit Facility, which includes commitment fees and amortization of debt issuance costs, was $18.3 million and $11.9 million for the three months ended March 31, 2024 and 2023, respectively. The amount of commitment fee amortization included in interest expense, net was $0.6 million and $0.3 million for the three months ended March 31, 2024 and 2023, respectively.

    Senior Secured Second Lien Notes. On December 15, 2017, the Company entered into a Note Purchase Agreement for Senior Secured Second Lien Notes (as amended, the “Note Purchase Agreement,” and such second lien facility the “Second Lien Notes”) among the Company as issuer, U.S. Bank National Association as agent and collateral agent, and certain holders that are a party thereto, and issued notes in an initial principal amount of $200.0 million, with a $2.0 million discount, for net proceeds of $198.0 million.

Effective November 12, 2021, the Company entered into the Second Amendment to the Note Purchase Agreement, which extended the maturity date from December 15, 2024 to December 15, 2026 subject to paying down the principal amount of the Second Lien Notes from $200.0 million to $150.0 million. The Company made the $50.0 million redemption of the Second Lien Notes on November 29, 2021.

On June 14, 2023, the Company entered into the Third Amendment to the Note Purchase Agreement to effectuate the replacement of LIBOR with an adjusted term secured overnight financing rate plus a margin of 0.25% (“Term SOFR”). After the Third Amendment, interest under the Second Lien Notes is payable quarterly and accrues, based on the Company’s election at the time of the borrowing, either at Term SOFR plus a margin of 7.5% (“Second Lien Term SOFR Loans”) or at an Alternate Base Rate which is based on the greater of (i) the prime rate; (ii) the greater of the federal funds effective rate or overnight bank funding rate, plus 0.5%; or (iii) Term SOFR plus 1% plus a margin of 6.5%. Additionally, to the extent the Company were to default on the Second Lien Notes, this would potentially trigger a cross-default under our Credit Facility.

Effective November 30, 2023, the Company entered into the Fourth Amendment to the Note Purchase Agreement (the “Fourth Amendment”), which extended the maturity date from December 15, 2026 to December 15, 2028, and upsized the outstanding Second Lien Notes by $350.0 million, with a $7.0 million discount, for net proceeds of $343.0 million, in connection with the closing of the South Texas Acquisition described further in Note 7. The Company evaluated the amendment on a lender-by-lender basis as to whether it represented a debt extinguishment or modification and wrote off approximately $0.2 million in previously unamortized debt issuance costs and $0.1 million in previously unamortized debt discount during the year ended December 31, 2023 which was included within “Interest expense, net” on the condensed consolidated statements of operations. Additionally, the Company incurred approximately $10.6 million in third party fees in connection with the amendment. The new debt issuance cost and discount on the Second Lien Notes will be amortized through the new maturity date of December 15, 2028. The Fourth Amendment also (i) caused the maximum permitted ratio of Total Net Indebtedness to EBITDA (each as defined in the Note Purchase Agreement) for any fiscal quarter in which the maximum ratio of Total Debt to EBITDA (each as defined in the Credit Agreement) under the Credit Agreement is less than 3.00 to 1.00, to be reduced to a ratio that is 0.25 to 1.00 higher than that set forth in the Credit Agreement; (ii) amended the Minimum Asset

Coverage Ratio (as defined in the Note Purchase Agreement) to be no less than (A) 1.10 to 1.00 through the fiscal quarter ending March 31, 2024 and (B) 1.25 to 1.00 thereafter, in each case of clause (A) and clause (B), tested on a quarterly basis; (iii) added a financial covenant whereby the Current Ratio (as defined in the Note Purchase Agreement) shall not be less than 1.00 to 1.00; (iv) decreased the mortgage coverage and title requirements from 90% to 85%; and (v) modified certain other terms of the Note Purchase Agreement. Additionally, the Second Lien Notes implemented a quarterly requirement for repayment of Notes, beginning on June 15, 2024, requiring the Company to redeem the Notes in quarterly payments of $9.4 million provided the ratio of Total Indebtedness to EBITDA not exceed 2.25 to 1.00, subject to certain exceptions.

The Second Lien Notes contains customary mandatory prepayment obligations upon asset sales (including hedge terminations), casualty events and incurrences of certain debt, subject to, in certain circumstances, reinvestment periods. Management believes the probability of mandatory prepayment due to default is remote. As of March 31, 2024, the Company’s interest rate on the Second Lien Notes was 13.08%. As of March 31, 2024, the Company was in compliance with all financial covenants under the Second Lien Notes.

The obligations under the Second Lien Notes are secured, subject to certain exceptions and other permitted liens (including the liens created under the Credit Facility), by a perfected security interest, second in priority to the liens securing our Credit Facility, and mortgage lien on substantially all assets of the Company and its subsidiary, including a mortgage lien on oil and gas properties attributed with at least 85% of estimated PV-9 (defined below), of proved reserves of the Company and its subsidiary and 85% of the book value attributed to the PV-9 of the non-proved oil and gas properties of the Company. PV-9 is determined using commodity price assumptions by the administrative agent of the Credit Facility. PV-9 value is the estimated future net revenues to be generated from the production of proved reserves discounted to present value using an annual discount rate of 9%.

    As of March 31, 2024, total net amounts recorded for the Second Lien Notes were $481.0 million, net of unamortized debt discount and debt issuance costs. Interest expense on the Second Lien Notes totaled $17.7 million and $4.8 million for the three months ended March 31, 2024 and 2023, respectively.

Debt Issuance Costs. Our policy is to capitalize upfront commitment fees and other direct expenses associated with our line of credit arrangement and then amortize such costs ratably over the term of the arrangement, regardless of whether there are any outstanding borrowings. During the three months ended March 31, 2024 and 2023 there were no capitalized costs incurred.