cpe-20230331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2023

☐ 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 001-14039

Callon Petroleum Company


			(Exact Name of Registrant as Specified in Its Charter)


Delaware		64-0844345
State or Other Jurisdiction of Incorporation or Organization		I.R.S. Employer Identification No.

One Briarlake Plaza
2000 W. Sam Houston Parkway S., Suite 2000
Houston,	Texas	77042
Address of Principal Executive Offices		Zip Code


			(281)						589-5200
			Registrant’s Telephone Number, Including Area Code

			Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

CPE

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 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, 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 ☒

The Registrant had 61,869,812 shares of common stock outstanding as of April 28, 2023.

For certain industry specific terms used in this Quarterly Report on Form 10-Q (this “Form 10-Q”), please see “Glossary of Certain Terms” in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”).

Table of Contents


Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets			3

Consolidated Statements of Operations			4

Consolidated Statements of Stockholders’ Equity			5

Consolidated Statements of Cash Flows			6

Notes to Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			23

Item 3. Quantitative and Qualitative Disclosures about Market Risk			31

Item 4. Controls and Procedures			32

Part II. Other Information

Item 1. Legal Proceedings			32

Item 1A. Risk Factors			32

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			32

Item 3. Defaults Upon Senior Securities			32

Item 4. Mine Safety Disclosures			32

Item 5. Other Information			33

Item 6. Exhibits			33

Part I. Financial Information

Item 1. Financial Statements

Callon Petroleum Company

Consolidated Balance Sheets

(In thousands, except par and share amounts)

(Unaudited)


	March 31, 2023	December 31, 2022*
ASSETS
Current assets:
Cash and cash equivalents	$3,370	$3,395
Accounts receivable, net	210,107	237,128
Fair value of derivatives	25,761	21,332
Other current assets	35,406	35,783
Total current assets	274,644	297,638
Oil and natural gas properties, successful efforts accounting method:


Proved properties, net	4,999,527	4,851,529
Unproved properties	1,227,575	1,225,768
Total oil and natural gas properties, net	6,227,102	6,077,297

Other property and equipment, net	28,719	26,152
Deferred income taxes	45,669	—
Deferred financing costs	17,152	18,822

Other assets, net	58,379	68,560
Total assets	$6,651,665	$6,488,469
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$550,923	$536,233


Fair value of derivatives	570	16,197
Other current liabilities	146,195	150,384
Total current liabilities	697,688	702,814
Long-term debt	2,204,514	2,241,295

Asset retirement obligations	55,023	53,892

Fair value of derivatives	6,594	13,415
Other long-term liabilities	38,088	51,272
Total liabilities	3,001,907	3,062,688
Commitments and contingencies
Stockholders’ equity:
Common stock, $0.01 par value, 130,000,000 shares authorized; 61,625,170 and 61,621,518 shares outstanding, respectively	616	616
Capital in excess of par value	4,025,533	4,022,194
Accumulated deficit	(376,391)	(597,029)
Total stockholders’ equity	3,649,758	3,425,781
Total liabilities and stockholders’ equity	$6,651,665	$6,488,469

*Financial information for the prior period has been recast to reflect retrospective application of the successful efforts method of accounting. See “Note 2 - Summary of Significant Accounting Policies” for additional information.

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

Callon Petroleum Company

Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended March 31,
	2023	2022*
Operating Revenues:
Oil	$409,556	$553,249
Natural gas	23,586	43,976
Natural gas liquids	43,370	67,618
Sales of purchased oil and gas	83,534	112,375
Total operating revenues	560,046	777,218

Operating Expenses:
Lease operating	75,102	67,328
Production and ad valorem taxes	32,721	37,678
Gathering, transportation and processing	25,977	20,775
Exploration	2,232	1,885
Cost of purchased oil and gas	86,061	111,271
Depreciation, depletion and amortization	125,965	113,643
General and administrative	27,798	27,057

Merger, integration and transaction	—	769

Total operating expenses	375,856	380,406
Income From Operations	184,190	396,812

Other (Income) Expenses:
Interest expense	46,306	47,096
(Gain) loss on derivative contracts	(25,645)	358,300

Other (income) expense	(6,414)	(782)
Total other (income) expense	14,247	404,614

Income (Loss) Before Income Taxes	169,943	(7,802)
Income tax benefit	50,695	87
Net Income (Loss)	$220,638	($7,715)

Net Income (Loss) Per Common Share:
Basic	$3.58	($0.13)
Diluted	$3.57	($0.13)

Weighted Average Common Shares Outstanding:
Basic	61,625	61,487
Diluted	61,874	61,487

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

Callon Petroleum Company

Consolidated Statements of Stockholders’ Equity

(In thousands)

(Unaudited)


	Common		Capital in		Total
	Stock		Excess	Accumulated	Stockholders’
	Shares	$	of Par	Deficit	Equity


Balance at December 31, 2022*	61,622	$616	$4,022,194	($597,029)	$3,425,781
Net income	—	—	—	220,638	220,638
Restricted stock units	3	—	3,339	—	3,339


Balance at March 31, 2023	61,625	$616	$4,025,533	($376,391)	$3,649,758


	Common		Capital in		Total
	Stock		Excess	Accumulated	Stockholders’
	Shares	$	of Par	Deficit	Equity
Previously reported at December 31, 2021	61,371	$614	$4,012,358	($2,147,204)	$1,865,768
Effect of change in accounting principle	—	—	—	530,732	530,732
Balance at December 31, 2021 as recast*	61,371	614	4,012,358	(1,616,472)	2,396,500
Net loss	—	—	—	(7,715)	(7,715)
Restricted stock units	6	—	2,790	—	2,790
Common stock issued for Primexx Acquisition	117	1	6,294	—	6,295
Balance at March 31, 2022*	61,494	$615	$4,021,442	($1,624,187)	$2,397,870

*Financial information for prior periods has been recast to reflect retrospective application of the successful efforts method of accounting. See “Note 2 - Summary of Significant Accounting Policies” for additional information.

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

Callon Petroleum Company

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Three Months Ended March 31,
Cash flows from operating activities:	2023	2022*
Net income (loss)	$220,638	($7,715)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	125,965	113,643

Amortization of non-cash debt related items, net	2,631	3,749
Deferred income tax benefit	(51,977)	—
(Gain) loss on derivative contracts	(25,645)	358,300
Cash paid for commodity derivative settlements, net	(779)	(101,525)


Non-cash expense related to share-based awards	1,881	6,043


Other, net	(1,184)	2,894
Changes in current assets and liabilities:
Accounts receivable	24,019	(109,830)
Other current assets	(1,618)	(4,180)
Accounts payable and accrued liabilities	(46,018)	(13,558)


Net cash provided by operating activities	247,913	247,821
Cash flows from investing activities:
Capital expenditures	(204,900)	(168,270)
Acquisition of oil and gas properties	(5,991)	(9,168)

Proceeds from sales of assets	2,054	4,484
Cash paid for settlement of contingent consideration arrangement	—	(19,171)
Other, net	(1,072)	3,635
Net cash used in investing activities	(209,909)	(188,490)
Cash flows from financing activities:
Borrowings on credit facility	669,500	673,000
Payments on credit facility	(707,200)	(746,000)










Payment of deferred financing costs	(42)	—


Other, net	(287)	7,937
Net cash used in financing activities	(38,029)	(65,063)
Net change in cash and cash equivalents	(25)	(5,732)
Balance, beginning of period	3,395	9,882
Balance, end of period	$3,370	$4,150

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

Index to the Notes to the Consolidated Financial Statements


1.	Description of Business	9.	Derivative Instruments and Hedging Activities
2.	Summary of Significant Accounting Policies	10.	Fair Value Measurements
3.	Change in Accounting Principle	11.	Income Taxes
4.	Revenue Recognition	12.	Share-Based Compensation
5.	Acquisitions and Divestitures	13.	Accounts Receivable, Net
6.	Property and Equipment, Net	14.	Accounts Payable and Accrued Liabilities
7.	Earnings Per Share	15.	Supplemental Cash Flow
8.	Borrowings	16.	Subsequent Events

Note 1 — Description of Business

Callon Petroleum Company is an independent oil and natural gas company focused on the acquisition, exploration and development of high-quality assets in the leading oil plays of South and West Texas. As used herein, the “Company,” “Callon,” “we,” “us,” and “our” refer to Callon Petroleum Company and its predecessors and subsidiaries unless the context requires otherwise.

The Company’s activities are primarily focused on horizontal development in the Midland and Delaware Basins, both of which are part of the larger Permian Basin in West Texas, as well as the Eagle Ford in South Texas. The Company’s primary operations in the Permian reflect a high-return, oil-weighted drilling inventory with multiple prospective horizontal development intervals and are complemented by a well-established, cash flow-generating business in the Eagle Ford.

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited interim consolidated financial statements include the accounts of the Company after elimination of intercompany transactions and balances. These financial statements have been prepared pursuant to the rules and regulations of the SEC and therefore do not include all disclosures required for financial statements prepared in conformity with GAAP. In the opinion of management, these financial statements reflect all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial position, results of operations and cash flows. However, the results of operations for the periods presented are not necessarily indicative of the results of operations that may be expected for the full year. Certain reclassifications have been made to prior period amounts to conform to the current period presentation. Such reclassifications did not have a material impact on prior period financial statements.

Significant Accounting Policies

The Company’s significant accounting policies are described in “Note 2 — Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in its 2022 Annual Report and are supplemented by the notes included in this Form 10-Q. The financial statements and related notes included in this Form 10-Q should be read in conjunction with the Company’s 2022 Annual Report.

Recast Financial Information for Change in Accounting Principle

In the first quarter of 2023, the Company voluntarily changed its method of accounting for its oil and gas exploration and development activities from the full cost method to the successful efforts method of accounting. Accordingly, the financial information for prior periods has been recast to reflect retrospective application of the successful efforts method, as prescribed by the FASB Accounting Standards Codification (“ASC”) 932 “Extractive Activities — Oil and Gas.” Although the full cost method of accounting continues to be an accepted alternative, the successful efforts method of accounting is the generally preferred method of the SEC and, because it is more widely used in the industry, the Company expects the change to improve the comparability of its financial statements to its peers. The Company also believes the successful efforts method provides a more representational depiction of assets and operating results and provides for its investments in oil and natural gas properties to be assessed for impairment in accordance with ASC Topic 360 “Property Plant and Equipment,” rather than valuations based on prices and costs prescribed under the full cost method as of the balance sheet date. As required by ASC 250 “Accounting Changes and Error Corrections”, the Company has presented the accumulated effect of the change in accounting principle as a change in the beginning balance of retained earnings (accumulated deficit) of the earliest period presented in the consolidated financial statements. For detailed information regarding the effects of the change to the successful efforts method, see “Note 3 — Change in Accounting Principle.”

Oil and Gas Property

Proved oil and gas properties. The Company follows the successful efforts method of accounting for its oil and gas properties. Under this method, drilling and completion costs, including lease and well equipment, intangible development costs, and operational support facilities in the field, associated with development wells are capitalized to proved oil and gas properties and are depleted on an asset group basis (properties aggregated based on geographical and geological characteristics) using the units-of-production method based

on estimated proved developed oil and gas reserves. The calculation of depletion expense takes into consideration estimated asset retirement costs, net of estimated salvage values.

Proved oil and gas properties are assessed for impairment on an asset group basis whenever events and circumstances indicate that there could be a possible decline in the recoverability of the net book value of such property. The Company estimates the expected future net cash flows of its proved oil and gas properties and compares these undiscounted cash flows to the net book value of the proved oil and gas properties to determine if the net book value is recoverable. If the net book value exceeds the estimated undiscounted future net cash flows, the Company will recognize an impairment to reduce the net book value of the proved oil and gas properties to fair value. The factors used to determine fair value include, but are not limited to, estimates of reserves, future commodity prices, future production estimates, estimated future development costs and operating costs, and discount rates, which are based on a weighted average cost of capital. There were no impairments of proved oil and gas properties for the three months ended March 31, 2023 or 2022.

The partial sale of a proved property within an existing asset group is accounted for as a normal retirement and no net gain or loss on divestiture is recognized as long as the treatment does not significantly alter the units-of-production depletion rate. The sale of a partial interest in an individual proved property is accounted for as a recovery of cost. A net gain or loss on divestiture is recognized in the consolidated statements of operations for all other sales of proved properties.

Unproved oil and gas properties. Unproved oil and gas properties consist of costs incurred in obtaining a mineral interest or a right in a property such as a lease, in addition to broker fees, recording fees and other similar costs. Leasehold costs are classified as unproved until proved reserves are discovered on or otherwise attributed to the property, at which time the related unproved oil and gas property costs are reclassified to proved oil and gas properties and depleted on an asset group basis using the units-of-production method based on estimated total proved oil and gas reserves.

The Company evaluates significant unproved oil and gas property costs for impairment based on remaining lease term, drilling results, reservoir performance, seismic interpretation or changes in future plans to develop acreage. Unproved oil and gas properties that are not individually significant are aggregated by asset group, and the portion of such costs estimated to be nonproductive prior to lease expiration is amortized over the average holding period. The estimate of what could be nonproductive is based on the Company’s historical experience or other information, including current drilling plans and existing geological data. Impairment and amortization of unproved oil and gas properties are recognized as “Impairment of oil and gas properties” in the consolidated statements of operations.

Exploratory. Exploratory costs, including personnel and other internal costs, geological and geophysical expenses and delay rentals for oil and gas leases, are expensed as incurred. Exploratory well costs are initially capitalized pending the determination of whether proved reserves have been discovered. If proved reserves are discovered, exploratory well costs are capitalized as proved oil and gas properties. If proved reserves are not found, exploratory well costs are expensed as dry holes. The application of the successful efforts method of accounting requires management’s judgment to determine the proper designation of wells as either development or exploratory, which will ultimately determine the proper accounting treatment of costs of dry holes.

Capitalized interest. The Company capitalizes interest on expenditures made in connection with exploration and development projects that meet certain thresholds and are not subject to current amortization. For projects that meet these thresholds, interest is capitalized only for the period that activities are in process to bring the projects to their intended use. Capitalized interest cannot exceed interest expense for the period capitalized. During the three months ended March 31, 2023 and 2022, the Company did not have any projects that met the thresholds, therefore, had no capitalized interest.

Subsequent Events

The Company evaluates subsequent events through the date the financial statements are issued. See “Note 16 — Subsequent Events” for further discussion.

Note 3 — Change in Accounting Principle

In the first quarter of 2023, the Company voluntarily changed its method of accounting for oil and natural gas exploration and development activities from the full cost method to the successful efforts method. Accordingly, financial information for prior periods has been recast to reflect retrospective application of the successful efforts method. In general, under successful efforts, exploration costs such as exploratory dry holes, exploratory geophysical and geological costs, delay rentals, unproved leasehold impairments and exploration overhead are expensed as incurred as opposed to being capitalized under the full cost method of accounting. The successful efforts method also provides for the assessment of potential proved oil and gas property impairments by comparing the net book value of proved oil and gas properties to associated estimated undiscounted future net cash flows. If the net book value exceeds the estimated undiscounted future net cash flows, an impairment is recorded to reduce the net book value to fair value. Under the full cost method of accounting, an impairment would be required if the net book value of oil and natural gas properties exceeds a full cost ceiling using an unweighted arithmetic average of commodity prices in effect on the first day of each of the previous 12 months. In addition, gains or losses, if applicable, are recognized more frequently on the divestitures of oil and gas properties under the successful efforts method, as opposed to an adjustment to the net book value of the oil and gas properties under the full cost method.

The following tables present the effects of the change to the successful efforts method in the consolidated balance sheets:


	As of March 31, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Oil and natural gas properties:
Proved properties	$10,647,471	($1,107,849)	$9,539,622
Accumulated depreciation, depletion, amortization and impairments	(6,464,299)	1,924,204	(4,540,095)
Unproved properties	1,744,649	(517,074)	1,227,575
Total oil and gas properties, net	5,927,821	299,281	6,227,102
Deferred income taxes	72,323	(26,654)	45,669
Total assets	$6,379,038	$272,627	$6,651,665
Stockholders’ equity:
Accumulated deficit	(649,018)	272,627	(376,391)
Total stockholders' equity	3,377,131	272,627	3,649,758
Total liabilities and stockholders' equity	$6,379,038	$272,627	$6,651,665


	As of December 31, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Oil and natural gas properties:
Proved properties	$10,367,478	($1,099,343)	$9,268,135
Accumulated depreciation, depletion, amortization and impairments	(6,343,875)	1,927,269	(4,416,606)
Unproved properties	1,711,306	(485,538)	1,225,768
Total oil and gas properties, net	5,734,909	342,388	6,077,297
Total assets	$6,146,081	$342,388	$6,488,469
Deferred income taxes (1)	4,279	2,029	6,308
Stockholders’ equity:
Accumulated deficit	(937,388)	340,359	(597,029)
Total stockholders' equity	3,085,422	340,359	3,425,781
Total liabilities and stockholders' equity	$6,146,081	$342,388	$6,488,469

(1) Included in “Other long-term liabilities” in the consolidated balance sheets.

The following tables present the effects of the change to the successful efforts method in the consolidated statements of operations:


	Three Months Ended March 31, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share data)
Operating Expenses:
Exploration	$—	$2,232	$2,232
Depreciation, depletion and amortization	122,900	3,065	125,965
General and administrative	17,140	10,658	27,798
Income From Operations	200,145	(15,955)	184,190

Other Expenses:
Interest expense	19,153	27,153	46,306

Income Before Income Taxes	213,050	(43,107)	169,943
Income tax benefit (expense)	75,320	(24,625)	50,695
Net Income	$288,370	($67,732)	$220,638
Net Income Per Common Share:
Basic	$4.68		$3.58
Diluted	$4.66		$3.57


	Three Months Ended March 31, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands, except per share data)
Operating Expenses:
Exploration	$—	$1,885	$1,885
Depreciation, depletion and amortization	102,979	10,664	113,643
General and administrative	17,121	9,936	27,057
Income From Operations	419,297	(22,485)	396,812

Other Expenses:
Interest expense	21,558	25,538	47,096

Income (Loss) Before Income Taxes	40,221	(48,023)	(7,802)
Income tax benefit (expense)	(484)	571	87
Net Income (Loss)	$39,737	($47,452)	($7,715)
Net Income (Loss) Per Common Share:
Basic	$0.65		($0.13)
Diluted	$0.64		($0.13)

The following tables present the effects of the change to the successful efforts method in the consolidated statements of cash flows:


	Three Months Ended March 31, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Cash flows from operating activities:
Net income	$288,370	($67,732)	$220,638
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	122,900	3,065	125,965
Amortization of non-cash debt related items, net	1,088	1,543	2,631
Deferred income tax benefit	(76,602)	24,625	(51,977)
Non-cash expense related to share-based awards	757	1,124	1,881




Net cash provided by operating activities	285,288	(37,375)	247,913
Cash flows from investing activities:
Capital expenditures	(240,043)	35,143	(204,900)
Acquisition of oil and gas properties	(8,223)	2,232	(5,991)
Net cash used in investing activities	(247,284)	37,375	(209,909)
Net change in cash and cash equivalents	(25)	—	(25)
Balance, beginning of period	3,395	—	3,395
Balance, end of period	$3,370	$—	$3,370


	Three Months Ended March 31, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Cash flows from operating activities:
Net income (loss)	$39,737	($47,452)	($7,715)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization	102,979	10,664	113,643
Amortization of non-cash debt related items, net	1,716	2,033	3,749

Non-cash expense related to share-based awards	4,166	1,877	6,043
Changes in current assets and liabilities:


Accounts payable and accrued liabilities	(12,987)	(571)	(13,558)
Net cash provided by operating activities	281,270	(33,449)	247,821
Cash flows from investing activities:
Capital expenditures	(201,478)	33,208	(168,270)
Acquisition of oil and gas properties	(9,409)	241	(9,168)
Net cash used in investing activities	(221,939)	33,449	(188,490)
Net change in cash and cash equivalents	(5,732)	—	(5,732)
Balance, beginning of period	9,882	—	9,882
Balance, end of period	$4,150	$—	$4,150

The following tables present the effects of the change to the successful efforts method in the consolidated statements of stockholders’ equity:


	As of March 31, 2023
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Accumulated deficit	($649,018)	$272,627	($376,391)
Total stockholders’ equity	$3,377,131	$272,627	$3,649,758


	As of December 31, 2022
	Under Full Cost	Changes	Under Successful Efforts
	(In thousands)
Accumulated deficit	($937,388)	$340,359	($597,029)
Total stockholders’ equity	$3,085,422	$340,359	$3,425,781

Note 4 — Revenue Recognition

Revenue from Contracts with Customers

The Company recognizes oil, natural gas, and NGL production revenue at the point in time when control of the product transfers to the purchaser, which differs depending on the applicable contractual terms. Transfer of control also drives the presentation of gathering, transportation and processing expenses in the consolidated statements of operations. See “Note 3 — Revenue Recognition” of the Notes to Consolidated Financial Statements in the 2022 Annual Report for more information regarding the types of contracts under which oil, natural gas, and NGL production revenue is generated.

Oil and Gas Purchase and Sale Arrangements

The Company proactively evaluates development plans and looks to enter into pipeline transportation contracts to mitigate market exposures and help ensure certainty of flow for its oil and gas production, in some cases multiple years in advance of development. Additionally, as the Company looks to optimize its operations and reduce exposures, in certain instances, the Company purchases oil and gas from third parties which is utilized to fulfill portions of its pipeline commitments. Sales of purchased oil and gas represent revenues the Company receives from sales of commodities purchased from a third-party. The Company recognizes these revenues and the purchase of the third-party commodities, as well as any costs associated with the purchase, on a gross basis, as the Company acts as a principal in these transactions by assuming control of the purchased commodity before it is transferred to the customer.

Accounts Receivable from Revenues from Contracts with Customers

Net accounts receivable include amounts billed and currently due from revenues from contracts with customers of our oil and natural gas production, which had a balance at March 31, 2023 and December 31, 2022 of $153.4 million and $174.1 million, respectively, and are presented in “Accounts receivable, net” in the consolidated balance sheets.

Prior Period Performance Obligations

The Company records revenue in the month production is delivered to the purchaser. However, settlement statements for sales may not be received for 30 to 90 days after the date production is delivered, and as a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the product. The Company records the differences between estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. The Company has existing internal controls for its revenue estimation process and related accruals, and any identified differences between its revenue estimates and actual revenue received historically have not been significant.

Note 5 — Acquisitions and Divestitures

The Company did not have any material acquisitions or divestitures during the three months ended March 31, 2023 or 2022.

Note 6 — Property and Equipment, Net

As of March 31, 2023 and December 31, 2022, total property and equipment, net consisted of the following:


	March 31, 2023	December 31, 2022*
Oil and natural gas properties, successful efforts accounting method	(In thousands)
Proved properties	$9,539,622	$9,268,135
Accumulated depreciation, depletion, amortization and impairments	(4,540,095)	(4,416,606)
Proved properties, net	4,999,527	4,851,529
Unproved properties	1,227,575	1,225,768
Total oil and natural gas properties, net	$6,227,102	$6,077,297

Other property and equipment	$43,486	$40,530
Accumulated depreciation	(14,767)	(14,378)
Other property and equipment, net	$28,719	$26,152

Note 7 — Earnings Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares outstanding for the periods presented. The calculation of diluted earnings per share includes the potential dilutive impact of non-vested restricted stock units outstanding during the periods presented, as calculated using the treasury stock method, unless their effect is anti-dilutive. For the three months ended March 31, 2022, the Company reported a net loss. As a result, the calculation of diluted weighted average common shares outstanding excluded all potentially dilutive common shares outstanding.

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended March 31,
	2023	2022*
	(In thousands, except per share amounts)



Net Income (Loss)	$220,638	($7,715)
Basic weighted average common shares outstanding	61,625	61,487
Dilutive impact of restricted stock units	249	—

Diluted weighted average common shares outstanding	61,874	61,487

Net Income (Loss) Per Common Share
Basic	$3.58	($0.13)
Diluted	$3.57	($0.13)

Restricted stock units (1)	42	980
Warrants (1)	481	481

(1) Shares excluded from the diluted earnings per share calculation because their effect would be anti-dilutive.

Note 8 — Borrowings

The Company’s borrowings consisted of the following:


	March 31, 2023	December 31, 2022
	(In thousands)
8.25% Senior Notes due 2025	$187,238	$187,238
6.375% Senior Notes due 2026	320,783	320,783
Senior Secured Revolving Credit Facility due 2027	465,300	503,000
8.0% Senior Notes due 2028	650,000	650,000
7.5% Senior Notes due 2030	600,000	600,000
Total principal outstanding	2,223,321	2,261,021
Unamortized premium on 8.25% Senior Notes	1,524	1,715
Unamortized deferred financing costs for Senior Notes	(20,331)	(21,441)
Total carrying value of borrowings (1)	$2,204,514	$2,241,295

(1) Excludes unamortized deferred financing costs related to the Company’s senior secured revolving credit facility of $17.2 million and $18.8 million as of March 31, 2023 and December 31, 2022, respectively, which are classified in “Deferred financing costs” in the consolidated balance sheets.

Senior Secured Revolving Credit Facility

The Company has a senior secured revolving credit facility with a syndicate of lenders (the “Credit Facility”) that, as of March 31, 2023, had a maximum credit amount of $5.0 billion, a borrowing base of $2.0 billion and an elected commitment amount of $1.5 billion, with borrowings outstanding of $465.3 million at a weighted-average interest rate of 6.87%, and letters of credit outstanding of $16.4 million. The credit agreement governing the Credit Facility (the “Credit Agreement”) provides for interest-only payments until October 19, 2027 when the Credit Agreement matures and any outstanding borrowings are due.

Borrowings outstanding under the Credit Agreement bear interest at the Company’s option at either (i) a base rate for a base rate loan plus a margin between 0.75% to 1.75%, where the base rate is defined as the greatest of the prime rate, the federal funds rate plus 0.50%, and the SOFR plus 0.1% (“Adjusted SOFR”) for a one month period plus 1.00%, or (ii) an Adjusted SOFR plus a margin between 1.75% to 2.75%. The Company also incurs commitment fees at rates ranging between 0.375% to 0.500% on the unused portion of lender commitments, which are included in “Interest expense” in the consolidated statements of operations.

The borrowing base under the Credit Agreement is subject to regular redeterminations in the spring and fall of each year, as well as special redeterminations described in the Credit Agreement, which in each case may reduce the amount of the borrowing base. On May 1, 2023, as part of the Company’s spring 2023 redetermination, the borrowing base of $2.0 billion and elected commitment amount of $1.5 billion were reaffirmed.

Covenants

The Company’s Credit Facility and the indentures governing the 8.25% Senior Notes due 2025, the 6.375% Senior Notes due 2026, the 8.0% Senior Notes due 2028, and the 7.5% Senior Notes due 2030 (collectively, the “Senior Notes”) limit the Company and certain of its subsidiaries with respect to the amount of additional indebtedness, liens, dividends and other payments to shareholders, repurchases or redemptions of the Company’s common stock, redemptions of senior notes, investments, acquisitions, mergers, asset dispositions, transactions with affiliates, hedging transactions and other matters, along with maintenance of certain financial ratios.

Under the Credit Agreement, the Company must maintain the following financial covenants determined as of the last day of the quarter: (1) a Leverage Ratio (as defined in the Credit Agreement) of no more than 3.50 to 1.00 and (2) a Current Ratio (as defined in the Credit Agreement) of not less than 1.00 to 1.00. The Company was in compliance with these covenants at March 31, 2023.

The Credit Agreement and indentures are subject to customary events of default. If an event of default occurs and is continuing, the holders or lenders may elect to accelerate amounts due (except in the case of a bankruptcy event of default, in which case such amounts will automatically become due and payable).

Note 9 — Derivative Instruments and Hedging Activities

Objectives and Strategies for Using Derivative Instruments

The Company is exposed to fluctuations in oil, natural gas and NGL prices received for its production. Consequently, the Company believes it is prudent to manage the variability in cash flows on a portion of its oil, natural gas and NGL production. The Company utilizes a mix of collars, swaps, put and call options, and basis differential swaps to manage fluctuations in cash flows resulting from changes in commodity prices. The Company does not use these instruments for speculative or trading purposes.

Counterparty Risk and Offsetting

The Company typically has numerous commodity derivative instruments outstanding with a counterparty that were executed at various dates, for various contract types, commodities and time periods. This often results in both commodity derivative asset and liability positions with that counterparty. The Company nets its commodity derivative instrument fair values executed with the same counterparty to a single asset or liability pursuant to International Swap Dealers Association Master Agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. In general, if a party to a derivative transaction incurs an event of default, as defined in the applicable agreement, the other party will have the right to demand the posting of collateral, demand a cash payment transfer or terminate the arrangement.

The Company strives to minimize its credit exposure to any individual counterparty and, as such, the Company has outstanding commodity derivative instruments with ten counterparties as of March 31, 2023. All of the counterparties to the Company’s commodity derivative instruments are also lenders under the Company’s Credit Facility. Therefore, each of the Company’s counterparties allow the Company to satisfy any need for margin obligations associated with commodity derivative instruments where the Company is in a net liability position with the collateral securing the Credit Facility, thus eliminating the need for independent collateral posting.

Because each of the Company’s counterparties has an investment grade credit rating, the Company believes it does not have significant credit risk and accordingly does not currently require its counterparties to post collateral to support the net asset positions of its commodity derivative instruments. Although the Company does not currently anticipate nonperformance from its counterparties, it continually monitors the credit ratings of each counterparty.

While the Company monitors counterparty creditworthiness on an ongoing basis, it cannot predict sudden changes in counterparties’ creditworthiness. In addition, even if such changes are not sudden, the Company may be limited in its ability to mitigate an increase in counterparty credit risk. Should one of these counterparties not perform, the Company may not realize the benefit of some of its derivative instruments under lower commodity prices while continuing to be obligated under higher commodity price contracts subject to any right of offset under the agreements. Counterparty credit risk is considered when determining the fair value of a derivative instrument. See “Note 10 — Fair Value Measurements” for further discussion.

Financial Statement Presentation and Settlements

The Company records its derivative instruments at fair value in the consolidated balance sheets and records changes in fair value, as well as settlements during the period, as “(Gain) loss on derivative contracts” in the consolidated statements of operations. The Company presents the fair value of derivative contracts on a net basis in the consolidated balance sheets as they are subject to master netting arrangements. The following presents the impact of this presentation to the Company’s recognized assets and liabilities for the periods indicated:


	As of March 31, 2023
	Presented without		As Presented with
	Effects of Netting	Effects of Netting	Effects of Netting
	(In thousands)
Derivative Assets
Fair value of derivatives - current	$40,838	($15,077)	$25,761
Other assets, net	$307	($307)	$—

Derivative Liabilities
Fair value of derivatives - current	($15,647)	$15,077	($570)
Fair value of derivatives - non-current	($6,901)	$307	($6,594)


	As of December 31, 2022
	Presented without		As Presented with
	Effects of Netting	Effects of Netting	Effects of Netting
	(In thousands)
Derivative Assets
Fair value of derivatives - current	$51,984	($30,652)	$21,332
Other assets, net	$1,343	($889)	$454

Derivative Liabilities
Fair value of derivatives - current	($46,849)	$30,652	($16,197)
Fair value of derivatives - non-current	($14,304)	$889	($13,415)

The components of “(Gain) loss on derivative contracts” are as follows for the respective periods:


	Three Months Ended March 31,
	2023	2022
	(In thousands)
(Gain) loss on oil derivatives	($23,344)	$325,348
(Gain) loss on natural gas derivatives	(2,301)	28,181
Loss on NGL derivatives	—	4,771


(Gain) loss on derivative contracts	($25,645)	$358,300

The components of “Cash received (paid) for commodity derivative settlements, net” and “Cash received (paid) for settlements of contingent consideration arrangements, net” are as follows for the respective periods:


	Three Months Ended March 31,
	2023	2022
	(In thousands)
Cash flows from operating activities
Cash paid on oil derivatives	($7,398)	($95,353)
Cash received (paid) on natural gas derivatives	6,619	(4,644)
Cash paid on NGL derivatives	—	(1,528)
Cash paid for commodity derivative settlements, net	($779)	($101,525)
Cash received for settlements of contingent consideration arrangements, net (1)	$—	$6,492

Cash flows from investing activities
Cash paid for settlement of contingent consideration arrangement (1)	$—	($19,171)

Cash flows from financing activities
Cash received for settlement of contingent consideration arrangement (1)	$—	$8,512

(1) See “Note 8 — Derivative Instruments and Hedging Activities” of the Notes to Consolidated Financial Statements in our 2022 Annual Report for discussion of the Company’s contingent consideration arrangements.

Derivative Positions

Listed in the tables below are the outstanding oil and natural gas derivative contracts as of March 31, 2023:


	For the Remainder	For the Full Year
Oil Contracts (WTI)	2023	2024
Swap Contracts
Total volume (Bbls)	866,500	—
Weighted average price per Bbl	$80.41	$—
Collar Contracts (Three-Way Collars)
Total volume (Bbls)	1,375,000	—
Weighted average price per Bbl
Ceiling (short call)	$90.00	$—
Floor (long put)	$70.00	$—
Floor (short put)	$50.00	$—
Collar Contracts (Two-Way Collars)
Total volume (Bbls)	1,555,000	—
Weighted average price per Bbl
Ceiling (short call)	$86.35	$—
Floor (long put)	$71.70	$—






Short Call Swaption Contracts (1)
Total volume (Bbls)	—	1,830,000
Weighted average price per Bbl	$—	$80.30

(1) The 2024 short call swaption contracts have exercise expiration dates of December 29, 2023.


	For the Remainder	For the Full Year
Natural Gas Contracts (Henry Hub)	2023	2024
Swap Contracts
Total volume (MMBtu)	5,520,000	—
Weighted average price per MMBtu	$3.70	$—
Collar Contracts
Total volume (MMBtu)