Change in Accounting Principle |
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 “Impairment of oil and gas properties” and “Gain on sale of oil and gas properties” line items presented in the tables below are in connection with the sale of all of the Company’s interests of Callon (Eagle Ford) LLC to Ridgemar Energy Operating, LLC. See “Note 5 — Acquisitions and Divestitures” for additional details.
The following tables present the effects of the change to the successful efforts method in the consolidated balance sheets:
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As of December 31, 2023 |
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Under Full Cost |
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Changes |
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Under Successful Efforts |
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(In thousands) |
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Oil and natural gas properties: |
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Proved properties |
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$11,661,279 |
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($2,004,174) |
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$9,657,105 |
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Accumulated depreciation, depletion, amortization and impairments |
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(6,881,323) |
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2,311,191 |
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(4,570,132) |
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Unproved properties |
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1,559,952 |
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(496,919) |
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1,063,033 |
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Total oil and gas properties, net |
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6,339,908 |
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(189,902) |
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6,150,006 |
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Deferred income taxes |
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136,144 |
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44,819 |
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180,963 |
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Total assets |
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$6,856,559
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($145,083) |
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$6,711,476
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Stockholders’ equity: |
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Accumulated deficit |
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(50,745) |
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(145,083) |
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(195,828) |
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Total stockholders' equity |
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4,136,444
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(145,083) |
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3,991,361
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Total liabilities and stockholders' equity |
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$6,856,559
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($145,083) |
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$6,711,476
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As of December 31, 2022 |
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Under Full Cost |
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Changes |
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Under Successful Efforts |
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(In thousands) |
Oil and natural gas properties: |
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Proved properties |
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$10,367,478 |
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($1,099,343) |
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$9,268,135 |
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Accumulated depreciation, depletion, amortization and impairments |
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(6,343,875) |
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1,927,269 |
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(4,416,606) |
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Unproved properties |
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1,711,306 |
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(485,538) |
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1,225,768 |
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Total oil and gas properties, net |
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5,734,909 |
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342,388 |
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6,077,297 |
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Total assets |
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$6,146,081
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$342,388
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$6,488,469
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Deferred income taxes (1)
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4,279 |
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2,029 |
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6,308 |
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Stockholders’ equity: |
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Accumulated deficit |
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(937,388) |
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340,359 |
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(597,029) |
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Total stockholders' equity |
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3,085,422
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340,359
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3,425,781
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Total liabilities and stockholders' equity |
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$6,146,081
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$342,388
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$6,488,469
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(1) Included in “Other long-term liabilities” in the consolidated balance sheets.
The following tables present the effects of the change to the successful efforts method in the consolidated statements of operations:
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Year Ended December 31, 2023 |
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Under Full Cost |
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Changes |
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Under Successful Efforts |
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(In thousands, except per share amounts) |
Operating Expenses: |
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Exploration |
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$— |
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$9,143 |
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$9,143 |
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Depreciation, depletion and amortization |
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545,144 |
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(9,483) |
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535,661 |
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Impairment of oil and gas properties |
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— |
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406,898 |
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406,898 |
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Gain on sale of oil and gas properties |
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— |
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(23,476) |
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(23,476) |
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General and administrative |
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77,464 |
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37,880 |
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115,344 |
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Income From Operations |
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784,840
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(420,962) |
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363,878
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Other Expenses: |
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Interest expense |
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67,977 |
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111,328 |
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179,305 |
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Income Before Income Taxes |
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743,683
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(532,290) |
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211,393
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Income tax benefit |
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142,960 |
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46,848 |
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189,808 |
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Net Income |
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$886,643
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($485,442) |
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$401,201
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Net Income Per Common Share: |
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Basic |
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$13.71 |
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$6.20 |
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Diluted |
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$13.67 |
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$6.19 |
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Year Ended December 31, 2022 |
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Under Full Cost |
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Changes |
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Under Successful Efforts |
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(In thousands, except per share amounts) |
Operating Expenses: |
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Exploration |
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$— |
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$9,703 |
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$9,703 |
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Depreciation, depletion and amortization |
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466,517 |
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27,712 |
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494,229 |
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Impairment of oil and gas properties |
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— |
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2,201 |
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2,201 |
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General and administrative |
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57,393 |
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40,603 |
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97,996 |
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Income From Operations |
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1,680,532
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(80,219) |
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1,600,313
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Other Expenses: |
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Interest expense |
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79,667 |
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108,125 |
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187,792 |
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Income Before Income Taxes |
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1,221,609
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(188,344) |
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1,033,265
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Income tax expense |
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(11,793) |
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(2,029) |
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(13,822) |
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Net Income |
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$1,209,816
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($190,373) |
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$1,019,443
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Net Income Per Common Share: |
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Basic |
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$19.63 |
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$16.54 |
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Diluted |
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$19.54 |
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$16.47 |
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Year Ended December 31, 2021 |
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Under Full Cost |
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Changes |
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Under Successful Efforts |
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(In thousands, except per share amounts) |
Operating Expenses: |
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Exploration |
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$— |
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$6,470 |
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$6,470 |
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Depreciation, depletion and amortization |
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356,556 |
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32,056 |
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388,612 |
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Impairment of oil and gas properties |
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— |
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52,295 |
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52,295 |
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General and administrative |
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50,483 |
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41,122 |
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91,605 |
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Income From Operations |
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1,038,343
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(131,943) |
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906,400
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Other Expenses: |
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Interest expense |
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102,012 |
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99,647 |
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201,659 |
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Income Before Income Taxes |
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365,331
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(231,590) |
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133,741
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Income tax expense |
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(180) |
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— |
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(180) |
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Net Income |
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$365,151
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($231,590) |
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$133,561
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Net Income Per Common Share: |
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Basic |
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$7.51 |
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$2.75 |
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Diluted |
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$7.26 |
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$2.65 |
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The following tables present the effects of the change to the successful efforts method in the consolidated statements of cash flows:
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Year Ended December 31, 2023 |
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Under Full Cost |
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Changes |
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Under Successful Efforts |
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(In thousands) |
Cash flows from operating activities: |
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Net income |
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$886,643 |
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($485,442) |
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$401,201 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation, depletion and amortization |
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545,144 |
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(9,483) |
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535,661 |
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Impairment of oil and gas properties |
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— |
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406,898 |
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406,898 |
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Amortization of non-cash debt related items, net |
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4,064 |
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6,726 |
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10,790 |
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Deferred income tax benefit |
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(140,422) |
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(46,848) |
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(187,270) |
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Gain on sale of oil and gas properties |
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— |
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(23,476) |
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(23,476) |
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Non-cash expense related to share-based awards |
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4,019 |
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7,394 |
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11,413 |
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Net cash provided by operating activities |
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1,236,760
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(144,231) |
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1,092,529
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Cash flows from investing activities: |
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Capital expenditures |
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(1,104,070) |
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135,088 |
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(968,982) |
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Acquisition of oil and gas properties |
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(297,082) |
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9,143 |
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(287,939) |
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Net cash used in investing activities |
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(851,542) |
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144,231
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(707,311) |
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Net change in cash and cash equivalents |
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(70) |
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— |
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(70) |
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Balance, beginning of period |
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3,395 |
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— |
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3,395 |
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Balance, end of period |
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$3,325
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$—
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$3,325
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Year Ended December 31, 2022 |
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Under Full Cost |
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Changes |
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Under Successful Efforts |
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(In thousands) |
Cash flows from operating activities: |
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Net income |
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$1,209,816 |
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($190,373) |
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$1,019,443 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation, depletion and amortization |
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466,517 |
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27,712 |
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494,229 |
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Impairment of oil and gas properties |
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— |
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2,201 |
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2,201 |
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Amortization of non-cash debt related items, net |
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5,280 |
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7,052 |
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12,332 |
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Deferred income tax expense |
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4,279 |
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2,029 |
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6,308 |
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Non-cash expense related to share-based awards |
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2,507 |
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5,535 |
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8,042 |
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Net cash provided by operating activities |
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1,501,517
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(145,844) |
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1,355,673
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Cash flows from investing activities: |
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Capital expenditures |
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(992,985) |
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144,297 |
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(848,688) |
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Acquisition of oil and gas properties |
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(28,253) |
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|
1,547 |
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(26,706) |
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Net cash used in investing activities |
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(999,027) |
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145,844
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(853,183) |
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Net change in cash and cash equivalents |
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(6,487) |
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— |
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(6,487) |
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Balance, beginning of period |
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9,882 |
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— |
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9,882 |
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Balance, end of period |
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$3,395
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$—
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$3,395
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Year Ended December 31, 2021 |
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Under Full Cost |
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Changes |
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Under Successful Efforts |
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(In thousands) |
Cash flows from operating activities: |
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Net income |
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$365,151 |
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($231,590) |
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$133,561 |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation, depletion and amortization |
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356,556 |
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|
32,056 |
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|
388,612 |
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Impairment of oil and gas properties |
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— |
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|
52,295 |
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|
52,295 |
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Amortization of non-cash debt related items, net |
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10,124 |
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|
9,909 |
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|
20,033 |
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Deferred income tax expense |
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— |
|
|
— |
|
|
— |
|
Non-cash expense related to share-based awards |
|
12,923 |
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|
12,934 |
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|
25,857 |
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|
|
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Net cash provided by operating activities |
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974,143
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(124,396) |
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|
849,747
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Cash flows from investing activities: |
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|
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|
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Capital expenditures |
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(578,487) |
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|
124,126 |
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(454,361) |
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Acquisition of oil and gas properties |
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(493,732) |
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|
270 |
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(493,462) |
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Net cash used in investing activities |
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(876,400) |
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|
124,396
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|
|
(752,004) |
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Net change in cash and cash equivalents |
|
(10,354) |
|
|
— |
|
|
(10,354) |
|
Balance, beginning of period |
|
20,236 |
|
|
— |
|
|
20,236 |
|
Balance, end of period |
|
$9,882
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|
|
$—
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|
|
$9,882
|
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The following tables present the effects of the change to the successful efforts method in the consolidated statements of stockholders’ equity:
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As of December 31, 2023 |
|
|
Under Full Cost |
|
Changes |
|
Under Successful Efforts |
|
|
(In thousands) |
Accumulated deficit |
|
($50,745) |
|
|
($145,083) |
|
|
($195,828) |
|
Total stockholders’ equity |
|
$4,136,444 |
|
|
($145,083) |
|
|
$3,991,361 |
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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 |
|
|
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|
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As of December 31, 2021 |
|
|
Under Full Cost |
|
Changes |
|
Under Successful Efforts |
|
|
(In thousands) |
Accumulated deficit |
|
($2,147,204) |
|
|
$530,732 |
|
|
($1,616,472) |
|
Total stockholders’ equity |
|
$1,865,768 |
|
|
$530,732 |
|
|
$2,396,500 |
|
|