Summary of Significant Accounting Policies (Policies) |
12 Months Ended |
|---|---|
Dec. 31, 2023 | |
| Accounting Policies [Abstract] | |
| Basis of Presentation and Principles of Consolidation |
Basis of Presentation and Principles of Consolidation The consolidated financial statements include the accounts of the Company after elimination of intercompany transactions and balances and are presented in accordance with U.S. GAAP. The Company proportionately consolidates its undivided interests in oil and gas properties as well as investments in unincorporated entities, such as partnerships and limited liability companies where the Company, as a partner or member, has undivided interests in the oil and gas properties. In the opinion of management, the accompanying audited consolidated financial statements reflect all adjustments, including normal recurring adjustments, necessary to present fairly the Company’s financial position, results of its operations and cash flows for the periods indicated. Certain prior year amounts have been reclassified to conform to current year presentation. Such reclassifications did not have a material impact on prior period financial statements. The Company evaluates events subsequent to the balance sheet date through the date the financial statements are issued.
|
| Use of Estimates |
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make judgments affecting estimates and assumptions for reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates of proved oil and gas reserves are used in calculating depreciation, depletion and amortization (“DD&A”) of proved oil and gas property costs, evaluation of oil and gas properties for impairment, estimates of future taxable income used in assessing the realizability of deferred tax assets, and the estimated timing of cash outflows underlying asset retirement obligations. There are numerous uncertainties inherent in the estimation of proved oil and gas reserves and in the projection of future rates of production and the timing of development expenditures. Other significant estimates are involved in determining asset retirement obligations, acquisition date fair values of assets acquired and liabilities assumed, impairments of unevaluated leasehold costs, fair values of commodity derivative assets and liabilities, and litigation liabilities. Actual results could differ from those estimates.
|
| Recast Financial Information for Change in Accounting Principle |
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.
|
| Cash and Cash Equivalents |
Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company maintains cash and cash equivalents in bank deposit accounts and money market funds that may not be fully federally insured. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on such accounts.
|
| Accounts Receivable, Net |
Accounts Receivable, Net Accounts receivable, net consists primarily of receivables from oil, natural gas, and NGL purchasers and joint interest owners in properties the Company operates. The Company generally has the right to withhold future revenue distributions to recover past due receivables from joint interest owners. Generally, the Company’s oil, natural gas, and NGL receivables are collected within 30 to 90 days. The Company’s allowance for credit losses and bad debt expense was immaterial for all periods presented.
|
| Concentration of Credit Risk and Major Customers |
Concentration of Credit Risk and Major Customers
The concentration of accounts receivable from entities in the oil and gas industry may impact the Company’s overall credit risk such that these entities may be similarly affected by changes in economic and other industry conditions. The Company does not believe the loss of any one of its purchasers would materially affect its ability to sell the oil and gas it produces as other purchasers are available in its primary areas of activity.
|
| Oil and Natural Gas Properties |
Oil and Natural Gas Properties
Proved Oil and Natural 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. Acquired proved properties and proved leasehold acquisition costs are depleted on the same asset group basis using the units-of-production method based on estimated total proved 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. See “Note 5 — Acquisitions and Divestitures” for details of the impairment recorded in the second quarter of 2023 associated with the sale of all the Company’s interests of Callon (Eagle Ford) LLC to Ridgemar Energy Operating, LLC. There were no impairments of proved oil and gas properties for the years ended December 31, 2022 and 2021.
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 Natural 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 years ended December 31, 2023, 2022 and 2021, the Company did not have any projects that met the thresholds, therefore, had no capitalized interest.
|
| Other Property and Equipment | Depreciation of other property and equipment is recognized using the straight-line method based on estimated useful lives ranging from to twenty years. |
| Deferred Financing Costs |
Deferred Financing Costs
Deferred financing costs associated with the Unsecured Senior Notes and previously with the Second Lien Notes, both defined below, are classified as a reduction of the related carrying value on the consolidated balance sheets and are amortized to interest expense using the effective interest method over the terms of the related debt. Deferred financing costs associated with the Credit Facility, as defined below, are classified in “Other assets, net” in the consolidated balance sheets and are amortized to interest expense using the straight-line method over the term of the facility.
|
| Asset Retirement Obligations |
Asset Retirement Obligations The Company records an estimate of the fair value of liabilities for obligations associated with plugging and abandoning oil and gas wells, removing production equipment and facilities and restoring the surface of the land in accordance with the terms of oil and gas leases and applicable local, state and federal laws. Estimates involved in determining asset retirement obligations include the future plugging and abandonment costs of wells and related facilities, the ultimate productive life of the properties, a credit-adjusted risk-free discount rate and an inflation factor in order to determine the present value of the asset retirement obligation. The present value of the asset retirement obligations is accreted each period and the increase to the obligation is reported in “Depreciation, depletion and amortization” in the consolidated statements of operations. To the extent future revisions to these assumptions impact the present value of the existing asset retirement obligation liability, a corresponding adjustment is made to proved oil and gas properties in the consolidated balance sheets.
|
| Derivative Instruments |
Derivative Instruments
The Company uses commodity derivative instruments to mitigate the effects of commodity price volatility for a portion of its forecasted sales of production and achieve a more predictable level of cash flow. The Company does not enter into commodity derivative instruments for speculative or trading purposes. All commodity derivative instruments are recorded in the consolidated balance sheets as either an asset or liability measured at fair value. The Company nets its commodity derivative instrument fair value amounts executed with the same counterparty to a single asset or liability pursuant to International Swap Dealers Association Master Agreements (“ISDA Agreements”), which provide for net settlement over the term of the contract and in the event of default or termination of the contract.
Settlements of the Company’s commodity derivative instruments are based on the difference between the contract price or prices specified in the derivative instrument and a benchmark price, such as the NYMEX price. To determine the fair value of the Company’s derivative instruments, the Company utilizes present value methods that include assumptions about commodity prices based on those observed in underlying markets. See “Note 10 – Fair Value Measurements” for additional information regarding fair value. The Company has elected not to meet the criteria to qualify its commodity derivative instruments for hedge accounting treatment. As such, all gains and losses as a result of changes in the fair value of commodity derivative instruments are recognized as “(Gain) loss on derivative contracts” in the consolidated statements of operations in the period in which the changes occur.
|
| Revenue Recognition |
Revenue Recognition
The Company recognizes revenues from the sales of oil, natural gas, and NGLs to its customers and presents them disaggregated on the Company’s consolidated statements of operations. Revenue is recognized at the point in time when control of the product transfers to the customer.
For the Company’s product sales that have a contract term greater than one year, it has utilized the practical expedient in Accounting Standards Codification 606-10-50-14, which states the Company is not required to disclose the transaction price allocated to remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these sales contracts, each unit of product generally represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required. 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.
|
| Income Taxes |
Income Taxes Income taxes are recognized based on earnings reported for tax return purposes in addition to a provision for deferred income taxes. Deferred income taxes are recognized at the end of each reporting period for the future tax consequences of cumulative temporary differences between the tax basis of assets and liabilities and their reported amounts in the Company’s consolidated financial statements based on existing tax laws and enacted statutory tax rates applicable to the periods in which the temporary differences are expected to affect taxable income. U.S. GAAP requires the recognition of a deferred tax asset for net operating loss carryforwards and tax credit carryforwards. The Company assesses the realizability of its deferred tax assets on a quarterly basis by considering all available evidence (both positive and negative) to determine whether it is more likely than not that all or a portion of the deferred tax assets will not be realized and a valuation allowance is required.
|
| Share-Based Compensation |
Share-Based Compensation
The Company grants restricted stock unit awards that may be settled in common stock (“RSU Equity Awards”) or cash (“Cash-Settled RSU Awards”), some of which are subject to achievement of certain performance conditions. Share-based compensation expense is recognized as “General and administrative expense” in the consolidated statements of operations. The Company accounts for forfeitures of equity-based incentive awards as they occur. See “Note 11 – Compensation Plans” for further details of the awards discussed below.
RSU Equity Awards and Cash-Settled RSU Awards. Share-based compensation expense for RSU Equity Awards is based on the grant-date fair value and recognized over the vesting period (generally three years for employees and one year for non-employee directors) using the straight-line method. For RSU Equity Awards with vesting terms subject to a performance condition, share-based compensation expense is based on the fair value measured at the grant date as calculated using a Monte Carlo pricing model with the estimated value recognized over the vesting period (generally three years). Cash-Settled RSU awards that the Company expects, or is required, to settle in cash are accounted for as liabilities with share-based compensation expense based on the fair value measured at each reporting period, with the estimated fair value recognized over the vesting period.
Cash SARs. Stock appreciation rights to be settled in cash (“Cash SARs” and together with Cash-Settled RSU Awards, the “Cash-Settled Awards”) are remeasured at fair value at the end of each reporting period with the change in fair value recorded as share-based compensation expense. The liability for Cash SARs is classified as “Other current liabilities” in the consolidated balance sheets as all outstanding awards are vested. The Cash SARs outstanding will expire in 2025 and 2026.
|
| Share Repurchase Program |
Share Repurchase Program The Company repurchases shares of its common stock from time to time under a program authorized by the Board of Directors. The Company retires shares acquired through share repurchases and returns those shares to the status of authorized but unissued. The repurchased and retired shares are recorded as a reduction to “Common stock” and “Capital in excess of par value” in the consolidated balance sheets.
|
| Earnings per Share |
Earnings per Share The Company’s basic net income (loss) per common share is based on the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is calculated using the treasury stock method and is based on the weighted average number of common shares and all potentially dilutive common shares outstanding during the year which include RSU Equity Awards and common stock warrants. When a net loss per common share exists, all potentially dilutive common shares outstanding are anti-dilutive and are therefore excluded from the calculation of diluted weighted average shares outstanding.
|
| Industry Segment and Geographic Information |
Industry Segment and Geographic Information
The Company operates in one industry segment, which is the exploration, development, and production of crude oil, natural gas, and NGLs. All of the Company’s operations are located in the United States and currently all revenues are attributable to customers located in the United States.
|
| Recently Adopted Accounting Standards and Recently Issued Accounting Standards |
Recently Adopted Accounting Standards
As of December 31, 2023, and through the filing of this report, no new accounting standards have been issued and not yet adopted that are applicable to the Company and that would have a material effect on the Company’s consolidated financial statements and related disclosures.
Recently Issued Accounting Standards In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”) followed by ASU No. 2021-01, Reference Rate Reform (Topic 848): Scope (“ASU 2021-01”), issued in January 2021 to provide clarifying guidance regarding the scope of Topic 848. ASU 2020-04 was issued to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. Generally, the guidance is to be applied as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. ASU 2020-04 and ASU 2021-01 are effective for all entities through December 31, 2022. In December 2022, the FASB issued ASU 2022-06 which extends the effective date through December 31, 2024. As of December 31, 2023, the Company has not elected to use the optional guidance and continues to evaluate the options provided by ASU 2020-04 and ASU 2021-01. Please refer to “Note 8 – Borrowings” for discussion of the Credit Agreement (as defined below) which references SOFR.
|