SM Energy Co

Previous wording

The following discussion includes forward-looking statements. Please refer to the Cautionary Information about Forward-Looking Statements section of this report for important information about these types of statements. Throughout the following discussion, we explain changes between the three months ended March 31, 2024, and the three months ended December 31, 2023 (“sequential quarterly” or “sequentially”), as well as the year-to-date (“YTD”) change between the three months ended March 31, 2024, and the three months ended March 31, 2023 (“YTD 2024-over-YTD 2023”).

Current wording

The following discussion includes forward-looking statements. Please refer to the Cautionary Information about Forward-Looking Statements section of this report for important information about these types of statements. Additionally, the following discussion includes sequential quarterly comparison to the financial information presented in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed with the SEC on May 3, 2024. Throughout the following discussion, we explain changes between the three months ended June 30, 2024, and the three months ended March 31, 2024 (“sequential quarterly” or “sequentially”), as well as the year-to-date (“YTD”) change between the six months ended June 30, 2024, and the six months ended June 30, 2023 (“YTD 2024-over-YTD 2023”).

Previous wording

Our asset portfolio is comprised of high-quality assets in the Midland Basin of West Texas and in the Maverick Basin of South Texas that we believe are capable of generating strong returns in the current macroeconomic environment and provide resilience to commodity price risk and volatility. We seek to maximize returns and increase the value of our top-tier assets through disciplined capital spending, strategic acquisitions, and continued development and optimization of our existing assets. We believe that our high-quality assets facilitate a sustainable approach to prioritizing operational execution, maintaining a strong balance sheet, generating cash flows, returning capital to stockholders, and maintaining financial flexibility.

Current wording

Our asset portfolio is currently comprised of high-quality assets in the Midland Basin of West Texas and in the Maverick Basin of South Texas that we believe are capable of generating strong returns in the current macroeconomic environment and provide resilience to commodity price risk and volatility. We seek to maximize returns and increase the value of our top-tier assets through disciplined capital spending, strategic acquisitions, including the recently announced pending XCL Acquisition, and continued development and optimization of our existing assets. We believe that our high-quality assets facilitate a sustainable approach to prioritizing operational execution, maintaining a strong balance sheet, generating cash flows, returning capital to stockholders, and maintaining financial flexibility.

Previous wording

We are impacted by global commodity and financial markets that remain subject to heightened levels of uncertainty and volatility. While inflation continues to affect certain aspects of our business, the extent of its impact decreased in the first quarter of 2024 compared to 2023. Continued oil production curtailment agreements among the Organization of the Petroleum Exporting Countries (“OPEC”) plus other non-OPEC oil producing countries (collectively referred to as “OPEC+”), instability in the Middle East, economic and trade sanctions associated with the wars between Russia and Ukraine and Israel and Hamas, United States Federal Reserve monetary policy, shipping channel constraints and disruptions, and changes in global oil inventory in storage have driven commodity price volatility, contributed to instances of supply chain disruptions and fluctuations in interest rates, and could have further industry-specific impacts that may require us to adjust our business plan. For additional detail, please refer to the Risk Factors section in Part I, Item 1A of our 2023 Form 10-K. Despite continuing uncertainty, we expect to maximize the value of our high-quality asset base and sustain strong operational performance and financial stability. We remain focused on returning capital to stockholders through cash flow generation.

Current wording

We are impacted by global commodity and financial markets that remain subject to heightened levels of uncertainty and volatility. While inflation continues to affect certain aspects of our business, the extent of its impact decreased in the first half of 2024 compared with 2023. Continued oil production curtailment agreements among the Organization of the Petroleum Exporting Countries (“OPEC”) plus other non-OPEC oil producing countries (collectively referred to as “OPEC+”), instability in the Middle East, economic and trade sanctions associated with the wars between Russia and Ukraine and Israel and Hamas, United States Federal Reserve monetary policy, shipping channel constraints and disruptions, and changes in global oil inventory in storage have driven commodity price volatility, contributed to instances of supply chain disruptions and fluctuations in interest rates, and could have further industry-specific impacts that may require us to adjust our business plan. For additional detail, please refer to the Risk Factors section in Part I, Item 1A of our 2023 Form 10-K, and Exhibit 99.2 to our Current Report on Form 8-K filed with the SEC on July 18, 2024. Despite continuing uncertainty, we expect to maximize the value of our high-quality asset base and sustain strong operational performance and financial stability. We remain focused on returning capital to stockholders through cash flow generation.

Previous wording

Our Midland Basin assets are comprised of approximately 110,000 net acres located in the Permian Basin in West Texas (“Midland Basin”). In the first quarter of 2024, our drilling and completion activities focused on development optimization of our RockStar and Sweetie Peck assets, and delineation and development of our Klondike assets. Our Midland Basin position provides substantial future development opportunities within multiple oil-rich intervals, including the Spraberry and Wolfcamp formations.

Current wording

Our Midland Basin assets are comprised of approximately 110,000 net acres located in the Permian Basin in West Texas (“Midland Basin”). In the second quarter of 2024, our drilling and completion activities focused on development optimization of our RockStar and Sweetie Peck assets, and delineation and development of our Klondike assets. Our Midland Basin position provides substantial future development opportunities within multiple oil-rich intervals, including the Spraberry and Wolfcamp formations.

Previous wording

Our South Texas assets are comprised of approximately 155,000 net acres located in Dimmit and Webb Counties, Texas (“South Texas”). In the first quarter of 2024, we focused our operations on development and further delineation of the Austin Chalk formation, and on production from both the Austin Chalk formation and Eagle Ford shale formation. Our overlapping acreage position in the Maverick Basin in South Texas covers a significant portion of the western Eagle Ford shale and Austin Chalk formations, and includes acreage across the oil, gas-condensate, and dry gas windows with gas composition amenable to processing for NGL extraction.

Current wording

Our South Texas assets are comprised of approximately 155,000 net acres located in Dimmit and Webb Counties, Texas (“South Texas”). In the second quarter of 2024, we focused our operations on development and further delineation of the Austin Chalk formation, and on production from both the Austin Chalk formation and Eagle Ford shale formation. Our overlapping acreage position in the Maverick Basin in South Texas covers a significant portion of the western Eagle Ford shale and Austin Chalk formations, and includes acreage across the oil, gas-condensate, and dry gas windows with gas composition amenable to processing for NGL extraction.

Previous wording

First Quarter 2024 Overview and Outlook for the Remainder of 2024

Current wording

Second Quarter 2024 Overview and Outlook for the Remainder of 2024

Previous wording

During the first quarter of 2024, we continued to execute on our goal of sustainably returning capital to our stockholders through our Stock Repurchase Program and fixed quarterly dividend by repurchasing and subsequently retiring approximately 0.7 million shares of our outstanding common stock at a cost of $32.8 million, excluding excise taxes, commissions, and fees, and paying a quarterly dividend of $0.18 per share totaling $20.8 million. Please refer to Note 3 - Equity in Part I, Item 1 of this report for additional discussion of our Stock Repurchase Program.

Current wording

•We continued to execute on our goal of sustainably returning capital to our stockholders through our Stock Repurchase Program and fixed quarterly dividend by repurchasing and subsequently retiring approximately 1.1 million shares of our outstanding common stock at a cost of $51.2 million, excluding excise taxes, commissions, and fees, and paying a quarterly dividend of $0.18 per share totaling $20.7 million. Please refer to Note 3 - Equity in Part I, Item 1 of this report for additional discussion.

Previous wording

Financial and Operational Results. Average net daily equivalent production for the three months ended March 31, 2024, decreased five percent sequentially to 145.1 MBOE, consisting of an eight percent decrease from our South Texas assets and a three percent decrease from our Midland Basin assets, resulting from the timing of well completions.

Current wording

Financial and Operational Results. Average net daily equivalent production for the three months ended June 30, 2024, increased nine percent sequentially to 158.5 MBOE, consisting of a 12 percent increase from our South Texas assets and a seven percent increase from our Midland Basin assets. These increases were a result of production from new wells which more than offset the natural decline in production from existing wells during the second quarter of 2024.

Previous wording

Realized price per BOE, before the effect of net derivative settlements (“realized price” or “realized prices”), remained flat sequentially. During the first quarter of 2024, oil and gas benchmark prices decreased and the NGL benchmark price increased. These changes resulted in sequential quarterly decreases in oil and gas realized prices of two percent and 12 percent, respectively, offset by an increase in NGL realized price of five percent.

Current wording

Realized price per BOE, before the effect of net derivative settlements (“realized price” or “realized prices”), increased four percent sequentially. During the second quarter of 2024, the oil benchmark price increased, and gas and NGL benchmark prices decreased. These changes resulted in a sequential quarterly increase in oil realized price of six percent, partially offset by a decrease in gas realized price of 36 percent. The NGL realized price remained flat sequentially.

Previous wording

As a result of the decrease in average net daily equivalent production volumes, oil, gas, and NGL production revenue decreased eight percent to $559.6 million for the three months ended March 31, 2024, from $606.9 million for the three months ended December 31, 2023. Oil, gas, and NGL production expense of $10.41 per BOE for the three months ended March 31, 2024, increased seven percent sequentially, primarily as a result of increases in ad valorem tax expense per BOE and lease operating expense (“LOE”) per BOE, partially offset by a decrease in production tax expense per BOE.

Current wording

As a result of the increase in average net daily equivalent production volumes, oil, gas, and NGL production revenue increased 13 percent sequentially to $633.5 million for the three months ended June 30, 2024, compared with $559.6 million for the three months ended March 31, 2024. Oil, gas, and NGL production expense of $9.47 per BOE for the three months ended June 30, 2024, decreased nine percent sequentially, primarily as a result of decreases in lease operating expense (“LOE”) per BOE, transportation costs per BOE, and ad valorem tax expense per BOE.

Previous wording

We recorded a net derivative loss of $28.1 million and a net derivative gain of $80.5 million for the three months ended March 31, 2024, and December 31, 2023, respectively. Included within these amounts are net derivative settlement gains of $13.3 million and $6.5 million for the three months ended March 31, 2024, and December 31, 2023, respectively.

Current wording

We recorded a net derivative gain of $12.1 million and a net derivative loss of $28.1 million for the three months ended June 30, 2024, and March 31, 2024, respectively. Included within these amounts are net derivative settlement gains of $16.5 million and $13.3 million for the three months ended June 30, 2024, and March 31, 2024, respectively.

Previous wording

•Net cash provided by operating activities of $276.0 million, compared with $476.5 million for the three months ended December 31, 2023.

Current wording

•Net cash provided by operating activities of $476.4 million, compared with $276.0 million for the three months ended March 31, 2024.

Previous wording

•Net income of $131.2 million, or $1.13 per diluted share, compared with net income of $247.1 million, or $2.12 per diluted share, for the three months ended December 31, 2023.

Current wording

•Net income of $210.3 million, or $1.82 per diluted share, compared with net income of $131.2 million, or $1.13 per diluted share, for the three months ended March 31, 2024.

Previous wording

•Adjusted EBITDAX, a non-GAAP financial measure, of $409.0 million, compared with $445.1 million for the three months ended December 31, 2023. Please refer to the caption Non-GAAP Financial Measures below for additional discussion and our definition of adjusted EBITDAX and reconciliations to net income and net cash provided by operating activities.

Current wording

•Adjusted EBITDAX, a non-GAAP financial measure, of $485.9 million, compared with $409.0 million for the three months ended March 31, 2024. Please refer to the caption Non-GAAP Financial Measures below for additional discussion and our definition of adjusted EBITDAX and reconciliations to net income and net cash provided by operating activities.

Previous wording

Please refer to Overview of Selected Production and Financial Information, Including Trendsand Comparison of Financial Results and Trends Between the Three Months Ended March 31, 2024, and December 31, 2023, and Between the Three Months Ended March 31, 2024, and 2023 below for additional discussion.

Current wording

Please refer to Overview of Selected Production and Financial Information, Including Trendsand Comparison of Financial Results and Trends Between the Three Months Ended June 30, 2024, and March 31, 2024, and Between the Six Months Ended June 30, 2024, and 2023 below for additional discussion.

Previous wording

Operational Activities. We expect our total 2024 capital program to be between $1.14 billion and $1.18 billion, excluding acquisitions. This reflects a decrease from our original expectation primarily as a result of capital efficiencies and lower-than-expected costs. Our capital program remains focused on highly economic oil development projects in both our Midland Basin and South Texas assets. During 2024, we expect to continue our focus on strategic inventory replacement and growth by applying our strength in geosciences and development optimization. Please refer to Overview of Liquidity and Capital Resources below for discussion of how we expect to fund the remainder of our 2024 capital program.

Current wording

Operational Activities. We expect our total 2024 capital program to be between $1.14 billion and $1.18 billion, excluding acquisitions, and excluding any expected capital expenditures related to the Uinta Basin Assets and the Option Assets. Our capital program remains focused on highly economic oil development projects in both our Midland Basin and South Texas assets. During 2024, we expect to continue our focus on strategic inventory replacement and growth by applying our strength in geosciences and development optimization. Please refer to Overview of Liquidity and Capital Resources below for discussion of how we expect to fund the remainder of our 2024 capital program.

Previous wording

In our Midland Basin program, we operated four drilling rigs and two completion crews, drilled 19 gross (17 net) wells, and completed 16 gross (11 net) wells during the first quarter of 2024. Average net daily equivalent production volumes decreased sequentially by three percent to 74.5 MBOE. Costs incurred during the three months ended March 31, 2024, totaled $182.4 million, or 57 percent of our total costs incurred for the period. We anticipate operating four drilling rigs and between one and two completion crews for the remainder of 2024, focused on developing formations within our RockStar, Sweetie Peck, and Klondike assets.

Current wording

In our Midland Basin program, we operated an average of four drilling rigs and averaged two completion crews, drilled 24 gross (21 net) wells, and completed 32 gross (26 net) wells during the second quarter of 2024. Average net daily equivalent production volumes increased sequentially by seven percent to 79.7 MBOE. Costs incurred during the three months ended June 30, 2024, totaled $202.4 million, or 61 percent of our total costs incurred for the period. We anticipate operating four drilling rigs and between one and two completion crews for the remainder of 2024, focused on developing formations within our RockStar, Sweetie Peck, and Klondike assets.

Previous wording

In our South Texas program, we operated two drilling rigs and one completion crew, drilled 12 gross (12 net) wells, and completed 16 gross (16 net) wells during the first quarter of 2024. Average net daily equivalent production volumes decreased sequentially by eight percent to 70.6 MBOE. Costs incurred during the three months ended March 31, 2024, totaled $129.0 million, or 40 percent of our total costs incurred for the period. We anticipate operating two drilling rigs and averaging one completion crew for the remainder of 2024, focused primarily on developing the Austin Chalk formation.

Current wording

In our South Texas program, we operated two drilling rigs and one completion crew, drilled 10 gross (10 net) wells, and completed 10 gross (10 net) wells during the second quarter of 2024. Average net daily equivalent production volumes increased sequentially by 12 percent to 78.8 MBOE. Costs incurred during the three months ended June 30, 2024, totaled $117.9 million, or 36 percent of our total costs incurred for the period. We anticipate operating two drilling rigs and averaging one completion crew for the remainder of 2024, focused primarily on developing the Austin Chalk formation.

Previous wording

The table below provides a quarterly summary of changes in our drilled but not completed well count and current year drilling and completion activity in our operated programs for the three months ended March 31, 2024:

Current wording

The table below provides a quarterly summary of changes in our drilled but not completed well count and current year drilling and completion activity in our operated programs for the three and six months ended June 30, 2024:

Previous wording

Costs Incurred. Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed, totaled $320.2 million for the three months ended March 31, 2024, and were primarily incurred in our Midland Basin and South Texas programs as discussed in Operational Activities above.

Current wording

Costs Incurred. Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed, totaled $331.9 million and $652.1 million for the three and six months ended June 30, 2024, respectively, and were primarily incurred in our Midland Basin and South Texas programs as discussed in Operational Activities above.

Previous wording

Please refer to Overview of Selected Production and Financial Information, Including Trendsand Comparison of Financial Results and Trends Between the Three Months Ended March 31, 2024, and December 31, 2023, and Between the Three Months Ended March 31, 2024, and 2023 below for discussion on production.

Current wording

Please refer to Overview of Selected Production and Financial Information, Including Trendsand Comparison of Financial Results and Trends Between the Three Months Ended June 30, 2024, and March 31, 2024, and Between the Six Months Ended June 30, 2024, and 2023 below for discussion on production.

Previous wording

Given the uncertainty surrounding global financial markets, production output from OPEC+, global shipping channel constraints and disruptions, instability in the Middle East, economic and trade sanctions associated with the wars between Russia and Ukraine and Israel and Hamas, changes in global oil inventory in storage, and the potential impacts of these issues on global commodity markets, we expect benchmark prices for oil, gas, and NGLs to remain volatile for the foreseeable future, and we cannot reasonably predict the timing or likelihood of any future impacts that may result, which could include further inflation, supply chain disruptions, fluctuations in interest rates, and industry-specific impacts. In addition to supply and demand fundamentals, as global commodities, the prices for oil, gas, and NGLs are affected by real or perceived geopolitical risks in various regions of the world as well as the relative strength of the United States dollar compared to other currencies. Our realized prices at local sales points may also be affected by infrastructure capacity or outages in the areas of our operations and beyond. We expect the realized price for our Midland Basin gas production during the second and third quarters of 2024 to be impacted by residue pipeline capacity constraints; however, a portion of any negative impact to the realized price would be mitigated by our commodity derivative contracts, which are discussed below.

Current wording

Given the uncertainty surrounding global financial markets, production output from OPEC+, global shipping channel constraints and disruptions, instability in the Middle East, economic and trade sanctions associated with the wars between Russia and Ukraine and Israel and Hamas, changes in global oil inventory in storage, and the potential impacts of these issues on global commodity markets, we expect benchmark prices for oil, gas, and NGLs to remain volatile for the foreseeable future, and we cannot reasonably predict the timing or likelihood of any future impacts that may result, which could include further inflation, supply chain disruptions, fluctuations in interest rates, and industry-specific impacts. In addition to supply and demand fundamentals, as global commodities, the prices for oil, gas, and NGLs are affected by real or perceived geopolitical risks in various regions of the world as well as the relative strength of the United States dollar compared to other currencies. Our realized prices at local sales points may also be affected by infrastructure capacity or outages in the areas of our operations and beyond. The realized price for our Midland Basin gas production was impacted by residue pipeline capacity constraints during the second quarter of 2024, and we expect that to continue during the third quarter of 2024; however, a portion of any negative impact to the realized price would be mitigated by our commodity derivative contracts, which are discussed below.

Previous wording

(2) Net derivative settlements for the three months ended March 31, 2024, and 2023, are included within the net derivative (gain) loss line item in the accompanying statements of operations.

Current wording

(2) Net derivative settlements for the three months ended June 30, 2024, and for the six months ended June 30, 2024, and 2023, are included within the net derivative (gain) loss line item in the accompanying statements of operations.

Previous wording

We present certain information on a per BOE basis in order to evaluate our performance relative to our peers and to identify and measure trends we believe may require additional analysis and discussion.

Current wording

We present certain information on a per BOE basis in order to evaluate our performance relative to our peers and to identify and measure trends we believe may require additional analysis and discussion. The full-year 2024 trends discussed below do not reflect our expectations related to the pending XCL Acquisition.

Previous wording

Our realized price on a per BOE basis decreased $0.60 sequentially, primarily as a result of decreases in oil and gas benchmark prices, and decreased $0.92 YTD 2024-over-YTD 2023, primarily as a result of decreases in gas and NGL benchmark prices. For the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, we recognized net gains on the settlement of our commodity derivative contracts of $1.01 per BOE, $0.46 per BOE, and $0.39 per BOE, respectively.

Current wording

Our realized price on a per BOE basis increased $1.53 sequentially and $2.16 YTD 2024-over-YTD 2023, primarily as a result of an increase in oil benchmark prices. For the three months ended June 30, 2024, and March 31, 2024, we recognized net gains on the settlement of our commodity derivative contracts of $1.15 per BOE and $1.01 per BOE, respectively. For the six months ended June 30, 2024, and 2023, we recognized net gains on the settlement of our commodity derivative contracts of $1.08 per BOE and $0.76 per BOE, respectively.

Previous wording

LOE on a per BOE basis increased four percent sequentially and seven percent YTD 2024-over-YTD 2023. The sequential quarterly increase was a result of decreased average net daily equivalent production and a slight shift in our production mix from our South Texas assets to our Midland Basin assets, which have higher unit operating costs. The YTD 2024-over-YTD 2023 increase was primarily driven by increases in labor costs. For the full-year 2024, we expect LOE on a per BOE basis to increase, compared with 2023, primarily as a result of expected increases in labor costs and certain other operating costs associated with both our Midland Basin and South Texas assets. We anticipate volatility in LOE on a per BOE basis as a result of changes in total production, changes in our overall production mix, timing of workover projects, and industry activity, all of which affect total LOE.

Current wording

LOE on a per BOE basis decreased 13 percent sequentially and increased two percent YTD 2024-over-YTD 2023. The sequential quarterly decrease was a result of increased average net daily equivalent production and a decrease in workover expense due to timing of activity. The YTD 2024-over-YTD 2023 increase was primarily driven by increases in labor costs and certain other operating costs, partially offset by a decrease in workover expense due to timing of activity. For the full-year 2024, we expect LOE on a per BOE basis to increase, compared with 2023, primarily as a result of expected increases in labor costs and certain other operating costs associated with both our Midland Basin and South Texas assets. We anticipate volatility in LOE on a per BOE basis as a result of changes in total production, changes in our overall production mix, timing of workover projects, and industry activity, all of which affect total LOE.

Previous wording

Transportation costs on a per BOE basis remained flat sequentially and decreased 26 percent YTD 2024-over-YTD 2023 as a result of the expiration of a long-term contract in South Texas on June 30, 2023. In general, we expect total transportation costs to fluctuate relative to changes in gas and NGL production from our South Texas assets, where we incur a majority of our transportation costs. For the full-year 2024, we expect transportation costs on a per BOE basis to decrease compared with 2023, as a result of the expiration of the long-term contract in South Texas previously discussed.

Current wording

Transportation costs on a per BOE basis decreased six percent sequentially as the 12 percent increase in net equivalent production from our South Texas assets consisted primarily of increased oil production which incurs lower transportation costs than gas production. Transportation costs on a per BOE basis decreased 30 percent YTD 2024-over-YTD 2023 primarily as a result of the expiration of a long-term contract in South Texas on June 30, 2023. In general, we expect total transportation costs to fluctuate relative to changes in gas and NGL production from our South Texas assets, where we incur a majority of our transportation costs. For the full-year 2024, we expect transportation costs on a per BOE basis to decrease compared with 2023, as a result of the expiration of the long-term contract in South Texas previously discussed.

Previous wording

Production tax expense on a per BOE basis decreased four percent sequentially and six percent YTD 2024-over-YTD 2023, primarily as a result of decreases in total realized price per BOE. Our overall production tax rate for the three months ended March 31, 2024, December 31, 2023, and March 31, 2023, was 4.5 percent, 4.6 percent, and 4.7 percent, respectively. We generally expect production tax expense to correlate with oil, gas, and NGL production revenue on an absolute and per BOE basis. Product mix, the location of production, and incentives to encourage oil and gas development can also impact the amount of production tax expense that we recognize.

Current wording

Production tax expense on a per BOE basis remained flat sequentially and increased three percent YTD 2024-over-YTD 2023, primarily as a result of an increase in total realized price per BOE. Our overall production tax rate for the three and six months ended June 30, 2024, was 4.3 percent and 4.4 percent, respectively, compared with 4.5 percent for each of the three months ended March 31, 2024, and the six months ended June 30, 2023. We generally expect production tax expense to correlate with oil, gas, and NGL production revenue on an absolute and per BOE basis. Product mix, the location of production, and incentives to encourage oil and gas development can also impact the amount of production tax expense that we recognize.

Previous wording

Ad valorem tax expense on a per BOE basis increased 141 percent sequentially as ad valorem tax expense recorded during the three months ended December 31, 2023, reflected the positive impact of a property tax relief bill that provided for a one-time benefit during 2023. Ad valorem tax expense on a per BOE basis increased 10 percent YTD 2024-over-YTD 2023 as a result of changes to the assessed values of our producing properties. We anticipate volatility in ad valorem tax expense on a per BOE and absolute basis as the valuation of our producing properties changes, which is generally driven by fluctuations in commodity prices.

Current wording

Ad valorem tax expense on a per BOE basis decreased eight percent sequentially and increased five percent YTD 2024-over-YTD 2023, as a result of changes to the assessed values of our producing properties. We anticipate volatility in ad valorem tax expense on a per BOE and absolute basis as the valuation of our producing properties changes, which is generally driven by fluctuations in commodity prices.

Previous wording

Depletion, depreciation, amortization, and asset retirement obligation liability accretion (“DD&A”) expense on a per BOE basis decreased six percent sequentially primarily as a result of a decrease in our DD&A rate due to increased estimated net proved reserves at year-end 2023. DD&A expense on a per BOE basis increased eight percent YTD 2024-over-YTD 2023 due to inflation and a slight shift in production mix resulting from higher activity in our Midland Basin assets, which have a higher DD&A rate than our South Texas assets. Our DD&A rate fluctuates as a result of changes in our production mix, changes in our total estimated net proved reserve volumes, changes in capital allocation, impairments, acquisition and divestiture activity, and carrying cost funding and sharing arrangements with third parties. For the full-year 2024, we expect DD&A expense per BOE to remain flat and DD&A expense on an absolute basis to increase slightly, compared with 2023, primarily as a result of expected increased production.

Current wording

Depletion, depreciation, amortization, and asset retirement obligation liability accretion (“DD&A”) expense on a per BOE basis remained flat sequentially. DD&A expense on a per BOE basis increased nine percent YTD 2024-over-YTD 2023 due to inflation and a slight shift in production mix resulting from higher activity in our Midland Basin assets, which have a higher DD&A rate than our South Texas assets. Our DD&A rate fluctuates as a result of changes in our production mix, changes in our total estimated net proved reserve volumes, changes in capital allocation, impairments, acquisition and divestiture activity, and carrying cost funding and sharing arrangements with third parties. For the full-year 2024, we expect DD&A expense per BOE to remain relatively flat and DD&A expense on an absolute basis to increase slightly, compared with 2023, primarily as a result of expected increased production.

Previous wording

General and administrative (“G&A”) expense on a per BOE basis decreased 12 percent sequentially primarily as a result of decreased compensation expense. G&A expense on a per BOE basis increased nine percent YTD 2024-over-YTD 2023 as a result of increased compensation expense due to inflation. For the full-year 2024, we expect G&A expense to remain relatively flat per BOE, and G&A expense on an absolute basis to increase compared with 2023, primarily as a result of increases in compensation expense due to inflation.

Current wording

General and administrative (“G&A”) expense on a per BOE basis decreased six percent sequentially primarily as a result of increased net equivalent production volumes. G&A expense on a per BOE basis increased nine percent YTD 2024-over-YTD 2023 as a result of increased compensation expense due to inflation. For the full-year 2024, we expect G&A expense to remain relatively flat per BOE, and G&A expense on an absolute basis to increase compared with 2023, primarily as a result of increases in compensation expense due to inflation.

Previous wording

Please refer to Comparison of Financial Results and Trends Between the Three Months Ended March 31, 2024, and December 31, 2023, and Between the Three Months Ended March 31, 2024, and 2023 below for additional discussion of operating expenses.

Current wording

Please refer to Comparison of Financial Results and Trends Between the Three Months Ended June 30, 2024, and March 31, 2024, and Between the Six Months Ended June 30, 2024, and 2023 below for additional discussion of operating expenses.

Previous wording

Average net daily equivalent production volumes decreased five percent, consisting of an eight percent decrease from our South Texas assets and a three percent decrease from our Midland Basin assets. Total realized price per BOE remained flat. As a result of the decrease in average net daily equivalent production volumes, oil, gas, and NGL production revenue decreased eight percent. Oil, gas, and NGL production expense remained flat, as an increase in ad valorem tax expense was offset by decreases in production tax expense, transportation costs, and LOE.

Current wording

Average net daily equivalent production volumes increased nine percent, consisting of increases of 12 percent and seven percent from our South Texas and Midland Basin assets, respectively. Total realized price per BOE increased four percent. As a result of the increase in average net daily equivalent production volumes, oil, gas, and NGL production revenue increased 13 percent. Oil, gas, and NGL production expense remained flat, as increases in production tax expense and transportation costs were offset by a decrease in LOE.

Previous wording

YTD 2024-over-YTD 2023 Changes. The following table presents changes in our average net daily equivalent production, oil, gas, and NGL production revenue, and oil, gas, and NGL production expense, by area, between the three months ended March 31, 2024, and 2023:

Current wording

YTD 2024-over-YTD 2023 Changes. The following table presents changes in our average net daily equivalent production, oil, gas, and NGL production revenue, and oil, gas, and NGL production expense, by area, between the six months ended June 30, 2024, and 2023:

Previous wording

Average net daily equivalent production volumes remained flat, as a three percent decrease from our South Texas assets was partially offset by a one percent increase from our Midland Basin assets. Total realized price per BOE decreased slightly, and combined with flat average net daily equivalent production volumes, resulted in oil, gas, and NGL production revenue remaining flat. Oil, gas, and NGL production expense decreased three percent, primarily driven by a decrease in transportation costs, partially offset by an increase in LOE.

Current wording

Average net daily equivalent production volumes remained flat, as a five percent increase from our Midland Basin assets was mostly offset by a three percent decrease from our South Texas assets. Total realized price per BOE increased five percent and, combined with increases in oil and NGL benchmark commodity prices, resulted in a seven percent increase in oil, gas, and NGL production revenue. Oil, gas, and NGL production expense decreased five percent, primarily driven by a decrease in transportation costs, partially offset by increases in LOE and production tax expense.

Previous wording

DD&A expense decreased 12 percent sequentially and increased eight percent YTD 2024-over-YTD 2023. The sequential quarterly decrease was primarily driven by a decrease in our DD&A rate and a decrease in average net daily equivalent production. The YTD 2024-over-YTD 2023 increase resulted from inflation and a slight shift in production mix resulting from higher activity in our

Current wording

DD&A expense increased eight percent sequentially and 11 percent YTD 2024-over-YTD 2023. The sequential quarterly increase was primarily driven by an increase in average net daily equivalent production. The YTD 2024-over-YTD 2023 increase resulted from inflation and a slight shift in production mix resulting from higher activity in our Midland Basin assets, which have a higher DD&A rate than our South Texas assets. Please refer to Overview of Selected Production and Financial Information, Including Trends above for discussion of DD&A expense on a per BOE basis.

Previous wording

Exploration expense increased 17 percent sequentially primarily as a result of expenses incurred related to one well deemed non-commercial, partially offset by a decrease in exploration overhead expense. Exploration expense remained flat YTD 2024-over-YTD 2023. Exploration expense fluctuates based on actual geological and geophysical studies we perform within an exploratory area, exploratory dry hole expense incurred, and changes in the amount of allocated overhead.

Current wording

Exploration expense decreased eight percent sequentially primarily as a result of expenses incurred related to one well deemed non-commercial, which primarily affected the three months ended March 31, 2024, partially offset by an increase in exploration overhead expense. The YTD 2024-over-YTD 2023 increase of seven percent was primarily due to an increase in geological and geophysical expense. Exploration expense fluctuates based on actual geological and geophysical studies we perform within an exploratory area, exploratory dry hole expense incurred, and changes in the amount of allocated overhead.

Previous wording

G&A expense decreased 18 percent sequentially primarily as a result of decreased compensation expense. G&A expense recorded during the three months ended December 31, 2023, reflected an increase to compensation expense resulting from the Company’s full-year performance against targets established at the beginning of the year. G&A expense increased nine percent YTD 2024-over-YTD 2023 primarily as a result of increased compensation expense due to inflation. Please refer to the section Overview of Selected Production and Financial Information, Including Trends above for discussion of G&A expense on a per BOE basis.

Current wording

G&A expense increased three percent sequentially and 11 percent YTD 2024-over-YTD 2023 as a result of increases in compensation expense, and inflation. Please refer to the section Overview of Selected Production and Financial Information, Including Trends above for discussion of G&A expense on a per BOE basis.

Previous wording

Interest expense decreased nine percent sequentially and three percent YTD 2024-over-YTD 2023 primarily driven by an increase in capitalized interest as a result of the timing of the development of our wells in progress. Total interest expense can vary based on the timing and amount of borrowings under our revolving credit facility. Please refer to Overview of Liquidity and Capital Resources below and to Note 5 - Long-Term Debt in Part I, Item 1 of this report for additional discussion.

Current wording

Interest expense remained flat sequentially and decreased two percent YTD 2024-over-YTD 2023. Total interest expense can vary based on fluctuations in the amount of capitalized interest as a result of the timing of the development of our wells in progress and due to the timing and amount of borrowings under our revolving credit facility. Please refer to Overview of Liquidity and Capital Resources below and to Note 5 - Long-Term Debt in Part I, Item 1 of this report for additional discussion.

Previous wording

Our effective tax rate increased sequentially as the positive impact of the R&D credit claimed during the three months ended December 31, 2023, was higher than for the three months ended March 31, 2024. Our effective tax rate decreased YTD 2024-over-YTD 2023 primarily due to the benefit recognized from anticipated qualified R&D credit claims in 2024.

Current wording

The sequential quarterly increase in the effective tax rate is primarily due to the effect of higher forecast net income. The YTD 2024-over-YTD 2023 decrease in the effective tax rate is primarily due to the benefit recognized from anticipated qualified R&D credit claims in 2024.