SM Energy Co
For the period ended Sep 30, 2024. Filed Nov 1, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 1, 2024
SM$29.92+1.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0000893538-24-000105
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-01.
0000893538-24-000136
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 129 previous paragraphs and 134 current paragraphs.
55 unchanged; 66 reworded; 10 added; 7 removed; 1 previous and 3 current paragraphs rearranged.
Tables are not compared: 20 previous and 20 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (10)
Current report
On October 1, 2024, we acquired approximately 63,300 net acres located in Duchesne and Uintah counties, Utah (“Uinta Basin”). Our Uinta Basin position provides future development opportunities within multiple oil-rich intervals in the Lower Green River and Wasatch formations, and includes acreage with waxy crude and gas composition amenable to processing for NGL extraction. Please refer to Note 11 - Acquisitions in Part I, Item 1 of this report for additional discussion.
Current report
•We issued our 2029 Senior Notes and 2032 Senior Notes and redeemed the remaining $349.1 million of aggregate principal amount outstanding of our 2025 Senior Notes. Please refer to Note 5 - Long-Term Debt in Part I, Item 1 of this report for additional discussion.
Current report
•We continued to execute on our goal of sustainably returning capital to our stockholders by paying a net cash dividend of $0.18 per share totaling $20.6 million. Additionally, we declared an increased net cash dividend of $0.20 per share totaling $22.9 million, which will be paid in the fourth quarter of 2024.
Current report
In our Uinta Basin program, we anticipate operating three drilling rigs and one completion crew during the remainder of 2024, focused primarily on delineating and developing our recently acquired assets.
Current report
(2) Amount excludes five gross (two net) non-operated wells drilled in the Midland Basin during the third quarter of 2024, resulting in five gross (two net) non-operated wells drilled but not completed at September 30, 2024.
Current report
Comparison of Financial Results and Trends Between the Three Months Ended September 30, 2024, and June 30, 2024, and Between the Nine Months Ended September 30, 2024, and 2023
Current report
Average net daily equivalent production volumes increased seven percent, consisting of increases of eight percent and six percent from our South Texas and Midland Basin assets, respectively. As a result of decreases in benchmark commodity prices for oil and NGLs, total realized price per BOE decreased six percent. The increase in average net daily equivalent production volumes was partially offset by the decrease in total realized price per BOE resulting in a one percent increase in oil, gas, and NGL production revenue. Oil, gas, and NGL production expense increased nine percent, primarily driven by the impact of the increase in net production volumes on transportation expense and LOE.
Current report
Our credit ratings affect the availability of, and cost for us to borrow, additional funds. Subsequent to September 30, 2024, one major credit rating agency upgraded our credit ratings following the close of the Uinta Basin Acquisition on October 1, 2024, citing our increased size and scale, increased inventory, increased oil percentage of expected production, strong operational performance, our priority of improving our leverage metrics, our ability to consistently generate cash flows, and our use of financial derivative instruments as part of our financial risk management program.
Current report
Our weighted-average interest and weighted-average borrowing rate each increased sequentially and YTD 2024-over-YTD 2023 as a result of the issuance of our 2029 Senior Notes and 2032 Senior Notes, which have greater outstanding aggregate principal balances and higher interest rates than our 2025 Senior Notes that we redeemed during the third quarter of 2024. Our weighted-average interest rate was further impacted by an increase in the non-cash amortization of deferred financing costs related to the 2029 Senior Notes and 2032 Senior Notes, which was only partially offset by a decrease related to the 2025 Senior Notes. We expect our weighted-average interest rate and weighted-average borrowing rate to increase for the full-year 2024 compared with 2023. The rates disclosed in the table above for the three and nine months ended September 30, 2024, do not reflect the $9.0 million fee paid to secure the Bridge Facility in connection with the Uinta Basin Acquisition. Please refer to Note 5 - Long-Term Debt in Part I, Item 1 of this report for additional discussion.
Current report
On August 26, 2024, we redeemed all of the $349.1 million of aggregate principal amount outstanding of our 2025 Senior Notes. Please refer to Note 5 - Long-Term Debtin Part I, Item 1 of this report for additional discussion.
Removed paragraphs (7)
Previous report
During the second quarter of 2024:
Previous report
•Our Board of Directors re-authorized our existing Stock Repurchase Program, which authorizes us to repurchase up to $500.0 million in aggregate value of our common stock through December 31, 2027.
Previous report
•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 report
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
Previous report
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 report
Our weighted-average interest rate and our weighted-average borrowing rate each remained flat both sequentially and YTD 2024-over-YTD 2023. We expect our weighted-average interest rate and weighted-average borrowing rate to remain relatively flat for the full-year 2024 compared with 2023.
Previous report
As a result of the United States Federal Reserve’s current monetary policy, short-term interest rates could remain elevated longer than expected, which could increase the cost of and affect our ability to borrow funds.
Reworded paragraphs (66)
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. 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”).
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 June 30, 2024, filed with the SEC on August 8, 2024. Throughout the following discussion, we explain changes between the three months ended September 30, 2024, and the three months ended June 30, 2024 (“sequential quarterly” or “sequentially”), as well as the year-to-date (“YTD”) change between the nine months ended September 30, 2024, and the nine months ended September 30, 2023 (“YTD 2024-over-YTD 2023”).
Previous wording
Our purpose is to make people’s lives better by responsibly producing energy supplies, contributing to domestic energy security and prosperity, and having a positive impact in the communities where we live and work. Our long-term vision and strategy is to sustainably grow value for all of our stakeholders as a premier operator of top-tier assets by maintaining and optimizing our high-quality asset portfolio, generating cash flows, and maintaining a strong balance sheet. Our team executes this strategy by prioritizing safety, technological innovation, and stewardship of natural resources, all of which are integral to our corporate culture. Our near-term goals include focusing on continued operational excellence and continuing to return value to stockholders through our Stock Repurchase Program and fixed dividend payments.
Current wording
Our purpose is to make people’s lives better by responsibly producing energy supplies, contributing to domestic energy security and prosperity, and having a positive impact in the communities where we live and work. Our long-term vision and strategy is to sustainably grow value for all of our stakeholders as a premier operator of top-tier assets by maintaining and optimizing our high-quality asset portfolio, generating cash flows, and maintaining a strong balance sheet. Our team executes this strategy by prioritizing safety, technological innovation, and stewardship of natural resources, all of which are integral to our corporate culture. Our near-term goals include focusing on continued operational excellence, successfully integrating the Uinta Basin assets, and continuing to return value to stockholders through fixed dividend payments and our Stock Repurchase Program, while also transferring value to stockholders through reduced debt.
Previous 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.
Current wording
Our asset portfolio is comprised of high-quality assets in the Midland Basin in West Texas, the Maverick Basin in South Texas, and as of October 1, 2024, the Uinta Basin in northeast Utah, which 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, such as the Uinta Basin 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 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.
Current wording
We are impacted by global commodity and financial markets that remain subject to heightened levels of uncertainty and volatility. Key factors contributing to market fluctuations include ongoing 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+”); lower than expected oil and gas demand from China; War and Geopolitical Instability; United States Federal Reserve monetary policy; shipping channel constraints and disruptions; and changes in global oil inventory in storage. These factors 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 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.
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 third 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 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.
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 third 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
Second Quarter 2024 Overview and Outlook for the Remainder of 2024
Current wording
Third Quarter 2024 Overview and Outlook for the Remainder of 2024
Previous wording
•We entered into the XCL Acquisition Agreement to purchase the Uinta Basin Assets and, subsequent to June 30, 2024, exercised the option to purchase the Option Assets as discussed in Note 11 - Acquisitions in Part I, Item I of this report. Full-year 2024 trends discussed below do not reflect our expectations related to the pending XCL Acquisition.
Current wording
•We exercised the option to purchase the Altamont Option Assets, and on October 1, 2024, we closed the Uinta Basin Acquisition, as discussed in Note 11 - Acquisitions in Part I, Item 1 of this report.
Previous 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.
Current wording
Financial and Operational Results. Average net daily equivalent production for the three months ended September 30, 2024, increased seven percent sequentially to 170.0 MBOE, consisting of increases of eight percent and six percent from our South Texas and Midland Basin assets, respectively. These increases were a result of strong well performance and the timing of well completions.
Previous 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.
Current wording
Oil, gas, and NGL production revenue increased one percent to $642.4 million for the three months ended September 30, 2024, compared with $633.5 million for the three months ended June 30, 2024. Oil, gas, and NGL production expense increased nine percent to $148.4 million for the three months ended September 30, 2024, compared with $136.6 million for the three months ended June 30, 2024, as a result of increases in transportation expense and lease operating expense (“LOE”).
Previous 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.
Current wording
Realized price per BOE, before the effect of net derivative settlements (“realized price” or “realized prices”), decreased six percent sequentially. During the third quarter of 2024, oil and NGL benchmark prices decreased, and the gas benchmark price increased. These changes resulted in sequential quarterly decreases in oil and NGL realized prices of seven percent and five percent, respectively, partially offset by an increase in the gas realized price of four percent.
Previous 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.
Current wording
We recorded net derivative gains of $86.3 million and $12.1 million for the three months ended September 30, 2024, and June 30, 2024, respectively. Included within these amounts are net derivative settlement gains of $16.5 million for each of the three months ended September 30, 2024, and June 30, 2024.
Previous wording
•Net cash provided by operating activities of $476.4 million, compared with $276.0 million for the three months ended March 31, 2024.
Current wording
•Net cash provided by operating activities of $452.3 million, compared with $476.4 million for the three months ended June 30, 2024.
Previous 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.
Current wording
•Net income of $240.5 million, or $2.09 per diluted share, compared with net income of $210.3 million, or $1.82 per diluted share, for the three months ended June 30, 2024.
Previous 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.
Current wording
•Adjusted EBITDAX, a non-GAAP financial measure, of $481.5 million, compared with $485.9 million for the three months ended June 30, 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 June 30, 2024, and March 31, 2024, and Between the Six Months Ended June 30, 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 September 30, 2024, and June 30, 2024, and Between the Nine Months Ended September 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, 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.
Current wording
Operational Activities. We expect our total 2024 capital program to be between $1.24 billion and $1.26 billion, including capital expenditures related to the development of our recently acquired Uinta Basin assets, but excluding acquisitions. Our capital program remains focused on highly economic oil development projects in our Midland Basin, South Texas, and Uinta Basin 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 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.
Current wording
In our Midland Basin program, we operated four drilling rigs and averaged one completion crew, drilled 27 gross (19 net) wells, and completed 17 gross (15 net) wells during the third quarter of 2024. Average net daily equivalent production volumes increased sequentially by six percent to 84.6 MBOE. Costs incurred during the three months ended September 30, 2024, totaled $168.3 million, or 55 percent of our total costs incurred for the period. We anticipate operating four drilling rigs and one completion crew 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 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.
Current wording
In our South Texas program, we operated two drilling rigs and one completion crew, drilled 16 gross (16 net) wells, and completed 20 gross (20 net) wells during the third quarter of 2024. Average net daily equivalent production volumes increased sequentially by eight percent to 85.4 MBOE. Costs incurred during the three months ended September 30, 2024, totaled $125.9 million, or 41 percent of our total costs incurred for the period. We anticipate operating two drilling rigs and no completion crews 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 and six months ended June 30, 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 nine months ended September 30, 2024:
Previous 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.
Current wording
Costs Incurred. Costs incurred in oil and gas property acquisition, exploration, and development activities, whether capitalized or expensed, totaled $304.7 million and $956.8 million for the three and nine months ended September 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 June 30, 2024, and March 31, 2024, and Between the Six Months Ended June 30, 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 September 30, 2024, and June 30, 2024, and Between the Nine Months Ended September 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. 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.
Current wording
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. Given the uncertainty surrounding global financial markets, production output from OPEC+, global shipping channel constraints and disruptions, lower than expected oil and gas demand from China, War and Geopolitical Instability, 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 inflation, supply chain disruptions, fluctuations in interest rates, and industry-specific impacts. 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 third quarter of 2024; however, a portion of any negative impact to the realized price was mitigated by our commodity derivative contracts in effect during the third quarter of 2024. We expect that increased infrastructure capacity will alleviate constraints during the fourth quarter of 2024.
Previous 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.
Current wording
(2) Net derivative settlements for the three months ended September 30, 2024, and for the nine months ended September 30, 2024, and 2023, are included within the net derivative (gain) loss line item in the accompanying statements of operations.
Previous wording
Average net daily equivalent production for the three months ended June 30, 2024, increased nine percent sequentially, 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. Average net daily equivalent production remained flat YTD 2024-over-YTD 2023, as a five percent increase from our Midland Basin assets, was mostly offset by a three percent decrease from our South Texas assets. We expect a slight increase in total net equivalent production for the full-year 2024, compared with 2023, driven by well performance and increased development pace, excluding the effects of the pending XCL Acquisition.
Current wording
Average net daily equivalent production for the three months ended September 30, 2024, increased seven percent sequentially, consisting of increases of eight percent and six percent from our South Texas and Midland Basin assets, respectively. Average net daily equivalent production increased four percent YTD 2024-over-YTD 2023, consisting of increases of six percent and two percent from our Midland Basin and South Texas assets, respectively. These increases were a result of strong well performance and the timing of well completions. We expect a slight increase in total net equivalent production for the full-year 2024, compared with 2023, driven by well performance and an accelerated pace of development of our existing assets, as well as production from our newly acquired assets in the Uinta Basin.
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. The full-year 2024 trends discussed below do not reflect our expectations related to the pending XCL Acquisition.
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 include our expectations related to the Uinta Basin Acquisition.
Previous 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.
Current wording
Our realized price on a per BOE basis decreased $2.84 sequentially and remained flat YTD 2024-over-YTD 2023. The sequential decrease primarily resulted from a decrease in oil benchmark prices. For the three months ended September 30, 2024, and June 30, 2024, we recognized net gains on the settlement of our commodity derivative contracts of $1.05 per BOE and $1.15 per BOE, respectively. For the nine months ended September 30, 2024, and 2023, we recognized net gains on the settlement of our commodity derivative contracts of $1.07 per BOE and $0.49 per BOE, respectively.
Previous 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.
Current wording
LOE on a per BOE basis remained relatively flat both sequentially and YTD 2024-over-YTD 2023 as increases in labor costs and certain other operating costs were mostly 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 remain relatively flat, compared with 2023, primarily as a result of expected increases in labor costs and certain other operating costs offset by decreases in workover expense and changes in our overall production mix. 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 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.
Current wording
Transportation costs on a per BOE basis increased ten percent sequentially as a result of an eight percent increase in net equivalent production from our South Texas assets, which incur higher transportation costs than our Midland Basin assets. Transportation costs on a per BOE basis in South Texas also increased slightly as a result of expenditures necessary to upgrade certain gathering and transportation infrastructure to handle increasingly liquids-rich production from the Austin Chalk formation. Transportation costs on a per BOE basis decreased 21 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 and oil production from our Uinta Basin assets, where we incur and anticipate incurring a majority of our transportation costs. For the full-year 2024, we expect transportation costs on a per BOE basis to increase compared with 2023, as a result of the addition of our Uinta Basin assets.
Previous 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.
Current wording
Production tax expense on a per BOE basis remained relatively flat both sequentially and YTD 2024-over-YTD 2023. Our overall production tax rate for the three and nine months ended September 30, 2024, was 4.6 percent and 4.4 percent, respectively, compared with 4.3 percent for the three months ended June 30, 2024, and 4.4 percent for the nine months ended September 30, 2023. We expect that our Uinta Basin assets will incur a lower production tax rate compared to our Midland Basin and South Texas assets. 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 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.
Current wording
Ad valorem tax expense on a per BOE basis decreased seven 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 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.
Current wording
Depletion, depreciation, amortization, and asset retirement obligation liability accretion (“DD&A”) expense on a per BOE basis increased four percent sequentially primarily as a result of an increase in our DD&A rate due to inflation. DD&A expense on a per BOE basis increased five 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 and on an absolute basis to increase, compared with 2023, primarily as a result of expected increased production, the acquisition of the Uinta Basin assets, and a shift in our production mix.
Previous 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.
Current wording
General and administrative (“G&A”) expense on a per BOE basis increased four percent sequentially and nine percent YTD 2024-over-YTD 2023 primarily as a result of increased compensation expense due to inflation and increases in certain G&A expenses resulting from the Uinta Basin Acquisition. We expect that these factors will lead to an increase in G&A expense per BOE and G&A expense on an absolute basis for the full-year 2024, compared with 2023.
Previous 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.
Current wording
Please refer to Comparison of Financial Results and Trends Between the Three Months Ended September 30, 2024, and June 30, 2024, and Between the Nine Months Ended September 30, 2024, and 2023 below for additional discussion of operating expenses.
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 six months ended June 30, 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 nine months ended September 30, 2024, and 2023:
Previous 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.
Current wording
Average net daily equivalent production volumes increased four percent, consisting of increases of six percent and two percent from our Midland Basin and South Texas assets, respectively. Total realized price per BOE remained flat. As a result of the increase in average net daily equivalent production volumes, oil, gas, and NGL production revenue increased four percent. Oil, gas, and NGL production expense decreased one percent, primarily driven by a decrease in transportation expense, partially offset by increases in LOE, production tax expense, and ad valorem tax expense.
Previous 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.
Current wording
DD&A expense increased 13 percent sequentially and nine percent YTD 2024-over-YTD 2023. The sequential quarterly increase was primarily driven by an increase in average net daily equivalent production and an increase in our DD&A rate due to inflation. The YTD 2024-over-YTD 2023 increase resulted from a combination of increased average net daily equivalent production, an increase in our DD&A rate 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. 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 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.
Current wording
Exploration expense decreased 29 percent sequentially primarily due to a decrease in geological and geophysical expenses, partially offset by an increase in exploration overhead expense. The YTD 2024-over-YTD 2023 increase of 10 percent primarily resulted from expenses incurred related to one well deemed non-commercial, which primarily affected the three months ended March 31, 2024. 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 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.
Current wording
G&A expense increased 13 percent sequentially and 14 percent YTD 2024-over-YTD 2023 as a result of increases in compensation expense due to inflation and increases in certain G&A expenses resulting from the Uinta Basin Acquisition. 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 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.
Current wording
Interest expense increased 133 percent sequentially and 39 percent YTD 2024-over-YTD 2023. The sequential quarterly and YTD 2024-over-YTD 2023 increases primarily resulted from the issuance of our 2029 Senior Notes and 2032 Senior Notes during the third quarter of 2024 and a $9.0 million fee that was paid to secure firm commitments for up to $1.2 billion of senior unsecured 364-day bridge term loans (“Bridge Facility”) in connection with the Uinta Basin Acquisition. We did not draw on the Bridge Facility, and after issuance of the 2029 Senior Notes and the 2032 Senior Notes on July 25, 2024, we terminated the Bridge Facility, and the associated fees were recognized as interest expense. Total interest expense can vary based on the amount of our outstanding fixed-rate debt securities, 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.
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Current report — wording carried from elsewhere
During the third quarter of 2024:
Current report — wording carried from elsewhere
Please refer to Note 5 - Long-Term Debt in Part I, Item 1 of this report for additional discussion, as well as the presentation of the outstanding balance, total amount of letters of credit, and available borrowing capacity under the Credit Agreement as of October 24, 2024, September 30, 2024, and December 31, 2023.
Current report — wording carried from elsewhere
Because adjusted EBITDAX excludes some, but not all items that affect net income (loss) and may vary among companies, the adjusted EBITDAX amounts presented may not be comparable to similar metrics of other companies. Our revolving credit facility provides a material source of liquidity for us. Under the terms of our Credit Agreement, if we failed to comply with the covenants that establish a maximum permitted ratio of total funded debt, as defined in the Credit Agreement, to adjusted EBITDAX, we would be in default, an event that would prevent us from borrowing under our revolving credit facility and would therefore materially limit a significant source of our liquidity. In addition, if we are in default under our revolving credit facility and are unable to obtain a waiver of that default from our lenders, lenders under that facility and under the indentures governing each series of our outstanding Senior Notes would be entitled to exercise all of their remedies for default.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
•Our Board of Directors approved an increase to our fixed dividend policy, pursuant to which we intend to pay $0.20 per share per quarter, beginning in the fourth quarter of 2024.