Permian Resources Corp

Previous wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and related notes. The following discussion and analysis contain forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, future market prices for oil, natural gas and NGLs, future production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, inflation, regulatory changes, the implementation and actual result of the Earthstone Merger (defined below), and other uncertainties, as well as those factors discussed in “Cautionary Statement Concerning Forward-Looking Statements” and under the heading “Item 1A. Risk Factors” in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”); all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may or may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Current wording

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and related notes. The following discussion and analysis contain forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, future market prices for oil, natural gas and NGLs, future production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, inflation, regulatory changes, and other uncertainties, as well as those factors discussed in “Cautionary Statement Concerning Forward-Looking Statements” and under the heading “Item 1A. Risk Factors” in this Quarterly Report and our Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Annual Report”); all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may or may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Previous wording

The Organization of Petroleum Exporting Countries and other oil producing countries (“OPEC+”) undertook a series of actions in an effort to support commodity prices throughout 2023 in response to global recession concerns, a high interest rate environment, lower than expected demand from China and a regional banking crisis in the U.S., among other events. In addition, both Saudi Arabia and Russia announced unilateral production curtailments at separate times during 2023. These actions, coupled with relatively strong global demand and rising tensions in the Middle East, caused crude oil prices to increase during 2023, with NYMEX WTI spot prices reaching a high of $93.68 per barrel on September 27, 2023. However, further concerns of global economic growth, inflation and increases in oil and natural gas supply levels resulted in additional price deterioration at the end of 2023 and into 2024. More recently, prices have been positively supported by seasonal peak summer consumption and plans of OPEC+ extending their oil production cuts through the fourth quarter of 2025 resulting in the NYMEX WTI spot price averaging $80.55 per barrel during the second quarter of 2024. Natural gas prices remained low throughout the first half of 2024 driven by an over-supply due to mild winter weather, liquefied natural gas (LNG) project delays and higher than expected natural gas production. Market prices in the Permian Basin were further impacted by low demand as a result of current pipeline capacity constraints out of the basin and additional pipeline maintenance, which lead to negative regional gas prices being realized at the Waha Hub in West Texas (“Waha”) throughout the first half of 2024. Specifically, the Waha price of natural gas averaged negative $0.59 per MMBtu during the second quarter of 2024 leading to negative gas realizations.

Current wording

The Organization of Petroleum Exporting Countries and other oil producing countries (“OPEC+”) undertook a series of actions in an effort to support commodity prices throughout 2023 in response to global recession concerns, a high interest rate environment, lower than expected demand from China and a regional banking crisis in the U.S., among other events. In addition, both Saudi Arabia and Russia announced unilateral production curtailments at separate times during 2023. These actions, coupled with relatively strong global demand and rising tensions in the Middle East, caused crude oil prices to increase during 2023, with NYMEX WTI spot prices reaching a high of $93.68 per barrel on September 27, 2023. However, further concerns of global economic growth, inflation and increases in oil and natural gas supply levels resulted in additional price deterioration at the end of 2023 and into the beginning of 2024. More recently, oil demand concerns around China and the rest of the world have caused the NYMEX WTI spot price to drop to an average of $69.37 in September 2024. Natural gas prices have remained low throughout the first nine months of 2024 driven by an over-supply due to mild winter weather, liquefied natural gas (LNG) project delays and higher than expected natural gas production. Market prices in the Permian Basin were further impacted by low demand as a result of current pipeline capacity constraints out of the basin and additional pipeline maintenance, which led to negative regional gas prices being realized at the Waha Hub in West Texas (“Waha”) throughout the first nine months of 2024. Specifically, the Waha price of natural gas averaged negative $1.00 per MMBtu during the third quarter of 2024 leading to negative gas realizations.

Previous wording

On July 27, 2024, we entered into a purchase and sale agreement with certain affiliates of Occidental Petroleum Corporation to acquire oil and gas properties for total consideration of $817.5 million, subject to customary post-closing purchase price adjustments, (the “Bolt-On Acquisition”). The Bolt-On Acquisition includes approximately 29,500 net leasehold acres and approximately 9,900 net royalty acres that are predominately located directly offsetting our existing assets in Reeves County, Texas, as well as Eddy County, New Mexico. Additionally, the acquired assets in Reeves County include a fully integrated midstream system, consisting of over 100 miles of operated oil and gas gathering systems, approximately 10,000 surface acres, and water infrastructure including saltwater disposal wells, a recycling facility, frac ponds and water wells. The Bolt-On Acquisition is expected to close during the third quarter of 2024, subject to satisfaction of customary closing conditions, and we plan to fund with cash on hand and a portion of the net proceeds from the July 2024 equity offering and senior notes issuance.

Current wording

On September 17, 2024, we completed the acquisition of oil and gas properties with certain affiliates of Occidental Petroleum Corporation for total cash consideration of $743.5 million, subject to customary post-closing purchase price adjustments (the “Bolt-On Acquisition”). The Bolt-On Acquisition included approximately 29,500 net leasehold acres and approximately 9,900 net royalty acres that are predominately located directly offsetting our existing assets in Reeves County, Texas, as well as Eddy County, New Mexico. Additionally, the acquired assets in Reeves County include a fully integrated midstream system, consisting of over 100 miles of operated oil and gas gathering systems, approximately 10,000 surface acres, and water infrastructure including saltwater disposal wells, a recycling facility, frac ponds and water wells. The revenues and associated operating expenses from the Bolt-On Acquisition are included in our consolidation financial data as of September 30, 2024, but had a minimal impact to our third quarter results of operations due to the end of quarter acquisition close date.

Previous wording

During the six months ended June 30, 2024, we completed multiple acquisitions of oil and natural gas properties for a cumulative adjusted purchase price of approximately $355 million. These acquisitions are part of our ongoing bolt-on and grassroots acquisition programs.

Current wording

During the nine months ended September 30, 2024, we completed multiple acquisitions of oil and natural gas properties for a cumulative adjusted purchase price of approximately $363 million. These acquisitions are part of our ongoing bolt-on and grassroots acquisition programs.

Previous wording

During the six months ended June 30, 2024, we declared and paid quarterly base dividends totaling $0.11 per share of Class A Common Stock and distributions totaling $0.11 per share of Class C Common Stock (each of which has an underlying common unit of OpCo (“Common Units”)). In addition, during the first half of 2024, we declared and paid variable dividends totaling $0.24 per share of Class A Common Stock and distributions totaling $0.24 per share of Class C Common Stock. The cash dividends and distributions paid to common unitholders totaled $270.1 million for the six months ended June 30, 2024.

Current wording

During the nine months ended September 30, 2024, we declared and paid quarterly base dividends totaling $0.17 per share of Class A Common Stock and distributions totaling $0.17 per share of Class C Common Stock (each of which has an underlying common unit of OpCo (“Common Units”)). In addition, during the first nine months of 2024, we declared and paid variable dividends totaling $0.39 per share of Class A Common Stock and distributions totaling $0.39 per share of Class C Common Stock. The cash dividends and distributions paid to common unitholders totaled $440.3 million for the nine months ended September 30, 2024.

Previous wording

During the six months ended June 30, 2024, we paid $61.0 million to repurchase 3.8 million Common Units resulting in an equal number of the underlying shares of Class C Common Stock simultaneously being canceled under our stock repurchase program.

Current wording

During the nine months ended September 30, 2024, we paid $61.0 million to repurchase 3.8 million Common Units resulting in an equal number of the underlying shares of Class C Common Stock simultaneously being canceled under our stock repurchase program.

Previous wording

On August 5, 2024 we issued $1.0 billion of 6.25% senior notes due 2033 (the “2033 Senior Notes”) in a 144A private placement at par. We expect to use the net proceeds from the 2033 Senior Notes to (i) fund the Tender Offer and remaining redemption of the 2026 7.75% Senior Notes (defined and discussed Note 14—Subsequent Events); (ii) fund a portion of the purchase price of the Bolt-On Acquisition; and (iii) repay a portion of borrowings outstanding under its credit facility.

Current wording

On August 5, 2024 we issued $1.0 billion of 6.25% senior notes due 2033 (the “2033 Senior Notes”) in a 144A private placement at par. We used the net proceeds from the 2033 Senior Notes to (i) fund the tender offer and remaining redemption of our $300 million 7.75% senior notes due 2026; (ii) fund a portion of the purchase price of the Bolt-On Acquisition; and (iii) repay a portion of borrowings outstanding under our credit facility.

Previous wording

On July 30, 2024, we completed an underwritten public offering of 26.5 million shares of its Class A Common Stock resulting in net cash proceeds of $402.8 million after underwriting discounts and commissions.

Current wording

On July 30, 2024, we completed an underwritten public offering of 26.5 million shares of our Class A Common Stock resulting in net cash proceeds of $402.2 million after underwriting discounts and commissions. The net proceeds from this equity offering were used to fund a portion of the aggregate purchase price of the Bolt-On Acquisition.

Previous wording

(1) Natural gas sales for the three months ended June 30, 2024 include $23.6 million of gathering, processing and transportation costs (“GP&T”) that are reflected as a reduction to natural gas sales and $7.4 million for the three months ended June 30, 2023. Natural gas average sales price, however, excludes $0.43 per Mcf of such GP&T charges for the three months ended June 30, 2024 and $0.30 per Mcf for the three months ended June 30, 2023.

Current wording

(1) Natural gas sales for the three months ended September 30, 2024 include $26.2 million of gathering, processing and transportation costs (“GP&T”) that are reflected as a reduction to natural gas sales and $12.0 million for the three months ended September 30, 2023. Natural gas average sales price, however, excludes $0.47 per Mcf of such GP&T charges for the three months ended September 30, 2024 and $0.46 per Mcf for the three months ended September 30, 2023.

Previous wording

(2) NGL sales for the three months ended June 30, 2024 include $18.8 million of GP&T that are reflected as a reduction to NGL sales and $16.5 million for the three months ended June 30, 2023. NGL average sales price, however, excludes $2.44 per Bbl of such GP&T charges for the three months ended June 30, 2024 and $5.09 per Bbl for the three months ended June 30, 2023.

Current wording

(2) NGL sales for the three months ended September 30, 2024 include $23.0 million of GP&T that are reflected as a reduction to NGL sales and $16.3 million for the three months ended September 30, 2023. NGL average sales price, however, excludes $2.91 per Bbl of such GP&T charges for the three months ended September 30, 2024 and $5.07 per Bbl for the three months ended September 30, 2023.

Previous wording

Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the three months ended June 30, 2024 were $622.7 million (or 100%) higher than total net revenues for the three months ended June 30, 2023. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.

Current wording

Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the three months ended September 30, 2024 were $457.0 million (or 60%) higher than total net revenues for the three months ended September 30, 2023. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.

Previous wording

Net production volumes for oil, natural gas and NGLs increased 81%, 120% and 139%, respectively, between periods. The increase in oil production resulted from additional production added from wells acquired in the Earthstone Merger and from placing additional wells online since the second quarter of 2023. These oil volume increases were partially offset by normal production declines across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, which typically result in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold driving the 120% and 139% respective increases in gas and NGL volumes between periods. The higher increase in gas and NGL volumes between periods as compared to the 81% increase in oil volumes was due to the producing wells acquired in the Earthstone Merger, which have a higher gas-to-oil ratio than our existing production base, and this has resulted in more volumes of gas and NGLs being added to our total production stream since the closing of the Earthstone Merger on November 1, 2023.

Current wording

Net production volumes for oil, natural gas and NGLs increased 79%, 113% and 146%, respectively, between periods. The increase in oil production resulted from additional production added from wells acquired in the Earthstone Merger and from placing additional wells online since the third quarter of 2023. These oil volume increases were partially offset by normal production declines across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, which typically result in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold driving the 113% and 146% respective increases in gas and NGL volumes between periods. The higher increase in gas and NGL volumes between periods as compared to the 79% increase in oil volumes was due to the producing wells acquired in the Earthstone Merger, which have a higher gas-to-oil ratio than our existing production base, and this has resulted in more volumes of gas and NGLs being added to our total production stream since the closing of the Earthstone Merger on November 1, 2023. NGL volumes were further positively impacted by processors of our raw gas operating in higher ethane-recovery during the third quarter of 2024 as compared to the same 2023 period, which resulted in a higher percentage of NGLs being recovered from our wet gas stream between periods.

Previous wording

These increases were partially offset by decreases in the average realized sales prices for natural gas which decreased 99% in the second quarter of 2024 compared to the same 2023 period. This decrease was mainly due to wider gas differentials realized on our gas sales, which are primarily sold at Waha where the market price averaged negative $0.59 per MMBtu during the second quarter of 2024 due to location specific market constraints as discussed under the“Market Conditions” section above.

Current wording

The average realized sales prices for oil and natural gas decreased 7% and 110%, respectively, in the third quarter of 2024 compared to the same 2023 period. The 7% decrease in the average realized oil price was mainly the result of lower NYMEX crude prices partially offset by improved oil differentials realized between periods. The 110% decrease was mainly due to wider gas differentials realized on our gas sales, which are primarily sold at Waha where the market price averaged negative $1.00 per MMBtu during the third quarter of 2024 due to location specific market constraints as discussed under the“Market Conditions” section above.

Previous wording

Lease Operating Expenses. Lease operating expenses (“LOE”) for the three months ended June 30, 2024 increased $76.7 million compared to the three months ended June 30, 2023. Higher LOE for the second quarter of 2024 was primarily related to our significantly higher well count between periods due to (i) wells acquired in the Earthstone Merger on November 1, 2023; and (ii) additional wells placed on production since June 30, 2023.

Current wording

Lease Operating Expenses. Lease operating expenses (“LOE”) per Boe for the third quarter of 2024 was $5.43 and consistent with our per Boe rate of $5.42 from the third quarter of 2023. On a nominal basis, LOE for the three months ended September 30, 2024 increased $87.4 million compared to the three months ended September 30, 2023 and was the direct result of our significantly higher well count between periods primarily due to (i) wells acquired in the Earthstone Merger on November 1, 2023; and (ii) additional wells placed on production since September 30, 2023.

Previous wording

Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the three months ended June 30, 2024 increased $44.1 million compared to the three months ended June 30, 2023. Severance taxes are based on the market value of our oil and gas production at the wellhead, while ad valorem taxes are generally based on the assessed taxable value of proved developed oil and gas properties and vary across the different counties in which we operate. Severance taxes for the second quarter of 2024 increased $40.0 million compared to the same 2023 period primarily due to higher total operating revenues between periods. Ad valorem taxes between periods also increased by $4.1 million, mainly due to additional expense incurred on the proved developed properties acquired in the Earthstone Merger.

Current wording

Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the three months ended September 30, 2024 increased $32.6 million compared to the three months ended September 30, 2023. Severance taxes are based on the market value of our oil and gas production at the wellhead, while ad valorem taxes are generally based on the assessed taxable value of proved developed oil and gas properties and vary across the different counties in which we operate. Severance taxes for the third quarter of 2024 increased $29.4 million compared to the same 2023 period primarily due to higher total operating revenues between periods. Ad valorem taxes between periods also increased by $3.2 million, mainly due to additional expense incurred on the proved developed properties acquired in the Earthstone Merger.

Previous wording

Gathering, Processing and Transportation Expenses. Gathering, processing and transportation costs (“GP&T”) for the three months ended June 30, 2024 increased $22.0 million as compared to the three months ended June 30, 2023. This increase in expense was mainly attributable to higher natural gas and NGL volumes sold between periods, which in turn resulted in a higher amount of plant processing fees and gathering costs being incurred.

Current wording

Gathering, Processing and Transportation Expenses. Gathering, processing and transportation costs (“GP&T”) for the three months ended September 30, 2024 increased $29.5 million as compared to the three months ended September 30, 2023. This increase in expense was mainly attributable to higher natural gas and NGL volumes sold between periods, which in turn resulted in a higher amount of plant processing fees and gathering costs being incurred. Additionally, GP&T increased 20% on a per Boe basis from $1.31 for the third quarter of 2023 to $1.57 for the third quarter of 2024. This increase in rate was mainly attributable to a higher portion of our GP&T costs being recognized as expense as compared to a reduction to our gas and NGL revenues between periods primarily related to processing contracts assumed as part of the Earthstone Merger.

Previous wording

For the three months ended June 30, 2024, DD&A expense amounted to $426.4 million, an increase of $210.7 million over the same 2023 period. The primary factor contributing to higher DD&A expense in 2024 was the increase in our overall production volumes between periods, which increased DD&A expense by $224.9 million, while our lower DD&A rate of $13.83 per BOE decreased DD&A expense by $14.2 million between periods.

Current wording

For the three months ended September 30, 2024, DD&A expense amounted to $453.6 million, an increase of $217.4 million over the same 2023 period. The primary factor contributing to higher DD&A expense in 2024 was the increase in our overall production volumes between periods, which increased DD&A expense by $240.5 million, while our lower DD&A rate of $14.21 per BOE decreased DD&A expense by $23.1 million between periods.

Previous wording

Our DD&A rate can fluctuate as a result of finding and development costs incurred, acquisitions, impairments, as well as changes in proved developed and proved undeveloped reserves. DD&A per BOE was $13.83 for the second quarter of 2024 as compared to $14.29 for the same period 2023, a 3% decline between periods.

Current wording

DD&A per BOE was $14.21 for the third quarter of 2024 as compared to $14.93 for the same period in 2023, a 5% decline between periods. Our DD&A rate can fluctuate as a result of finding and development costs incurred, acquisitions, impairments, as well as changes in proved developed and proved undeveloped reserves.

Previous wording

G&A expenses for the three months ended June 30, 2024 were $48.7 million compared to $52.7 million for the three months ended June 30, 2023. Lower G&A in the second quarter of 2024 was the result of a $12.6 million decrease in stock-based compensation between periods related to less expense associated with accelerated vestings of equity awards primarily for employees terminated in connection with the merger with Colgate Energy Partners III, LLC (the “Colgate Merger”) on September 1, 2022. Refer to Note 6—Stock-Based Compensationfor additional information regarding these award accelerations and modifications. This decrease was partially offset by an increase of $8.6 million in cash G&A between periods primarily due to (i) higher payroll and employee-related costs associated with our higher G&A headcount, which increased from 175 as of June 30, 2023 to 246 as of June 30, 2024 stemming primarily from the Earthstone Merger; and (ii) higher software and professional expenses between periods also related to our higher headcount and corporate growth following the Earthstone Merger. While cash G&A increased between periods, on a per Boe basis, our Cash G&A rate decreased 27% from $1.17 per Boe during the three months ended June 30, 2023 to $0.85 per Boe during the three months ended June 30, 2024 as a result of improved operational execution and the realization of cost synergies related to the Earthstone Merger.

Current wording

G&A expenses for the three months ended September 30, 2024 were $43.8 million compared to $34.5 million for the three months ended September 30, 2023. Higher G&A in the third quarter of 2024 was the result of an increase of $11.4 million in cash G&A between periods primarily associated with our overall corporate growth between periods and associated higher G&A headcount, which increased from 179 as of September 30, 2023 to 260 as of September 30, 2024 stemming from the Earthstone Merger. This increase was partially offset by a $2.1 million decrease in stock-based compensation between periods related to less expenses associated with accelerated vestings of equity awards associated with employees terminated in connection with the merger with Colgate Energy Partners III, LLC (the “Colgate Merger”) on September 1, 2022. Refer to Note 6—Stock-Based Compensationfor additional information regarding these award accelerations and modifications.

Previous wording

Merger and integration expense incurred during the six months ended June 30, 2023 was $17.6 million. These charges were related to the Colgate Merger that closed on September 1, 2022 and consisted of (i) $13.7 million in severance and related benefits associated with employees that were terminated in connection with the Colgate Merger; and (ii) $3.9 million from associated consultancy, legal and accounting fees.

Current wording

Merger and integration expense. There was no merger and integration expense incurred during the three months ended September 30, 2024 as integration of the Earthstone Merger was complete. Merger and integration expense incurred during the three months ended September 30, 2023 was $10.4 million. These charges related to the Colgate Merger that closed on September 1, 2022 and consisted of (i) $0.7 million in severance and related benefits associated with employees that were terminated in connection with the Colgate Merger; and (ii) $9.7 million of costs associated with consultancy, legal and accounting fees.

Previous wording

Exploration and other expenses were $6.0 million for the three months ended June 30, 2024 compared to $5.3 million for the three months ended June 30, 2023. Exploration and other expenses mainly consist of topographical studies, geographical and geophysical (“G&G”) projects, salaries and expenses of G&G personnel and include other operating costs. The period over period increase was primarily related to (i) $2.5 million in costs incurred in 2024 associated with a nonrecurring legal settlement; and (ii) higher G&G personnel costs in the second quarter of 2024 associated with increased headcount due to the Earthstone Merger. This increase was partially offset by a decrease in costs incurred on G&G projects and seismic studies in 2024.

Current wording

Exploration and other expenses were $7.0 million for the three months ended September 30, 2024 compared to $5.0 million for the three months ended September 30, 2023. Exploration and other expenses mainly consist of topographical studies, geographical and geophysical (“G&G”) projects, salaries and expenses of G&G personnel and include other operating costs. The period over period increase was primarily related to (i) higher G&G personnel costs in the third quarter of 2024 associated with increased headcount due to the Earthstone Merger; and (ii) higher costs incurred on G&G projects and seismic studies in the third quarter of 2024 compared to the same period in 2023.

Previous wording

Interest expense increased $38.6 million for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 primarily due to (i) $23.3 million in additional interest costs on the senior notes we assumed in the Earthstone Merger; and (ii) $17.5 million in interest incurred on our 2032 Senior Notes that were issued in September 2023 and December 2023. These increases were partially offset by the redemption of our 2027 6.875% Senior Notes in April 2024 that resulted in $5.9 million less interest incurred period over period (refer to Note 4—Long-Term Debtfor additional information regarding the senior note redemption).

Current wording

Interest expense increased $39.4 million for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 primarily due to (i) $23.3 million in additional interest costs on the senior notes we assumed in the Earthstone Merger; (ii) $15.7 million in higher interest incurred on our 2032 Senior Notes that were issued in September 2023 and December 2023; and (iii) $9.7 million in interest incurred on our 2033 Senior Notes that were issued in July 2024. These increases were partially offset by (i) the redemption of our 2027 6.875% Senior Notes in April 2024 and the redemption of our 2026 7.75% Senior Notes in August 2024 that resulted in $4.4 million less interest incurred period over period, inclusive of the loss on extinguishment associated with their extinguishment (refer to Note 4—Long-Term Debtfor additional information regarding the senior note redemptions); and (ii) $3.2 million less interest expense incurred on our credit facility due to lower weighted average borrowings outstanding, which were $92.0 million versus $317.3 million for the three months of 2024 and 2023, respectively.

Previous wording

For the three months ended June 30, 2024, we generated pre-tax net income of $391.2 million and recorded income tax expense of $82.3 million. During the three months ended June 30, 2023, we generated pre-tax net income of $175.5 million and recorded income tax expense of $26.5 million. The primary factor decreasing our income tax expense below the U.S. statutory rate for both periods was the portion of pre-tax income that was attributable to our non-controlling interest partners and not taxable to the Company.

Current wording

For the three months ended September 30, 2024, we generated pre-tax net income of $563.0 million and recorded income tax expense of $106.5 million. During the three months ended September 30, 2023, we generated pre-tax net income of $114.6 million and recorded income tax expense of $16.3 million. The primary factor decreasing our income tax expense below the U.S. statutory rate for both periods was the portion of pre-tax income that was attributable to our non-controlling interest partners and not taxable to the Company.

Previous wording

(1) Natural gas sales for the six months ended June 30, 2024 include $48.9 million of GP&T that are reflected as a reduction to natural gas sales and $18.7 million for the six months ended June 30, 2023. Natural gas average sales price, however, excludes $0.45 per Mcf of such GP&T charges for the six months ended June 30, 2024 and $0.38 for the six months ended June 30, 2023.

Current wording

(1) Natural gas sales for the nine months ended September 30, 2024 include $75.1 million of GP&T that are reflected as a reduction to natural gas sales and $30.7 million for the nine months ended September 30, 2023. Natural gas average sales price, however, excludes $0.46 per Mcf of such GP&T charges for the nine months ended September 30, 2024 and $0.41 for the nine months ended September 30, 2023.

Previous wording

(2) NGL sales for the six months ended June 30, 2024 include $41.7 million of GP&T that are reflected as a reduction to NGL sales and $32.6 million for the six months ended June 30, 2023. NGL average sales price, however, excludes $2.91 per Bbl of such GP&T charges for the six months ended June 30, 2024 and $5.40 for the six months ended June 30, 2023.

Current wording

(2) NGL sales for the nine months ended September 30, 2024 include $64.7 million of GP&T that are reflected as a reduction to NGL sales and $48.9 million for the nine months ended September 30, 2023. NGL average sales price, however, excludes $2.90 per Bbl of such GP&T charges for the nine months ended September 30, 2024 and $5.29 for the nine months ended September 30, 2023.

Previous wording

Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the six months ended June 30, 2024 were $1.2 billion, or 101%, higher than total net revenues for the six months ended June 30, 2023. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.

Current wording

Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the nine months ended September 30, 2024 were $1.7 billion, or 85%, higher than total net revenues for the nine months ended September 30, 2023. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.

Previous wording

Net production volumes for oil, natural gas, and NGLs increased 88%, 118%, and 138%, respectively, between periods. The increase in oil production resulted from additional production added from wells acquired in the Earthstone Merger and from placing additional wells online since the second quarter of 2023. These oil volume increases were partially offset by normal production declines across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, which typically result in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold driving the 118% and 138%, respective increases in gas and NGL volumes between periods. The higher increase in gas and NGL volumes between periods as compared to the 88% increase in oil volumes was due to the producing wells acquired in the Earthstone Merger, which have a higher gas-to-oil ratio than our existing production base, and this has resulted in more volumes of gas and NGLs being added to our total production stream since the closing of the Earthstone Merger on November 1, 2023.

Current wording

Net production volumes for oil, natural gas, and NGLs increased 85%, 116%, and 141%, respectively, between periods. The increase in oil production resulted from additional production added from wells acquired in the Earthstone Merger and from placing additional wells online since the third quarter of 2023. These oil volume increases were partially offset by normal production declines across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, which typically result in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold driving the 116% and 141%, respective increases in gas and NGL volumes between periods. The higher increase in gas and NGL volumes between periods as compared to the 85% increase in oil volumes was due to the producing wells acquired in the Earthstone Merger, which have a higher gas-to-oil ratio than our existing production base, and this has resulted in more volumes of gas and NGLs being added to our total production stream since the closing of the Earthstone Merger on November 1, 2023. NGL volumes were further positively impacted by processors of our raw gas operating in higher ethane-recovery during the first nine months of 2024 as compared to the same 2023 period, which resulted in a higher percentage of NGLs being recovered from our wet gas stream between periods.

Previous wording

Total net revenues increases were also driven by higher average realized sales prices of oil and NGLs, which increased 7% and 3%, respectively, in the first half of 2024 compared to the same 2023 period. The 7% increase in the average realized oil price was mainly the result of higher NYMEX crude prices as well as improved oil differentials between periods. While the 3% increase in average realized NGL prices between periods was primarily attributable to higher Mont Belvieu spot prices for plant products in the first half of 2024 as compared to the first half of 2023.

Current wording

Total net revenues increases were also driven by higher average realized sales prices of oil, which increased 2% in the first nine months of 2024 compared to the same 2023 period. The 2% increase in the average realized oil price was mainly the result of improved oil differentials between periods.

Previous wording

These increases were partially offset by decreases in the average realized sales prices for natural gas which decreased 61% in the first half of 2024 compared to the same 2023 period. This decrease was mainly due to wider gas differentials realized on our gas sales, which are primarily sold at Waha where the market price averaged $0.27 per MMBtu during the first half of 2024 compared to $1.34 for the first half of 2023 due to location specific market constraints as discussed under the “Market Conditions” section above.

Current wording

These increases were partially offset by decreases in the average realized sales prices for natural gas which decreased 80% in the first nine months of 2024 compared to the same 2023 period. This decrease was mainly due to wider gas differentials realized on our gas sales, which are primarily sold at Waha where the market price averaged negative $0.15 per MMBtu during the first nine months of 2024 compared to $1.56 for the first nine months of 2023 due to location specific market constraints as discussed under the “Market Conditions” section above.

Previous wording

Lease Operating Expenses. LOE for the six months ended June 30, 2024 increased $170.8 million compared to the six months ended June 30, 2023. Higher LOE for the first half of 2024 was primarily related to our significantly higher well count between periods due to (i) wells acquired in the Earthstone Merger on November 1, 2023; and (ii) additional wells placed on production since June 30, 2023.

Current wording

Lease Operating Expenses. LOE per Boe was $5.46 for the nine months ended September 30, 2024, which was consistent with our per Boe rate of $5.44 for the nine months ended September 30, 2023. On a nominal basis, LOE for the nine months ended September 30, 2024 increased $258.3 million compared to the nine months ended September 30, 2023 and was related to our significantly higher well count between periods primarily due to (i) wells acquired in the Earthstone Merger on November 1, 2023; and (ii) additional wells placed on production since September 30, 2023.

Previous wording

Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the six months ended June 30, 2024 increased $91.8 million compared to the six months ended June 30, 2023. Severance taxes are based on the market value of our production at the wellhead, while ad valorem taxes are generally based on the assessed taxable value of our proved developed oil and gas properties and vary across the different counties in which we operate. Severance taxes for the first half of 2024 increased $79.9 million compared to the same 2023 period primarily due to higher total operating revenues between periods. Ad valorem taxes between periods also increased by $11.9 million, mainly due to additional expense incurred on the proved developed properties acquired in the Earthstone Merger.

Current wording

Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the nine months ended September 30, 2024 increased $124.4 million compared to the nine months ended September 30, 2023. Severance taxes are based on the market value of our production at the wellhead, while ad valorem taxes are generally based on the assessed taxable value of our proved developed oil and gas properties and vary across the different counties in which we operate. Severance taxes for the first nine months of 2024 increased $109.3 million compared to the same 2023 period primarily due to higher total operating revenues between periods. Ad valorem taxes between periods also increased by $15.1 million, mainly due to additional expense incurred on the proved developed properties acquired in the Earthstone Merger.

Previous wording

Gathering, Processing and Transportation Expenses. GP&T for the six months ended June 30, 2024 increased $45.6 million compared to the six months ended June 30, 2023. This increase in expense was mainly attributable to higher natural gas and NGL volumes sold between periods, which in turn resulted in a higher amount of plant processing fees and gathering costs being incurred. Additionally, GP&T increased on a per Boe basis from $1.29 for the first half of 2023 to $1.38 for the first half of 2024. The increase in rate was mainly attributable to an increase in low pressure gas gathering expense between periods to transport gas to a third party processing facility in New Mexico.

Current wording

Gathering, Processing and Transportation Expenses. GP&T for the nine months ended September 30, 2024 increased $75.1 million compared to the nine months ended September 30, 2023. This increase in expense was mainly attributable to higher natural gas and NGL volumes sold between periods, which in turn resulted in a higher amount of plant processing fees and gathering costs being incurred. Additionally, GP&T increased on a per Boe basis from $1.30 for the first nine months of 2023 to $1.45 for the first nine months of 2024. This increase in rate was mainly attributable to a higher portion of our GP&T costs being recognized as expense as compared to a reduction to our gas and NGL revenues between periods primarily related to processing contracts assumed as part of the Earthstone Merger.

Previous wording

For the six months ended June 30, 2024, DD&A expense amounted to $836.6 million, an increase of $432.7 million over the same 2023 period. The primary factor contributing to higher DD&A expense in 2024 was the increase in our overall production volumes between periods, which increased DD&A expense by $432.3 million during the first half of 2024, while slightly higher DD&A rates between periods increased DD&A expense by $0.4 million for the six months ended June 30, 2024.

Current wording

For the nine months ended September 30, 2024, DD&A expense amounted to $1.3 billion, an increase of $650.1 million over the same 2023 period. The primary factor contributing to higher DD&A expense in 2024 was the increase in our overall production volumes between periods, which increased DD&A expense by $673.3 million during the first nine months of 2024, while slightly lower DD&A rates between periods decreased DD&A expense by $23.2 million for the nine months ended September 30, 2024.

Previous wording

G&A expenses for the six months ended June 30, 2024 were $86.1 million compared to $88.2 million for the six months ended June 30, 2023. Lower G&A for the first six months of 2024 was the result of a $20.2 million decrease in total stock-based compensation expense between periods related to less expense associated with accelerated vestings of equity awards primarily for employees terminated in connection with the Colgate Merger on September 1, 2022. Refer to Note 6—Stock-Based Compensationfor additional information regarding these award accelerations and modifications. This decrease was partially offset by an increase of $18.1 million in cash G&A between periods primarily due to (i) higher payroll and employee-related costs associated with our G&A headcount, which increased from 175 as of June 30, 2023 to 246 as of June 30, 2024 stemming primarily from the Earthstone Merger; and (ii) higher software and professional expenses between periods also related to our higher headcount and corporate growth following the Earthstone Merger. While cash G&A increased between periods, on a per Boe basis our Cash G&A rate decreased 28% from $1.26 per Boe during the six months ended June 30, 2023 to $0.91 per Boe the six months ended of 2024 as a result of improved operational execution and realization of cost synergies related to the Earthstone Merger.

Current wording

G&A expenses for the nine months ended September 30, 2024 were $129.9 million compared to $122.7 million for the nine months ended September 30, 2023. Higher G&A for the first nine months of 2024 was the result of an increase of $29.4 million in cash G&A between periods primarily associated with our overall corporate growth between periods and associated higher G&A headcount, which increased from 179 as of September 30, 2023 to 260 as of September 30, 2024 stemming primarily from the Earthstone Merger. This increase was partially offset by a $22.3 million decrease in total stock-based compensation expense between periods related to less expenses associated with accelerated vestings of equity awards primarily for employees terminated in connection with the Colgate Merger on September 1, 2022. Refer to Note 6—Stock-Based Compensationfor additional information regarding these award accelerations and modifications.

Previous wording

Merger and integration expense. Merger and integration expense for the six months ended June 30, 2024 was $18.1 million. These charges incurred during the 2024 period mainly related to the Earthstone Merger that closed on November 1, 2023 and consisted of (i) $13.2 million in severance and related benefits associated with employees that were terminated in connection with our corporate mergers; and (ii) $4.9 million from software integration, consultancy and other professional fees.

Current wording

Merger and integration expense. Merger and integration expense for the nine months ended September 30, 2024 was $18.1 million. These charges incurred during the 2024 period mainly related to the Earthstone Merger that closed on November 1, 2023 and consisted of (i) $13.2 million in severance and related benefits incurred for employees that were terminated in connection with our corporate mergers; and (ii) $4.9 million in charges associated with software integration, consultancy and other professional fees.

Previous wording

Merger and integration expense incurred during the three months ended June 30, 2023 was $4.4 million. These charges were related to the Colgate Merger that closed on September 1, 2022 and consisted of (i) $2.6 million in severance and related benefits associated with employees that were terminated in connection with the Colgate Merger; and (ii) $1.8 million from associated consultancy, legal and accounting fees.

Current wording

Merger and integration expense incurred during the nine months ended September 30, 2023 was $28.1 million. These charges related to the Colgate Merger that closed on September 1, 2022 and consisted of (i) $14.5 million in severance and related benefits associated with employees that were terminated in connection with the Colgate Merger; and (ii) $13.6 million of costs associated with consultancy, legal and accounting fees.

Previous wording

Exploration and other expenses were $17.5 million for the six months ended June 30, 2024 compared to $9.6 million for the same prior year period. Exploration and other expenses mainly consist of topographical studies, G&G projects, salaries and expenses of G&G personnel and includes other operating costs. The period over period increase was primarily related to (i) an estimated net contingency loss of $6.5 million recorded during 2024 associated with disputed charges that have been in legal dispute and stemmed from a severe winter storm impacting the Permian Basin in February 2021 (refer to Note 12—Commitments and Contingenciesfor additional information regarding the contingency loss); (ii) $2.5 million in costs incurred in 2024 associated with a nonrecurring legal settlement; and (iii) higher G&G personnel costs associated with increased headcount. These increases were partially offset by a decrease in costs incurred on G&G projects and seismic studies in 2024.

Current wording

Exploration and other expenses were $24.4 million for the nine months ended September 30, 2024 compared to $14.7 million for the same prior year period. Exploration and other expenses mainly consist of topographical studies, G&G projects, salaries and expenses of G&G personnel and includes other operating costs. The period over period increase was primarily related to (i) an estimated net contingency loss of $7.6 million recorded during 2024 associated with charges that have been in legal dispute and stemmed from a severe winter storm impacting the Permian Basin in February 2021 (refer to Note 12—Commitments and Contingenciesfor additional information regarding the contingency loss); and (ii) higher G&G personnel costs associated with increased headcount.

Previous wording

Interest expense was $74.4 million higher for the six months ended June 30, 2024 compared to the same 2023 period mainly due to (i) $46.7 million in additional interest costs on the senior notes we assumed in the Earthstone Merger; and (ii) $35.0 million in interest incurred on our 2032 Senior Notes that were issued in September 2023 and December 2023. These increases were partially offset by (i) less interest expense incurred on our credit facility primarily due to lower weighted average borrowings outstanding during the 2024 period; and (ii) the redemption of our 2027 6.875% Senior Notes in April 2024 that resulted in $5.9 million less interest incurred period over period (refer to Note 4—Long-Term Debtfor additional information regarding the senior note redemption).

Current wording

Interest expense was $113.8 million higher for the nine months ended September 30, 2024 compared to the same 2023 period mainly due to (i) $70.0 million in additional interest costs on the senior notes we assumed in the Earthstone Merger; (ii) $50.7 million in higher interest incurred on our 2032 Senior Notes that were issued in September 2023 and December 2023; and (iii) $9.7 million in interest incurred on our 2033 Senior Notes that were issued in July 2024. These increases were partially offset by (i) $9.6 million less interest expense incurred on our credit facility due to lower weighted average borrowings outstanding, which were $136.4 million versus $380.5 million for the first nine months of 2024 and 2023, respectively; and (ii) the redemption of our 2027 6.875% Senior Notes in April 2024 and the redemption of our 2026 7.75% Senior Notes in August 2024 that resulted in $6.8 million less interest incurred period over period, inclusive of the loss on extinguishment associated with their redemptions (refer to Note 4—Long-Term Debtfor additional information regarding the senior note redemptions).

Previous wording

Our provisions for income taxes for the first half of 2024 and 2023 differs from the amounts that would be provided by applying the U.S. federal statutory rate of 21% to pre-tax book income primarily due to (i) the portion of pre-tax net income that is attributable to our non-controlling interest and which is therefore not taxable to the Company; (ii) other permanent differences; and (iii) state income taxes.

Current wording

Our provisions for income taxes for the first nine months of 2024 and 2023 differs from the amounts that would be provided by applying the U.S. federal statutory rate of 21% to pre-tax book income primarily due to (i) the portion of pre-tax net income that is attributable to our non-controlling interest and which is therefore not taxable to the Company; (ii) other permanent differences; and (iii) state income taxes.

Previous wording

For the six months ended June 30, 2024 we generated pre-tax net income of $669.7 million and recorded income tax expense of $131.2 million. During the six months ended June 30, 2023, we generated pre-tax net income of $429.6 million and recorded income tax expense of $60.8 million. The primary factor decreasing our income tax expense below the U.S. statutory rate for both periods was the portion of pre-tax income that was attributable to our non-controlling interest partners and not taxable to the Company.

Current wording

For the nine months ended September 30, 2024 we generated pre-tax net income of $1.2 billion and recorded income tax expense of $237.7 million. During the nine months ended September 30, 2023, we generated pre-tax net income of $544.1 million and recorded income tax expense of $77.1 million. The primary factor decreasing our income tax expense below the U.S. statutory rate for both periods was the portion of pre-tax income that was attributable to our non-controlling interest partners and not taxable to the Company.