UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________________________________________________________________________________________________________
FORM 10-K
____________________________________________________________________________________________________________________
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number: 1-13283
RANGER OIL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia
23-1184320
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
16285 Park Ten Place, Suite 500
Houston, TX 77084
(Address of principal executive offices) (Zip Code)
(713) 722-6500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of exchange on which registered
Class A Common Stock, $0.01 Par Value
ROCC
The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during
the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of
“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
☐
Accelerated filer
☒
Non-accelerated
filer
☐
Smaller reporting
company
☐
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b)
of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers
during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant was $ 669,492,116 as of June 30, 2022 (the last business day of its most recently completed
second fiscal quarter), based on the last sale price of such stock as quoted on the Nasdaq Global Select Market.
As of March 3, 2023, there were 41,507,928 shares of common stock outstanding, including 18,958,930 shares of Class A Common Stock and 22,548,998 shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None.
RANGER OIL CORPORATION
ANNUAL REPORT ON FORM 10-K
For the Fiscal Year Ended December 31, 2022
Table of Contents
Page
Forward-Looking Statements
1
Glossary of Certain Terms
3
Part I
Item 1.
Business
8
Item 1A.
Risk Factors
17
Item 1B.
Unresolved Staff Comments
41
Item 2.
Properties
41
Item 3.
Legal Proceedings
45
Item 4.
Mine Safety Disclosures
45
Part II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
46
Item 6.
[Reserved]
47
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations:
Overview and Executive Summary
48
Results of Operations
51
Liquidity and Capital Resources
60
Commitments and Contingencies
64
Critical Accounting Estimates
64
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
66
Item 8.
Financial Statements and Supplementary Data
67
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
108
Item 9A.
Controls and Procedures
108
Item 9B.
Other Information
108
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
108
Part III
Item 10.
Directors, Executive Officers and Corporate Governance
109
Item 11.
Executive Compensation
109
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
109
Item 13.
Certain Relationships and Related Transactions, and Director Independence
109
Item 14.
Principal Accountant Fees and Services
109
Part IV
Item 15.
Exhibit and Financial Statement Schedules
110
Item 16.
Form 10-K Summary
111
Signatures
112
Forward-Looking Statements
Certain statements contained herein that are not descriptions of historical facts are “forward-looking” statements within the meaning of Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We use words such as “anticipate,” “guidance,” “assumptions,”
“projects,” “estimates,” “expects,” “continues,” “intends,” “plans,” “believes,” “forecasts,” “future,” “potential,” “may,” “possible,” “could” and variations of such words or
similar expressions to identify forward-looking statements. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from
those expressed or implied by such forward-looking statements. These risks, uncertainties and contingencies include, but are not limited to, the following:
•
all of the risks and uncertainty related to our announced merger with Baytex Energy Corp. (“Baytex”), including the risk that the conditions to the closing of the
transaction are not satisfied and the additional risks discussed in Part I, Item 1A of this report;
•
risks related to completed acquisitions, including the risk that the benefits of the acquisitions may not be fully realized or may take longer to realize than expected, and
that management attention will be diverted to integration-related issues;
•
the sustained market uncertainty of, and volatility of commodity prices for crude oil, natural gas liquids, or NGLs, and natural gas;
•
general economic conditions, including as a result of governmental actions to address elevated inflation levels caused by labor shortages, supply shortages and increased
demand, and other inflationary pressures;
•
the impact of world health events, including the COVID-19 pandemic, economic slowdown, governmental actions, stay-at-home orders and interruptions to our
operations or our customer’s operations;
•
risks related to and the impact of actual or anticipated other world health events;
•
our ability to satisfy our short-term and long-term liquidity needs, including our ability to generate sufficient cash flows from operations or to obtain adequate financing
on favorable terms, including access to the capital markets, to fund our capital expenditures and meet working capital needs;
•
our ability to access capital, including through lending arrangements and the capital markets, as and when desired;
• negative events or publicity adversely affecting our ability to maintain our relationships with our suppliers, service providers, customers, employees, and other third
parties;
• plans, objectives, expectations and intentions contained in this report that are not historical;
• our ability to execute our business plan in volatile commodity price environments;
• our ability to develop, explore for, acquire and replace oil and gas reserves and sustain production;
• changes to our drilling and development program;
•
our ability to generate profits or achieve targeted reserves in our development operations;
• our ability to meet guidance, market expectations and internal projections, including type curves;
• any impairments, write-downs or write-offs of our reserves or assets;
• the projected demand for and supply of oil, NGLs and natural gas;
• our ability to contract for drilling rigs, frac crews, materials, supplies and services at reasonable costs;
•
our ability to declare dividends;
• our ability to renew or replace expiring contracts on acceptable terms;
1
• our ability to obtain adequate pipeline transportation capacity or other transportation for our oil and gas production at reasonable cost and to sell our production at, or at
reasonable discounts to, market prices;
•
the uncertainties inherent in projecting future rates of production for our wells and the extent to which actual production differs from that estimated in our proved oil and
gas reserves;
• use of new techniques in our development, including choke management and longer laterals;
•
drilling, completion and operating risks, including adverse impacts associated with well spacing and a high concentration of activity;
• our ability to compete effectively against other oil and gas companies;
• leasehold terms expiring before production can be established and our ability to replace expired leases;
• environmental obligations, costs and liabilities that are not covered by an effective indemnity or insurance;
• the timing of receipt of necessary regulatory permits;
• the effect of commodity and financial derivative arrangements with other parties and counterparty risk related to the ability of these parties to meet their future
obligations;
• the occurrence of unusual weather or operating conditions, including force majeure events;
• our ability to retain or attract senior management and key employees;
•
our reliance on a limited number of customers and a particular region for substantially all of our revenues and production;
•
compliance with and changes in governmental regulations or enforcement practices, especially with respect to environmental, health and safety matters;
• physical, electronic and cybersecurity breaches;
• uncertainties and economic events relating to general domestic and international economic and political conditions, including political tensions or war;
• the impact and costs associated with litigation or other legal matters;
• sustainability initiatives; and
• other factors set forth in our periodic filings with the Securities and Exchange Commission, or SEC, including the risks set forth in Part I, Item 1A of this Annual Report
on Form 10-K for the year ended December 31, 2022.
Additional information concerning these and other factors can be found in our press releases and public filings with the SEC. Many of the factors that will determine our future
results are beyond the ability of management to control or predict. Readers should not place undue reliance on forward-looking statements, which reflect management’s views
only as of the date hereof. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety
by these cautionary statements. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as a
result of new information, future events or otherwise, except as may be required by applicable law.
2
Glossary of Certain Terms
The following abbreviations, terms and definitions are commonly used in the oil and gas industry and are used within this Annual Report on Form 10-K.
bbl. A standard barrel of 42 U.S. gallons liquid volume of oil or other liquid hydrocarbons.
Bcf. One billion cubic feet of natural gas.
boe. One barrel of oil equivalent with 6,000 cubic feet of natural gas converted to one barrel of crude oil based on the estimated relative energy content.
boe/d. Barrels of oil equivalent per day.
Borrowing base. The value assigned to a collection of borrower’s assets used by lenders to determine an initial and/or continuing amount for loans. In the case of oil and gas
exploration and development companies, the borrowing base is generally based on proved developed reserves.
Completion. A process of treating a drilled well, including hydraulic fracturing among other stimulation processes, followed by the installation of permanent equipment for the
production of oil or gas.
Condensate. A mixture of hydrocarbons that exists in the gaseous phase at original reservoir temperature and pressure, but that, when produced, is in the liquid phase at surface
temperature and pressure.
Development well. A well drilled within the proved area of an oil or gas reservoir to the depth of a stratigraphic horizon known to be productive.
Dry hole. A well found to be incapable of producing either oil or gas in sufficient commercial quantities to justify completion of the well.
EBITDAX. A measure of profitability utilized in the oil and gas industry representing earnings before interest, income taxes, depreciation, depletion, amortization and
exploration expenses. EBITDAX is not a defined term or measure in generally accepted accounting principles, or GAAP (see below).
Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or gas in another reservoir. Generally, an
exploratory well is any well that is not a development well, a service well or a stratigraphic test well.
EUR. Estimated ultimate reserves, the sum of reserves remaining as of a given date and cumulative production as of that date.
GAAP. Accounting principles generally accepted in the Unites States of America.
Gas lift. A method of artificial lift that uses an external source of high-pressure gas for supplementing formation gas for lifting the well fluids.
Gross acre or well. An acre or well in which a working interest is owned.
HBP. Held by production is a provision in an oil and gas or mineral lease that perpetuates the leaseholder’s right to operate the property as long as the property produces a
minimum paying quantity of oil or gas.
HH. Henry Hub, the Erath, Louisiana settlement point price for natural gas.
HSC. Houston Ship Channel settlement point price for natural gas.
Juniper. Juniper Capital Advisors, L.P., JSTX Holdings, LLC and Rocky Creek Resources, LLC
Juniper Transactions. Consummation of the transactions contemplated by: (i) the Contribution Agreement, dated November 2, 2020, by and among Ranger Oil Corporation,
the Partnership, and Juniper; and (ii) the Contribution Agreement, dated November 2, 2020 , by and among Rocky Creek, Ranger Oil Corporation and the Partnership pursuant
to which Juniper contributed $150 million in cash and certain oil and gas assets in South Texas in exchange for equity.
3
LIBOR. London Interbank Offered Rate.
LLS. Light Louisiana Sweet, a crude oil pricing index reference.
Mbbl. One thousand barrels of oil or other liquid hydrocarbons.
Mboe. One thousand barrels of oil equivalent.
Mcf. One thousand cubic feet of natural gas.
MEH. Magellan East Houston, a crude oil pricing index reference.
MMbbl. One million barrels of oil or other liquid hydrocarbons.
MMboe. One million barrels of oil equivalent.
MMBtu. One million British thermal units, a measure of energy content.
MMcf. One million cubic feet of natural gas.
Mt. Belvieu. Mont Belvieu, a natural gas liquid pricing index reference.
Net acre or well. The number of gross acres or wells multiplied by the owned working interest in such gross acres or wells.
NGL. Natural gas liquid (includes ethane, propane, butane, isobutane, pentane and pentanes plus).
NYMEX. New York Mercantile Exchange.
Oil. Includes crude oil and condensate.
Operator. The entity responsible for the exploration and/or production of a lease or well.
OPIS. Oil Price Information Service.
Partnership. ROCC Energy Holdings, L.P. (formerly PV Energy Holdings, L.P.)
Play. A geological formation with potential oil and gas reserves.
Productive wells. Wells that are not dry holes.
Proved reserves. Those quantities of oil and gas which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically
producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations before the time at which
contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic or probabilistic methods are used
for the estimation.
Proved developed reserves. Proved reserves that can be expected to be recovered: (a) through existing wells with existing equipment and operating methods or in which the
cost of the required equipment is relatively minor compared with the cost of a new well or (b) through installed extraction equipment and infrastructure operational at the time of
the reserves estimate if the extraction is by means not involving a well.
Proved undeveloped reserves. Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major
expenditure is required for recompletion. Reserves on undrilled acreage are limited to those directly offsetting development spacing areas that are reasonably certain of
production when drilled.
4
PV-10. A non-GAAP measure representing the present value of estimated future oil and gas revenues, net of estimated direct costs, discounted at an annual discount rate of
10%. PV-10 is not a measure of financial or operating performance under GAAP, nor should it be considered in isolation or as a substitute for any GAAP measure. PV-10 does
not purport to represent the fair value of oil and gas properties.
Reservoir. A porous and permeable underground formation containing a natural accumulation of hydrocarbons that is confined by impermeable rock or water barriers and is
separate from other reservoirs.
Revenue interest. An economic interest in production of hydrocarbons from a specified property.
Royalty interest. An interest in the production of a well entitling the owner to a share of production generally free of the costs of exploration, development and production.
SEC. United States Securities and Exchange Commission.
Service well. A well drilled or completed for the purpose of supporting production in an existing field.
Standardized measure. The present value, discounted at 10% per year, of estimated future cash inflows from the production of proved reserves, computed by applying prices
used in estimating proved oil and gas reserves to the year-end quantities of those reserves (except for consideration of future price changes to the extent provided by contractual
arrangements in existence at year-end), reduced by estimated future development and production costs, computed by estimating the expenditures to be incurred in developing
and producing the proved oil and gas reserves at the end of the year (including the settlement of asset retirement obligations), based on year-end costs and assuming
continuation of existing economic conditions, further reduced by estimated future income tax expenses, computed by applying the appropriate year-end statutory tax rates, with
consideration of future tax rates already legislated, to the future pretax net cash flows relating to the proved oil and gas reserves, less the tax basis of the properties involved and
giving effect to the tax deductions and tax credits and allowances relating to the proved oil and gas reserves.
Unconventional. Generally refers to hydrocarbon reservoirs that lack discrete boundaries that typically define conventional reservoirs. Examples include shales, tight sands or
coal beds.
Undeveloped acreage. Lease acreage on which wells have not been drilled or completed to a point that would permit the production of economic quantities of oil or gas,
regardless of whether such acreage contains proved reserves. Under appropriate circumstances, undeveloped acreage may not be subject to expiration if properly held by
production, as that term is defined above.
WTI. West Texas Intermediate, a crude oil pricing index reference.
Working interest. A cost-bearing interest under an oil and gas lease that gives the holder the right to develop and produce the minerals under the lease.
5
RISK FACTOR SUMMARY
The following summarizes the principal factors that make an investment in Ranger Oil speculative or risky, all of which are more fully described in Part I, Item 1A. “Risk
Factors” below. This summary should be read in connection with the Risk Factors section and should not be relied upon as an exhaustive summary of the material risks facing
our business.
The following factors could materially adversely affect our business, results of operations, financial condition, cash flows, liquidity and the trading price of our common stock.
Risks Related to the Baytex Merger
•
The uncertainty of the precise value of the merger consideration because the exchange ratio is fixed and dependent on the market price of Baytex common shares, which
may fluctuate
•
Risk that the Baytex Merger (as defined below) may not be completed or may be terminated
•
Adverse impacts associated with reduced ownership and voting interest in Baytex after the Baytex Merger
•
Provisions in the Baytex Merger Agreement that may limit our ability to pursue alternatives to the Baytex Merger and may discourage a potential acquiror of us from
making a favorable alternative transaction proposal
•
Risks associated with the failure to complete the Baytex Merger
•
Business uncertainties while the Baytex Merger is pending
•
Different rights associated with the Baytex common shares from our Class A common stock
•
Change in control or other provisions in certain agreements that may be triggered by the Baytex Merger
•
The incurrence of significant transaction and merger-related costs
•
Risks associated with possible securities class action or derivative lawsuits
Risks Associated with our General Business
•
Prices for crude oil, NGLs and natural gas, which are dependent on many factors that are beyond our control
•
Risks associated with drilling and operations activities, which are high-risk activities with many uncertainties and may not result in commercially productive reserves
•
Risks associated with multi-well pad drilling and project development, which may result in volatility in our operating results
•
Adverse impacts associated with a high concentration of activity and tighter drilling spacing
•
Our ability to adhere to our proposed drilling schedule
•
Our dependence on gathering, processing, refining and transportation facilities owned by others
•
The unavailability, high cost or shortage of drilling rigs, frac crews, equipment, raw materials, supplies, oilfield services or personnel, which may restrict our operations
•
Our ability to find or acquire additional oil and gas reserves that are economically recoverable
•
Our ability to attract and retain key members of management, qualified Board members and other key personnel
•
The continued direct and indirect effects of the COVID-19 pandemic on our business, financial position, results of operations and/or cash flows, which will depend on
future developments that are highly uncertain and cannot be predicted
•
Our ability to establish production on the acreage of certain of our undeveloped leasehold assets that are subject to leases that will expire over the next several years
unless production is developed
•
Actions we or other operators may take when drilling, completing, or operating wells that they own that may adversely affect certain of our wells
•
Our exposure to the credit risk of our customers
•
Our participation in oil and gas leases with third parties, who may not be able to fulfill their commitments to our projects
•
The accuracy of our estimates of oil and gas reserves and future net cash flows, which are not precise, and undeveloped reserves, which may not ultimately be converted
into proved producing reserves
6
•
The incurrence of impairments on our oil and gas properties
•
Our ability to obtain sufficient capital
•
Risks associated with property and business acquisitions
•
Losses resulting from title deficiencies
•
Difficulties associated with being a small company competing in a larger market
•
Our lack of diversification and risks associated with operating primarily in one major contiguous area
•
Operating risks, including risks associated with hydraulic fracturing
Financial and Related Risks
•
Our substantial indebtedness
•
A reduction in our borrowing base
•
Restrictive covenants under the Credit Facility and the indenture governing our 9.25% Senior Notes due 2026 (the “Indenture”), which could limit our financial
flexibility
•
Derivative transactions, which may limit our potential gains and involve other risks
•
Investor sentiment towards the oil and gas industry, which could adversely affect our ability to raise equity and debt capital
Legal and Regulatory Risks
•
Various laws and regulations that could adversely affect the cost, manner or feasibility of doing business, including climate change legislation, laws and regulations
restricting emissions of greenhouse gases or prohibiting, restricting, or delaying oil and gas development on public lands, and federal state and local legislation and
regulatory initiatives relating to hydraulic fracturing
•
Our ability to access water to drill and conduct hydraulic fracturing and difficulties associated with disposing of produced water gathered from drilling and production
activities
•
Our commitments and disclosures related to environmental and social matters expose us to numerous risks
•
Risks associated with legal proceedings
Tax-Related Risks
•
Our ability to use net operating loss carryforwards to offset future taxable income, which may be subject to certain limitations
•
The continued availability of certain federal income tax deductions with respect to oil and gas exploration and development
Technology-Related Risks
•
Our ability to keep pace with technological developments in our industry
•
Risks relating to cybersecurity incidents
Risks Related to Ownership of Our Class A Common Stock
•
Risks associated with Juniper’s control of the Company, including potential conflicts between Juniper’s interests and the interests of the Company and its stockholders
•
Certain provisions of our certificate of incorporation and our bylaws that may make it difficult for stockholders to change the composition of our Board and may
discourage, delay or prevent a merger or acquisition that some stockholders may consider beneficial
•
The volatility of the market price of our Class A common stock
•
The actions of so-called “activist” shareholders, which could impact the trading value of our securities
•
Future sales or other dilution of our equity, which may adversely affect the market price of our Class A common stock
•
Our ability to pay dividends on shares of our Class A common stock is uncertain and could be limited
7
Part I
Item 1. Business
Unless the context requires otherwise, references to the “Company,” “Ranger Oil,” “we,” “us” or “our” in this Annual Report on Form 10-K refer to Ranger Oil Corporation
and its subsidiaries.
Description of Business
We are an independent oil and gas company engaged in the onshore development and production of crude oil, NGLs and natural gas. Our current operations consist of drilling
unconventional horizontal development wells and operating our producing wells in the Eagle Ford Shale (the “Eagle Ford”) in South Texas.
Juniper Capital Advisors, L.P. (“Juniper Capital”), through its affiliates, JSTX Holdings, LLC (“JSTX”) and Rocky Creek Resources, LLC (“Rocky Creek” and together with
JSTX and Juniper Capital, “Juniper”) beneficially owned as of March 3, 2023 an approximate 54% equity interest in the Company through its ownership of 22,548,998 shares
of our Class B common stock, par value of $0.01 per share (“Class B Common Stock”) and 22,548,998 common units in our Up-C partnership subsidiary (the “Common
Units”). See Note 2 and Note 4 to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report on
10-K for further information.
On February 27, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Baytex pursuant to which, among other things, the Company will
merge with and into a wholly owned subsidiary of Baytex with the Company surviving the merger as a wholly owned subsidiary of Baytex (the “Baytex Merger”). Subject to the
terms and conditions of the Merger Agreement, each share of our Class A common stock, par value $0.01 per share (“Class A Common Stock”) issued and outstanding
immediately prior to the effective time of the Baytex Merger (including shares of our Class A Common Stock to be issued in connection with the exchange of the Class B
Common Stock and Common Units for Class A Common Stock), will be converted automatically into the right to receive: (i) 7.49 Baytex common shares and (ii) $13.31 in
cash. The transaction was unanimously approved by the board of directors of each company and JSTX and Rocky Creek delivered a support agreement to vote their outstanding
shares in favor of the Baytex Merger. The Baytex Merger is expected to close late in the second quarter of 2023, subject to the satisfaction of customary closing conditions,
including the requisite shareholder and regulatory approvals.
Current Operations
We lease a highly contiguous position of approximately 187,700 gross (163,800 net) acres as of March 3, 2023 in the core liquids-rich area or “volatile oil window” of the Eagle
Ford in South Texas, which we believe contains a substantial number of drilling locations that will support a multi-year drilling inventory.
In 2022, our total sales volume was comprised of 72% crude oil, 15% NGLs and 13% natural gas. Crude oil accounted for 88% of our product revenues. We generally sell our
crude oil, NGL and natural gas products using short-term floating price physical and spot market contracts.
As of December 31, 2022, our total proved reserves were approximately 254.5 MMboe, of which 42% were proved developed reserves and 67% were crude oil. As of
December 31, 2022, we had 976 gross (857.2 net) productive wells, approximately 97% of which we operate, and leased approximately 188,900 gross (162,100 net) acres of
leasehold and royalty interests, approximately 34% of which were undeveloped. Approximately 96% of our total acreage was HBP as of December 31, 2022 and included a
substantial number of undrilled locations. During 2022, we completed and turned to sales 59 gross (49.9 net) wells. For additional information regarding our production,
reserves, drilling activities, wells and acreage, see Part I, Item 2, “Properties.”
Key Contractual Arrangements
In the ordinary course of operating our business, we enter into a number of key contracts for services that are critical with respect to our ability to develop, produce, store and
bring our production to market. The following is a summary of our most significant contractual arrangements.
Drilling and Completion. From time to time we enter into drilling, completion and materials contracts in the ordinary course of business to ensure availability of rigs, frac crews
and materials to satisfy our development program. As of December 31, 2022, we had contracts for three drilling rigs with remaining terms of less than two years.
8
Crude oil gathering and transportation service contracts. We have long-term agreements that provide us with field gathering and intermediate pipeline transportation services
for a majority of our crude oil and condensate production in Lavaca and Gonzales Counties, Texas. We also have volume capacity support for certain downstream intrastate
pipeline transportation. The following table provides details on these contractual arrangements as of December 31, 2022:
Description of contractual arrangement
Expiration
of Contractual Arrangement
Minimum Gross
Volume Delivery
(bbl/d)
Expiration of Minimum Volume
Commitment
Field gathering agreement
February 2041
8,000
February 2031
Intermediate pipeline transportation services
February 2026
8,000
February 2026
Volume capacity support
April 2026
8,000
April 2026
Each of these arrangements also contain an obligation to deliver the first 20,000 gross barrels of oil per day produced from Gonzales, Lavaca and Fayette Counties, Texas. For
certain of our crude oil volumes gathered under the field gathering agreement, our rate includes an adjustment based on NYMEX WTI prices. As crude oil prices increase, up to
a cap of $90 per bbl, the gathering rate escalates pursuant to the field gathering agreement.
Crude oil storage. As of December 31, 2022, we had access to up to approximately 180,000 barrels of crude oil storage as a component of the crude oil gathering agreement
referenced above. In addition, we have access for an additional 70,000 barrels at the service provider’s central delivery point facility, or CDP, in Lavaca County, Texas, on a
month-to-month basis, which can be terminated by either party with 45 days’ notice to the counterparty. For additional information relating to crude oil storage see Note 14 to
our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”
Crude terminal dedication. We have a long-term dedication of certain specific leases to a crude purchase and throughput terminal agreement through 2032. Under the
agreement, we may transfer dedicated oil for delivery to a Gulf coast terminal in Point Comfort, Texas or to alternate locations to third parties and in any case, we pay a terminal
fee.
Natural gas service contracts. We have agreements that provide us with field gathering, compression and short-haul transportation services for our natural gas production and
gas lift for our hydrocarbon production under various terms through 2039.
Natural gas processing contracts. We also have agreements that provide us with services to process our wet gas production into NGL products and dry, or residue, gas. Several
agreements covering the majority of our wet gas production extend beyond three years, including one agreement that extends into 2029.
Major Customers
We sell a significant portion of our oil and gas production to a relatively small number of customers. For the year ended December 31, 2022, approximately 43% of our
consolidated product revenues were attributable to two customers, each of whom accounted for at least 10%. For the years ended December 31, 2021 and 2020, approximately
48% and 56%, respectively, of our consolidated product revenues were attributable to three customers, each of whom accounted for at least 10%. There were no other customers
that individually accounted for more than 10% of our consolidated product revenues for the years ended December 31, 2022, 2021 and 2020.
Seasonality
Our sales volumes of crude oil and natural gas are dependent upon the number of producing wells and, therefore, are not seasonal by nature. We do not believe that the pricing
of our crude oil and NGL production is subject to any meaningful seasonal effects. Historically, the pricing of natural gas is seasonal, typically with higher pricing in the winter
months.
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Competition
The oil and gas industry is very competitive, and we compete with a substantial number of other companies, many of which are large, well-established and have greater
financial and operational resources than we do. Some of our competitors not only engage in the acquisition, exploration, development and production of oil and gas reserves,
but also carry on refining operations, electricity generation and the marketing of refined products. In addition, the oil and gas industry in general competes with other industries
supplying energy and fuel to industrial, commercial and individual consumers. Competition is particularly intense in the acquisition of prospective oil and gas properties. We
may incur higher costs or be unable to acquire and develop desirable properties at costs we consider reasonable because of this competition. We also compete with other oil and
gas companies to secure drilling rigs, frac fleets, sand and other equipment and materials necessary for the drilling and completion of wells and in the recruiting and retaining of
qualified personnel. Such materials, equipment and labor may be in short supply from time to time. Shortages of equipment, labor or materials may result in increased costs or
the inability to obtain such resources as needed. Many of our larger competitors may have a competitive advantage when responding to commodity price volatility and overall
industry cycles.
Government Regulation and Environmental Matters
Our operations are subject to extensive federal, state and local laws and regulations that govern oil and gas operations, regulate the discharge of materials into the environment
or otherwise relate to the protection of the environment. These laws, rules and regulations may, among other things:
•
require the acquisition of various permits before drilling commences;
•
require notice to stakeholders of proposed and ongoing operations;
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require the installation of expensive pollution control equipment;
•
restrict the types, quantities and concentration of various substances that can be released into the environment in connection with oil and gas drilling and
production and saltwater disposal activities;
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limit or prohibit drilling activities on certain lands lying within wilderness, wetlands and other protected areas, or otherwise restrict or prohibit activities that
could impact the environment, including water resources; and
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require remedial measures to mitigate pollution from former and ongoing operations, such as requirements to close pits and plug abandoned wells.
Numerous governmental departments issue rules and regulations to implement and enforce such laws that are often difficult and costly to comply with and which carry
substantial administrative, civil and even criminal penalties, as well as the issuance of injunctions limiting or prohibiting our activities for failure to comply. Violations and
liabilities with respect to these laws and regulations could also result in remedial clean-ups, natural resource damages, permit modifications or revocations, operational
interruptions or shutdowns and other liabilities. The costs of remedying such conditions may be significant, and remediation obligations could adversely affect our financial
condition, results of operations and cash flows. In certain instances, citizens or citizen groups also have the ability to bring legal proceedings against us if we are not in
compliance with environmental laws or to challenge our ability to receive environmental permits that we need to operate. Some laws, rules and regulations relating to protection
of the environment may, in certain circumstances, impose “strict liability” for environmental contamination, rendering a person liable for environmental and natural resource
damages and cleanup costs without regard to negligence or fault on the part of such person. Other laws, rules and regulations may restrict the rate of oil and gas production
below the rate that would otherwise exist or even prohibit exploration or production activities in sensitive areas. In addition, state laws often require some form of remedial
action to prevent pollution from former operations, such as plugging of abandoned wells. The regulatory burden on the oil and gas industry increases its cost of doing business
and consequently affects its profitability. These laws, rules and regulations affect our operations, as well as the oil and gas exploration and production industry in general. As of
December 31, 2022, we had $8.8 million of asset retirement obligations.
We believe that we are in substantial compliance with current applicable environmental laws, rules and regulations and that continued compliance with existing requirements
will not have a material impact on our financial condition, results of operations or cash flows. Nevertheless, changes in existing environmental laws or regulations or the
adoption of new environmental laws or regulations, including any significant limitation on the use of hydraulic fracturing or the ability to conduct oil and gas development could
have the potential to adversely affect our financial condition, results of operations and cash flows. Federal, state or local administrative decisions, developments in the federal or
state court systems or other governmental or judicial actions may influence the interpretation or enforcement of environmental laws and regulations and may thereby increase
compliance costs. Environmental regulations have historically become more stringent over time, and thus, there can be no assurance as to the amount or timing of future
expenditures for environmental compliance or remediation.
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The following is a summary of the significant environmental laws to which our business operations are subject:
CERCLA. The Comprehensive Environmental Response, Compensation, and Liability Act, or CERCLA, is also known as the “Superfund” law. CERCLA and comparable state
laws impose liability, without regard to fault or the legality of the original conduct, on parties that are considered to have contributed to the release of a “hazardous substance”
into the environment. These persons include the current or former owner or operator of the site where the release occurred and anyone who disposed or arranged for the disposal
of a hazardous substance released at the site. Such “responsible parties” may be subject to joint and several liability under CERCLA for the costs of cleaning up the hazardous
substances that have been released into the environment and for damages to natural resources. It is not uncommon for neighboring landowners and other third parties to file
claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. We currently own or lease properties that have
been used for the exploration and production of oil and gas for a number of years. Many of these properties have been operated by third parties whose treatment or release of
hydrocarbons or other wastes was not under our control. These properties, and any wastes that may have been released on them, may be subject to CERCLA, and we could
potentially be required to investigate and remediate such properties, including soil or groundwater contamination by prior owners or operators, or to perform remedial plugging
or pit closure operations to prevent future contamination. States also have environmental cleanup laws analogous to CERCLA, including Texas.
RCRA. The Resource Conservation and Recovery Act, or RCRA, and comparable state statutes regulate the generation, transportation, treatment, storage, disposal and cleanup
of hazardous and non-hazardous wastes. Under the auspices of the EPA, the individual states administer some or all of the provisions of RCRA. While there is currently an
exclusion from RCRA for drilling fluids, produced waters and most of the other wastes associated with the exploration and production of oil or gas, it is possible that some of
these wastes could be classified as hazardous waste in the future and therefore be subject to more stringent regulation under RCRA. Also, in the course of our operations, we
generate some amounts of ordinary industrial wastes that may be regulated as hazardous wastes if such wastes have hazardous characteristics.
Oil Pollution Act. The Oil Pollution Act of 1990, or the OPA, contains numerous restrictions relating to the prevention of and response to oil spills into waters of the United
States (“U.S.”). The term “waters of the United States” has been interpreted broadly to include inland water bodies, including wetlands and intermittent streams. The OPA
imposes certain duties and liabilities on certain “responsible parties” related to the prevention of oil spills and damages resulting from such spills in or threatening waters of the
U.S. or adjoining shorelines. For example, operators of certain oil and gas facilities must develop, implement and maintain facility response plans, conduct annual spill training
for certain employees and provide varying degrees of financial assurance. Owners or operators of a facility, vessel or pipeline that is a source of an oil discharge or that poses
the substantial threat of discharge is one type of “responsible party” who is liable. The OPA subjects owners of facilities to strict, joint and several liability for all containment
and cleanup costs, and certain other damages arising from a spill. As such, a violation of the OPA has the potential to adversely affect our business, financial condition, results
of operations and cash flows.
Clean Water Act. The Federal Water Pollution Control Act, or the Clean Water Act, and comparable state laws impose restrictions and strict controls with respect to the
discharge of pollutants, including spills and leaks of oil and other substances, into regulated waters, such as waters of the U.S. The discharge of pollutants, including dredge or
fill materials in regulated wetlands, into regulated waters or wetlands without a permit issued by the EPA, the U.S. Army Corps of Engineers, or the Corps, or the state is
prohibited. The Clean Water Act has been interpreted by these agencies to apply broadly. The EPA and the Corps released a rule to revise the definition of “waters of the United
States,” or WOTUS, for all Clean Water Act programs, which went into effect in August 2015. However, the EPA rescinded this rule in 2019 and promulgated the Navigable
Waters Protection Rule in 2020. The Navigable Waters Protection Rule defined what waters qualify as navigable waters of the U.S. and are under Clean Water Act jurisdiction.
This new rule has generally been viewed as narrowing the scope of waters of the U.S. as compared to the 2015 rule, but litigation in multiple federal district courts is currently
challenging the rescission of the 2015 rule and the promulgation of the Navigable Waters Protection Rule. In June 2021, the Biden Administration announced plans to develop
its own definition for jurisdictional waters. On December 7, 2021, the Biden Administration announced a proposed rule to revise the definition of “waters of the United States.”
On January 24, 2022, the Supreme Court agreed to consider the scope of the Clean Water Act again in a new appeal, Sackett v. EPA.
The Clean Water Act also requires the preparation and implementation of Spill Prevention, Control and Countermeasure Plans in connection with on-site storage of significant
quantities of oil. In 2016, the EPA finalized new wastewater pretreatment standards that would prohibit onshore unconventional oil and gas extraction facilities from sending
wastewater to publicly-owned treatment works. This restriction of disposal options for hydraulic fracturing waste may result in increased costs. In addition, the Clean Water Act
and analogous state laws require individual permits or coverage under general permits for discharges of storm water runoff from certain types of facilities. Federal and state
regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with discharge permits or other requirements of the Clean Water Act and
analogous state laws and regulations.
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Safe Drinking Water Act. The Safe Drinking Water Act, or the SDWA, and the Underground Injection Control Program promulgated under the SDWA, establish the
requirements for salt water disposal well activities and prohibit the migration of fluid-containing contaminants into underground sources of drinking water. The Underground
Injection Control Program requires that we obtain permits from the EPA or delegated state agencies for our disposal wells, establishes minimum standards for injection well
operations, restricts the types and quantities of fluids that may be injected and prohibits the migration of fluid containing any contaminants into underground sources of drinking
water. Any leakage from the subsurface portions of the injection wells may cause degradation of freshwater, potentially resulting in cancellation of operations of a well,
imposition of fines and penalties from governmental agencies, incurrence of expenditures for remediation of affected resources, and imposition of liability by landowners or
other parties claiming damages for alternative water supplies, property damages, and personal injuries. In addition, in some instances, the operation of underground injection
wells has been alleged to cause earthquakes (induced seismicity) as a result of flawed well design or operation. This has resulted in stricter regulatory requirements in some
jurisdictions relating to the location and operation of underground injection wells, and regulators in some states are seeking to impose additional requirements, including
requirements regarding the permitting of produced water disposal wells or otherwise, to assess the relationship between seismicity and the use of such wells. For example, in
October 2014, the Texas Railroad Commission, or TRC, adopted disposal well rule amendments designed, among other things, to require applicants for new disposal wells that
will receive non-hazardous produced water or other oil and gas waste to conduct seismic activity searches utilizing the U.S. Geological Survey. The searches are intended to
determine the potential for earthquakes within a circular area of 100 square miles around a proposed new disposal well. If the permittee or an applicant of a disposal well permit
fails to demonstrate that the produced water or other fluids are confined to the disposal zone or if scientific data indicates such a disposal well is likely to be, or determined to
be, contributing to seismic activity, then TRC may deny, modify, suspend or terminate the permit application or existing operating permit for that disposal well. TRC has used
this authority to deny permits for waste disposal wells. The TRC has created Seismic Response Areas (“SRAs”) with action plans to address seismic activity, including the
Gardendale SRA in September 2021, the North Culberson-Reeves SRA in October 2021 and the Stanton SRA in January 2022. The potential adoption of federal, state and
local legislation and regulations intended to address induced seismic activity in the areas in which we operate could restrict our drilling and production activities, as well as our
ability to dispose of produced water gathered from such activities, which could result in increased costs and additional operating restrictions or delays.
We engage third parties to provide hydraulic fracturing or other well stimulation services to us in connection with the wells in which we act as operator. Hydraulic fracturing is
an important and commonly used process in the completion of oil and gas wells, particularly in unconventional plays like the Eagle Ford formation, and is generally exempted
from federal regulation as underground injection (unless diesel is a component of the fracturing fluid) under the SDWA. In addition, separate and apart from the referenced
potential connection between injection wells and seismicity, concerns have been raised that hydraulic fracturing activities may be correlated to induced seismicity. The EPA also
released the results of its comprehensive research study to investigate the potential adverse impacts of hydraulic fracturing on drinking water and ground water in December
2016, finding that hydraulic fracturing activities can impact drinking water resources under some circumstances, including large volume spills and inadequate mechanical
integrity of wells. These developments could establish an additional level of regulation, including a removal of the exemption for hydraulic fracturing from the SDWA, and
permitting of hydraulic fracturing operations at the federal level, which could lead to operational delays, increased operating and compliance costs and additional regulatory
burdens that could make it more difficult or commercially impracticable for us to perform hydraulic fracturing. Such costs and burdens could delay the development of
unconventional gas resources from shale formations, which are not commercially feasible without the use of hydraulic fracturing.
Chemical Disclosures Related to Hydraulic Fracturing. Texas has implemented chemical disclosure requirements for hydraulic fracturing operations. We currently disclose
hydraulic fracturing additives we use on www.FracFocus.org, a website created by the Ground Water Protection Council and Interstate Oil and Gas Compact Commission.
Prohibitions and Other Regulatory Limitations on Hydraulic Fracturing. There have been a variety of regulatory initiatives at the state level to restrict oil and gas drilling
operations in certain locations.
In addition to chemical disclosure rules, some states have implemented permitting, well construction or water withdrawal regulations that may increase the costs of hydraulic
fracturing operations. For example, Texas has water withdrawal restrictions allowing suspension of withdrawal rights in times of shortages while other states require reporting
on the amount of water used and its source.
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On the federal level, in 2016, the U.S. Bureau of Land Management, or BLM, under the Obama Administration published a final rule imposing more stringent standards on
hydraulic fracturing activities on federal lands, including requirements for chemical disclosure, well bore integrity, and handling of flowback water. However, in late 2018, the
BLM under the Trump Administration published a final rule rescinding the 2016 final rule. While the 2016 rule has been rescinded, new or more stringent regulations may be
promulgated by the Biden Administration. In January 2021, President Biden announced a moratorium on new oil and gas leasing on federal lands and offshore waters pending
completion of a comprehensive review and reconsideration of Federal oil and gas permitting and leasing practices. In August 2022, a federal district judge in Louisiana
permanently enjoined the moratorium in the 13 states that filed a lawsuit against the action.
Increased regulation of and attention given by environmental interest groups, as well as state and federal regulatory authorities, to the hydraulic fracturing process could lead to
greater opposition to oil and gas production activities using hydraulic fracturing techniques. Additional legislation or regulation could also lead to operational delays or
increased operating costs in the production of oil and gas, including from the developing shale plays, or could make it more difficult to perform hydraulic fracturing. These
developments could also lead to litigation challenging proposed or existing wells. The adoption of federal, state or local laws or the implementation of regulations regarding
hydraulic fracturing that are more stringent could cause a decrease in the completion of new oil and gas wells, as well as increased compliance costs and time, which could
adversely affect our financial position, results of operations and cash flows. We use hydraulic fracturing extensively and any increased federal, state, or local regulation of
hydraulic fracturing could reduce the volumes of oil and gas that we can economically recover.
Clean Air Act. Our operations are subject to the Clean Air Act, or the CAA, and comparable state and local requirements. In 1990, the U.S. Congress adopted amendments to
the CAA containing provisions that have resulted in the gradual imposition of certain pollution control requirements with respect to air emissions from our operations. The EPA
and states have developed, and continue to develop, regulations to implement these requirements. We may be required to incur certain capital expenditures in the next several
years for air pollution control equipment in connection with maintaining or obtaining operating permits and approvals addressing other air emission-related issues. Further,
stricter requirements could negatively impact our production and operations. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for
non-compliance with air permits or other requirements of the CAA and associated state laws and regulations. In addition, the EPA has developed, and continues to develop,
stringent regulations governing emissions of toxic air pollutants at specified sources.
On April 17, 2012, for example, the EPA issued final rules to subject oil and gas operations to regulation under the New Source Performance Standards, or NSPS, and National
Emission Standards for Hazardous Air Pollutants, or NESHAPS, programs under the CAA, and to impose new and amended requirements under both programs. The EPA rules
include NSPS standards for completions of hydraulically fractured natural gas wells, compressors, controllers, dehydrators, storage tanks, natural gas processing plants and
certain other equipment. Further, in May 2016, the EPA issued final NSPS governing methane emissions from the oil and gas industry as well as source determination standards
for determining when oil and gas sources should be aggregated for CAA permitting and compliance purposes. However, in August 2020 the EPA rescinded methane and
volatile organic compound emissions standards for new and modified oil and gas transmission and storage infrastructure, as well as methane limits for new and modified oil and
gas production and processing equipment. The EPA also relaxed requirements for oil and gas operators to monitor emissions leaks. In June 2021, President Biden signed into
law a joint resolution of Congress repealing the 2020 Rule and reinstated the 2016 Rule. In November 2021, the EPA proposed new NSPS updates and emission guidelines to
reduce methane and other pollutants from the oil and gas industry, and, in December 2022 the EPS issued a supplemental proposal to expand the standards and further reduce
methane and other pollutants.
BLM finalized its own rules in November 2016 that limit methane emissions from new and existing oil and gas operations on federal lands through limitations on the venting
and flaring of gas, as well as enhanced leak detection and repair requirements. BLM subsequently announced a revised rule which would scale back the waste-prevention
requirements of the 2016 rule, but this revised rule was vacated by a California federal district court in 2020, a decision which BLM has appealed to the Ninth Circuit Court of
Appeals. However, separately, the federal district court of Wyoming vacated the original 2016 rule in October 2020, a decision which BLM has appealed to the Tenth Circuit
Court of Appeals. In November 2022, the BLM proposed a new iteration of the regulations. The public comment period on the proposed rule ended on January 30, 2023. These
rules have required changes to our operations, including the installation of new equipment to control emissions. These rules may result in an increase to our operating costs and
change to our operations. As a result of this continued regulatory focus, future federal and state regulations of the oil and gas industry remain a possibility and could result in
increased compliance costs on our operations.
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In November 2015, the EPA revised the existing National Ambient Air Quality Standards for ground level ozone to make the standard more stringent. The EPA finished
promulgating final area designations under the new standard in 2018, which, to the extent areas in which we operate have been classified as non-attainment, may result in an
increase in costs for emission controls and requirements for additional monitoring and testing, as well as a more cumbersome permitting process. Generally, it will take the states
several years to develop compliance plans for their non-attainment areas. While we are not able to determine the extent to which this new standard will impact our business at
this time, it has the potential to have a material impact on our operations and cost structure.
In June 2016, the EPA finalized a rule “aggregating” individual wells and other facilities and their collective emissions for purposes of determining whether major source
permitting requirements apply under the CAA. These changes may introduce uncertainty into the permitting process and could require more lengthy and costly permitting
processes and more expensive emission controls.
Collectively, these rules and proposed rules, as well as any future laws and their implementing regulations, may require a number of modifications to our operations. We may,
for example, be required to install new equipment to control emissions from our well sites or compressors at initial startup or by the applicable compliance deadline. We may
also be required to obtain pre-approval for the expansion or modification of existing facilities or the construction of new facilities. Compliance with such rules could result in
significant costs, including increased capital expenditures and operating costs, and could adversely impact our business.
Greenhouse Gas Emissions. In response to findings that emissions of carbon dioxide, methane and other greenhouse gases (“GHGs”), present an endangerment to public health
and the environment, the EPA has issued regulations to restrict emissions of GHGs under existing provisions of the CAA. These regulations include limits on tailpipe emissions
from motor vehicles and preconstruction and operating permit requirements for certain large stationary sources.
Both in the U.S. and worldwide, there is increasing attention being paid to the issue of climate change and the contributing effect of GHG emissions. Most recently in April
2016, the U.S. signed the Paris Agreement, which requires countries to review and “represent a progression” in their intended nationally determined contributions, which set
GHG emission reduction goals, every five years beginning in 2020. In 2020, the Trump Administration withdrew the U.S. from the Paris Agreement, but under the direction of
President Biden, the U.S. rejoined the Paris Agreement in February 2021. Under the Paris Agreement, the Biden Administration has committed the U.S. to reducing its GHG
emissions by 50% to 52% from 2005 levels by 2030. In November 2021, the U.S. and other countries entered into the Glasgow Climate Pact, which includes a range of
measures designed to address climate change, including but not limited to the phase-out of fossil fuel subsidies, reducing methane emissions 30% by 2030, and cooperating
toward the advancement of the development of clean energy.
Domestically, in August 2022, President Biden signed into law the Inflation Reduction Act, which contains tax inducements and other provisions that incentivize investment,
development, and deployment of alternative energy sources and technologies, which could increase operating costs within the oil and gas industry and accelerate the transition
away from fossil fuels.
In August 2015, the EPA issued new regulations limiting carbon dioxide emissions from existing power generation facilities. Under this rule, nationwide carbon dioxide
emissions would be reduced by approximately 30% from 2005 levels by 2030 with a flexible interim goal. Several industry groups and states challenged the rule. On February
9, 2016, the U.S. Supreme Court stayed the implementation of this rule pending judicial review. In August 2019, the EPA finalized the repeal of the 2015 regulations and
replaced them with the Affordable Clean Energy rule, or ACE, that designates heat rate improvement, or efficiency improvement, as the best system of emissions reduction for
carbon dioxide from existing coal-fired electric utility generating units. In 2021, the U.S. Court of Appeals for the District of Columbia struck down the ACE rule, but did not
reinstate the former Clean Power Plan, or CPP, regulation. In June 2022, the Supreme Court struck down the CPP, holding that Congress did not grant EPA the authority to
devise emissions caps based on the generation-shifting approach the EPA took in the CPP.
The EPA has issued the “Final Mandatory Reporting of Greenhouse Gases” Rule and a series of revisions to it, which requires operators of oil and gas production, natural gas
processing, transmission, distribution and storage facilities and other stationary sources emitting more than established annual thresholds of carbon dioxide-equivalent GHGs to
inventory and report their GHG emissions occurring in the prior calendar year on a facility-by-facility basis. These rules do not require control of GHGs. However, the EPA has
indicated that it will use data collected through the reporting rules to decide whether to promulgate future GHG limits.
In certain circumstances, large sources of GHG emissions are subject to preconstruction permitting under the EPA’s Prevention of Significant Deterioration program. This
program historically has had minimal applicability to the oil and gas production industry. However, there can be no assurance that our operations will avoid applicability of
these or similar permitting requirements, which impose costs relating to emissions control systems and the efforts needed to obtain the permit.
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Additional GHG regulations potentially affecting our industry include those described above under the subheading “Clean Air Act” which relate to methane. Future federal
GHG regulations of the oil and gas industry remain a possibility. Also, many states and regions have adopted GHG initiatives and certain governmental bodies have or are
considering the imposition of fees or taxes based on the emission of GHGs by certain facilities. Many states have established GHG cap and trade programs. Most of these cap
and trade programs work by requiring major sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and natural gas processing
plants, to acquire and surrender emission allowances. While it is not possible to predict how any regulations to restrict GHG emissions may come into force, these and other
legislative and regulatory proposals for restricting GHG emissions or otherwise addressing climate change could require us to incur additional operating costs or curtail oil and
gas operations in certain areas and could also adversely affect demand for the oil and gas we sell.
President Biden and the Democrat Party have identified climate change as a priority, and it is likely that new executive orders, regulatory action, and/or legislation targeting
GHG emissions, or prohibiting, delaying or restricting oil and gas development activities in certain areas, will be proposed and/or promulgated during the Biden Administration.
For example, the acting Secretary of the Department of the Interior recently issued an order preventing staff from producing any new fossil fuel leases or permits without sign-
off from a top political appointee, and President Biden recently announced a moratorium on new oil and gas leasing on federal lands and offshore waters pending completion of
a comprehensive review and reconsideration of federal oil and gas permitting and leasing practices. President Biden’s order also established climate change as a primary foreign
policy and national security consideration, affirms that achieving net-zero GHG emissions by or before mid-century is a critical priority, affirms President Biden’s desire to
establish the U.S. as a leader in addressing climate change, generally further integrates climate change and environmental justice considerations into government agencies’
decision making, and eliminates fossil fuel subsidies, among other measures.
Finally, some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical effects,
such as increased frequency and severity of storms, floods and other climatic events; if any such effects were to occur, they could have an adverse effect on our operations.
OSHA. We are subject to the requirements of the Occupational Safety and Health Act, or OSHA, and comparable state laws that regulate the protection of the health and safety
of workers. In addition, the OSHA hazard communication standard requires maintenance of information about hazardous materials used or produced in operations, and the
provision of such information to employees, state and local government authorities and citizens. Other OSHA standards regulate specific worker safety aspects of our
operations.
Endangered Species Act. The Endangered Species Act restricts activities that may affect endangered species or their habitats. While some of our facilities are in areas that may
be designated as a habitat for endangered species, we believe that we are in substantial compliance with the Endangered Species Act. The presence of any protected species or
the final designation of previously unprotected species as threatened or endangered in areas where we operate could result in increased costs from species protection measures or
could result in limitations, delays, or prohibitions on our exploration and production activities that could have an adverse effect on our ability to develop and produce our
reserves. Similar protections are given to bald and golden eagles under the Bald and Golden Eagle Protection Act and to migratory birds under the Migratory Bird Treaty Act,
and similar protections may be available to certain species protected under state laws.
National Environmental Policy Act. Oil and gas exploration and production activities on federal lands are subject to the National Environmental Policy Act, or NEPA. NEPA
requires federal agencies, including the U.S. Department of Interior, to evaluate major agency actions having the potential to significantly impact the environment. In the course
of such evaluations, an agency will prepare an environmental assessment of the potential direct, indirect and cumulative impacts of a proposed project and, if necessary, will
prepare a more detailed environmental impact statement that may be made available for public review and comment. This process has the potential to delay or even halt
development of some of our oil and gas projects. For example, on January 27, 2022, the U.S. District Court for the District of Columbia found that the Bureau of Ocean
Management’s failure to calculate the potential emissions from foreign oil consumption violated the agency’s approval of oil and gas leases in the Gulf of Mexico under the
NEPA. This decision may disrupt or delay drilling operations if the agency is forced to reassess the environmental impacts of the Gulf of Mexico drilling program.
Natural Gas Pipeline Safety Act. On November 15, 2021, the Pipeline and Hazardous Materials Safety Administration promulgated a rule expanding the scope of the Federal
Pipeline Safety Regulations to include all onshore gas gathering pipelines. For the first time, gas lines transporting natural gas from production facilities to interstate gas
transmission lines will be subject to federal pipeline regulations and operators will be required to report safety information for all gas gathering lines. The rules became effective
in May 2022. Compliance with such rules could result in significant costs, including increased capital expenditures and operating costs, and could adversely impact our
business.
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Human Capital
At Ranger Oil, our employees are integral to the Company’s success. Ranger Oil’s key human capital management objectives are to attract, retain and develop talent to deliver
on our strategy. As of December 31, 2022, we had a total of 136 employees, including 75 office-based employees and 61 field employees. All of these employees were full-time
employees. None of our employees are represented by labor unions or covered by collective bargaining agreements. We focus on the following areas in supporting our human
capital:
Diversity and Inclusion. We recognize that a diverse workforce provides the best opportunity to obtain unique perspectives, experiences and ideas to help our business succeed,
and we are committed to providing a diverse and inclusive workplace to attract and retain talented employees. We seek to promote a work culture that treats all employees fairly
and with respect, promotes inclusivity, and provides equal opportunities for the professional growth and advancement based on merit. Our Code of Business Conduct and Ethics
prohibits discrimination on the basis of race, color, religion, national origin, sex, age (as defined by the law) or disability.
Health and Safety. Safety is a top priority at Ranger Oil. We promote safety with a robust health and safety program, which includes employee orientation and training, regular
safety meetings, contractor management, risk assessments, hazard identification and mitigation, incident reporting and investigation, and corrective and preventative action
development. Additionally, we have a Health, Safety and Environment Manual which includes specific field safety procedures, including responsibility to stop work on any
activity deemed unsafe without the threat or fear of job reprisal. We subscribe to Safety Skills to convey relevant, applicable and timely safety training to our field operations
staff.
Training and Development. We invest in developing our employees to help us realize opportunities for growth and contribute to advancing progress on our strategic priorities.
Our ongoing efforts and initiatives are aimed at attracting, engaging, and developing employees in a thoughtful and meaningful way to support a diverse and inclusive culture.
We encourage our employees to advance their knowledge and skills and to network with other professionals in order to pursue career advancement and enhance their skills.
Compensation and Benefits. We seek to provide fair, competitive compensation and comprehensive benefits to our employees that are designed to attract, retain and motivate
employees. To align our short- and long-term objectives, our compensation programs consist of base pay, short-term incentives and long-term incentives, including restricted
stock unit grants. Our wide array of benefits includes medical, dental, and vision insurance plans for employees and their families, life insurance and long-term disability plans,
paid time off for holidays, vacation, sick leave, and other personal leave, and health and dependent care savings accounts. We also provide our employees with a 401(k) plan
that includes a competitive company match, and employees have access to several other programs, such as a matching charitable gift program that matches employee donations
to non-profit groups they support.
Philanthropy and Community Engagement. We also employ a local focus for our charitable giving campaigns, supporting non-profits and other organizations serving
communities in and around Houston and our operating areas in Texas in addition to the company matching charitable gift program discussed above. The Company and its
employees donate their time and resources to a wide range of charities, organizations, and activities. Additionally, we regularly partner with counties in which we operate to
repair roads, often donating the necessary materials, as well as use local vendors to support our operations wherever possible.
Available Information
Our internet address is http://www.rangeroil.com. We make available free of charge, on or through our website, our Corporate Governance Principles, Code of Business
Conduct and Ethics, Audit Committee Charter, Compensation and Benefits Committee Charter, Nominating, Environmental, Social and Governance Committee Charter and
Reserves Committee Charter, and we will provide copies of such documents upon request. We also make available free of charge, on or through our website, our Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or
15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Current and important information about
the company is accessible through our website. The information contained on, or connected to, our website is not incorporated by reference in this Form 10-K and should not
be considered part of this or any other report that we furnish or file with the SEC. We intend for our website to serve as a means of public dissemination of information for
purposes of Regulation FD.
16
Item 1A. Risk Factors
Our business and operations are subject to a number of risks and uncertainties as described below; however, the risks and uncertainties described below are not the only ones we
face. Additional risks and uncertainties that we are unaware of, or that we may currently deem immaterial, may become important factors that harm our business, financial
condition, results of operations and cash flows in the future. If any of the following risks actually occur, our business, financial condition, results of operations and cash flows
could suffer and the trading price of our Class A Common Stock could decline.
Risks in this section are grouped by the following categories: (i) Risks Related to the Baytex Merger; (ii) Risks Associated with our General Business; (iii) Financial and
Related Risks; (iv) Legal and Regulatory Risks; (v) Tax-Related Risks; (vi) Technology-Related Risks; and (vii) Risks Related to the Ownership of Our Class A Common
Stock. Many risks affect more than one category, and the risks are not in order of significance or probability of occurrence because they have been grouped by categories.
Risks Related to the Baytex Merger
Because the exchange ratio is fixed and because the market price of Baytex common shares may fluctuate, our stockholders cannot be certain of the precise value of any merger
consideration they may receive in the Baytex Merger.
At the time the Baytex Merger is completed, each issued and outstanding eligible share of our Class A Common Stock will be converted into the right to receive the merger
consideration of 7.49 Baytex common shares plus $13.31 in cash. The exchange ratio for the merger consideration is fixed, and there will be no adjustment to the merger
consideration for changes in the market price of Baytex common shares or our Class A Common Stock prior to the completion of the Baytex Merger. If the Baytex Merger is
completed, there will be a time lapse between the date of signing the Baytex Merger Agreement and the date on which our stockholders who are entitled to receive the merger
consideration actually receive the merger consideration. The market value of the Baytex common shares may fluctuate during this period as a result of a variety of factors,
including general market and economic conditions, changes in Baytex’s businesses, operations and prospects and regulatory considerations. Such factors are difficult to predict
and, in many cases, may be beyond the control of Baytex and us. The actual value of any merger consideration received by our stockholders upon the completion of the Baytex
Merger will depend on the market value of the Baytex common shares at that time. This market value may differ, possibly materially, from the market value of Baytex common
shares at the time the Baytex Merger Agreement was entered into or at any other time. Our stockholders should obtain current quotations for Baytex common shares and for
shares of our Class A Common Stock.
The Baytex Merger may not be completed and the Baytex Merger Agreement may be terminated in accordance with its terms.
The Baytex Merger is subject to a number of conditions that must be satisfied or waived prior to the completion of the Baytex Merger, including (i) the receipt of the required
approvals from the Company’s stockholders and Baytex’s shareholders, (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Act, (iii) the absence
of any governmental order or law that prohibits or makes illegal the consummation of the Baytex Merger, (iv) Baytex common shares issuable in connection with the Baytex
Merger having been authorized for listing on the New York Stock Exchange, subject to official notice of issuance and (v) Baytex’s registration statement on Form F-4 having
been declared effective by the SEC under the Securities Act. The obligation of each party to consummate the Baytex Merger is also conditioned upon the other party’s
representations and warranties being true and correct (subject to certain materiality exceptions) and the other party having performed in all material respects its obligations
under the Baytex Merger Agreement.
Moreover, if the Baytex Merger is not completed by October 15, 2023, either Baytex or the Company may choose not to proceed with the Baytex Merger, and the parties can
mutually decide to terminate the Baytex Merger Agreement at any time, before or after stockholder approval. In addition, Baytex and the Company may elect to terminate the
Baytex Merger Agreement in certain other circumstances as further detailed in the Baytex Merger Agreement.
17
Current stockholders of the Company will have a reduced ownership and voting interest in Baytex after the Baytex Merger compared to their current ownership in the Company
on a standalone basis and will exercise less influence over management.
Currently, our stockholders have the right to vote in the election of the Company’s board of directors and on other matters requiring stockholder approval under Virginia law
and the Company’s articles of incorporation and bylaws. As a result of the Baytex Merger, our current stockholders will own a smaller percentage of Baytex than they currently
own of the Company, and as a result will have less influence on the management and policies of Baytex after the Baytex Merger than they now have on the management and
policies of the Company.
The Baytex Merger Agreement contains provisions that limit our ability to pursue alternatives to the Baytex Merger, could discourage a potential competing acquiror of us from
making a favorable alternative transaction proposal and, in specified circumstances, could require us to pay Baytex a termination fee of $60 million.
The Baytex Merger Agreement contains a general prohibition on us and Baytex from soliciting or, subject to certain exceptions relating to the exercise of fiduciary duties by our
boards of directors, entering into discussions with any third party regarding any competing proposal or offer for a competing transaction. Further, even if our Board withholds,
withdraws, qualifies or modifies its recommendation with respect to the Baytex Merger Agreement proposal, unless the Baytex Merger Agreement has been terminated in
accordance with its terms, we will still be required to submit the Baytex Merger Agreement proposal to a vote at our special meeting. In addition, each party generally has an
opportunity to offer to modify the terms of Merger in response to any third-party alternative transaction proposal before a party’s board of directors may withhold, withdraw,
qualify or modify its recommendation with respect to the Baytex Merger Agreement proposal or the share issuance proposal, as applicable. In some circumstances, upon
termination of the Baytex Merger Agreement, we will be required to pay a termination fee of $60 million to Baytex.
These provisions could discourage a potential third-party acquiror or merger partner that might have an interest in acquiring all or a significant portion of us or pursuing an
alternative transaction with us either from considering or proposing such a transaction, even if a third-party acquiror were prepared to pay consideration with a higher per share
price than the per share price proposed to be received in the merger or might result in a potential third-party acquiror or merger partner proposing to pay a lower price to our
stockholders than it might otherwise have proposed to pay because of the added expense of the $60 million termination fee that may become payable in certain circumstances.
Failure to complete the Baytex Merger could negatively impact the price of shares of our Class A Common Stock, as well as our future businesses and financial results.
The Baytex Merger Agreement contains a number of conditions that must be satisfied or waived prior to the completion of the Baytex Merger. There can be no assurance that
all of the conditions to the completion of the Baytex Merger will be so satisfied or waived. If these conditions are not satisfied or waived, we will be unable to complete the
Baytex Merger.
If the Baytex Merger is not completed for any reason, including the failure to receive the required approval of our stockholders and Baytex’s shareholders, our businesses and
financial results may be adversely affected, including as follows:
•
we may experience negative reactions from the financial markets, including negative impacts on the market price of our Class A Common Stock;
•
the manner in which customers, vendors, business partners and other third parties perceive the Company may be negatively impacted, which in turn could affect our
marketing operations or our ability to compete for new business or obtain renewals in the marketplace more broadly;
•
we will still be required to pay certain significant costs relating to the Baytex Merger, such as legal, accounting, financial advisor and printing fees;
•
we may experience negative reactions from employees; and
•
we will have expended time and resources that could otherwise have been spent on our existing businesses and the pursuit of other opportunities that could have been
beneficial to the Company, and our ongoing business and financial results may be adversely affected.
In addition to the above risks, if the Baytex Merger Agreement is terminated and our board seeks an alternative transaction, our stockholders cannot be certain that we will be
able to find a party willing to engage in a transaction on more attractive terms than the Baytex Merger. If the Baytex Merger Agreement is terminated under specified
circumstances, we may be required to pay Baytex a termination fee or reimburse Baytex for certain of its expenses.
18
We will be subject to business uncertainties while the Baytex Merger is pending, which could adversely us.
Uncertainty about the effect of the Baytex Merger on employees and customers may have an adverse effect on the Company. These uncertainties may impair our ability to
attract, retain and motivate key personnel until the Baytex Merger is completed and for a period of time thereafter and could cause customers and others that deal with us to seek
to change their existing business relationships with us. Employee retention at the Company may be particularly challenging during the pendency of the Baytex Merger, as
employees may experience uncertainty about their roles with Baytex following the Baytex Merger. In addition, the Baytex Merger Agreement restricts us from entering into
certain corporate transactions and taking other specified actions without the consent of Baytex, and generally requires us to continue our operations in the ordinary course, until
completion of the Baytex Merger. These restrictions may prevent us from pursuing attractive business opportunities that may arise prior to the completion of the Baytex
Merger.
The Baytex common shares to be received by our stockholders upon completion of the Baytex Merger will have different rights from shares of our Class A Common Stock.
Upon completion of the Baytex Merger, our stockholders will no longer be stockholders of the Company. Instead, former stockholders of the Company will become Baytex
shareholders, accordingly their rights will be subject to and governed by the terms of the Baytex articles of incorporation and the Baytex bylaws. The laws of the province of
Alberta and terms of the Baytex articles of incorporation and the Baytex bylaws are in some respects different than the laws of the state of Virginia and the terms of our articles
of incorporation and our bylaws, which currently govern the rights of our stockholders.
Completion of the Baytex Merger may trigger change in control or other provisions in certain agreements to which we are a party.
The completion of the Baytex Merger may trigger change in control or other provisions in certain agreements to which we are a party. If we are unable to negotiate waivers of
those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements, or seeking monetary damages. Even if
we are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to us.
We will incur significant transaction and merger-related costs in connection with the Baytex Merger, which may be in excess of those anticipated by us.
We have incurred and expect to continue to incur a number of non-recurring costs associated with negotiating and completing the Baytex Merger, combining the operations of
the two companies and achieving desired synergies. These fees and costs have been, and will continue to be, substantial. The substantial majority of non-recurring expenses will
consist of transaction costs related to the Baytex Merger and include, among others, employee retention costs, fees paid to financial, legal and accounting advisors, severance
and benefit costs and filing fees. Certain of these costs will be borne by us even if the Baytex Merger is not completed.
We may be a target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the Baytex Merger from being completed.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if the lawsuits are without
merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which
could have a negative impact on our liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Baytex
Merger, then that injunction may delay or prevent the Baytex Merger from being completed, which may adversely affect our business, financial position and results of
operation. Currently, we are unaware of any securities class action lawsuits or derivative lawsuits having been filed in connection with the Baytex Merger.
19
Risks Associated with our General Business
Prices for crude oil, NGLs and natural gas are dependent on many factors that are beyond our control and strongly affect our financial condition, results of operations and
cash flows.
Prices for crude oil, NGLs and natural gas are dependent on many factors that are beyond our control, including:
•
domestic and foreign supplies of crude oil, NGLs and natural gas;
•
domestic and foreign consumer demand for crude oil, NGLs and natural gas;
•
political and economic conditions in oil or gas producing regions;
•
further actions by the members of the Organization of Petroleum Exporting Countries and other allied oil exporting nations (“OPEC+”) with respect to production levels
and oil price controls;
•
overall domestic and foreign economic conditions, including inflationary pressures, changes in interest rates or any general economic slowdowns or recessions;
•
prices and availability of, and demand for, alternative fuels;
•
the effect of energy conservation efforts, alternative fuel requirements and climate change-related initiatives;
•
shareholder activism or activities by non-governmental organizations to restrict the exploration, development and production of oil, natural gas and NGLs so as to
minimize emissions of carbon dioxide and methane GHGs;
•
volatility and trading patterns in the commodity-futures markets;
•
technological advances or social attitudes and policies affecting energy consumption and energy supply;
•
political and economic events that directly or indirectly impact the relative strength or weakness of the U.S. dollar, on which crude oil prices are benchmarked globally,
against foreign currencies;
•
changes in trade relations and policies, including the imposition of tariffs by the U.S. or China or sanctions or other trade consequences related to the Russia-Ukraine
war;
•
risks related to the concentration of our operations in the Eagle Ford Shale in South Texas;
•
speculation by investors in oil and gas;
•
the availability, cost, proximity and capacity of gathering, processing, refining and transportation facilities;
•
the cost and availability of products and personnel needed for us to produce oil and gas;
•
weather conditions;
•
the impact and uncertainty of world health events, including the COVID-19 pandemic; and
•
domestic and foreign governmental relations, regulation and taxation, including limits on the U.S.’ ability to export crude oil.
For example, commodity prices continued to be volatile during 2022, as COVID-19 pandemic-related restrictions continued to loosen and global economic activity grew,
OPEC+ production levels shifted and the Russia-Ukraine war and related sanctions started in the first quarter.
The NYMEX oil prices in 2022 ranged from a high of $123.70 to a low of $71.02 per bbl, while the spot market prices for natural gas in 2022 ranged from a high of $9.85 to a
low of $3.45 per MMBtu. Oil prices continue to be influenced by the factors discussed above.
The long-term effects of these and other conditions on the prices of oil and natural gas are uncertain, and there can be no assurance that the demand or pricing for our products
will follow historic patterns or that the recent pricing trend will continue. Any substantial or extended decline, or sustained market uncertainty, in the actual prices of crude oil,
NGLs or natural gas would have a material adverse effect on our business, financial position, results of operations, cash flows and borrowing capacity, stock price, the
quantities of oil and gas reserves that we can economically produce, the quantity of estimated proved reserves that may be attributed to our properties and our ability to fund our
capital program.
It is impossible to predict future commodity price movements with certainty; however, many of our projections and estimates are based on assumptions as to the future prices of
crude oil, NGLs and natural gas. These price assumptions are used for planning purposes. We expect our assumptions will change over time and that actual prices in the future
will likely differ from our estimates.
20
Drilling and operations activities are high-risk activities with many uncertainties and may not result in commercially productive reserves.
Our future financial condition and results of operations depend on the success of our exploration and production activities. Oil and gas exploration and production activities are
subject to numerous risks beyond our control, including the risk that drilling will not result in commercially viable oil and gas production. The costs of drilling, completing and
operating wells are often substantial and uncertain, and have increased substantially in 2022 due to inflationary pressures. Furthermore, drilling and completion operations may
be curtailed, delayed or canceled as a result of a variety of factors, many of which are beyond our control, including:
•
unexpected drilling conditions;
•
risks associated with drilling horizontal wells and extended lateral lengths, such as deviating from the desired drilling zone or not running casing or tools consistently
through the wellbore, particularly as lateral lengths get longer;
•
risks associated with downspacing and multi-well pad drilling;
•
fracture stimulation accidents or failures;
•
reductions in oil, natural gas and NGL prices;
•
elevated pressure or irregularities in geologic formations;
•
loss of title or other title related issues;
•
equipment failures or accidents;
•
costs, shortages or delays in the availability of drilling rigs, frac fleets, crews, equipment and materials;
•
shortages in experienced labor;
•
crude oil, NGLs or natural gas gathering, transportation, processing, storage and export facility availability, restrictions or limitations;
•
surface access restrictions;
•
delays imposed by or resulting from compliance with regulatory requirements, including any hydraulic fracturing regulations and other applicable regulations, and the
failure to secure or delays in securing necessary regulatory, contractual and third-party approvals and permits;
•
political events, public protests, civil disturbances, terrorist acts or cyber attacks;
•
environmental hazards, such as natural gas leaks, oil and produced water spills, pipeline and tank ruptures, encountering naturally occurring radioactive materials, and
unauthorized discharges of brine, well stimulation and completion fluids, toxic gases or other pollutants into the surface and subsurface environment;
•
limited availability of financing at acceptable terms;
•
limitations in the market for crude oil, natural gas and NGLs;
•
fires, explosions, blow-outs and surface cratering;
•
adverse weather conditions; and
•
actions by third-party operators of our properties.
The wells we drill may not be productive and we may not recover all or any portion of our investment in such wells. Our decisions to purchase, explore, develop or otherwise
exploit prospects or properties depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and engineering studies, the
results of which are often inconclusive or subject to varying interpretations. The seismic data and other technologies we use do not allow us to know conclusively prior to
drilling a well that oil or gas is present or may be produced economically. The type curves we use in our development plans are only estimates of performance of the acreage
we might develop and actual production can differ materially. Furthermore, the cost of drilling, completing, equipping and operating a well is often uncertain, and cost factors
can adversely affect the economics of a project. Overruns in budgeted expenditures are common risks that can make a particular project uneconomical or less economical than
forecasted. In addition, limitations on the use of hydraulic fracturing could have an adverse effect on our ability to develop and produce oil and gas from new wells, which
would reduce our rate of return on these wells and our cash flows. Drilling activities can result in dry holes or wells that are productive but do not produce sufficient net
revenues after operating and other costs to cover initial drilling costs.
21
Our future drilling activities may not be successful, and we cannot be sure that our overall drilling success rate or our drilling success rate within a particular area will not
decline. Unsuccessful drilling activities could have a material adverse effect on our business, financial condition, results of operations and cash flows. Also, we may not be able
to obtain any options or lease rights in potential drilling locations that we identify. Although we have identified numerous potential drilling locations, we may not be able to
economically produce oil or gas from all of them.
Our business involves many operating risks, including hydraulic fracturing, that may result in substantial losses for which insurance may be unavailable or inadequate.
Our operations are subject to all of the risks and hazards typically associated with the exploitation, development and exploration for and the production and transportation of oil
and gas, including well stimulation and completion activities such as hydraulic fracturing. These operating risks include:
•
fires, explosions, blowouts, cratering and casing collapses;
•
formations with abnormal pressures or structures;
•
pipeline ruptures or spills;
•
mechanical difficulties, such as stuck oilfield drilling and service tools;
•
uncontrollable flows of oil, natural gas or well fluids;
•
migration of fracturing fluids into surrounding groundwater;
•
spills or releases of fracturing fluids including from trucks sometimes used to deliver these materials;
•
spills or releases of brine or other produced water that may go off-site;
•
subsurface conditions that prevent us from (i) stimulating the planned number of stages, (ii) accessing the entirety of the wellbore with our tools during completion or
(iii) removing all fracturing-related materials from the wellbore to allow production to begin;
•
environmental hazards such as natural gas leaks, oil or produced water spills and discharges of toxic gases; and
•
natural disasters and other adverse weather conditions (including events that may be caused or exacerbated by climate change), such as named winter storms in 2021 and
2022 that caused us to temporarily shut-in production;
•
terrorism, vandalism and physical, electronic and cybersecurity breaches.
Any of these risks could result in substantial losses resulting from injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution and
other environmental damages, clean up responsibilities, regulatory investigations and penalties, loss of well location, acreage, expected production and related reserves and
suspension of operations. Moreover, a potential result of climate change is more frequent or more severe weather events or natural disasters. To the extent such weather events
or natural disasters become more frequent or more severe, disruptions to our business and costs to repair damaged facilities could increase. In addition, under certain
circumstances, we may be liable for environmental damage caused by previous owners or operators of properties that we own, lease or operate. As a result, we may incur
substantial liabilities to third parties or governmental entities, which could reduce or eliminate funds available for exploration, development or acquisitions or cause us to incur
losses.
If we experience any problems with well stimulation and completion activities, such as hydraulic fracturing, our ability to explore for and produce oil or natural gas may be
adversely affected. We could incur substantial losses or otherwise fail to realize reserves in particular formations as a result of:
•
delays imposed by or resulting from compliance with environmental and other governmental or regulatory requirements, which may include limitations on hydraulic
fracturing or the discharge of GHGs;
•
the need to shut down, abandon and relocate drilling operations;
•
the need to sample, test and monitor drinking water in particular areas and to provide filtration or other drinking water supplies to users of water supplies that may have
been impacted or threatened by potential contamination from fracturing fluids;
•
the need to modify drill sites to ensure there are no spills or releases off-site and to investigate and/or remediate any spills or releases that might have occurred; or
•
suspension of our operations.
22
In accordance with industry practice, we maintain insurance at a level that balances the cost of insurance with our assessment of the risk and our ability to achieve a reasonable
rate of return on our investments. We cannot assure you that our insurance will be adequate to cover losses or liabilities or that we will purchase insurance against all possible
losses or liabilities. Also, we cannot predict the continued availability of insurance at premium levels that justify its purchase. The occurrence of a significant event, not fully
insured or indemnified against, could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Multi-well pad drilling and project development may result in volatility in our operating results.
We utilize multi-well pad drilling and project development where practical. Project development may involve more than one multi-well pad being drilled and completed at one
time in a relatively confined area. Wells drilled on a pad or in a project may not be brought into production until all wells on the pad or project are drilled and completed.
Problems affecting one pad or a single well could adversely affect production from all of the wells on the pad or in the entire project. As a result, multi-well pad drilling and
project development can cause delays in the scheduled commencement of production, or interruptions in ongoing production. These delays or interruptions may cause declines
or volatility in our operating results due to timing as well as declines in oil and natural gas prices. Further, any delay, reduction or curtailment of our development and producing
operations, due to operational delays caused by multi-well pad drilling or project development, or otherwise, could result in the loss of acreage through lease expirations.
Additionally, infrastructure expansion, including more complex facilities and takeaway capacity, could become challenging in project development areas. Managing capital
expenditures for infrastructure expansion could cause economic constraints when considering design capacity.
We could experience adverse impacts associated with a high concentration of activity and tighter drilling spacing.
We are subject to drilling, completion and operating risks, including our ability to efficiently execute large-scale project development, as we could experience delays,
curtailments and other adverse impacts associated with a high concentration of activity and tighter drilling spacing. A higher concentration of activity and tighter drilling
spacing may increase the frequency of operational shut-ins and unintentional communication with other adjacent wells and reduce the total recoverable reserves from the
reservoir. If these risks materialize, they could negatively impact our results of operations relative to guidance or market expectations, which may result in a decline in the
market price of our Class A Common Stock.
We may not adhere to our proposed drilling schedule.
Our final determination of whether to drill any wells will be dependent on a number of factors, including:
•
the results of our exploration efforts and the acquisition, review and analysis of the seismic data;
•
the availability of sufficient capital resources to us and the other participants for the drilling of the prospects;
•
the approval of the prospects by the other participants after additional data has been compiled;
•
economic and industry conditions at the time of drilling, including prevailing and anticipated prices for oil and gas and the availability and prices of drilling rigs and
crews, frac crews, and related equipment and material; and
•
the availability of leases and permits on reasonable terms for the prospects.
Although we have identified numerous drilling prospects, we may not be able to lease or drill those prospects within our expected time frame or at all. There can be no
assurance that these projects can be successfully developed or that any identified drill sites will, if drilled, encounter reservoirs of commercially productive oil or gas or that we
will be able to complete such wells on a timely basis, or at all. We may seek to sell or reduce all or a portion of our interest in a project area or with respect to prospects wells
within such project area.
Our business depends on gathering, processing, refining and transportation facilities owned by others.
We deliver substantially all of our oil and gas production through pipelines and trucks that we do not own. The marketability of our production depends upon the availability,
proximity and capacity of these pipelines and trucks, as well as gathering systems, gas processing facilities and downstream refineries. The unavailability of or lack of available
capacity on these systems and facilities could result in the shut-in of producing wells, the reduction in wellhead pricing or the delay or discontinuance of development plans for
properties. Federal, state and local regulation of oil and gas production and transportation, tax and energy policies, changes in supply and demand, pipeline pressures, damage to
or destruction of pipelines and general economic conditions could adversely affect our ability to produce, gather, process, refine and market our oil and gas.
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We have entered into firm transportation contracts that require us to pay fixed sums of money regardless of quantities actually shipped. If we are unable to deliver the minimum
quantities of production, such requirements could adversely affect our results of operations, financial position, and liquidity.
We have entered into firm transportation contracts that require us to pay fixed sums of money regardless of quantities actually shipped. If we are unable to deliver the minimum
quantities of production, such requirements could adversely affect our results of operations, financial position, and liquidity. We have entered into firm transportation
agreements for a portion of our production in certain areas in order to improve our ability, and that of our purchasers, to successfully market our production. We may also enter
into firm transportation arrangements for additional production in the future. These firm transportation agreements may be more costly than interruptible or short-term
transportation agreements. Additionally, these agreements obligate us to pay fees on minimum volumes regardless of actual throughput. If we have insufficient production to
meet the minimum volumes, the requirements to pay for quantities not delivered could have an impact on our results of operations, financial position, and liquidity.
The unavailability, high cost or shortage of drilling rigs, frac crews, equipment, raw materials, supplies, oilfield services or personnel may restrict our operations.
Where we are the operator of a property, we rely on third-party service providers to perform necessary drilling and completion operations. The ability and availability of third-
party service providers to perform such drilling and completion operations will depend on those service providers’ ability to compete for and retain qualified personnel, financial
condition, economic performance, and access to capital, which in turn will depend upon the supply and demand for oil, NGLs and natural gas, prevailing economic conditions
and financial, business and other factors. The failure of a third-party service provider to adequately perform operations on a timely basis could delay drilling or completion
operations, reduce production from the property or cause other damage to operations, each of which could adversely affect our business, financial condition, results of
operations and cash flows.
Moreover, the oil and gas industry is cyclical, which can result in shortages of drilling rigs, frac crews, equipment, raw materials (particularly sand and other proppants),
supplies and personnel, including geologists, geophysicists, engineers and other professionals. When shortages occur, the costs and delivery times of drilling rigs, equipment
and supplies increase and demand for, and wage rates of, qualified drilling rig and frac crews also rise with increases in demand. The prevailing prices of crude oil, NGLs and
natural gas also affect the cost of and the demand for drilling rigs, frac crews, materials (including sand) and other equipment and related services. As a result of inflationary
pressures and other factors, our costs for these items substantially increased in 2022. Furthermore, the availability of drilling rigs, frac crews, materials (including sand) and
equipment can vary significantly from region to region at any particular time. Although land drilling rigs and frac crews can be moved from one region to another in response to
changes in levels of demand, an undersupply in any region may result in drilling and/or completion delays and higher well costs in that region.
We cannot predict whether these conditions will exist in the future and, if so, what their timing and duration will be. In accordance with customary industry practice, we rely on
independent third-party service providers to provide most of the services necessary to drill new wells. If we are unable to secure a sufficient number of drilling rigs and frac
crews at reasonable costs, our financial condition and results of operations could suffer, and we may not be able to drill all of our acreage before our leases expire. Shortages of
drilling rigs, frac crews, equipment, raw materials (particularly sand and other proppants), supplies, personnel, trucking services, tubulars, fracking and completion services and
production equipment could delay or restrict our exploration and development operations, which in turn could impair our financial condition and results of operations. As a
result of the COVID-19 pandemic and associated industry downturn, many experienced service providers have left the industry and remaining personnel are more limited and in
some cases, less experienced, which could impact success of our operations and have a safety impact.
The COVID-19 pandemic and the Russia-Ukraine war have also significantly disrupted global supply chains including with respect to certain materials necessary to our
operations, particularly tubulars and steel. If we are unable to timely source such materials in the future or if the prices of such materials increase, we may have to curtail or delay
our operations and our results of operations and cash flows may be adversely impacted. Further, limited availability of materials may limit our ability to optimize our drilling
and completions designs which could negatively impact our operations.
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Our future performance depends on our ability to find or acquire additional oil and gas reserves that are economically recoverable.
Producing oil and gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Unless we
successfully replace the reserves that we produce, our reserves will decline, eventually resulting in a decrease in oil and gas production and lower revenues and cash flows from
operating activities. We must make substantial capital expenditures to find, acquire, develop and produce new oil and gas reserves. We may not be able to make the necessary
capital investments to maintain or expand our oil and gas reserves with our cash flows from operating activities. Furthermore, external sources of capital may be limited.
The ability to attract and retain key members of management, qualified Board members and other key personnel is critical to the success of our business and may be
challenging.
Our success depends to a large extent upon the efforts and abilities of our management team and having experienced individuals serving on our Board who are also
knowledgeable about our operations and our industry. The success of our business also depends on other key personnel. The ability to attract and retain these key personnel may
be difficult in light of the volatility of our business. We may need to enter into retention or other arrangements that could be costly to maintain. These factors could cause us to
incur greater costs or prevent us from pursuing our development and exploitation strategy as quickly as we would otherwise wish to do. If executives, directors or other key
personnel resign, retire or are terminated, or their service is otherwise interrupted, we may not be able to replace them adequately or in a timely manner and we could
experience significant declines in productivity.
The COVID-19 pandemic has adversely affected our business, and the ultimate effect on our business, financial position, results of operations and/or cash flows will depend on
future developments, which are uncertain and cannot be predicted.
The COVID-19 pandemic has negatively impacted the global economy, disrupted global supply chains, and created significant volatility and disruption of financial and
commodity markets, and may continue to do so in the future. During the initial phase of the pandemic, there were significant reductions in demand for and prices of oil, NGLs
and natural gas, which at times adversely impacted, and may in the future adversely impact, our business, financial position, results of operations and cash flows. The COVID-
19 pandemic has also had, and may in the future have, an adverse impact on the availability of personnel, equipment and services critical to our ability to operate our properties.
The degree to which the COVID-19 pandemic continues to adversely impact our results will depend on future developments, which cannot be predicted with precision.
Certain of our undeveloped leasehold assets are subject to leases that will expire over the next several years unless production is established on the acreage.
Leases on oil and gas properties typically have a term after which they expire unless, prior to expiration, a well is drilled and production of hydrocarbons in paying quantities is
established. If our leases expire and we are unable to renew the leases, we will lose our right to develop the related properties. While we seek to actively manage our leasehold
inventory through drilling wells to hold the leasehold acreage that we believe is material to our operations, our drilling plans for these areas are subject to change and subject to
the availability of capital.
Certain of our wells may be adversely affected by actions we or other operators may take when drilling, completing, or operating wells that they own.
The drilling and production of potential locations by us or other operators could cause a depletion of our proved reserves and may inhibit our ability to further develop our
proved reserves. In addition, completion operations and other activities conducted on adjacent or nearby wells by us or other operators could cause production from our wells to
be shut in for indefinite periods of time, could result in increased lease operating expenses and could adversely affect the production and reserves from our wells after they re-
commence production. We have no control over the operations or activities of offsetting operators.
We are exposed to the credit risk of our customers, and nonpayment or nonperformance by these parties would reduce our cash flows.
We are subject to risk from loss resulting from our customers’ nonperformance or nonpayment. We depend on a limited number of customers for a significant portion of our
revenues. The concentration of credit risk may be affected by changes in economic or other conditions within our industry and may accordingly affect our overall credit risk. In
2022, approximately 43% of our total product revenues resulted from two of our customers. Any nonpayment or nonperformance by our customers would reduce our cash
flows.
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We participate in oil and gas leases with third parties, and these third parties may not be able to fulfill their commitments to our projects.
We frequently own less than 100% of the working interest in the oil and gas leases on which we conduct operations, and other parties own the remaining portion of the working
interest under joint venture arrangements. Financial risks are inherent in any operation where the cost of drilling, equipping, completing and operating wells is shared by more
than one party. We could be held liable for joint venture obligations of other working interest owners, such as nonpayment of costs and liabilities arising from the actions of the
other working interest owners. In addition, the volatility in commodity prices increases the likelihood that some of these working interest owners may not be able to fulfill their
joint venture obligations. Some of our project partners have experienced liquidity and cash flow problems in the past. These problems have led and may lead our partners to
attempt to delay the pace of project development in order to preserve cash. A partner may be unable or unwilling to pay its share of project costs. In some cases, a partner may
declare bankruptcy. In the event any of our project partners do not pay their share of such costs, we would likely have to pay those costs, and we may be unsuccessful in any
efforts to recover these costs from our partners, which could materially adversely affect our financial condition, results of operations and cash flows.
Estimates of oil and gas reserves and future net cash flows are not precise, and undeveloped reserves may not ultimately be converted into proved producing reserves.
This Annual Report on Form 10-K contains estimates of our proved oil and gas reserves and the estimated future net cash flows from such reserves. These estimates are based
upon various factors and assumptions, including assumptions relating to crude oil, NGL and natural gas prices, drilling and operating expenses, capital expenditures,
development costs and workover and remedial costs, the quantity, quality and interpretation of relevant data, taxes and availability of funds. The process of estimating oil and
gas reserves is complex. This process requires significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for
each reservoir. These estimates are dependent on many variables and inherently uncertain, therefore, changes often occur as these variables evolve and commodity prices
fluctuate. Furthermore, different reserve engineers may make different estimates of reserves and cash flows based on the same data, and improvements or other changes in
geological, geophysical and engineering evaluation methods may cause reserve estimates to change over time. Any material inaccuracies in these reserve estimates, cash flow
estimates or underlying assumptions could materially affect the estimated quantities and present value of our reserves.
Actual future production, crude oil, NGL and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and gas
reserves will most likely vary from those estimated. Any significant variance could materially affect the estimated quantities and present value of reserves disclosed by us. In
addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development, prevailing crude oil, NGL and natural gas prices and
other factors, many of which are beyond our control.
At December 31, 2022 and December 31, 2021, approximately 58% and 62%, respectively, of our estimated proved reserves were proved undeveloped. Estimation of proved
undeveloped reserves is based on volumetric calculations and adjacent reserve performance data. Recovery of proved undeveloped reserves requires significant capital
expenditures and successful drilling operations. Our reserve data assumes that we can and will make these significant expenditures to develop our reserves and conduct these
drilling operations successfully. These assumptions, however, may not prove correct, and our estimated costs may not be accurate, development may not occur as scheduled and
actual results may not occur as estimated.
The reserve estimation standards under SEC rules provide that, subject to limited exceptions, proved undeveloped reserves may only be booked if they relate to wells scheduled
to be drilled within five years of the date of booking. These standards may limit our potential to book additional proved undeveloped reserves as we pursue our drilling
program. Moreover, we may be required to write down our proved undeveloped reserves if we do not develop those reserves within the required five-year time frame or cannot
demonstrate that we could do so. Accordingly, our reserve report at December 31, 2022, includes estimates of total future development costs over the next five years associated
with our proved undeveloped reserves of approximately $2.8 billion. If we choose not to spend the capital to develop these reserves, or if we are not otherwise able to
successfully develop these reserves, we will be required to write-off these reserves. During the year ended December 31, 2022, we wrote-off 34.3 MMboe of proved
undeveloped reserves because they are no longer expected to be developed within five years of their initial recording. Any such write-offs of our reserves could reduce our
ability to borrow money and could reduce the value of our securities.
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You should not assume that the present value of estimated future net cash flows (standardized measure) referred to herein is the current fair value of our estimated oil and gas
reserves. In accordance with SEC requirements, we base the estimated discounted future net cash flows from our proved reserves on prices and costs on the date of the estimate.
Actual current and future prices and costs may be materially higher or lower than the prices and costs as of the date of the estimate. As a result, net present value estimates using
actual prices and costs may be significantly less than the SEC estimate that is provided herein. Actual future net cash flows may also be affected by the amount and timing of
actual production, availability of financing for capital expenditures necessary to develop our undeveloped reserves, supply and demand for oil and gas, increases or decreases in
consumption of oil and gas and changes in governmental regulations or taxation. In addition, the 10% discount factor, which is required by the SEC to be used in calculating
discounted future net cash flows for reporting purposes, is not necessarily the most accurate discount factor based on interest rates in effect from time to time and risks
associated with us or the oil and gas industry in general. With all other factors held constant, if commodity prices used in the reserve report were to decrease by 10%, our
standardized measure and PV-10 would have decreased to approximately $4.1 billion and $4.7 billion, respectively. Any adjustments to the estimates of proved reserves or
decreases in the price of our commodities may decrease the value of our securities.
We may record impairments on our oil and gas properties.
Quantities of proved reserves are estimated based on economic conditions in existence in the period of assessment. Lower crude oil, NGL and natural gas prices may have the
impact of shortening the economic lives of certain fields because it becomes uneconomic to produce all reserves within such fields, thus reducing proved property reserve
estimates. If such revisions in the estimated quantities of proved reserves occur, it will have the effect of increasing the rates of depreciation, depletion and amortization, or
DD&A, on the affected properties, which would decrease earnings or result in losses through higher DD&A expense. The revisions may also be significant enough to result in a
write-down that would further decrease reported earnings.
The full cost method of accounting for oil and gas properties under GAAP requires that at the end of each quarterly reporting period, the unamortized cost of our oil and gas
properties, net of deferred income taxes, is limited to the sum of the estimated after tax discounted future net revenues from proved properties adjusted for costs excluded from
amortization (the “Ceiling Test”). The estimated after tax discounted future net revenues are determined using the prior 12-month’s average price based on closing prices on the
first day of each month, adjusted for differentials, discounted at 10%. The calculation of the Ceiling Test and provision for DD&A are based on estimates of proved reserves.
There are significant uncertainties inherent in estimating quantities of proved reserves and projecting future rates of production, timing and plan of development. In addition to
revisions to reserves and the impact of lower commodity prices, Ceiling Test write-downs may occur due to increases in estimated operating and development costs and other
factors.
If we cannot obtain sufficient capital when needed, we will not be able to continue with our business strategy.
The oil and gas industry is capital intensive. We incur and expect to continue to incur substantial capital expenditures for the acquisition, exploration and development of oil and
gas reserves. We incurred approximately $533.8 million in acquisition, exploration and development costs, including capitalized interest and capitalized labor during the year
ended December 31, 2022. We intend to finance our future capital expenditures, other than significant acquisitions, through cash flow from operations and, if necessary,
through borrowings under our credit agreement (as defined below). However, our cash flow from operations and access to capital are subject to a number of variables, including:
(i) the volume of oil and gas we are able to produce from existing wells, (ii) our ability to transport our oil and gas to market, (iii) the prices at which our commodities are sold,
(iv) the costs of producing oil and gas, (v) global credit and securities markets, (vi) the ability and willingness of lenders and investors to provide capital and the cost of the
capital, (vii) our ability to acquire, locate and produce new reserves, (viii) the impact of potential changes in our credit ratings and (ix) our proved reserves. Additionally, a
negative shift in investor sentiment towards the oil and gas industry could adversely affect our ability to raise equity and debt capital.
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We may not generate expected cash flows and may have limited ability to obtain the capital necessary to sustain our operations at current or anticipated levels. A decline in cash
flow from operations or our financing needs may require us to revise our capital program or alter or increase our capitalization substantially through the issuance of debt or
equity securities. The issuance of additional equity securities could have a dilutive effect on the value of our Class A Common Stock. Additional borrowings under our credit
agreement or the issuance of additional debt securities will require that a greater portion of our cash flow from operations be used for the payment of interest and principal on
our debt, thereby reducing our ability to use cash flow to fund working capital, capital expenditures and acquisitions. In addition, our credit agreements and the Indenture
impose certain limitations on our ability to incur additional indebtedness. If we desire to issue additional debt securities other than as expressly permitted under such debt
agreements, we will be required to seek the consents in accordance with the requirements of such debt agreements, which consent may be withheld at their discretion. In the
future, we may not be able to obtain financing in sufficient amounts or on acceptable terms when needed, which could adversely affect our operating results and prospects. If we
cannot raise the capital required to implement our business strategy, we may be required to curtail operations, which could adversely affect our financial condition, results of
operations and cash flows.
Our property acquisitions carry significant risks.
Acquisition of oil and gas properties is a key element of maintaining and growing reserves and production. Competition for these assets has been and will continue to be
intense. We may not be able to identify attractive acquisition opportunities. Even if we do identify attractive candidates, we may not be able to complete the acquisition or do so
on commercially acceptable terms. In the event we do complete an acquisition, its success will depend on a number of factors, many of which are beyond our control. These
factors include future crude oil, NGL and natural gas prices, the ability to reasonably estimate or assess the recoverable volumes of reserves, rates of future production and
future net revenues attainable from reserves, future operating and capital costs, results of future exploration, exploitation and development activities on the acquired properties
and future abandonment, possible future environmental or other liabilities and the effect on our liquidity or financial leverage of using available cash or debt to finance
acquisitions. There are numerous uncertainties inherent in estimating quantities of proved oil and gas reserves, actual future production rates and associated costs and the
assumption of potential liabilities with respect to prospective acquisition targets. Actual results may vary substantially from those assumed in the estimates. A customary review
of subject properties will not necessarily reveal all existing or potential problems.
Additionally, significant acquisitions can change the nature of our operations and business if acquired properties have substantially different operating and geological
characteristics or are in different geographic locations than our existing properties. To the extent that acquired properties are substantially different than our existing properties,
our ability to efficiently realize the expected economic benefits of such transactions may be limited.
Integrating acquired businesses and properties is costly and involves a number of special risks. These risks include the possibility that management may be distracted from
regular business concerns by the need to integrate operations and systems and that unforeseen difficulties can arise in integrating operations and systems and in retaining and
assimilating employees. Any of these or other similar risks could lead to potential adverse short-term or long-term effects on our operating results and may cause us to not be
able to realize any or all of the anticipated benefits of the acquisitions. Further, we may not realize expected synergies. If we are unable to realize expected synergies, or the cost
to achieve these synergies is greater than expected, then the anticipated benefits may not be realized fully or at all or may take longer to realize than expected. In addition, it is
possible that the integration of an acquired business could result in the loss of key employees, customers, providers, vendors or business partners, the disruption of our ongoing
businesses, inconsistencies in standards, controls, procedures and policies, potential unknown liabilities and unforeseen expenses, delays, or regulatory conditions associated
with higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated.
Properties we acquire may not produce as projected, and we may be unable to determine reserve potential, identify liabilities associated with the properties or obtain
protection from sellers against them.
Our initial technical reviews of properties we acquire are necessarily limited because an in-depth review of every individual property involved in each acquisition generally is
not feasible. Even a detailed review of records and properties may not necessarily reveal existing or potential problems, nor will it permit a buyer to become sufficiently familiar
with the properties to assess fully their deficiencies and potential. Inspections may not always be performed on every well and environmental problems, such as soil or ground
water contamination, are not necessarily observable even when an inspection is undertaken. Even when problems are identified, we may assume certain environmental and
other risks and liabilities in connection with acquired properties, or discover unknown liabilities after the acquisition, and such risks and liabilities could have a material adverse
effect on its results of operations and financial condition.
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We may incur losses as a result of title deficiencies.
We purchase working and revenue interests in the oil and gas leasehold interests upon which we will perform our exploration activities from third parties or directly from the
mineral fee owners. The existence of a material title deficiency can render a lease worthless and can adversely affect our results of operations, financial condition and cash
flows. Title insurance covering mineral leaseholds is not generally available and, in all instances, we forgo the expense of retaining lawyers to examine the title to the mineral
interest to be placed under lease or already placed under lease until the drilling block is assembled and ready to be drilled. Even then, the cost of performing detailed title work
can be expensive. We may choose to forgo detailed title examination by title lawyers on a portion of the mineral leases that we place in a drilling unit or conduct less title work
than we have traditionally performed. As is customary in our industry, we generally rely upon the judgment of oil and gas lease brokers or independent landmen who perform
the field work in examining records in the appropriate governmental offices and abstract facilities before attempting to acquire or place under lease a specific mineral interest
and before drilling a well on a leased tract. We, in some cases, perform curative work to correct deficiencies in the marketability or adequacy of the title to us. The work might
include obtaining affidavits of heirship or causing an estate to be administered. In cases involving more serious title problems, the amount paid for affected oil and gas leases
can be generally lost and the target area can become undrillable. The failure of title may not be discovered until after a well is drilled, in which case we may lose the lease and
the right to produce all or a portion of the minerals under the property.
As a small company, we face unique difficulties competing in the larger market.
We operate in a highly competitive environment for acquiring properties, marketing oil and gas and securing trained personnel, and we may face difficulties in competing with
larger companies. The costs of doing business in the exploration and production industry, including such costs as those required to explore new oil and gas plays, to acquire new
acreage, and to develop attractive oil and gas projects, are significant. We face intense competition in all areas of our business from companies with greater and more productive
assets, greater access to capital, substantially larger staffs and greater financial and operating resources than we have. Those companies may be able to pay more for productive
oil and gas properties and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources
permit. Also, there is substantial competition for capital available for investment in the oil and gas industry. Our limited size has placed us at a disadvantage with respect to
funding our capital and operating costs, and means that we are more vulnerable to commodity price volatility and overall industry cycles (such as the volatility and general
economic challenges attributable to COVID-19, the Russia-Ukraine war, and other factors), are less able to absorb the burden of changes in laws and regulations, and that poor
results in any single exploration, development or production play can have a disproportionately negative impact on us. We also compete for people, including experienced
geologists, geophysicists, engineers and other professionals. Our limited size has placed us at a disadvantage with respect to attracting and retaining management and other
professionals with the technical abilities necessary to successfully operate our business.
Our lack of diversification increases the risk of an investment in us and we are vulnerable to risks associated with operating primarily in one major contiguous area.
All of our operations are in the Eagle Ford Shale in South Texas, making us vulnerable to risks associated with operating in one geographic area. Due to the concentrated nature
of our business activities, a number of our properties could experience any of the same conditions at the same time, resulting in a relatively greater impact on our results of
operations than they might have on other companies that are more diversified. In particular, we may be disproportionately exposed to the impact of regional supply and demand
factors, delays or interruptions of production from wells in which we have an interest that are caused by transportation capacity constraints, curtailment of production,
availability of equipment, facilities, personnel or services, significant governmental regulation, natural disasters, adverse weather conditions, water shortages or other drought
related conditions, plant closures for scheduled maintenance or interruption of transportation of crude oil or natural gas produced from wells in the Eagle Ford. Such delays or
interruptions could have a material adverse effect on our financial condition, results of operations and cash flows.
Our oil, natural gas and NGLs are primarily sold in geographic markets in Texas which have a fixed amount of storage and processing capacity. As a result, if such markets
become oversupplied with oil, natural gas and/or NGLs, it could have a material negative effect on the prices we receive for our products and therefore an adverse effect on our
financial condition and results of operations. There is a risk that refining capacity in the U.S. Gulf Coast may be insufficient to refine all of the light sweet crude oil being
produced in the U.S. If light sweet crude oil production remains at current levels or continues to increase, demand for our light crude oil production could result in widening
price discounts to the world crude prices and potential shut-in of production due to a lack of sufficient markets despite the lift on prior restrictions on the exporting of oil and
natural gas.
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Financial and Related Risks
We have substantial indebtedness and may incur substantially more debt. Higher levels of indebtedness make us more vulnerable to economic downturns and adverse
developments in our business.
Our indebtedness and any increase in our level of indebtedness could have adverse effects on our financial condition, results of operations and cash flows, including (i)
imposing additional cash requirements on us in order to support interest payments, which reduces the amount we have available to fund our operations and other business
activities, (ii) increasing the risk that we may default on our debt obligations, (iii) increasing our vulnerability to adverse changes in general economic and industry conditions,
economic downturns and adverse developments in our business, (iv) increasing our exposure to a continued rise in interest rates, which will generate greater interest expense, (v)
limiting our ability to engage in strategic transactions or obtain additional financing for working capital, capital expenditures, general corporate and other purposes and (vi)
limiting our flexibility in planning for or reacting to changes in our business and industry in which we operate. Our ability to meet our debt obligations and to reduce our level
of indebtedness depends on our future performance, which is affected by general economic conditions and financial, business and other factors, many of which are out of our
control.
Additionally, we may incur substantially more debt in the future. Our Credit Facility and the Indenture contain restrictions that limit our ability to incur indebtedness. These
restrictions, however, are subject to a number of qualifications and exceptions, and under certain circumstances, we could incur substantial additional indebtedness in
compliance with these restrictions. If we were to incur additional indebtedness without retiring existing debt, the risks described above could be magnified.
The borrowing base under our Credit Facility may be reduced in the future if commodity prices decline.
As of December 31, 2022, the borrowing base under the Credit Facility was $950 million with aggregate elected commitments of $500 million. Our borrowing base is generally
redetermined at least twice each year and is scheduled to next be redetermined in April 2023. During a borrowing base redetermination, the lenders can unilaterally adjust the
borrowing base and the borrowings permitted to be outstanding under our Credit Facility. In the event of a decline in crude oil, NGL or natural gas prices or for other reasons
deemed relevant by our lenders, the borrowing base under the Credit Facility may be reduced. Additionally, the lenders typically may, at their discretion, initiate a
redetermination at any time during the six-month period between scheduled redeterminations. As a result, we may be unable to obtain funding under the Credit Facility. If
funding is not available when or in the amounts needed, or is available only on unfavorable terms, it might adversely affect our development plan and our ability to make new
acquisitions. Furthermore, a determination to lower the borrowing base in the future to a level less than our outstanding indebtedness thereunder would require us to repay any
indebtedness in excess of the redetermined borrowing base. Any such repayment or reduced access to funds could have a material adverse effect on our production, financial
condition, results of operations and cash flows.
The Credit Facility and the Indenture have restrictive covenants that could limit our financial flexibility.
The Credit Facility and the Indenture contain financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests.
Our ability to borrow under the Credit Facility is subject to compliance with certain financial covenants, including leverage, interest coverage and current ratios.
The Credit Facility and the Indenture include other restrictions that, among other things, limit our ability to incur indebtedness; grant liens; engage in mergers, consolidations
and liquidations; make asset dispositions, restricted payments and investments; enter into transactions with affiliates; and amend, modify or prepay certain indebtedness.
Our business plan and our compliance with these covenants are based on a number of assumptions, the most important of which is relatively stable oil and gas prices at
economically sustainable levels. If the price that we receive for our oil and gas production deteriorates significantly from current levels it could lead to lower revenues, cash
flows and earnings, which in turn could lead to a default under certain financial covenants contained in our Credit Facility. Because the calculations of the financial ratios are
made as of certain dates, the financial ratios can fluctuate significantly from period to period as the amounts outstanding under our Credit Facility are dependent on the timing of
cash flows related to operations, capital expenditures, sales of oil and gas properties and securities offerings. Our failure to comply with these covenants could result in an event
of default that, if not cured or waived, could result in the acceleration of all of our debts. We may not have sufficient working capital to satisfy our debt obligations in the event
of an acceleration of all or a significant portion of our outstanding indebtedness.
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Adverse changes in our credit rating may affect our borrowing capacity and borrowing terms.
Our outstanding debt is periodically rated by nationally recognized credit rating agencies. The credit ratings are based on our operating performance, liquidity and leverage
ratios, overall financial position, and other factors viewed by the credit rating agencies as relevant to our industry and the economic outlook. Our credit rating may affect the
amount of capital we can access, as well as the terms of any financing we may obtain. Because we rely in part on debt financing to fund growth, adverse changes in our credit
rating may have a negative effect on our future growth.
Derivative transactions may limit our potential gains and involve other risks.
In order to achieve more predictable cash flows and manage our exposure to commodity price risks in the sale of our crude oil, NGLs and natural gas, we periodically enter into
commodity price hedging arrangements with respect to a portion of our expected production. Our hedges are limited in duration, usually for periods of three years or less. While
intended to reduce the effects of volatile crude oil, NGL and natural gas prices, such transactions may limit our potential gains if crude oil, NGL or natural gas prices were to
rise over the price established by the hedging arrangements. In trying to maintain an appropriate balance, we may end up hedging too much or too little, depending upon how
commodity prices fluctuate in the future, which could have the effect of reducing our net income.
In addition, derivative transactions may expose us to the risk of financial loss in certain circumstances, including instances in which:
•
our production is less than expected;
•
there is a widening of price basis differentials between delivery points for our production and the delivery point assumed in the hedge arrangement;
•
the counterparty to a derivatives instrument fails to perform under the contract; or
•
a sudden, unexpected event materially impacts commodity prices.
In addition, we may enter into derivative instruments that involve basis risk. Basis risk in a derivative contract occurs when the index upon which the contract is based is more or
less variable than the index upon which the hedged asset is based, thereby making the hedge less effective. For example, a NYMEX index used for hedging certain volumes of
production may have more or less variability than the regional price index used for the sale of that production.
The adoption of derivatives legislation and implementing rules could have an adverse effect on our ability to use derivative instruments to reduce the effect of commodity price
risks associated with our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd Frank Act, enacted on July 21, 2010, established federal oversight and regulation of the over-
the-counter derivatives market and entities, such as us, that participate in that market. The Dodd-Frank Act requires the Commodity Futures Trading Commission, or CFTC, and
the SEC, to promulgate rules and regulations implementing the Dodd-Frank Act. While some of these rules have been finalized, some have not been finalized or implemented,
and it is not possible at this time to predict when this will be accomplished. In October 2011, the CFTC issued regulations to set position limits for certain futures and option
contracts in the major energy markets and for swaps that are their economic equivalents; however, this initial position limits rule was vacated by the U.S. District Court for the
District of Columbia in September 2012. The CFTC has subsequently issued proposals for new rules that would place position limits on certain core futures contracts and
equivalent swap contracts for or linked to certain physical commodities, subject to certain exceptions for bona fide hedging transactions, though these rules have not been
finalized and the impact of those provisions on us is uncertain at this time.
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While the CFTC has designated certain interest rate swaps and credit default swaps subject to mandatory clearing, and the associated rules also will require us, in connection
with covered derivative activities, to comply with clearing and trade-execution requirements or take steps to qualify for an exemption to such requirements. The CFTC has not
yet proposed rules subjecting any other classes of swaps, including physical commodity swaps, to mandatory clearing. Although we believe we qualify for the end-user
exception from the mandatory clearing requirements for swaps entered to hedge our commercial risks, the application of the mandatory clearing and trade execution
requirements to other market participants, such as swap dealers, may change the cost and availability of the swaps that we use for hedging. If our swaps do not qualify for the
end-user exception from mandatory clearing, or if the cost of entering into uncleared swaps becomes prohibitive, we may be required to clear such transactions or our ability to
hedge may be impacted. The ultimate effect of the rules and any additional regulations on our business is uncertain at this time.
In addition, certain banking regulators and the CFTC have adopted final rules establishing minimum margin requirements for uncleared swaps. Although we expect to be
exempt from such requirements for the mandatory exchange of margin for uncleared swaps, the application of such requirements to other market participants, such as swap
dealers, may change the cost and availability of the swaps that we use for hedging. Further, if we did not qualify for an exemption and were required to post collateral for our
swaps, it could reduce our liquidity and cash available for capital expenditures and our ability to manage commodity price volatility and the volatility in cash flows.
The full impact of the Dodd-Frank Act and related regulatory requirements upon our business will not be known until the regulations are implemented and the market for
derivatives contracts has adjusted. When fully implemented, the Dodd-Frank Act and any new regulations could increase the operational and transactional cost of derivatives
contracts, reduce the availability of derivatives to protect against risks that we encounter, reduce our ability to monetize and restructure our existing derivatives contracts and
affect the number and/or creditworthiness of available counterparties. If we reduce our use of derivatives as a result of the Dodd-Frank Act and regulations, our results of
operations may become more volatile and our cash flows may be less predictable, which could adversely affect our ability to plan for and fund capital expenditures.
In addition, we may transact with counterparties based in the European Union, Canada or other jurisdictions which, like the U.S., are in the process of implementing regulations
to regulate derivatives transactions, some of which are currently in effect and impose operational and transactional costs on our derivatives activities.
A negative shift in investor sentiment towards the oil and gas industry could adversely affect our ability to raise equity and debt capital.
Certain segments of the investor community have recently developed negative sentiments towards investing in our industry. The negative sentiment toward our sector versus
other industry sectors has led to lower oil and gas representation in certain key equity market indices. Some investors, including certain pension funds, university endowments
and family foundations, have stated policies to reduce or eliminate their investments in the oil and gas sector based on social and environment considerations. Such
developments could result in a reduction of available capital funding for potential development projects or diminution of capital to fund our business which could impact our
future financial results. Additionally, such developments have resulted and could continue to result in downward pressure on the stock prices of oil and gas companies, including
ours.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their
approach to environmental, social, and governance (“ESG”) matters. Currently, there are no universal standards for such scores or ratings, but the importance of sustainability
evaluations is becoming more broadly accepted by investors and shareholders. Such ratings are used by some investors to inform their investment and voting decisions.
Additionally, certain investors use these scores to benchmark companies against their peers and if a company is perceived as lagging, these investors may engage with
companies to require improved ESG disclosure or performance. Moreover, certain members of the broader investment community may consider a company’s sustainability
score as a reputational or other factor in making an investment decision. Consequently, a low sustainability score could result in exclusion of our stock from consideration by
certain investment funds, engagement by investors seeking to improve such scores and a negative perception of our operations by certain investors.
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Legal and Regulatory Risks
We are subject to complex laws and regulations that can adversely affect the cost, manner or feasibility of doing business.
Exploration, development, production and sale of oil and gas are subject to extensive federal, state and local laws and regulations, including complex environmental laws.
Future laws or regulations, any adverse changes in the interpretation of existing laws and regulations, inability to obtain necessary regulatory approvals or a failure to comply
with existing legal requirements may harm our business, results of operations, financial condition or cash flows. We may be required to make large expenditures to comply with
environmental and other governmental regulations. Failure to comply with these laws and regulations may result in the suspension or termination of operations and subject us to
administrative, civil and criminal penalties. Matters subject to regulation include discharge permits for drilling operations, drilling bonds, spacing of wells, unitization and
pooling of properties, environmental protection and taxation. Our operations create the risk of environmental liabilities to the government or third parties for any unlawful
discharge of oil, gas or other pollutants into the air, soil or water. In the event of environmental violations or other environmental, health or safety impacts, we may be charged
with remedial costs and land owners may file claims for alternative water supplies, property damage or bodily injury. Laws and regulations protecting the environment have
become more stringent in recent years, and may, in some circumstances, result in liability for environmental damage regardless of negligence or fault. New laws, regulations or
enforcement policies could be more stringent and impose unforeseen liabilities or significantly increase compliance costs. Moreover, these risks are likely to be enhanced with
the Biden Administration. For example, see Part I, Item 1, “Business – Government Regulation and Environmental Matters – Greenhouse Gas Emissions” for information about
certain actions the Biden Administration has taken targeting GHG emissions. No assurance can be given that continued compliance with existing or future environmental laws
and regulations will not result in a curtailment of production or processing activities or result in a material increase in the costs of production, development, exploration or
processing operations. In addition, pollution and similar environmental risks generally are not fully insurable. These liabilities and costs could have a material adverse effect on
our business, financial condition, results of operations and cash flows. See Part I, Item 1, “Business – Government Regulation and Environmental Matters.”
Access to water to drill and conduct hydraulic fracturing may not be available if water sources become scarce, and we may face difficulty disposing of produced water gathered
from drilling and production activities.
The availability of water is crucial to conduct hydraulic fracturing. A significant amount of water is necessary for drilling and completing each well with hydraulic fracturing. In
the past, Texas has experienced severe droughts that have limited the water supplies that are necessary to conduct hydraulic fracturing. Although we have taken measures to
secure our water supply, we can make no assurances that sufficient water resources will be available in the short or long term to carry out our current activities. If we are unable
to obtain water to use in our operations from local sources, we may be unable to economically produce oil and gas, which could have an adverse effect on our financial
condition, results of operations and cash flows.
In addition, we must dispose of the fluids produced from oil and natural gas production operations, including produced water. The legal requirements related to the disposal of
produced water into a non-producing geologic formation by means of underground injection wells are subject to change based on concerns of the public or governmental
authorities regarding such disposal activities. One such concern arises from recent seismic events near underground disposal wells that are used for the disposal by injection of
produced water resulting from oil and natural gas activities. In March 2016, the U.S. Geological Survey identified Texas and Colorado as being among the states with areas of
increased rates of induced seismicity that could be attributed to fluid injection or oil and natural gas extraction. In response to concerns regarding induced seismicity, regulators
in some states have imposed, or are considering imposing, additional requirements in the permitting of produced water disposal wells to assess any relationship between
seismicity and the use of such wells. For example, in Texas, the RRC adopted new rules governing the permitting or re-permitting of wells used to dispose of produced water
and other fluids resulting from the production of oil and natural gas in order to address these seismic activity concerns within the state. Among other things, these rules require
companies seeking permits for disposal wells to provide seismic activity data in permit applications, provide for more frequent monitoring and reporting for certain wells and
allow the state to modify, suspend or terminate permits on grounds that a disposal well is likely to be, or determined to be, causing seismic activity. States may issue orders to
temporarily shut down or to curtail the injection depth of existing wells in the vicinity of seismic events. Increased regulation and attention given to induced seismicity could
also lead to greater opposition, including litigation to limit or prohibit oil and natural gas activities utilizing injection wells for produced water disposal.
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Climate change legislation, laws and regulations restricting emissions of GHGs or prohibiting, restricting, or delaying oil and gas development on public lands, or legal or
other action taken by public or private entities related to climate change could force us to incur increased capital and operating costs and could have a material adverse effect
on our financial condition, results of operations and cash flows, as well as our reputation.
In December 2009, the EPA determined that emissions of carbon dioxide, methane and other GHGs endanger public health and the environment because emissions of such
gases are, according to the EPA, contributing to warming of the Earth’s atmosphere and other climatic changes. Based on these findings, the EPA began adopting and
implementing regulations to restrict emissions of GHGs under existing provisions of the CAA. For example, the EPA issued rules restricting methane emissions from
hydraulically fractured and refractured gas wells, compressors, pneumatic controls, storage vessels, and natural gas processing plants. For more information on GHG regulation,
see Part I, Item 1, “Business – Government Regulation and Environmental Matters.”
While Congress has from time to time considered legislation to reduce emissions of GHGs, there has not been significant activity in the form of adopted legislation to reduce
emissions of GHGs in recent years. In the absence of Congressional action, many states have established rules aimed at reducing GHG emissions, including GHG cap and trade
programs. Most of these cap and trade programs work by requiring major sources of emissions, such as electric power plants, or major producers of fuels, such as refineries and
natural gas processing plants, to acquire and surrender emission allowances. The number of allowances available for purchase is reduced each year in an effort to achieve the
overall GHG emission reduction goal. In the future, the U.S. may also choose to adhere to international agreements targeting GHG reductions. The adoption of legislation or
regulatory programs or other government action to reduce emissions of GHGs or restrict, delay or prohibit oil and gas development on public lands could require us to incur
increased operating costs, such as costs to purchase and operate emissions control systems, to acquire emissions allowances or to comply with new regulatory or reporting
requirements, or prevent us from conducting operations in certain areas. Any such legislation or regulatory programs could also increase the cost of consuming, and thereby
reduce demand for, the oil and gas we produce. These risks are likely to be enhanced with the Biden Administration. See Part I, Item 1, “Business – Government Regulation and
Environmental Matters - Greenhouse Gas Emissions.” Consequently, legislation and regulatory programs to reduce emissions of GHGs could have an adverse effect on our
business, financial condition, results of operations and cash flows. Reduced demand for the oil and gas that we produce could also have the effect of lowering the value of our
reserves.
In addition, some scientists have concluded that increasing concentrations of GHGs in the Earth’s atmosphere may produce climate changes that have significant physical
effects, such as increased frequency and severity of storms, droughts, floods and other climatic events. If such climactic events were to occur more frequently or with greater
intensity, our exploration and development activities and ability to transport our production to market could be adversely affected, as these events could cause a loss of
production from temporary cessation of activity or damaged facilities and equipment. If any such events were to occur, they could have an adverse effect on our financial
condition, results of operations and cash flows. For a more complete discussion of environmental laws and regulations intended to address climate change and their impact on
our business and operations, see Part I, Item 1, “Business – Government Regulation and Environmental Matters.”
There have also been efforts in recent years to influence the investment community, including investment advisors and certain sovereign wealth, pension and endowment funds,
as well as other stakeholders, promoting divestment of fossil fuel equities and pressuring lenders to limit funding to companies engaged in the extraction of fossil fuel reserves.
Such environmental activism and initiatives aimed at limiting climate change and reducing air pollution could interfere with our business activities, operations and ability to
access capital and adversely impact our reputation. Finally, increasing attention to the risks of climate change has resulted in an increased possibility of lawsuits or
investigations brought by public and private entities against oil and gas companies in connection with their GHG emissions. Should we be targeted by any such litigation or
investigation, we may incur liability, which, to the extent that societal pressures or political or other factors are involved, could be imposed without regard to our causation of or
contribution to the asserted damage, or to other mitigating factors.
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Federal state and local legislation and regulatory initiatives relating to hydraulic fracturing, as well as governmental reviews of such activities, could result in increased costs
and additional operating restrictions or delays and adversely affect our production.
Hydraulic fracturing involves the injection of water, sand or other propping agents and chemicals under pressure into rock formations to stimulate oil and gas production. We
routinely use hydraulic fracturing to complete wells. The EPA released the final results of its comprehensive research study on the potential adverse impacts that hydraulic
fracturing may have on drinking water resources in December 2016. The EPA concluded that hydraulic fracturing activities can impact drinking water resources under some
circumstances, including large volume spills and inadequate mechanical integrity of wells. The results of the EPA’s study could spur action towards federal legislation and
regulation of hydraulic fracturing or similar production operations. In past sessions, Congress has considered, but did not pass, legislation to amend the SDWA to remove the
SDWA’s exemption granted to most hydraulic fracturing operations (other than operations using fluids containing diesel) and to require reporting and disclosure of chemicals
used by oil and gas companies in the hydraulic fracturing process. The EPA has issued SDWA permitting guidance for hydraulic fracturing operations involving the use of
diesel fuel in fracturing fluids in those states where the EPA is the permitting authority. The EPA has also issued proposed and final regulations under the CAA establishing
performance standards, including standards for the capture of volatile organic compounds and methane released during hydraulic fracturing; an advanced notice of proposed
rulemaking under the Toxic Substances Control Act to require companies to disclose information regarding the chemicals used in hydraulic fracturing; and final rules in June
2016 to prohibit the discharge of wastewater from hydraulic fracturing operations to publicly owned wastewater treatment plants. In addition, a number of states and local
regulatory authorities and federal politicians are considering or have implemented more stringent regulatory requirements applicable to hydraulic fracturing, including
bans/moratoria on drilling that effectively prohibit further production of oil and gas through the use of hydraulic fracturing or similar operations. Texas has adopted regulations
that require the disclosure of information regarding the substances used in the hydraulic fracturing process, and the RRC has also adopted rules governing well casing,
cementing and other standards for ensuring that hydraulic fracturing operations do not contaminate nearby water resources. Moreover, the legal requirements related to the
disposal of produced water into a non-producing geologic formation by means of underground injection wells are subject to change based on concerns of the public or
governmental authorities regarding such disposal activities, and the RRC has recently limited certain disposal well activity resulting from an increase in seismic events in
certain areas of Texas. In light of concerns about seismic activity being triggered by the injection of produced waters into underground wells, Texas regulators have asserted
regulatory authority to limit injection activities in certain wells in an effort to reduce seismic activity. Another consequence of seismic events may be lawsuits alleging that
disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. These developments could result
in additional regulation and restrictions on the use of injection wells by us. Increased regulation and attention given to induced seismicity could also lead to greater opposition,
including litigation to limit or prohibit oil, natural gas and natural gas liquids activities utilizing injection wells for produced water disposal.
The adoption of new laws or regulations imposing reporting or operational obligations on, or otherwise limiting or prohibiting, the hydraulic fracturing process could make it
more difficult to complete oil and gas wells in unconventional plays. In addition, if hydraulic fracturing becomes regulated at the federal level as a result of federal legislation or
regulatory initiatives by the EPA, hydraulic fracturing activities could become subject to additional permitting requirements, and also to attendant permitting delays and potential
increases in cost, which could adversely affect our business and results of operations. These risks are likely to be enhanced with the Biden Administration.
Restrictions on drilling activities intended to protect certain species of wildlife or their habitat may adversely affect our ability to conduct drilling activities in some of the areas
where we operate.
Various federal and state statutes prohibit certain actions that harm endangered or threatened species and their habitats, migratory birds, wetlands and natural resources. These
statutes include the Endangered Species Act, the Migratory Bird Treaty Act, the Bald and Golden Eagle Protection Act, the Clean Water Act, CERCLA and the OPA. The U.S.
Fish and Wildlife Service may designate critical habitat and suitable habitat areas that it believes are necessary for survival of threatened or endangered species. A critical
habitat or suitable habitat designation could result in further material restrictions to federal land use and private land use and could delay or prohibit land access or oil and gas
development. If harm to species or damages to wetlands, habitat or natural resources occur or may occur, government entities or, at times, private parties may act to prevent oil
and gas exploration or development activities or seek damages for harm to species, habitat or natural resources resulting from drilling, construction or releases of oil, wastes,
hazardous substances or other regulated materials, and in some cases, may seek criminal penalties.
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Our commitments and disclosures related to environmental and social matters expose us to numerous risks.
We have made, and will continue to make, commitments and disclosures related to environmental and social matters. Statements related to sustainability, diversity and other
environmental and social goals, objectives and priorities reflect our current plans and do not constitute a guarantee that they will be achieved or fulfilled. Our efforts to research,
establish, accomplish and accurately report on these goals, objectives and priorities expose us to numerous operational, reputational, financial, legal and other risks. In
particular, our ability to achieve any stated goal, objective or priority, is subject to numerous factors and conditions, some of which are outside of our control. Examples of such
factors include: (i) our access to capital, technology and third party cooperation in order to accomplish our plans and targets; (ii) the viability of new techniques in our
development; and (iii) evolving regulatory requirements affecting sustainability standards or disclosures. Standards for tracking and reporting on sustainability matters,
including climate-related matters, have not been harmonized and continue to evolve. Our processes and controls for reporting sustainability matters may not always comply with
evolving and disparate standards for identifying, measuring and reporting such metrics, including sustainability-related disclosures that may be required of public companies by
the SEC, and such standards may change over time, which could result in significant revisions to our current goals, reported progress in achieving such goals or ability to
achieve such goals in the future. Our business may also face increased scrutiny from investors and other stakeholders related to our environmental and social activities,
including the goals, objectives and priorities that we announce, and our methodologies and timelines for pursuing them. If our sustainability, diversity and other practices do not
meet investor or other stakeholder expectations and standards, which continue to evolve, our reputation, our ability to attract or retain employees and our attractiveness as an
investment or business partner could be negatively affected. Similarly, our failure or perceived failure to pursue or fulfill our environmental and social goals, objectives and
priorities, to comply with ethical, environmental or other standards, regulations or expectations, or to satisfy various reporting standards with respect to these matters, within the
timelines we announce, or at all, could expose us to government enforcement actions and private litigation, as well as adversely affect our business or reputation.
New climate disclosure rules proposed by the SEC may increase our costs of compliance and adversely impact our business.
On March 21, 2022, the SEC proposed new rules relating to the disclosure of a range of climate-related risks. We are currently assessing the proposed rule, but at this time
cannot predict the costs of implementation or any potential adverse impacts resulting from the rule. According to the SEC’s Fall 2022 regulatory agenda, the proposed climate
disclosure rule is scheduled to be finalized in April 2023. To the extent this rule is finalized as proposed, we could incur increased costs relating to the assessment and disclosure
of climate-related risks, including increased legal, accounting and financial compliance costs, as well as making some activities more difficult, time-consuming and costly, and
placing strain on our personnel, systems and resources. We may also face increased litigation risks related to disclosures made pursuant to the rule if finalized as proposed. In
addition, enhanced climate disclosure requirements could accelerate the trend of certain stakeholders and lenders restricting or seeking more stringent conditions with respect to
their investments in certain carbon-intensive sectors.
We may be involved in legal proceedings that could result in substantial liabilities.
Like many oil and gas companies, from time to time, we expect to be involved in various legal and other proceedings, such as title, royalty or contractual disputes, regulatory
compliance matters and personal injury or property damage matters, in the ordinary course of business. Such legal proceedings are inherently uncertain and their results cannot
be predicted. Regardless of the outcome, such proceedings could have an adverse impact on us because of legal costs, diversion of management and other personnel and other
factors. In addition, it is possible that a resolution of one or more such proceedings could result in liability, penalties or sanctions, as well as judgments, consent decrees or
orders requiring a change in our business practices, which could materially and adversely affect our business, operating results and financial condition. Accruals for such
liability, penalties or sanctions may be insufficient, and judgments and estimates to determine accruals or range of losses related to legal and other proceedings could change
from one period to the next, and such changes could be material.
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Tax-Related Risks
Our ability to use net operating loss carryforwards to offset future taxable income may be subject to certain limitations.
Our ability to utilize U.S. net operating loss, or NOL, carryforwards to reduce future taxable income is subject to various limitations under the Internal Revenue Code of 1986,
as amended, or the Code. As disclosed in Note 10 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” we have
substantial NOL carryforwards. The utilization of such carryforwards may be limited upon the occurrence of certain ownership changes, including the purchase or sale of our
stock by 5% shareholders and our offering of stock during any three-year period resulting in an aggregate change of more than 50% in our beneficial ownership. In the event of
an ownership change, Section 382 of the Code imposes an annual limitation on the amount of our taxable income that can be offset by these carryforwards. As of December 31,
2022, we do not believe that an ownership change has occurred; however, to the extent an ownership change has occurred or were to occur in the future, it is possible that the
limitations imposed on our ability to use pre-ownership change losses could cause a significant net increase in our U.S. federal income tax liability and could cause U.S. federal
income taxes to be paid earlier than they otherwise would be paid if such limitations were not in effect. In addition, U.S. NOLs generated on or after January 1, 2018, can be
limited to 80% of taxable income. To the extent we are not able to offset our future income with our NOLs, this could adversely affect our operating results and cash flows once
we attain profitability.
Certain federal income tax deductions currently available with respect to oil and gas exploration and development may be eliminated. Additional state taxes on oil and gas
extraction may be imposed, as a result of future legislation.
In recent years, lawmakers and the U.S. Treasury have proposed certain significant changes to U.S. tax laws applicable to oil and gas companies. These changes include, but are
not limited to: (i) the repeal of the percentage depletion allowance for oil and gas properties; (ii) the elimination of current deductions for intangible drilling and development
costs; and (iii) an extension of the amortization period for certain geological and geophysical expenditures. It is unclear whether any such changes will be enacted or if enacted,
when such changes could be effective. If such proposed changes are ever made, as well as any similar changes in in U.S. federal tax law or state law, it could eliminate or
postpone certain tax deductions that are currently available to us with respect to oil and gas exploration and development, and any such change could negatively affect our
financial condition, results of operations and cash flows.
Additionally, future legislation could be enacted that increases the taxes or fees imposed on oil and gas extraction. Any such legislation could result in increased operating costs
and/or reduced consumer demand for petroleum products, which in turn could affect the prices we receive for our crude oil, NGLs and natural gas.
Technology-Related Risks
We may not be able to keep pace with technological developments in our industry.
The oil and gas industry is characterized by rapid and significant technological advancements and introductions of new products and services using new technologies. As others
use or develop new technologies, we may be placed at a competitive disadvantage, and competitive pressures may force us to implement those new technologies at substantial
cost. In addition, other oil and gas companies may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may allow
them to implement new technologies before we can. We may not be able to respond to these competitive pressures and implement new technologies on a timely basis or at an
acceptable cost. If one or more of the technologies we use now or in the future were to become obsolete or if we are unable to use the most advanced commercially available
technology, our business, financial condition, results of operations and cash flows could be adversely affected.
A cybersecurity incident could result in theft of confidential information, data corruption or operational disruption.
The oil and gas industry is increasingly dependent on digital technologies to conduct certain exploration, development and production activities. Software programs are used
for, among other things, reserve estimates, seismic interpretation, modeling and compliance reporting. In addition, the use of mobile communication is widespread.
Increasingly, we must protect our business against potential cyber incidents including attacks as we have experienced and will continue to experience varying degrees of cyber
incidents in the normal conduct of our business.
If our systems for protecting against cyber incidents prove insufficient, we could be adversely affected by unauthorized access to our digital systems which could result in theft
of confidential information, data corruption or operational disruption. These cybersecurity threat actors are becoming more sophisticated and coordinated in their attempts to
access a company’s information technology systems and data, including the information technology systems of cloud providers and third parties with which a company conducts
business. As cyber threats continue to evolve, we may be required to expend additional resources to continue to modify and enhance our protective systems or to investigate and
remediate any vulnerabilities.
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Information technology solution failures, network disruptions and breaches of data security could disrupt our operations by causing delays or cancellation of customer orders,
impeding processing of transactions and reporting financial results, resulting in the unintentional disclosure of customer, employee or our information, or damage to our
reputation. A cyber attack involving our information systems and related infrastructure, or that of our business associates, could negatively impact our operations in a variety of
ways, including but not limited to, the following:
•
Unauthorized access to seismic data, reserves information, strategic information, or other sensitive or proprietary information could have a negative impact on our ability
to compete for oil and gas resources;
•
Data corruption, communication interruption, or other operational disruption during drilling activities could result in failure to reach the intended target or a drilling
incident;
•
Data corruption or operational disruptions of production-related infrastructure could result in a loss of production, or accidental discharge;
•
A cyber attack on a vendor or service provider could result in supply chain disruptions which could delay or halt our major development projects;
•
A cyber attack on third-party gathering, pipeline, or other transportation systems could delay or prevent us from transporting and marketing our production, resulting in a
loss of revenues;
•
A cyber attack involving commodities exchanges or financial institutions could slow or halt commodities trading, thus preventing us from marketing our production or
engaging in hedging activities, resulting in a loss of revenues;
•
A cyber attack which halts activities at a power generation facility or refinery using natural gas as feed stock could have a significant impact on the natural gas market;
•
A cyber attack on a communications network or power grid could cause operational disruption resulting in loss of revenues;
•
A cyber attack on our automated and surveillance systems could cause a loss in production and potential environmental hazards;
•
A deliberate corruption of our financial or operating data could result in events of non-compliance which could then lead to regulatory fines or penalties; and
•
A cyber attack resulting in the loss or disclosure of, or damage to, our or any of our customer’s or supplier’s data or confidential information could harm our business by
damaging our reputation, subjecting us to potential financial or legal liability, and requiring us to incur significant costs, including costs to repair or restore our systems
and data or to take other remedial steps.
Additionally, certain cyber incidents may remain undetected for an extended period. There can be no assurance that a system failure or data security breach will not have a
material adverse effect on our financial condition, results of operations or cash flows. Furthermore, the growth of cyber attacks has resulted in evolving legal and compliance
matters which impose significant costs that are likely to increase over time.
Risks Related to the Ownership of Our Class A Common Stock
Juniper controls the Company, and their interests may conflict with the Company’s and its other shareholders’ interests in the future.
As of March 3, 2023, Juniper beneficially owned approximately 54% of our Common Stock. As a result, Juniper is able to control the election and removal of our directors and
thereby control our policies and operations and its interests may not in all cases be aligned with other shareholders’ interests. In addition, Juniper may have an interest in
pursuing acquisitions, divestitures and other transactions that, in its judgment, could enhance its investment, even though such transactions might involve risks to other
shareholders. For example, Juniper could cause us to make acquisitions that increase our indebtedness or cause us to sell revenue-generating assets. Additionally, Juniper and its
designated directors are not obligated to present any business opportunities (other than those presented to such directors in their roles as directors of the Company) to us.
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In addition, Juniper is able to determine the outcome of many matters requiring shareholder approval and is able to cause or prevent a change of control of the Company or a
change in the composition of our Board of Directors and could preclude any acquisition of the Company. This concentration of voting control could deprive shareholders of an
opportunity to receive a premium for their shares of Class A Common Stock as part of a sale of the Company and ultimately might affect the market price of our Class A
Common Stock.
Moreover, Juniper has certain director designation rights entitling them to designate up to five members of the Board out of a total of nine directors, with such designation rights
being subject to certain step-downs.
We are a “controlled company” within the meaning of the Nasdaq rules and, as a result, qualify for exemptions from certain corporate governance requirements.
Juniper controls a majority of the voting power of our Common Stock. As a result, we are a “controlled company” within the meaning of the corporate governance standards of
Nasdaq and we are not required to comply with certain corporate governance requirements, including the requirement to have a majority of the board of directors be
independent directors and the requirement to have compensation and nominating committees that are composed entirely of independent directors. While we have not elected to
utilize these exemptions, in the future we could elect to do so. If we were to utilize any such exemptions, our shareholders would not have the same protections afforded to
shareholders of companies that are subject to all of the corporate governance rules for Nasdaq-listed companies.
Ranger Oil is a holding company. Ranger Oil’s only material asset is its equity interest in the Partnership, and Ranger Oil is accordingly dependent upon distributions from the
Partnership to pay taxes and cover its operating expenses and other obligations.
Ranger Oil is a holding company and has no material assets other than its equity interest in the Partnership. Ranger Oil has no independent means of generating revenue. To the
extent the Partnership has available cash, Ranger Oil intends to cause the Partnership to make (i) pro rata distributions to its limited partners, including Ranger Oil, in an amount
sufficient to allow Ranger Oil to pay its taxes and (ii) payments to Ranger Oil to cover its operating expenses and other obligations. To the extent that Ranger Oil needs funds
and the Partnership or its subsidiaries are restricted from making such distributions or payments under applicable law or regulation or under the terms of any future financing
arrangements, or are otherwise unable to provide such funds, Ranger Oil’s liquidity and financial condition could be materially adversely affected.
Moreover, because Ranger Oil has no independent means of generating revenue, Ranger Oil’s ability to pay dividends will be dependent on the ability of the Partnership to
make cash distributions. This ability, in turn, may depend on the ability of the Partnership’s subsidiaries to make distributions to it. The ability of the Partnership, its subsidiaries
and other entities in which it directly or indirectly holds an equity interest to make such distributions will be subject to, among other things, (i) applicable laws or regulations
that may limit the amount of funds available for distribution and (ii) restrictions in relevant debt instruments issued by the Partnership or its subsidiaries and other entities in
which it directly or indirectly holds an equity interest.
In certain circumstances, the Partnership will be required to make tax distributions to its unitholders, including us, and the tax distributions that the Partnership will be
required to make may be substantial.
Pursuant to the amended and restated limited partnership agreement of the Partnership (the “Partnership Agreement”), the Partnership will make generally pro rata cash
distributions, or tax distributions, to its unitholders, including us, in an amount generally intended to allow the unitholders to satisfy their respective income tax liabilities with
respect to their allocable share of the income of the Partnership, based on certain assumptions and conventions, provided that the distribution will be sufficient to allow us to
satisfy our actual tax liabilities. Because tax distributions will be made pro rata based on ownership and based on an assumed tax rate, the Partnership could be required to make
tax distributions that, in the aggregate, exceed the amount of taxes that the Partnership would have paid if it were taxed on its net income at its effective tax rate.
Funds used by the Partnership to satisfy its tax distribution obligations will not be available for reinvestment in the business. Moreover, the tax distributions the Partnership will
be required to make may be substantial and may exceed the unitholder’s tax liabilities if the unitholder has an overall effective tax rate that is lower than the assumed rate.
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Certain provisions of our certificate of incorporation and our bylaws may make it difficult for stockholders to change the composition of our Board and may discourage, delay
or prevent a merger or acquisition that some stockholders may consider beneficial.
Certain provisions of our Articles of Incorporation and our Bylaws may have the effect of delaying or preventing changes in control if our Board determines that such changes
in control are not in the best interests of the Company and our stockholders. The provisions in our Certificate of Incorporation and Bylaws include, among other things, those
that:
•
authorize our Board to issue preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder
approval;
•
establish advance notice procedures for nominating directors or presenting matters at stockholder meetings; and
•
limit the persons who may call special meetings of stockholders.
While these provisions have the effect of encouraging persons seeking to acquire control of the Company to negotiate with our Board, they could enable the Board to hinder or
frustrate a transaction that some, or a majority, of the stockholders may believe to be in their best interests and, in that case, may prevent or discourage attempts to remove and
replace incumbent directors. These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more
difficult for stockholders to replace members of our Board, which is responsible for appointing the members of our management.
Our Articles of Incorporation designate the U.S. Direct Court for the Eastern District of Virginia or the federal district courts for the United States of America as the sole and
exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could limit our shareholders’ ability to obtain a favorable judicial
forum for disputes with us or our directors, officers, or other employees.
Our Articles of Incorporation provide that, to the fullest extent required by law, the U.S. District Court for the Eastern District of Virginia, (or, if U.S. District Court for the
Eastern District of Virginia lacks subject matter jurisdiction, another state or federal court located within the Commonwealth of Virginia) is the sole and exclusive forum for (i)
any derivative action or proceeding brought on behalf of the Company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other
employee of the Company to the Company or the Company’s shareholders, (iii) any action asserting a claim arising pursuant to any provision of the Virginia Stock Corporation
Act or (iv) any action asserting a claim governed by the internal affairs doctrine. Furthermore, under our Articles of Incorporation, the federal district courts for the United States
of America are the sole and exclusive forum for causes of action arising under the Securities Act.
Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have received notice of and consented to the foregoing forum
selection provision. This provision may limit our shareholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers,
or other employees, which may discourage such lawsuits. Alternatively, if a court were to find this choice of forum provision inapplicable to, or unenforceable in respect of, one
or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely
affect our business, financial condition, prospects, or results of operations.
The market price of our Class A Common Stock is subject to volatility.
The market price of our Class A Common Stock could be subject to wide fluctuations in response to, and the level of trading of our Class A Common Stock may be affected
by, numerous factors, many of which are beyond our control. These factors include, among other things, our limited trading volume, the concentration of holdings of our Class
A Common Stock, actual or anticipated variations in our operating results and cash flow, the nature and content of our earnings releases, announcements or events that impact
our products, customers, competitors or markets, business conditions in our markets and the general state of the securities markets and the market for energy-related stocks, as
well as general economic and market conditions and other factors that may affect our future results, including those described in this report. Significant sales of our Class A
Common Stock, or the expectation of these sales, by significant shareholders, officers or directors could materially and adversely affect the market price of our Class A
Common Stock.
40
Our business and the trading prices of our securities could be negatively affected as a result of actions of so-called “activist” shareholders, and such activism could impact the
trading value of our securities.
Shareholders may from time to time attempt to effect changes, engage in proxy solicitations or advance shareholder proposals. Activist shareholders may make strategic
proposals, suggestions or requested changes concerning our operations, strategy, management, assets or other matters. If we become the subject of activity by activist
shareholders, responding to such actions could be costly and time-consuming, diverting the attention of our management and employees. Furthermore, activist campaigns can
create perceived uncertainties as to our future direction, strategy, or leadership and may result in the loss of potential business opportunities and cause our stock price to
experience periods of volatility.
There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.
We are not restricted from issuing additional common stock, including securities that are convertible into or exchangeable for, or that represent a right to receive, common
stock. Any issuance of additional shares of our common stock or convertible securities will dilute the ownership interest of our common stockholders. Sales of a substantial
number of shares of our common stock or other equity-related securities in the public market, or the perception that these sales could occur, could depress the market price of
our common stock and impair our ability to raise capital through the sale of additional equity securities. We cannot predict the effect that future sales of our common stock or
other equity-related securities would have on the market price of our common stock.
As of March 3, 2023, Juniper beneficially owned 22,548,998 shares of our Class B Common Stock and 22,548,998 common units in our Up-C partnership subsidiary, which
are redeemable or exchangeable for 22,548,998 shares of our Class A Common Stock at the election of the holder for no additional consideration or, at our option, for cash.
Juniper may decide to reduce its investment in the Company at any time. Pursuant to the Investor and Registration Rights Agreement with Juniper, at their election, we are
required to assist them in a secondary offering of the sale of their securities. Any such sales of Class A Common Stock by Juniper, or expectations thereof, could have the effect
of depressing the market price for our Class A Common Stock.
We cannot assure you that we will pay dividends on our Class A Common Stock, and our indebtedness could limit our ability to pay future dividends on our Class A Common
Stock.
We declared cash dividends on our Class A Common Stock in the third and fourth quarters of 2022. Any determination to pay dividends to holders of our Class A Common
Stock in the future will be subject to applicable law and at the discretion of our Board of Directors and will depend upon many factors, including our financial condition, results
of operations, projections, liquidity, earnings, legal requirements, covenant compliance, restrictions in our existing and any future debt agreements and other factors that our
board of directors deems relevant. Our financing arrangements, including the Credit Facility, place certain direct and indirect restrictions on our ability to pay cash dividends.
Therefore, there can be no assurance that we will pay any dividends to holders of our Class A Common Stock or as to the amount of any such dividends, and we may cease such
payments at any time in the future. In addition, our historical results of operations, including cash flows, are not indicative of future financial performance, and our actual results
of operations could differ significantly from our historical results of operations. We have not adopted, and do not currently expect to adopt, a separate written dividend policy.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2022, our oil and gas assets were located in South Texas.
Facilities
Our corporate headquarters is located in Houston, Texas. We also lease field office facilities near our oil and gas assets in South Texas.
Title to Oil and Gas Properties
Prior to completing an acquisition of producing oil and gas assets, we review title opinions on all material leases. As is customary in the oil and gas industry; however, we make
a cursory review of title when we acquire farmout acreage or undeveloped oil and gas leases. Prior to the commencement of drilling operations, a thorough title examination is
conducted. To the extent the title examination reflects defects, we cure such title defects. If we are unable to cure any title defect of a nature such that it would not be prudent to
commence drilling operations on a property, we could suffer a loss of our investment in the property. Our oil and gas properties are subject to customary royalty interests, liens
for debt obligations, current taxes and other burdens that we believe do not materially interfere with the use or materially affect the value of such properties. We believe that we
have satisfactory title to all of our properties and the associated oil and gas in accordance with standards generally accepted in the oil and gas industry.
41
Summary of Oil and Gas Reserves
Proved Reserves
The following tables summarize certain information regarding our estimated proved reserves as of December 31 for each of the years presented:
Crude Oil
NGLs
Natural
Gas
Oil
Equivalents
Standardized
Measure
PV-10
(MMbbl)
(MMbbl)
(Bcf)
(MMboe)
$ in millions
$ in millions
2022
Developed
Producing
68.0
18.3
102.1
103.4
Non-producing
1.9
0.8
4.5
3.4
69.9
19.1
106.6
106.8
Undeveloped
99.3
25.3
138.5
147.7
169.2
44.4
245.1
254.5
$
4,848.3
$
5,554.6
Price measurement used
$93.67/bbl
$35.42/bbl
$6.36/MMBtu
2021
Developed
Producing
59.9
16.4
94.0
92.0
Non-producing
0.1
—
—
0.1
60.0
16.4
94.0
92.1
Undeveloped
103.1
23.6
131.2
148.6
163.1
40.0
225.2
240.7
$
3,057.2
$
3,418.7
Price measurement used
$66.57/bbl
$22.99/bbl
$3.60/MMBtu
2020
Developed
Producing
36.4
8.0
37.6
50.6
Non-producing
—
—
—
—
36.4
8.0
37.6
50.6
Undeveloped
62.1
7.6
36.1
75.8
98.5
15.6
73.7
126.4
$
650.3
$
657.5
Price measurement used
$39.54/bbl
$7.51/bbl
$1.99/MMBtu
_____________________________________________
PV-10 represents a non-GAAP measure that is most directly comparable to the Standardized Measure as defined in GAAP. The Standardized Measure represents the discounted future net cash flows from our
proved reserves after future income taxes discounted at 10% in accordance with SEC criteria. PV-10 represents the Standardized Measure without regard to income taxes of $706.3 million, $361.5 million and
$7.2 million for 2022, 2021 and 2020, respectively. We believe that PV-10 is a meaningful supplemental disclosure to the Standardized Measure as the PV-10 concept is widely used within the industry and
by the financial and investment community to evaluate the proved reserves on a comparable basis across companies without regard to the individual owner’s unique income tax position. We utilize PV-10 to
evaluate the potential return on investment in our oil and gas properties as well as evaluating properties for potential purchases and sales.
A discussion and analysis of the changes in our total proved reserves and price measurements used is provided in “Supplemental Information on Oil and Gas Producing
Activities (Unaudited)” included in Part II, Item 8, “Financial Statements and Supplementary Data.”
1
1
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Proved Undeveloped Reserves
The proved undeveloped reserves included in our reserve estimates relate to wells that are forecasted to be drilled within the next five years. The following table sets forth the
changes in our proved undeveloped reserves during the year ended December 31, 2022:
Crude Oil
NGLs
Natural Gas
Oil Equivalents
(MMbbl)
(MMbbl)
(Bcf)
(MMboe)
Proved undeveloped reserves at beginning of year
103.1
23.6
131.2
148.6
Revisions of previous estimates
(33.6)
(6.9)
(39.8)
(47.1)
Extensions and discoveries
43.6
12.1
66.4
66.7
Purchase of reserves
2.0
0.4
1.8
2.7
Conversion to proved developed reserves
(15.8)
(3.9)
(21.1)
(23.2)
Proved undeveloped reserves at end of year
99.3
25.3
138.5
147.7
In 2022, our proved undeveloped reserves decreased less than 1% primarily due to the conversion to proved developed reserves from the 2022 drilling program and negative
revisions which was offset by inventory optimization on existing acreage and acquisitions. The optimization on existing acreage resulted in an increase to extensions and
discoveries of 66.7 MMboe and the acquisitions increased reserves by 2.7 MMboe that was slightly offset by 34.3 MMboe of negative revisions due primarily to certain wells
that are now beyond our five-year drilling window schedule. In addition, our revision of previous estimates reflect: (i) unfavorable revisions of 3.7 MMboe attributable to
performance and pricing, (ii) unfavorable revisions of 9.1 MMboe attributable to changes in lateral lengths and type curves, and (iii) 23.2 MMboe transferred out of
undeveloped to proved developed due to the 2022 drilling program.
During 2022, we incurred capital expenditures of $398.3 million attributable to drilling and completing 51 gross (42.8 net) wells in connection with the conversion of proved
undeveloped reserves to proved developed reserves. Our conversion rates for quantities of proved undeveloped reserves were 16%, 16% and 12% in 2022, 2021 and 2020,
respectively. The conversion rate decline experienced in 2020 was adversely impacted by the temporary suspension of our drilling and completion program from April through
September of 2020 in response to the economic downturn associated with the global COVID-19 pandemic.
Preparation of Reserves Estimates and Internal Controls
The proved reserve estimates were prepared by DeGolyer and MacNaughton, Inc., our independent third party petroleum engineers. For additional information regarding
estimates of proved reserves and other information about our oil and gas reserves, see “Supplemental Information on Oil and Gas Producing Activities (Unaudited)” in our
notes to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” and the report of DeGolyer and MacNaughton, Inc.,
dated February 2, 2023, which is included as an Exhibit to this Annual Report on Form 10-K.
Our policies and practices regarding the recording of reserves are structured to objectively and accurately estimate our oil and gas reserve quantities and present values in
compliance with the SEC’s regulations and GAAP. Our Senior Vice President, Chief Operating Officer is primarily responsible for overseeing the preparation of the reserve
estimate by DeGolyer and MacNaughton, Inc. Our Senior Vice President, Chief Operating Officer has over 26 years of industry experience in the estimation and evaluation of
reserve information, holds a B.S. degree in Petroleum Engineering from the Colorado School of Mines and is registered by the States of Colorado and Wyoming as a Petroleum
Engineer. Our internal controls over reserve estimates include reconciliation and review controls, including an independent internal review of assumptions used in the
estimation. In addition to conducting these internal reviews and external reserves audits, we also have a Reserves Committee that consists of four members of our Board of
Directors. This committee provides additional oversight of our reserves estimation and certification process.
There are numerous uncertainties inherent in estimating quantities of reserves and in projecting future rates of production and timing of development expenditures, including
many factors beyond our control. For additional information about the risks inherent in our estimates of proved reserves, see Part I, Item 1A, “Risk Factors.”
Qualifications of Third Party Petroleum Engineers
The technical person primarily responsible for review of our reserve estimates at DeGolyer and MacNaughton, Inc. meets the requirements regarding qualifications,
independence, objectivity and confidentiality set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the
Society of Petroleum Engineers. DeGolyer and MacNaughton, Inc. is an independent firm of petroleum engineers, geologists, geophysicists and petrophysicists; they do not
own an interest in our properties and are not employed on a contingent fee basis.
43
Oil and Gas Production, Production Prices and Production Costs
Production Prices and Production Costs
The following table sets forth the average sales prices per unit of volume and our average production costs, not including ad valorem and production/severance taxes, per unit of
sales volume for the periods presented:
Year Ended December 31,
2022
2021
2020
Sales volume:
Crude oil (Mbbl)
10,668
7,711
6,829
NGLs (Mbbl)
2,205
1,326
1,165
Natural gas (MMcf)
12,100
6,712
5,360
Total (Mboe)
14,890
10,155
8,887
Average prices:
Crude oil ($/bbl)
$
94.04
$
67.09
$
36.86
NGLs ($/bbl)
$
30.59
$
25.23
$
7.68
Natural gas ($/Mcf)
$
5.86
$
3.89
$
1.88
Aggregate ($/boe)
$
76.67
$
56.80
$
30.47
Average production and lifting cost ($/boe):
Lease operating
$
5.76
$
4.47
$
4.22
Gathering processing and transportation
2.46
2.33
2.48
$
8.22
$
6.80
$
6.70
Drilling and Other Exploratory and Development Activities
The following table sets forth the gross and net development wells that we completed and turned in line (regardless of when drilling was initiated), all of which were in the
Eagle Ford in South Texas, during the years indicated and wells that were in progress at the end of each year. There were no exploratory wells drilled in any of the years
presented.
2022
2021
2020
Gross
Net
Gross
Net
Gross
Net
Development
Productive
59
49.9
46
40.4
23
20.6
Dry hole
—
—
—
—
—
—
Total
59
49.9
46
40.4
23
20.6
Wells in progress at end of year
15
13.6
12
10.4
7
6.3
_____________________________________________
Includes 6 gross (5.4 net) wells completing, 4 gross (3.9 net) wells waiting on completion and 5 gross (4.3 net) wells being drilled as of December 31, 2022.
1
1
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Present Activities
As of March 3, 2023, 5 gross (4.3 net) wells were completing and 11 gross (10.0 net) wells were in progress.
Delivery Commitments
We generally sell our crude oil, NGL and natural gas products using short-term floating price physical and spot market contracts. We have commitments to provide minimum
deliveries of crude oil of 8,000 gross barrels of oil per day through February 2031 under a gathering agreement and through February 2026 under a transportation agreement
with Ironwood Shiner Pipeline, LLC, and through April 2026 under a marketing agreement with Ironwood Shiner Marketing, LLC. Our production and reserves are currently
sufficient to fulfill the current 8,000 barrels of oil per day delivery commitment under these agreements. See Note 14 to our consolidated financial statements included in Part
II, Item 8, “Financial Statements and Supplementary Data” for additional information related to these commitments.
Productive Wells
The following table sets forth our productive wells in which we had a working interest as of December 31, 2022:
Oil Wells
Natural Gas Wells
Total
Gross
Net
Gross
Net
Gross
Net
Total productive wells
910
795.8
66
61.4
976
857.2
Of the total wells presented in the table above, we are the operator of 942 gross (877 oil and 65 natural gas) and 848.8 net (787.8 oil and 61.0 natural gas) wells. In addition to
the above working interest wells, we own overriding royalty interests in 35 gross wells.
Acreage
The following table sets forth our developed and undeveloped acreage as of December 31, 2022 (in thousands):
Developed
Undeveloped
Total
Gross
Net
Gross
Net
Gross
Net
Total acreage
124.5
106.9
64.4
55.2
188.9
162.1
The primary terms of our leases generally range from three to five years, and we do not have any concessions. As of December 31, 2022, our net undeveloped acreage is
scheduled to expire as shown in the table below, unless the primary lease terms are, where appropriate, extended, HBP or otherwise changed (in thousands):
2023
2024
2025
Thereafter
Expirations by year
2.9
2.4
2.0
—
We anticipate paying options to extend a substantial portion of the acreage scheduled to expire in 2023. We do not believe that the remaining scheduled expirations of our
undeveloped acreage will substantially affect our ability or plans to conduct our exploration and development activities.
Item 3. Legal Proceedings
See Note 14 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data.” We are not aware of any material legal or
governmental proceedings against us, or threatened to be brought against us, under the various environmental protection statutes to which we are subject.
Item 4. Mine Safety Disclosures
Not applicable.
45
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
From December 28, 2016 through October 18, 2021, our common stock was listed and traded on the Nasdaq under the symbol “PVAC.” In October 2021, we changed our
name from Penn Virginia Corporation to Ranger Oil Corporation and our Class A Common Stock began trading under the symbol “ROCC” on October 18, 2021.
Equity Holders
As of March 3, 2023, there were 239 record holders of our Class A Common Stock and two record holders of our Class B Common Stock. There is no public market for our
Class B Common Stock.
Dividends
In the third and fourth quarter of 2022, cash dividends of $0.075 per outstanding share were paid to the holders of our Class A Common Stock and a corresponding distribution
was made to holders of Partnership Common Units. We funded all such dividends and corresponding distributions with available working capital and cash provided by
operating activities. On March 3, 2023, the Company’s Board of Directors declared a cash dividend of $0.075 per share of Class A Common Stock, payable on March 30, 2023
to holders of record of Class A Common Stock as of the close of business on March 17, 2023. We intend to continue paying dividends on our Class A Common Stock;
however, the declaration of any future cash dividends and, if declared, the amount of any such dividends, will be subject to our financial condition, earnings, capital
requirements, financial covenants, applicable law and other factors our board of directors deems relevant. Further, there are restrictions on our ability to pay dividends set forth
under the Credit Facility and the Indenture.
Securities Authorized for Issuance Under Equity Compensation Plans
See Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” and Note 16 to our consolidated financial
statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for information regarding shares of common stock authorized for issuance under our
stock compensation plans.
Issuer Purchases of Equity Securities
The following table summarizes our repurchase of equity securities during the fourth quarter of 2022:
Period
Total Number of Shares
Repurchased
Average Price
Paid Per Unit
Total Number of Shares Purchased
as Part of Publicly Announced
Plans or Programs
Approximate Dollar Value of Shares
That May Yet be Purchased Under the
Publicly Announced Plans or Programs
October 1, 2022 - October 31, 2022
316,917
$
37.54
316,917 $
68,069,313
November 1, 2022 - November 30, 2022
74,733 $
41.64
74,733 $
64,957,122
December 1, 2022 - December 31, 2022
3,000 $
38.48
3,000 $
64,841,686
Total
394,650 $
38.32
394,650 $
64,841,686
_______________________
On April 13, 2022, our Board of Directors approved a share repurchase program, under which the Company was authorized to repurchase up to $100 million of its outstanding Class A Common Stock through
March 31, 2023. On July 7, 2022, the Board of Directors authorized an increase in the share repurchase program from $100 million to $140 million and extended the term of the program through June 30,
2023. The shares may be repurchased from time to time in open market transactions, through privately negotiated transactions, or by other means in accordance with federal securities laws. The timing, as well
as the number and value of shares repurchased under the program, will be determined by the Company at its discretion and will depend on a variety of factors, including among other things, our earnings,
liquidity, capital requirements, financial condition, management’s assessment of the intrinsic value of the Class A Common Stock, the market price of the Company's Class A Common Stock, general market
and economic conditions, available liquidity, compliance with the Company’s debt and other agreements, applicable legal requirements and other factors deemed relevant and may be discontinued at any time.
We do not intend to repurchase additional shares pending closing of the Baytex Merger.
1
1
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Performance Graph
The following graph compares our cumulative total shareholder return with the cumulative total return of the Standard & Poor’s 600 Oil & Gas Exploration and Production
Index and the Standard & Poor’s SmallCap 600 Index for the period from December 31, 2017 through December 31, 2022. The graph assumes that the value of the investment
in our common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on December 31, 2017 and tracks it through December 31, 2022.
*$100 invested on 12/31/17 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
Copyright© 2023 Standard & Poor's, a division of S&P Global. All rights reserved.
Item 6. [Reserved]
47
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and notes
thereto included in Part II, Item 8, “Financial Statements and Supplementary Data.” All dollar amounts presented in the tables that follow are in thousands unless otherwise
indicated. Also, due to the combination of different units of volumetric measure, the number of decimal places presented and rounding, certain results may not calculate
explicitly from the values presented in the tables.
This section of the Form 10-K discusses the results of operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. On October 5, 2021,
the Company acquired Lonestar Resources US Inc., a Delaware corporation (“Lonestar”), as a result of which Lonestar and its subsidiaries became wholly-owned subsidiaries
of the Company (the “Lonestar Acquisition”). Results for the periods prior to October 5, 2021 reflect the financial and operating results of Ranger Oil and do not include the
financial and operating results of Lonestar. As such, our historical results of operations are not comparable from period to period. The results of operations for the year ended
December 31, 2021 compared to the year ended December 31, 2020 that are not included in this Form 10-K are included in “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Overview and Executive Summary
We are an independent oil and gas company focused on the onshore development and production of crude oil, NGLs, and natural gas. Our current operations consist of drilling
unconventional horizontal development wells and operating our producing wells in the Eagle Ford Shale in South Texas.
Key Developments
Proposed Merger with Baytex
On February 27, 2023, we entered into the Merger Agreement for the Baytex Merger. Subject to the terms and conditions of the Merger Agreement, each share of our Class A
Common Stock issued and outstanding immediately prior to the effective time of the Baytex Merger (including shares of our Class A Common Stock to be issued in connection
with the exchange of the Class B Common Stock and Common Units for Class A Common Stock), will be converted automatically into the right to receive: (i) 7.49 Baytex
common shares and (ii) $13.31 in cash. The transaction was unanimously approved by the board of directors of each company and JSTX and Rocky Creek delivered a support
agreement to vote their outstanding shares in favor of the Baytex Merger. The Baytex Merger is expected to close late in the second quarter of 2023, subject to the satisfaction of
customary closing conditions, including the requisite shareholder and regulatory approvals.
Share Repurchase Program
On April 13, 2022, our Board of Directors approved a share repurchase program, under which the Company was authorized to repurchase up to $100 million of its outstanding
Class A Common Stock through March 31, 2023. On July 7, 2022, the Board of Directors authorized an increase in the share repurchase program from $100 million to $140
million and extended the term of the program through June 30, 2023. We do not intend to repurchase additional shares pending closing of the Baytex Merger.
During the year ended December 31, 2022, we repurchased 2,150,486 shares of our Class A Common Stock at a total cost of $75.2 million at an average purchase price of
$34.95. Subsequent to December 31, 2022 through March 3, 2023, we repurchased an additional 121,857 shares of our Class A Common Stock at an average price of $39.52
for a total cost of $4.8 million.
See Note 15 to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information.
Dividends
On July 7, 2022 and November 2, 2022, the Company’s Board of Directors declared cash dividends of $0.075 per share of Class A Common Stock. The dividends were paid on
August 4, 2022 and November 28, 2022 to holders of record of Class A Common Stock as of the close of business on July 25, 2022 and November 16, 2022, respectively.
Additionally, on March 3, 2023, the Company’s Board of Directors declared a cash dividend of $0.075 per share of Class A Common Stock payable on March 30, 2023 to
holders of record of Class A Common Stock as of the close of business on March 17, 2023.
48
Recent Acquisitions
During 2022, we closed on several acquisitions of oil and gas producing properties in the Eagle Ford Shale, comprised of additional working interests in Ranger-operated wells
and adjacent producing assets and undeveloped acreage for aggregate cash consideration totaling $137.5 million, including customary post-closing adjustments.
See Note 4 to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information on our acquisitions.
Increased Borrowing Base of Credit Facility
During 2022, the aggregate elected commitment amounts under the Credit Facility increased from $400 million to $500 million and our borrowing base increased to $950
million.
See Note 9 to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information on our debt.
Industry Environment and Recent Operating and Financial Highlights
Commodity Price and Other Economic Conditions
As an oil and gas development and production company, we are exposed to a number of risks and uncertainties that are inherent to our industry.
There continues to be a high level of uncertainty around the volatility of energy supply and demand. OPEC+ has recently changed its strategy from one which has seen
gradually increasing production throughout 2021 and most of 2022 to one of drastically cutting production. In October 2022, OPEC+ announced its intent to decrease output
targets by 2 Mbbls per day in November 2022, after increasing output target by 100,000 bbls per day in September 2022 and following the raising of output by 648,000 bbls per
day in July and August 2022. Additionally, certain OPEC+ members are pumping below their targeted volumes under the current agreement. At the February 2023 meeting,
OPEC+ reaffirmed the output targets agreed to in October 2022 and noted that would remain the policy moving forward in 2023. These shifts in OPEC+ production levels as
well as the Russia-Ukraine war and related sanctions, which began in the first quarter of 2022, and continuing impact of the COVID-19 global public health crisis continue to
contribute to volatility in commodity prices. During 2022, NYMEX West Texas Intermediate (“NYMEX WTI”) crude oil and NYMEX Henry Hub (“NYMEX HH”) natural
gas prices ranged from highs of approximately $123 per bbl and over $9 per Mcf, respectively, to lows of approximately $71 per bbl and under $4 per Mcf, respectively, due to
oil supply shortage concerns and factors discussed above. Higher commodity prices, along with the global supply chain issues and other factors, have increased inflation, which
has led or may lead to increased costs of services and certain materials necessary for our operations. Governmental actions to combat inflation, including the Inflation
Reduction Act passed into law in August 2022 as well as interest rate hikes by the Federal Reserve and increased recession fears also continue to create pricing and economic
volatility in the markets. The ultimate effect of these measures on inflation and overall energy supply and demand is uncertain at this time.
Our crude oil production is sold at a premium or deduct differential to the prevailing NYMEX WTI price. The differential reflects adjustments for location, quality and
transportation and gathering costs, as applicable. All of our crude oil volumes are sold under Magellan East Houston (“MEH”) pricing, which historically has been at a premium
to NYMEX WTI.
Similar to crude prices, natural gas prices remain volatile as a result of the Russia-Ukraine war and other factors discussed above, with NYMEX HH closing as low as $3.45 per
Mcf and as high as $9.85 per Mcf during 2022. Subsequently, natural gas prices declined even further during 2023 with NYMEX HH closing as low as $2.08 per Mcf. Natural
gas prices vary by region and locality, depending upon the distance to markets, availability of pipeline capacity, and supply and demand relationships in that region or locality.
Similar to crude oil, our natural gas sold has a premium or deduct differential to the prevailing NYMEX HH price primarily due to adjustments for location and energy content
of the natural gas. Location differentials result from variances in natural gas transportation costs based on the proximity of the natural gas to its major consuming markets that
correspond with the ultimate delivery point as well as individual interaction of supply and demand.
A summary of these pricing differentials is provided in the discussion of “Results of Operations – Realized Differentials” that follows.
In addition to the volatility of commodity prices, we are subject to inflationary and other factors that have resulted in higher costs for products, materials and services that we
utilize in both our capital projects and with respect to our operating expenses. We continue to work with vendors and other service providers to secure competitive pricing and
fixed pricing terms whenever favorable in an effort to resist inflationary pressures. However, supply chain constraints may continue and exacerbate inflationary demands in the
future.
49
Capital Expenditures, Development Progress and Production
As of December 31, 2022, we operated three drilling rigs and during the year ended December 31, 2022, we incurred capital expenditures of approximately $524.6 million, of
which $513.9 million was directed to drilling and completion projects. During the fourth quarter 2022, a total of 16 gross (14.6 net) wells were completed and turned to sales.
As of March 3, 2023, we turned an additional 12 gross (11.1 net) wells to sales and 5 gross (4.3 net) wells were completing and 11 gross (10.0 net) wells were in progress.
As of March 3, 2023, we had approximately 187,700 gross (163,800 net) acres in the Eagle Ford Shale, net of expirations, of which approximately 95% is held by production.
Total sales volume for the fourth quarter 2022 was 4,069 Mboe, or 44,227 boe/d, with approximately 72%, or 2,916 Mbbls, of sales volume from crude oil, 15% from NGLs and
13% from natural gas.
Commodity Hedging Program
As of March 3, 2023, we have hedged a portion of our estimated future crude oil, NGL and natural gas production through the second quarter of 2024. The following table,
inclusive of January and February 2023 production months, summarizes our net hedge position for the periods presented:
1Q2023
2Q2023
3Q2023
4Q2023
1Q2024
2Q2024
NYMEX WTI Crude Swaps
Average Volume Per Day (bbl)
2,500
2,400
2,807
2,657
462
462
Weighted Average Swap Price ($/bbl)
$
54.40
$
54.26
$
54.92
$
54.93
$
58.75
$
58.75
NYMEX WTI Crude Collars
Average Volume Per Day (bbl)
24,306
19,918
16,304
8,967
Weighted Average Purchased Put Price ($/bbl)
$
68.74
$
67.45
$
72.50
$
72.27
Weighted Average Sold Call Price ($/bbl)
$
83.87
$
78.70
$
88.35
$
87.57
MEH WTI CMA Crude Differential Swaps
Average Volume Per Day (bbl)
7,778
13,187
Weighted Average Swap Price ($/bbl)
$
2.03
$
2.03
NYMEX HH Swaps
Average Volume Per Day (MMBtu)
10,000
7,500
Weighted Average Swap Price ($/MMBtu)
$
3.620
$
3.690
NYMEX HH Collars
Average Volume Per Day (MMBtu)
14,617
11,538
11,413
11,413
11,538
11,538
Weighted Average Purchased Put Price ($/MMBtu)
$
6.561
$
2.500
$
2.500
$
2.500
$
2.500
$
2.328
Weighted Average Sold Call Price ($/MMBtu)
$
12.334
$
2.682
$
2.682
$
2.682
$
3.650
$
3.000
HSC Basis Swaps
Average Volume Per Day (MMBtu)
24,617
19,038
11,413
11,413
HSC Basis Average Fixed Price ($/MMBtu)
$
(0.153)
$
(0.153)
$
(0.153)
$
(0.153)
OPIS Mt. Belvieu Ethane Swaps
Average Volume per Day (gal)
98,901
34,239
34,239
34,615
Weighted Average Fixed Price ($/gal)
$
0.2288
$
0.2275
$
0.2275
$
0.2275
50
Results of Operations
The following table sets forth certain historical summary operating and financial statistics for the periods presented:
Three Months Ended
Year Ended December 31,
December 31, 2022
September 30, 2022
December 31, 2021
2022
2021
Total sales volume (Mboe)
4,069
3,921
3,702
14,890
10,155
Average daily sales volume (boe/d)
44,227
42,624
40,236
40,793
27,822
Crude oil sales volume (Mbbl)
2,916
2,822
2,532
10,668
7,711
Crude oil sold as a percent of total
72 %
72 %
68 %
72 %
76 %
Product revenues
$
268,455
$
304,105
$
224,594
$
1,141,603
$
576,824
Crude oil revenues
$
240,397
$
262,537
$
191,079
$
1,003,255
$
517,301
Crude oil revenues as a percent of total
90 %
86 %
85 %
88 %
90 %
Realized prices:
Crude oil ($/bbl)
$
82.46
$
93.03
$
75.48
$
94.04
$
67.09
NGLs ($/bbl)
$
21.75
$
31.97
$
29.91
$
30.59
$
25.23
Natural gas ($/Mcf)
$
4.53
$
7.41
$
4.54
$
5.86
$
3.89
Aggregate ($/boe)
$
65.98
$
77.55
$
60.67
$
76.67
$
56.80
Realized prices, including effects of derivatives, net
Crude oil ($/bbl)
$
76.43
$
83.14
$
64.50
$
79.53
$
56.15
NGLs ($/bbl)
$
21.17
$
30.67
$
29.91
$
29.70
$
24.86
Natural gas ($/Mcf)
$
2.76
$
4.26
$
2.99
$
3.74
$
3.01
Aggregate ($/boe)
$
60.15
$
67.76
$
51.77
$
64.42
$
47.87
Production and lifting costs:
Lease operating ($/boe)
$
6.06
$
6.15
$
4.38
$
5.76
$
4.47
Gathering, processing and transportation ($/boe)
$
2.27
$
2.50
$
2.19
$
2.46
$
2.33
Production and ad valorem taxes ($/boe)
$
3.63
$
4.26
$
3.05
$
4.12
$
3.06
General and administrative ($/boe)
$
2.64
$
2.51
$
9.57
$
2.75
$
6.55
Depreciation, depletion and amortization ($/boe)
$
17.96
$
16.88
$
12.97
$
16.42
$
12.96
_____________________________________________
All volumetric statistics presented above represent volumes of commodity production that were sold during the periods presented. Volumes of crude oil physically produced in excess of volumes sold are
placed in temporary storage to be sold in subsequent periods.
Realized prices, including effects of derivatives, net is a non-GAAP measure (see discussion and reconciliation to GAAP measure below in “ Results of Operations – Effects of Derivatives ” that follows).
Includes combined amounts of $0.07, $0.48, and $7.57 per boe for the three months ended December 31, 2022, September 30, 2022, and December 31, 2021, respectively, and $0.49 and $3.92 per boe for the
years ended December 31, 2022 and 2021, respectively, attributable to share-based compensation and certain special charges, comprised of organizational restructuring, including severance and acquisition,
integration and strategic transaction costs, including costs attributable to the Lonestar Acquisition during those periods, the Juniper Transactions during the year ended 2021 as well as costs attributable to our
2022 acquisitions in the 2022 periods as described in the discussion of “Results of Operations – General and Administrative” that follows.
1
1
1
1
2
3
1
2
3
51
Sequential Quarterly Analysis
The following summarizes our key operating and financial highlights for the three months ended December 31, 2022 with comparison to the three months ended September 30,
2022. The year-over-year highlights for 2022 and 2021 are addressed in the discussions that follow below in Year over Year Analysis of Operating and Financial Results.
•
Daily sales volume and total sales volume increased approximately 4% to 44,227 boe/d and 4,069 Mboe, respectively, for the three months ended December 31, 2022
compared to 42,624 boe/d and 3,921 Mboe for the three months ended September 30, 2022. The increase was primarily due to 14.6 net wells turned to sales during the
fourth quarter of 2022.
•
Product revenues decreased 12% to $268.5 million from $304.1 million as a result of 15% lower aggregate realized prices, partially offset by 4% higher total sales
volumes. Crude oil revenues were 8% lower due primarily to 11% lower crude oil prices, or $30.8 million, partially offset by 3% higher volume, or $8.7 million. NGL
revenues decreased 29% due to 32% lower prices, or $6.2 million, partially offset by 4% higher volume, or $0.8 million. Natural gas revenues decreased 35% due to 39%
lower prices, or $9.4 million, partially offset by 6% higher volume, or $1.3 million.
•
Lease operating expenses (“LOE”) increased slightly on an absolute basis to $24.7 million from $24.1 million primarily driven by $1.3 million of increased water
disposal costs, partially offset by $0.8 million associated with less workover activity. LOE decreased on a per unit basis to $6.06 from $6.15 due to the effects of the 4%
higher sales volume discussed above.
•
Gathering, processing and transportation expenses (“GPT”) decreased on an absolute and per unit basis to $9.2 million and $2.27 per boe, respectively, from $9.8 million
and $2.50 per boe, respectively, due to lower GPT costs from lower prices for crude oil and natural gas. For certain of our crude oil volumes gathered, our rate includes
an adjustment based on NYMEX WTI prices. As crude oil prices increase, up to a cap of $90 per bbl, the gathering rate escalates. As such, with the lower prices during
the three months ended December 31, 2022 compared to the three months ended September 30, 2022, we incurred lower gathering costs associated with these volumes
which caused a corresponding decrease on a per unit basis.
•
Production and ad valorem taxes decreased on an absolute basis to $14.8 million from $16.7 million and decreased on a per unit basis to $3.63 per boe from $4.26 per
boe, respectively, due primarily to lower product revenues driven by lower aggregated realized prices, despite higher volumes.
•
General and administrative expenses (“G&A”) increased on an absolute and per unit basis to $10.7 million and $2.64 per boe from $9.8 million and $2.51 per boe,
respectively, due primarily to $1.2 million increase in compensation costs and $0.3 million increase in information technology costs, partially offset by $0.4 million in
lower insurance costs and $0.2 million lower consulting and professional fees.
•
Depreciation, depletion and amortization (“DD&A”) increased on an absolute and per unit basis to $73.1 million and $17.96 per boe during the fourth quarter 2022 from
$66.2 million and $16.88 per boe due during the third quarter 2022 primarily due to increased future development costs associated with proved reserve additions that
were at a higher relative cost per boe as compared to third quarter 2022.
52
Year over Year Analysis of Operating and Financial Results
Sales Volume
The following tables set forth a summary of our total and average daily sales volumes by product for the periods presented:
Year Ended December 31,
Total Sales Volume
2022
2021
Change
% Change
Crude oil (Mbbl)
10,668
7,711
2,957
38 %
NGLs (Mbbl)
2,205
1,326
879
66 %
Natural gas (MMcf)
12,100
6,712
5,388
80 %
Total (Mboe)
14,890
10,155
4,735
47 %
Year Ended December 31,
Average Daily Sales Volume
2022
2021
Change
% Change
Crude oil (bbl/d)
29,227
21,125
8,102
38 %
NGLs (bbl/d)
6,041
3,632
2,409
66 %
Natural gas (MMcf/d)
33
18
15
83 %
Total (boe/d)
40,793
27,822
12,971
47 %
_____________________________________________
All volumetric statistics represent volumes of commodity production that were actually sold during the periods presented. Volumes of crude oil physically produced in excess of volumes sold are placed in
temporary storage to be sold in subsequent periods.
2022 vs. 2021. Total sales volume increased 47% during 2022 compared to 2021 primarily driven by the Lonestar Acquisition that closed in October 2021 as well as the other
asset acquisitions that closed in 2022 and increased drilling activity.
During 2022, total crude oil sales volume was approximately 72% of total sales volume compared to approximately 76% during 2021. The decrease in crude oil composition of
total sales volume during 2022 is due primarily to higher gas content of the wells acquired in the Lonestar Acquisition in 2021.
Product Revenues and Prices
The following tables set forth a summary of our revenues and prices per unit of volume by product for the periods presented:
Year Ended December 31,
Total Product Revenues
2022
2021
Change
% Change
Crude oil
$
1,003,255
$
517,301
$
485,954
94 %
NGLs
67,453
33,443
34,010
102 %
Natural gas
70,895
26,080
44,815
172 %
Total
$
1,141,603
$
576,824
$
564,779
98 %
Year Ended December 31,
Realized Prices ($ per unit of volume)
2022
2021
Change
% Change
Crude oil
$
94.04
$
67.09
$
26.95
40 %
NGLs
$
30.59
$
25.23
$
5.36
21 %
Natural gas
$
5.86
$
3.89
$
1.97
51 %
Total
$
76.67
$
56.80
$
19.87
35 %
1
1
1
53
The following table provides an analysis of the changes in our revenues for the periods presented:
Year Ended December 31, 2022 vs.
Year Ended December 31, 2021
Revenue Variance Due to
Volume
Price
Total
Crude oil
$
198,394
$
287,560
$
485,954
NGLs
22,188
11,822
34,010
Natural gas
20,935
23,880
44,815
$
241,517
$
323,262
$
564,779
2022 vs. 2021. Our product revenues increased during 2022 compared to 2021 due primarily to significantly higher prices stemming from macroeconomic factors and volatility
in the global commodity markets as a result of continued economic recovery, as well as supply concerns resulting from the Russia-Ukraine war. These factors resulted in an
increase to the NYMEX WTI benchmark price of 38% for 2022 as compared to 2021. Also contributing to the higher product revenues was an increase in volumes across
commodities as discussed above, with overall increase in Mboe of 47% for 2022. Total crude oil revenues were approximately 88% and 90% of our total product revenues
during 2022 and 2021, respectively.
Realized Differentials
The following table reconciles our realized price differentials from average NYMEX-quoted prices for WTI crude oil and HH natural gas for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
Average WTI prices ($/bbl)
$
94.33
$
68.11 $
26.22
38 %
Realized differential to WTI
(0.29)
(1.02)
0.73
72 %
Realized crude oil prices ($/bbl)
$
94.04
$
67.09
$
26.95
40 %
Average HH prices ($/MMBtu)
$
6.38
$
3.82
$
2.56
67 %
Realized differential to HH
(0.52)
0.07
(0.59)
(843) %
Realized natural gas prices ($/Mcf)
$
5.86
$
3.89
$
1.97
51 %
Our differential to NYMEX WTI for 2022 improved by 72% compared to 2021 due to more favorable NYMEX Calendar Month Average contractual pricing and more
favorable pricing negotiated with certain crude purchasers effective early in first quarter 2022. Our differential to NYMEX HH was negatively impacted for 2022 as compared to
2021 due to more unfavorable location basis differentials. See also the discussion of Commodity Price and Other Economic Conditions in the Overview above.
54
Effects of Derivatives
We present realized prices for crude oil, NGLs and natural gas, as adjusted for the effects of derivatives, net as we believe these measures are useful to management and
stakeholders in determining the effectiveness of our price-risk management program that is designed to reduce the volatility associated with our operations. Realized prices for
crude oil, NGLs and natural gas, as adjusted for the effects of derivatives, net, are supplemental financial measures that are not prepared in accordance with GAAP.
The following table presents the calculation of our non-GAAP realized prices for crude oil, NGLs and natural gas, as adjusted for the effect of derivatives, net and reconciles to
realized prices for crude oil, NGLs and natural gas determined in accordance with GAAP:
Year Ended December 31,
2022
2021
Change
% Change
Realized crude oil prices ($/bbl)
$
94.04
$
67.09
$
26.95
40 %
Effects of derivatives, net ($/bbl)
(14.51)
(10.94)
(3.57)
(33)%
Crude oil realized prices, including effects of derivatives, net ($/bbl)
$
79.53
$
56.15
$
23.38
42 %
Realized NGL prices ($/bbl)
$
30.59
$
25.23
$
5.36
21 %
Effects of derivatives, net ($/bbl)
(0.89)
(0.37)
(0.52)
(141)%
NGL realized prices, including effects of derivatives, net ($/bbl)
$
29.70
$
24.86
$
4.84
19 %
Realized natural gas prices ($/Mcf)
$
5.86
$
3.89
$
1.97
51 %
Effects of derivatives, net ($/Mcf)
(2.12)
(0.88)
(1.24)
(141)%
Natural gas realized prices, including effects of derivatives, net ($/Mcf)
$
3.74
$
3.01
$
0.73
24 %
Effects of derivatives, net include, as applicable to the period presented: (i) current period commodity derivative settlements; (ii) the impact of option premiums paid or received
in prior periods related to current period production; (iii) the impact of prior period cash settlements of early-terminated derivatives originally designated to settle against
current period production; (iv) the exclusion of option premiums paid or received in current period related to future period production; and (v) the exclusion of the impact of
current period cash settlements for early-terminated derivatives originally designated to settle against future period production.
Other Operating Income, Net
Other operating income, net, includes fees for marketing and water disposal services that we charge to third parties, net of related expenses, as well as other miscellaneous
revenues and credits attributable to our current operations and gains and losses on the sale or disposition of assets other than our oil and gas properties. In addition, charges
attributable to credit losses associated with our trade and joint venture partner receivables are netted within this caption.
The following table sets forth the total Other operating income, net recognized for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
Other operating income, net
$
3,586
$
2,667
$
919
34 %
2022 vs. 2021. Our marketing fee income increased in 2022 as compared to 2021 due primarily to higher commodity-based pricing, higher water disposal fees in 2022 due to
higher sales volumes, gains on sales of field materials and fixed assets in 2022, partially offset by higher credit losses in 2022 and miscellaneous income recognized in 2021.
55
Lease Operating Expenses
LOE include costs that we incur to operate our producing wells and field operations. The most significant costs include compression for gas lift, chemicals, water disposal,
repairs and maintenance, including down-hole repairs, field labor, equipment rentals, utilities and supplies, among others.
The following table sets forth our LOE for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
Lease operating
$
85,792
$
45,402
$
40,390
89 %
Per unit ($/boe)
$
5.76
$
4.47
$
1.29
29 %
2022 vs. 2021. LOE increased on an absolute basis and per unit basis during 2022 when compared to 2021 due primarily to the Lonestar Acquisition and the other asset
acquisitions that closed in 2022, increased workover activity and higher fuel, service and equipment costs driven by higher sales volume coupled with inflationary pressures
throughout 2022.
Gathering, Processing and Transportation
GPT expense includes costs that we incur to gather and aggregate our crude oil and natural gas production from our wells and deliver them via pipeline or truck to a central
delivery point, downstream pipelines or processing plants, and blend or process, as necessary, depending upon the type of production and the specific contractual arrangements
that we have with the applicable midstream operators. In addition, GPT expense includes short-term rental charges for crude oil storage tanks.
The following table sets forth our GPT expense for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
GPT
$
36,698
$
23,647
$
13,051
55 %
Per unit ($/boe)
$
2.46
$
2.33
$
0.13
6 %
2022 vs. 2021. GPT expense increased on an absolute basis during 2022 as compared to 2021 due primarily to the Lonestar Acquisition and the other asset acquisitions that
closed in 2022, which contributed to 80% higher natural gas sales volumes and 38% higher crude oil sales volumes for 2022. Additionally, for certain of our crude oil volumes
gathered, our rate includes an adjustment based on NYMEX WTI prices. As crude oil prices increase, up to a cap of $90 per bbl, the gathering rate escalates. As such, with the
higher prices during 2022 as compared to 2021, we incurred higher gathering costs associated with these volumes which caused a corresponding increase on a per unit basis.
These unfavorable variances were partially offset by the effects of an increase in the mix of crude oil volume sold at the wellhead, including the majority of crude oil volumes
from the acquired Lonestar wells, which reduces transportation costs and cost per unit.
Production and Ad Valorem Taxes
Production or severance taxes represent taxes imposed by the states in which we operate for the removal of resources including crude oil, NGLs and natural gas. Ad valorem
taxes represent taxes imposed by certain jurisdictions, primarily counties, in which we operate, based on the assessed value of our operating properties. The assessments for ad
valorem taxes are generally based on published index prices.
The following table sets forth our production and ad valorem taxes for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
Production/severance taxes
$
52,737
$
27,246
$
25,491
94 %
Ad valorem taxes
8,640
3,795
4,845
128 %
Production/severance and ad valorem taxes
$
61,377
$
31,041
$
30,336
98 %
Per unit ($/boe)
$
4.12
$
3.06
$
1.06
35 %
Production/severance tax rate as a percent of product revenues
4.6 %
4.7 %
(0.1)%
(2) %
2022 vs. 2021. Production and ad valorem taxes increased on an absolute basis and per unit basis during 2022 when compared to 2021 due primarily to the impact of higher
volumes from the Lonestar Acquisition and other asset acquisitions that closed in 2022. Additionally, production taxes increased on an absolute and per unit basis due to higher
aggregate commodity sales prices during 2022. Our accruals for ad valorem taxes are based on our most recent estimates for assessments which increased from the lower
property values in 2021.
56
General and Administrative
Our G&A expenses include employee compensation, benefits and other related costs for our corporate management and governance functions, rent and occupancy costs for our
corporate facilities, insurance, and professional fees and consulting costs supporting various corporate-level functions, among others. In order to facilitate a meaningful
discussion and analysis of our results of operations with respect to G&A expenses, we have disaggregated certain costs into three components as presented in the table below.
Primary G&A encompasses all G&A costs except share-based compensation and certain special charges that are generally attributable to stand-alone transactions or corporate
actions that are not otherwise in the normal course.
The following table sets forth the components of G&A expenses for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
Primary G&A expenses
$
33,661
$
26,753
$
6,908
26 %
Share-based compensation
5,554
15,589
(10,035)
(64) %
Special charges:
Organizational restructuring, including severance
(1,152)
367
(1,519)
(414) %
Acquisition/integration and strategic transaction costs
2,909
23,820
(20,911)
(88) %
Total G&A expenses
$
40,972
$
66,529
$
(25,557)
(38) %
Per unit ($/boe)
$
2.75
$
6.55
$
(3.80)
(58) %
Per unit ($/boe) excluding share-based compensation and other special charges identified
above
$
2.26
$
2.63
$
(0.37)
(14) %
_____________________________________________
Share-based compensation for the year ended December 31, 2021 included $10.4 million related to the Lonestar Acquisition. See Note 4 and Note 16 to the consolidated financial statements included in Part
II, Item 8, “Financial Statements and Supplementary Data” for further details.
Organizational restructuring, including severance for the year ended December 31, 2022, resulted in a benefit for the period as it relates to an accrual acquired in connection with the Lonestar Acquisition.
2022 vs. 2021. Our primary G&A expenses increased on an absolute basis during 2022 compared to 2021. The increase for 2022 compared to 2021 is due primarily to increased
headcount following the Lonestar Acquisition and the impact of bonuses and salary increases in 2022. Primary G&A expenses decreased on a per unit basis due to higher overall
sales volumes in 2022.
Our total G&A expenses were lower on an absolute and per unit basis during 2022 compared to 2021 due to lower acquisition and integration related costs associated with the
Juniper Transactions and the Lonestar Acquisition and lower share-based compensation costs as discussed below, partially offset by the aforementioned increased headcount
and salaries.
Share-based compensation charges during the periods presented are attributable to the amortization of compensation cost, net of forfeitures, associated with the grants of time-
vested restricted stock units (“RSUs”), and performance-based restricted stock units (“PRSUs”). The grants of RSUs and PRSUs are described in greater detail in Note 16 to the
consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data”. As a result of the Juniper Transactions, substantially all of the
RSUs granted before 2019 vested and an incremental charge of approximately $1.9 million was recorded during the first quarter 2021. Additionally, as a result of the Lonestar
Acquisition, certain RSUs of Lonestar employees and directors vested at closing and $10.4 million was recorded as share-based compensation related to these vestings in the
fourth quarter 2021 (see table above). All of our share-based compensation represents non-cash expenses.
Depreciation, Depletion and Amortization (DD&A)
DD&A expense includes charges for the allocation of property costs based on the volume of production, depreciation of fixed assets other than oil and gas assets as well as the
accretion of our ARO liabilities.
The following table sets forth total and per unit costs for DD&A expense for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
DD&A expense
$
244,455
$
131,657
$
112,798
86 %
DD&A rate ($/boe)
$
16.42
$
12.96
$
3.46
27 %
2022 vs. 2021. DD&A expense increased on an absolute and a per unit basis during 2022 when compared to 2021. Higher production volume provided for an increase of
$61.4 million while higher DD&A rates in 2022 provided for an increase of $51.5 million. The higher DD&A rate in 2022 was primarily due to the Lonestar Acquisition and
other asset acquisitions that closed in 2022, which contributed to an increase in our total proved reserves at a higher relative cost per boe coupled with increased future
development costs associated with proved reserve additions as compared to 2021.
1
2
1
2
57
Impairment of Oil and Gas Properties
We assess our oil and gas properties on a quarterly basis based on the results of a Ceiling Test in accordance with the full cost method of accounting for oil and gas properties.
Year Ended December 31,
2022
2021
Change
% Change
Impairments of oil and gas properties
$
—
$
1,811
$
(1,811)
(100)%
2022 vs. 2021. We did not record an impairment of our oil and gas properties during 2022 compared to an impairment of $1.8 million recorded in the first quarter 2021. The
impairment in 2021 was the result of the decline in the twelve-month average prices of crude oil, NGLs and natural gas as indicated by the respective quarterly Ceiling Test
under the full cost method of accounting for oil and gas properties. See Note 7 to the consolidated financial statements included in Part II, Item 8, “Financial Statements and
Supplementary Data” for more discussion.
Interest Expense
Interest expense for 2022 includes charges for outstanding borrowings under the Credit Facility derived from internationally recognized interest rates with a premium based on
our credit profile and the level of credit outstanding and the contractual rate associated with the 9.25% Senior Notes due 2026. Also included are the amortization of issuance
costs capitalized attributable to the Credit Facility and the 9.25% Senior Notes due 2026 and accretion of original issue discount (“OID”) on the 9.25% Senior Notes due 2026.
Interest expense for the periods in 2021 includes charges for outstanding borrowings under the Credit Facility and the Second Lien Credit Agreement, dated September 29, 2017
(the “Second Lien Term Loan”) which was repaid in full in October 2021, as well as amortization of their respective issuance costs capitalized. Also included is the accretion of
OID on the Second Lien Term Loan.
In addition, we are assessed certain fees for the overall credit commitments provided to us as well as fees for credit utilization and letters of credit. These costs are partially
offset by interest amounts that we capitalize on unproved property costs while we are engaged in the evaluation of projects for the underlying acreage.
The following table summarizes the components of our interest expense for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
Interest on borrowings and related fees
$
49,729
34,029
$
15,700
46 %
Amortization of debt issuance costs
2,861
2,248
613
27 %
Accretion of original issue discount
665
487
178
37 %
Capitalized interest
(4,324)
(3,603)
(721)
20 %
Total interest expense, net of capitalized interest
$
48,931
$
33,161
$
15,770
48 %
2022 vs. 2021. The increase in interest expense during 2022 is primarily attributable to interest incurred in the amount of $36.6 million for the 9.25% Senior Notes due 2026 and
$11.8 million for the Credit Facility compared to interest incurred in 2021 of $15.0 million for the 9.25% Senior Notes due 2026, $10.6 million for the Second Lien Term Loan
and $7.7 million for the Credit Facility as well as increased amortization of OID and debt issuance costs in 2022 compared to the corresponding period in 2021. These increases
are partially offset by increased capitalized interest during 2022, driven by higher overall weighted-average interest rates in 2022 as compared to 2021.
58
Derivatives
The gains and losses for our derivatives portfolio reflect changes in the fair value attributable to changes in market values relative to our hedged commodity prices and interest
rates.
The following table summarizes the gains and (losses) attributable to our commodity derivatives portfolio and interest rate swaps for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
Commodity derivative losses
$
(162,736)
$
(136,997)
$
(25,739)
19 %
Interest rate swap gains (losses)
64
(2)
66
(3300)%
Total
$
(162,672)
$
(136,999)
$
(25,673)
19 %
2022 vs. 2021. In 2022, commodity prices were significantly higher on an average aggregate basis than those during 2021. Accordingly, the derivative losses in 2022 and 2021
reflect the decline in the mark-to-market values consistent with the increase in prices attributable to open positions. Realized settlement payments, net for crude oil, NGL and
natural gas derivatives were $182.0 million during 2022 as compared to realized settlement payments, net of $77.1 million during 2021. Through May 2022, we hedged a
portion of our exposure to variable interest rates associated with our Credit Facility and, during 2021, our Second Lien Term Loan. As of December 31, 2022, we did not have
any interest rate derivatives. During 2022 and 2021, we paid $1.4 million and $3.8 million of net settlements from our interest rate swaps, respectively.
Income Taxes
Income taxes represent our income tax provision as determined in accordance with generally accepted accounting principles. It considers taxes attributable to our obligations for
federal taxes under the Internal Revenue Code as well as to the various states in which we operate, primarily Texas, or otherwise have continuing involvement.
The following table summarizes our income tax provision for the periods presented:
Year Ended December 31,
2022
2021
Change
% Change
Income tax expense
$
(4,186)
$
(1,560)
$
(2,626)
168 %
Effective tax rate
(0.9)%
(1.6)%
0.7 %
(44) %
2022. The income tax provision for the year ended December 31, 2022 includes a deferred state tax expense of $3.4 million attributable to property and equipment and $0.8
million of current state expense attributable to the Texas margin tax for the year ended December 31, 2022. The federal portion was fully offset by an adjustment to the
valuation allowance against our net deferred tax assets resulting in an effective tax rate of 0.9%, which is fully attributable to the State of Texas. Our net deferred income tax
liability balance of $6.2 million as of December 31, 2022 is also fully attributable to the State of Texas and primarily related to property.
2021. The income tax provision for the year ended December 31, 2021 includes a deferred state tax expense of $1.2 million attributable to property and equipment and $0.3
million of current state expense attributable to the Texas margin tax for the year ended December 31, 2021. The federal portion was fully offset by an adjustment to the
valuation allowance against our net deferred tax assets resulting in an effective tax rate of 1.6%, which was fully attributable to the State of Texas.
59
Liquidity and Capital Resources
Our primary sources of liquidity include our cash on hand, cash provided by operating activities and borrowings under the Credit Facility. As of December 31, 2022, we had
liquidity of $291.6 million, comprised of cash and cash equivalents of $7.6 million and availability under our Credit Facility of $284.0 million (factoring in letters of credit). The
Credit Facility provides us up to $1.0 billion in borrowing commitments. The current borrowing base under the Credit Facility is $950 million with aggregate elected
commitments of $500 million.
Our cash flows from operating activities are subject to significant volatility due to changes in commodity prices for crude oil, NGLs and natural gas, as well as variations in our
production. The prices for these commodities are driven by a number of factors beyond our control, including global and regional product supply and demand, weather, product
distribution, refining and processing capacity and other supply chain dynamics, among other factors. All of these factors have been impacted by the volatility and uncertainty in
the global economic markets stemming from the COVID-19 pandemic and subsequent recovery, the Russia-Ukraine war, OPEC+ production decisions and related instability in
the global energy markets, as well as inflationary pressures and recession fears that impact demand. In order to mitigate this volatility, we utilize derivative contracts with a
number of financial institutions, all of which are participants in our Credit Facility, hedging a portion of our estimated future crude oil, NGLs and natural gas production
through the first half of 2024. The level of our hedging activity and duration of the financial instruments employed depends on our desired cash flow protection, available hedge
prices, the magnitude of our capital program and our operating strategy.
From time to time and under market conditions that we believe are favorable to us, we may consider capital market transactions, including the offering of debt and equity
securities. We maintain an effective shelf registration statement to allow for optionality.
Capital Resources
Based upon current price and production expectations, we believe that our cash on hand, cash from operating activities and borrowings under our Credit Facility, as necessary,
will be sufficient to fund our capital spending and operations for at least the next twelve months; however, future cash flows are subject to a number of variables including the
length and magnitude of the current global economic uncertainties associated with continued volatility and related instability in the global energy markets. We plan to fund our
2023 capital expenditures and our operations primarily with cash on hand, cash from operating activities and, to the extent necessary, supplemental borrowings under the Credit
Facility.
Additionally, we have other obligations primarily consisting of our outstanding debt principal and interest obligations, derivative instruments, service agreements, operating
leases, and asset retirement and environmental obligations, all of which are customary in our business. See “Commitments and Contingencies” summarized below, as well as
Note 9 and Note 14 to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for more details related to these
obligations. The Partnership is also required in certain circumstances to make certain tax distributions to its partners, which may impact cash flow from operations for the
Company, as discussed below under “Tax Distributions.”
Dividends
On July 7, 2022, the Company’s Board of Directors declared an inaugural cash dividend of $0.075 per share of Class A Common Stock and on November 2, 2022, a second
cash dividend was declared of $0.075 per share of Class A Common Stock. The related dividends were paid on August 4, 2022 and November 28, 2022 to holders of record of
Class A Common Stock as of the close of business on July 25, 2022 and November 16, 2022, respectively. In connection with any dividend, Ranger’s operating subsidiary will
also make a corresponding distribution to its common unitholders. During 2022, the dividends to the holders of our Class A Common Stock and distribution to common
unitholders totaled $6.3 million in the aggregate. Additionally, on March 3, 2023, the Company’s Board of Directors declared a cash dividend of $0.075 per share of Class A
Common Stock payable on March 30, 2023 to holders of record of Class A Common Stock as of the close of business on March 17, 2023. We expect to fund dividends and
distributions from available working capital and cash provided by operating activities.
60
Share Repurchase Program
In April 2022, we announced that the Board of Directors approved a share repurchase program under which we were authorized to repurchase up to $100 million of outstanding
Class A Common Stock through March 31, 2023. Subsequently on July 7, 2022, the Board of Directors authorized an increase in the share repurchase program from $100
million to $140 million and extended the term of the program through June 30, 2023. We do not intend to repurchase additional shares pending closing of the Baytex Merger.
Subsequent to December 31, 2022 through March 3, 2023, we repurchased an additional 121,857 shares of our Class A Common Stock at an average price of $39.52 for a total
cost of $4.8 million.
On August 16, 2022, the Inflation Reduction Act was signed into law and imposes a 1% excise tax on the repurchase of stock by publicly traded U.S. corporations. The excise
tax is effective for stock repurchases after December 31, 2022. We are currently evaluating the impacts, if any, of this provision to our results of operations and cash flows.
Tax Distributions
Under its Partnership Agreement, the Partnership is required to make distributions to all of its limited partners pro rata on a quarterly basis and in such amounts as necessary to
enable the Company to timely satisfy all of its U.S. federal, state and local and non-U.S. tax liabilities. Additionally, the Partnership is required to make advances to its non-
corporate partners in an amount sufficient to enable such partner to timely satisfy its U.S. federal, state and local and non-U.S. tax liabilities (a “Tax Advance”). Any such Tax
Advance will be treated as an advance against and, therefore, reduce any future distributions that such partner is otherwise entitled to receive. The Company’s cash flow from
operations and ability to pay cash dividends to our stockholders could be adversely impacted as a result of such cash distributions. Whether and how much Tax Advances are
required to be paid is dependent upon the amount and timing of taxable income generated in the future that is allocable to partners and the federal tax rates then applicable. The
Partnership was not required to make Tax Advances for the year ended December 31, 2022. At this time we are unable to assess whether the Partnership will be required to
make Tax Advances for the year ending December 31, 2023 or in future years.
Cash Flows
The following table summarizes our cash flows for the periods presented:
Year Ended December 31,
2022
2021
Net cash provided by operating activities
675,430
289,025
Net cash used in investing activities
(606,598)
(245,174)
Net cash used in financing activities
(84,921)
(33,190)
Net increase (decrease) in cash and cash equivalents
$
(16,089)
$
10,661
Cash Flows from Operating Activities. The increase of $386.4 million in net cash from operating activities for 2022 compared to 2021 was primarily attributable to the effect of
2022 cash receipts that were derived from higher average prices and higher total sales volume, partially offset by higher net payments for commodity derivatives settlements and
premiums. Additionally, during 2021, there were higher acquisition, integration and strategic transaction costs and executive restructuring costs, including severance payments.
Cash Flows from Investing Activities. Our cash payments for capital expenditures were higher during 2022 compared to 2021 due primarily to significantly increased
development program in 2022 along with higher drilling and completion costs associated with inflation. Additionally, our cash flow from investing activities was impacted by
cash paid for oil and gas property acquisitions which closed in 2022.
The following table sets forth costs related to our capital expenditure program for the periods presented:
Year Ended December 31,
2022
2021
Drilling and completion
$
513,943
$
263,936
Lease acquisitions, land-related costs, and geological and geophysical (seismic) costs
7,188
3,773
Pipeline, gathering facilities and other equipment, net
3,440
(1,252)
Total capital expenditures incurred
$
524,571
$
266,457
Includes certain capital charges to our working interest partners for completion services.
1
__________________________________________________________________________________
1
61
The following table reconciles the total costs of our capital expenditure program with the net cash paid for capital expenditures as reported in our consolidated statements of
cash flows for the periods presented:
Year Ended December 31,
2022
2021
Total capital expenditures program costs (from above)
$
524,571
$
266,457
Increase in accounts payable for capital items and accrued capitalized costs
(46,616)
(16,726)
Net purchases of tubular inventory and well materials
3,043
3,388
Prepayments for drilling and completion services, net of (transfers)
(9,125)
(4,018)
Capitalized internal labor, capitalized interest and other
9,613
7,242
Total cash paid for capital expenditures
$
481,486
$
256,343
Includes purchases made in advance of drilling.
Cash Flows from Financing Activities. During 2022, we had borrowings of $610.0 million and repayments of $603.0 million under the Credit Facility and $75.2 million of
share repurchases. During 2021, we received net proceeds of $396.1 million from the offering of the 9.25% Senior Notes due 2026 and $151.2 million from the issuance of
equity in connection with the Juniper Transactions (See Note 4 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary
Data” for additional information). The proceeds from these transactions were primarily used to: (i) repay and discharge $249.6 million of Lonestar’s outstanding long-term debt
in connection with the Lonestar Acquisition, (ii) repay the $200 million Second Lien Term Loan, (iii) repay $80.5 million under the Credit Facility, and (iv) pay $9.3 million of
transaction and issue costs related to the Juniper Transactions. Additionally, during 2021, we had borrowings of $70.0 million and additional repayments of $95.9 million under
the Credit Facility and paid $14.4 million in debt issuance costs.
Capitalization
The following table summarizes our total capitalization as of the dates presented:
December 31,
2022
2021
Credit Facility borrowings
$
215,000
$
208,000
9.25% Senior Notes due 2026, net
388,839
386,427
Mortgage debt
—
8,438
Other
238
2,516
Total debt, net
604,077
605,381
Total equity
1,057,022
669,508
Total capitalization
$
1,661,099
$
1,274,889
Debt as a % of total capitalization
36 %
47 %
The mortgage debt at December 31, 2021 related to the corporate office building and related other assets acquired in connection with the Lonestar Acquisition for which assets were held as collateral for such
debt. As of December 31, 2021, these assets were classified as Assets held for sale on the consolidated balance sheets in our consolidated financial statements included in Part II, Item 8, “Financial Statements
and Supplementary Data.” In July 2022, the mortgage debt was fully repaid in connection with the sale of the corporate office building. See Note 4 to our consolidated financial statements included in Part II,
Item 8, “Financial Statements and Supplementary Data” for additional information on the sale.
Other debt of $2.2 million at December 31, 2021 was extinguished during 2022 and recorded as a gain on extinguishment of debt on the consolidated statements of operations in our consolidated financial
statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”.
Credit Facility. As of December 31, 2022, the Credit Facility had a $1.0 billion revolving commitment and a $950 million borrowing base, with aggregate elected commitments
of $500 million and a $25 million sublimit for the issuance of letters of credit. The borrowing base under the Credit Facility is redetermined semi-annually, generally in the
Spring and Fall of each year. Additionally, we and the Credit Facility lenders may, upon request, initiate a redetermination at any time during the six-month period between
scheduled redeterminations. The Credit Facility is available to us for general corporate purposes including working capital. We had $1.0 million and $0.9 million in letters of
credit outstanding as of December 31, 2022 and 2021, respectively. The maturity date under the Credit Facility is October 6, 2025.
1
__________________________________________________________________________________
1
1
2
__________________________________________________________________________________
1
2
62
The outstanding borrowings under the Credit Facility bear interest at a rate equal to, at our option, either (a) a customary reference rate plus an applicable margin ranging from
1.50% to 2.50%, determined based on the utilization level under the Credit Facility or (b) effective June 1, 2022, a term Secured Overnight Financing Rate (“SOFR”) reference
rate (a Eurodollar rate, including LIBOR prior to June 1, 2022), plus an applicable margin ranging from 2.50% to 3.50%, determined based on the utilization level under the
Credit Facility. Interest on reference rate borrowings is payable quarterly in arrears and is computed on the basis of a year of 365/366 days, and interest on SOFR borrowings is
payable every one, three or six months, at our election, and is computed on the basis of a year of 360 days. At December 31, 2022, the actual weighted-average interest rate on
the outstanding borrowings under the Credit Facility was 7.25%. Unused commitment fees are charged at a rate of 0.50%.
The following table summarizes our borrowing activity under the Credit Facility for the periods presented:
Borrowings Outstanding
End of Period
Weighted-
Average
Maximum
Weighted-
Average Rate
Three months ended December 31, 2022
$
215,000
$
260,978
$
292,000
6.91
%
Year ended December 31, 2022
$
215,000
$
219,345
$
301,000
5.25
%
The Credit Facility is guaranteed by all of the subsidiaries of the borrower (the “Guarantor Subsidiaries”), except for Boland Building, LLC. The guarantees under the Credit
Facility are full and unconditional and joint and several. Substantially all of our consolidated assets are held by the Guarantor Subsidiaries. There are no significant restrictions
on the ability of the borrower or any of the Guarantor Subsidiaries to obtain funds through dividends, advances or loans. The obligations under the Credit Facility are secured by
a first priority lien on substantially all of our subsidiaries’ assets.
9.25% Senior Notes due 2026. On August 10, 2021, our indirect, wholly-owned subsidiary completed an offering of $400 million aggregate principal amount of senior
unsecured notes due 2026 (the “9.25% Senior Notes due 2026”) that bear interest at 9.25% and were sold at 99.018% of par. Obligations under the 9.25% Senior Notes due
2026 were assumed by ROCC Holdings, LLC (formerly, Penn Virginia Holdings, LLC, hereinafter referred to as “Holdings”), as borrower, and are guaranteed by the
subsidiaries of Holdings that guarantee the Credit Facility.
Covenant Compliance. The Credit Facility requires us to maintain (1) a minimum current ratio (as defined in the Credit Facility, which considers the unused portion of the total
commitment as a current asset) of 1.00 to 1.00 and (2) a maximum leverage ratio (consolidated indebtedness to EBITDAX, each as defined in the Credit Facility), in each case
measured as of the last day of each fiscal quarter of 3.50 to 1.00.
The Credit Facility and the Indenture contain customary affirmative and negative covenants as well as events of default and remedies. If we do not comply with the financial and
other covenants in the Credit Facility, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Credit Facility.
As of December 31, 2022, the Company was in compliance with all debt covenants.
See Note 9 to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for additional information on our debt.
63
Commitments and Contingencies
Long-Term Debt
We have long-term debt obligations that have various maturities and interest rates. For information on our debt obligations, see Note 9 to the consolidated financial statements
included in Part II, Item 8, “Financial Statements and Supplementary Data” for more details.
Leases
We have various non-cancelable operating leases in connection with the leases of our office facilities and equipment. See Note 11 to the consolidated financial statements
included in Part II, Item 8, “Financial Statements and Supplementary Data” for further information.
Gathering and Intermediate Transportation Commitments
We have agreements for gathering and intermediate pipeline transportation services for our crude oil and condensate production. For further details on these agreements, see
Note 14 to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”
Asset Retirement Obligations
We have asset retirement obligations (“AROs”) that primarily relate to the plugging and abandonment of oil and gas wells. For information on our AROs, see Note 8 and Note
14 to the consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data.”
Critical Accounting Estimates
The process of preparing financial statements in accordance with GAAP requires our management to make estimates and judgments regarding certain items and transactions. It
is possible that materially different amounts could be recorded if these estimates and judgments change or if the actual results differ from these estimates and judgments. We
consider the following to be the most critical accounting estimates requiring judgment of our management.
Oil and Gas Reserves
Estimates of our oil and gas reserves are the most critical estimate included in our consolidated financial statements. Reserve estimates become the basis for determining
depletive write-off rates and the recoverability of historical cost investments. There are many uncertainties inherent in estimating crude oil, NGL and natural gas reserve
quantities, including projecting the total quantities in place, future production rates and the amount and timing of future development expenditures. In addition, reserve estimates
of new discoveries are less precise than those of producing properties due to the lack of a production history. Accordingly, these estimates are subject to change as additional
information becomes available.
There are several factors which could change the estimates of our oil and gas reserves. Significant rises or declines in commodity product prices as well as changes in our
drilling plans could lead to changes in the amount of reserves as production activities become more or less economical. An additional factor that could result in a change of
recorded reserves is the reservoir decline rates differing from those assumed when the reserves were initially recorded. Estimation of future production and development costs is
also subject to change partially due to factors beyond our control, such as energy costs and inflation or deflation of oil field service costs.
Oil and Gas Properties
We apply the full cost method to account for our oil and gas properties. Under this method, all productive and nonproductive costs incurred in the exploration, development and
acquisition of oil and gas reserves are capitalized. Such costs may be incurred both prior to and after the acquisition of a property and include lease acquisitions, geological and
geophysical, or seismic, drilling, completion and equipment costs. Internal costs incurred that are directly attributable to exploration, development and acquisition activities
undertaken by us for our own account, and which are not attributable to production, general corporate overhead or similar activities are also capitalized. Future development
costs are estimated on a property-by-property basis based on current economic conditions and are amortized as a component of DD&A.
64
Unproved properties not being amortized include unevaluated leasehold costs and associated capitalized interest. These costs are reviewed quarterly to determine whether or not
and to what extent proved reserves have been assigned to a property or if an impairment has occurred due to lease expirations, general economic conditions and other factors, in
which case, the related costs along with associated capitalized interest are reclassified to the proved oil and gas properties subject to DD&A. Factors we consider in our
assessment include drilling results, the terms of oil and gas leases not held by production and drilling and completion capital expenditures consistent with our plans.
At the end of each quarterly reporting period, the unamortized cost of our oil and gas properties, net of deferred income taxes, is limited to the sum of the estimated after-tax
discounted future net revenues from proved properties adjusted for costs excluded from amortization and related income taxes, or a Ceiling Test. The estimated after-tax
discounted future net revenues are determined using the prior 12-month’s average price based on closing prices on the first day of each month, adjusted for differentials,
discounted at 10%. The calculation of the Ceiling Test and provision for DD&A are based on estimates of proved reserves. There are significant uncertainties inherent in
estimating quantities of proved reserves and projecting future rates of production, timing and plan of development. We had no impairments of our proved oil and gas properties
during 2022. During the first quarter of 2021, the carrying value of our proved oil and gas properties exceeded the limit determined by the Ceiling Test, resulting in a $1.8
million impairment. There were no other such impairments during 2021. During 2020, the carrying value of our proved oil and gas properties exceeded the limit determined by
the Ceiling Test in the second, third and fourth quarters of 2020, resulting in a total of $391.8 million of impairment charges recorded for the year ended December 31, 2020.
Derivative Activities
We utilize derivative instruments, typically swaps, put options and call options which are placed with financial institutions that we believe are acceptable credit risks, to
mitigate our financial exposure to commodity price volatility associated with anticipated sales of our future production and, at times, volatility in interest rates attributable to our
variable rate debt instruments. All derivative instruments are recognized in our consolidated financial statements at fair value with the changes recorded currently in earnings.
We determine the fair values of our commodity derivative instruments using industry-standard models that consider various assumptions including current market and
contractual prices for the underlying instruments, implied volatilities, time value and non-performance risk. All derivative transactions are subject to our risk management
policy, which has been reviewed and approved by our board of directors.
Deferred Tax Asset Valuation Allowance
We record a valuation allowance to reduce our deferred tax assets to an amount that is more likely than not to be realized after consideration of expected future taxable income
and reasonable tax planning strategies. In the event that we were to determine that we would not be able to realize all or a part of our deferred tax assets for which a valuation
allowance had not been established, an adjustment to the deferred tax asset will be reflected in income in the period such determination is made. The most significant matter
applicable to the realization of our deferred tax assets is attributable to net operating losses at the federal level as well as certain states in which we operate. Estimates of future
taxable income inherently reflect a significant degree of uncertainty. As of December 31, 2022, we believe it is more likely than not that we will not have sufficient future
taxable income to realize the benefit of our gross deferred tax assets and, accordingly, have maintained a full valuation allowance.
Determination of Fair Value in Business Combinations
Accounting for the acquisition of a business requires allocation of the purchase price to the various assets acquired and liabilities assumed at their respective fair values. The
determination of fair value requires the use of significant estimates and assumptions, and in making these determinations management uses all available information. If
necessary, we have up to one year after the acquisition closing date to finalize these fair value determinations. For assets acquired in a business combination, the determination
of fair value utilizes several valuation methodologies including discounted cash flows, which has assumptions with respect to the timing and amount of future revenue and
expenses associated with an asset, and in the case of oil and gas companies, these as they relate to the reserves associated with its oil and gas properties. The assumptions made
in performing these valuations include, but are not limited to, discount rate, future revenues and operating costs, projections of capital costs, and other assumptions believed to
be consistent with those used by principal market participants. Due to the specialized nature of these calculations, we engage third-party specialists to assist management in
evaluating our assumptions as well as appropriately measuring the fair value of assets acquired and liabilities assumed.
65
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of loss arising from adverse changes in market rates and prices. The principal market risks to which we are exposed are interest rate risk and commodity
price risk.
Interest Rate Risk
Our interest rate risk is attributable to our borrowings under the Credit Facility, which is subject to variable interest rates. As of December 31, 2022, we had borrowings of
$215.0 million under the Credit Facility at an interest rate of 7.25%. Assuming a constant borrowing level under the Credit Facility, an increase (decrease) in the interest rate of
1% would result in an increase (decrease) in aggregate interest expense of approximately $2.2 million on an annual basis.
Commodity Price Risk
We produce and sell crude oil, NGLs and natural gas. As a result, our financial results are affected when prices for these commodities fluctuate. Our price risk management
programs permit the utilization of derivative financial instruments (such as collars and swaps) to seek to mitigate the price risks associated with fluctuations in commodity prices
as they relate to a portion of our anticipated production. The derivative instruments are placed with major financial institutions that we believe are of acceptable credit risk. The
fair values of our derivative instruments are significantly affected by fluctuations in the prices of crude oil, NGLs and natural gas.
As of December 31, 2022, our commodity derivative portfolio was in a net liability position in the amount of $41.3 million. The contracts associated with this position are with
seven counterparties, all of which are investment grade financial institutions. This concentration may impact our overall credit risk, either positively or negatively, in that these
counterparties may be similarly affected by changes in economic or other conditions. We have neither paid to, nor received from, our counterparties any cash collateral in
connection with our derivative positions. Furthermore, our derivative contracts are not subject to margin calls or similar accelerations. No significant uncertainties exist related
to the collectability of amounts that may be owed to us by these counterparties.
During the year ended December 31, 2022, we reported a net commodity derivative loss of $162.7 million. We have experienced and could continue to experience significant
changes in the estimate of derivative gains or losses recognized due to fluctuations in the value of our derivative instruments. Our results of operations are affected by the
volatility of unrealized gains and losses and changes in fair value, which fluctuate with changes in crude oil, NGL and natural gas prices. These fluctuations could be significant
in a volatile pricing environment. See Note 6 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data” for a further
description of our commodity price risk management activities.
The following table illustrates the estimated impact on the fair values of our derivative financial instruments and operating income attributable to hypothetical changes in the
underlying crude oil prices. This illustration assumes that crude oil production volumes, NGL prices and production volumes, and natural gas prices and production volumes
remain constant at anticipated levels. The estimated changes in operating income exclude potential cash receipts or payments in settling these derivative positions.
Change of 10% per bbl of
Crude Oil
($ in millions)
Increase
Decrease
Effect on the fair value of crude oil derivatives
$
(36.8)
$
36.3
Effect on 2023 operating income, excluding derivatives
$
67.3
$
(50.4)
_____________________________________________
Based on derivatives outstanding as of December 31, 2022.
Based on our 2023 Business Plan consistent with the assumptions used to determine our proved reserves as disclosed in Item 2, “Properties – Summary of Oil and Gas Reserves .” These sensitivities are subject
to significant change.
1
2
1
2
66
Item 8. Financial Statements and Supplementary Data
RANGER OIL CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID Number 248)
68
Consolidated Statements of Operations
71
Consolidated Statements of Comprehensive Income (Loss)
72
Consolidated Balance Sheets
73
Consolidated Statements of Cash Flows
74
Consolidated Statements of Equity
75
Notes to Consolidated Financial Statements:
76
Note 1 – Organization and Description of Business
76
Note 2 – Basis of Presentation
76
Note 3 – Summary of Significant Accounting Policies
76
Note 4 – Transactions
81
Note 5 – Revenue Recognition
84
Note 6 – Derivative Instruments
85
Note 7 – Property and Equipment, Net
88
Note 8 – Asset Retirement Obligations
89
Note 9 – Long-Term Debt
89
Note 10 – Income Taxes
91
Note 11 – Leases
92
Note 12 – Supplemental Balance Sheet Detail
94
Note 13 – Fair Value Measurements
95
Note 14 – Commitments and Contingencies
96
Note 15 – Shareholders’ Equity
98
Note 16 – Share-Based Compensation and Other Benefit Plans
100
Note 17 – Earnings Per Share
103
Note 18 – Subsequent Events
103
Supplemental Information on Oil and Gas Producing Activities (unaudited)
104
67
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Ranger Oil Corporation
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Ranger Oil Corporation (a Virginia corporation) and subsidiaries (the “Company”) as of December 31, 2022
and 2021, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows for each of the three years in the period ended December 31,
2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2022, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over
financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”), and our report dated March 9, 2023 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our
audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test
basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be
communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are
not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
The development of estimated proved reserves used in the calculation of depletion, depreciation, and amortization expense under the full cost method of accounting.
As described further in note 3 to the financial statements, the Company accounts for its oil and gas properties using the full cost method of accounting which requires
management to make estimates of proved reserve volumes and future net revenues to record depletion, depreciation, and amortization expense. To estimate the volume of
proved reserves and future net revenue, management makes significant estimates and assumptions including forecasting the production decline rate of producing properties and
forecasting the timing and volume of production associated with the Company’s development plan for proved undeveloped properties. In addition, the estimation of proved
reserves is also impacted by management’s judgments and estimates regarding the financial performance of wells associated with proved reserves to determine if wells are
expected with reasonable certainty to be economical under the appropriate pricing assumptions required in the estimation of depletion, depreciation and amortization expense.
We identified the estimation of proved reserves of oil and gas properties as a critical audit matter.
68
The principal consideration for our determination that the estimation of proved reserves is a critical audit matter is that changes in certain inputs and assumptions necessary to
estimate the volumes and future net revenues of the Company’s proved reserves require a high degree of subjectivity and could have a significant impact on the measurement of
depletion, depreciation, and amortization expense. In turn, auditing those inputs and assumptions required subjective and complex auditor judgment.
Our audit procedures related to the estimation of proved reserves included the following, among others.
•
We tested the design and operating effectiveness of controls relating to management’s estimation of proved reserves for the purpose of measuring depletion, depreciation,
and amortization expense.
•
We evaluated the independence, objectivity, and professional qualifications of the Company’s reserve engineers, made inquiries of those specialists regarding the
process followed and judgments made to estimate the Company’s proved reserve volumes, and read the reserve report prepared by the Company’s specialists.
•
To the extent key inputs and assumptions used to determine proved reserve volumes and other cash flow inputs and assumptions are derived from the Company’s
accounting records, including, but not limited to historical pricing differentials, operating costs, estimated capital costs, and ownership interests, we tested management’s
process for determining the assumptions, including examining the underlying support on a sample basis. Specifically, our audit procedures involved testing
management’s assumptions by performing the following:
–
We compared the estimated pricing differentials used in the reserve report to realized prices related to revenue transactions recorded in the current year and
examined contractual support for the pricing differentials.
–
We tested models used to estimate the future operating costs in the reserve report and compared amounts to historical operating costs.
–
We evaluated the method used to determine the future capital costs and compared estimated future capital expenditures used in the reserve report to amounts
expended for recently drilled and completed wells to ascertain its reasonableness.
–
We tested the working and net revenue interests used in the reserve report by inspecting land and division order records.
–
We evaluated the Company’s evidence supporting the amount of proved undeveloped properties reflected in the reserve report by examining historical conversion
rates and support for the Company’s ability and intent to develop the proved undeveloped properties.
–
We applied analytical procedures to the forecasted reserve report production by comparing to historical actual results and to the prior year reserve report.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2016.
Houston, Texas
March 9, 2023
69
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Ranger Oil Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Ranger Oil Corporation (a Virginia corporation) and subsidiaries (the “Company”) as of December 31, 2022,
based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements
of the Company as of and for the year ended December 31, 2022, and our report dated March 9, 2023 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material
effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
/s/ GRANT THORNTON LLP
Houston, Texas
March 9, 2023
70
RANGER OIL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Year Ended December 31,
2022
2021
2020
Revenues and other
Crude oil
$
1,003,255
$
517,301
$
251,741
Natural gas liquids
67,453
33,443
8,948
Natural gas
70,895
26,080
10,103
Other operating income, net
3,586
2,667
2,476
Total revenues and other
1,145,189
579,491
273,268
Operating expenses
Lease operating
85,792
45,402
37,463
Gathering, processing and transportation
36,698
23,647
22,050
Production and ad valorem taxes
61,377
31,041
16,619
General and administrative
40,972
66,529
33,789
Depreciation, depletion and amortization
244,455
131,657
140,673
Impairments of oil and gas properties
—
1,811
391,849
Total operating expenses
469,294
300,087
642,443
Operating income (loss)
675,895
279,404
(369,175)
Other income (expense)
Interest expense, net of amounts capitalized
(48,931)
(33,161)
(31,257)
Gain (loss) on extinguishment of debt
2,157
(8,860)
—
Derivatives gains (losses)
(162,672)
(136,999)
88,422
Other, net
2,255
94
(850)
Income (loss) before income taxes
468,704
100,478
(312,860)
Income tax (expense) benefit
(4,186)
(1,560)
2,303
Net income (loss)
464,518
98,918
(310,557)
Net income attributable to Noncontrolling interest
(246,825)
(58,689)
—
Net income (loss) attributable to Class A common shareholders
$
217,693
$
40,229
$
(310,557)
Net income (loss) per share attributable to Class A common shareholders:
Basic
$
10.77
$
2.41
$
(20.46)
Diluted
$
10.53
$
2.34
$
(20.46)
Weighted average shares outstanding – basic
20,205
16,695
15,176
Weighted average shares outstanding – diluted
20,826
17,165
15,176
See accompanying notes to consolidated financial statements.
71
RANGER OIL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
Year Ended December 31,
2022
2021
2020
Net income (loss)
$
464,518
$
98,918
$
(310,557)
Other comprehensive income (loss):
Change in pension and postretirement obligations, net of tax
—
20
(72)
Comprehensive income (loss)
464,518
98,938
(310,629)
Net income attributable to Noncontrolling interest
(246,825)
(58,689)
—
Other comprehensive income attributable to Noncontrolling interest
—
(23)
—
Comprehensive income (loss) attributable to Class A common shareholders
$
217,693
$
40,226
$
(310,629)
The amounts for the 2022 periods are minimal and round down to zero.
See accompanying notes to consolidated financial statements.
1
1
___________________________________________
1
72
RANGER OIL CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31,
2022
2021
Assets
Current assets
Cash and cash equivalents
$
7,592
$
23,681
Accounts receivable, net of allowance for credit losses
139,715
118,594
Derivative assets
29,714
11,478
Prepaid and other current assets
22,264
20,998
Assets held for sale
1,186
11,400
Total current assets
200,471
186,151
Property and equipment, net
1,809,000
1,383,348
Derivative assets
316
2,092
Other assets
4,420
5,017
Total assets
$
2,014,207
$
1,576,608
Liabilities and Shareholders’ Equity
Current liabilities
Accounts payable and accrued liabilities
$
265,609
$
214,381
Derivative liabilities
67,933
50,372
Current portion of long-term debt
—
4,129
Total current liabilities
333,542
268,882
Deferred income taxes
6,216
2,793
Derivative liabilities
3,416
23,815
Other non-current liabilities
9,934
10,358
Long-term debt, net
604,077
601,252
Commitments and contingencies (Note 14)
Equity
Preferred stock of $0.01 par value – 5,000,000 shares authorized; none issued as of December 31, 2022 and 2021
—
—
Class A common stock of $0.01 par value – 110,000,000 shares authorized; 19,074,864 and 21,090,259 shares issued and
outstanding as of December 31, 2022 and 2021, respectively
190
729
Class B common stock of $0.01 par value – 30,000,000 shares authorized; 22,548,998 shares issued and outstanding as of
December 31, 2022 and 2021
2
2
Paid-in capital
220,062
273,329
Retained earnings
264,256
49,583
Accumulated other comprehensive loss
(111)
(111)
Ranger Oil shareholders’ equity
484,399
323,532
Noncontrolling interest
572,623
345,976
Total equity
1,057,022
669,508
Total liabilities and equity
$
2,014,207
$
1,576,608
See accompanying notes to consolidated financial statements.
73
RANGER OIL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
2022
2021
2020
Cash flows from operating activities
Net income (loss)
$
464,518
$
98,918
$
(310,557)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
(Gain) loss on extinguishment of debt
(2,157)
8,860
—
Depreciation, depletion and amortization
244,455
131,657
140,673
Impairments of oil and gas properties
—
1,811
391,849
Derivative contracts:
Net losses (gains)
162,672
136,999
(88,422)
Cash settlements and premiums (paid) received, net
(183,378)
(130,475)
78,087
Deferred income tax expense (benefit)
3,422
1,249
(1,424)
Non-cash interest expense
3,404
2,735
4,150
Share-based compensation
5,554
15,589
3,284
Other, net
(361)
19
13
Changes in operating assets and liabilities:
Accounts receivable, net
(21,721)
(38,676)
28,078
Accounts payable and accrued expenses
6,528
60,338
(24,244)
Other assets and liabilities
(7,506)
1
778
Net cash provided by operating activities
675,430
289,025
222,265
Cash flows from investing activities
Capital expenditures
(481,486)
(256,343)
(168,565)
Acquisitions of oil and gas properties
(137,532)
—
—
Cash acquired in Lonestar Acquisition
—
11,009
—
Proceeds from sales of assets, net
12,420
160
87
Net cash used in investing activities
(606,598)
(245,174)
(168,478)
Cash flows from financing activities
Proceeds from credit facility borrowings
610,000
70,000
51,000
Repayments of credit facility borrowings
(603,000)
(176,400)
(99,000)
Repayments of second lien term loan
—
(200,000)
—
Proceeds from 9.25% Senior Notes due 2026, net of discount
—
396,072
—
Repayments of acquired debt
(8,559)
(249,700)
—
Payments for share repurchases
(75,203)
—
—
Distributions to Noncontrolling interest
(3,382)
—
—
Dividends paid
(2,921)
—
—
Proceeds from redeemable common units
—
151,160
—
Proceeds from redeemable preferred stock
—
2
—
Transaction costs paid on behalf of Noncontrolling interest
—
(5,543)
—
Issuance costs paid for Noncontrolling interest securities
—
(3,758)
—
Withholding taxes for share-based compensation
(954)
(656)
(487)
Debt issuance costs paid
(902)
(14,367)
(78)
Net cash used in financing activities
(84,921)
(33,190)
(48,565)
Net increase (decrease) in cash and cash equivalents
(16,089)
10,661
5,222
Cash and cash equivalents – beginning of period
23,681
13,020
7,798
Cash and cash equivalents – end of period
$
7,592
$
23,681
$
13,020
Supplemental disclosures:
Cash paid for:
Interest, net of amounts capitalized
$
46,071
$
15,609
$
27,333
Income tax refunds, net of payments
$
—
$
288
$
(2,471)
Non-cash investing and financing activities:
Changes in property and equipment related to capital contributions
$
—
$
(38,561)
$
—
Changes in accrued liabilities related to capital expenditures
$
46,616
$
16,726
$
(18,671)
Change in property and equipment related to acquisitions
$
—
$
(480,563)
$
—
Equity and replacement awards issued as consideration in the Lonestar Acquisition
$
—
$
173,576
$
—
See accompanying notes to consolidated financial statements.
74
RANGER OIL CORPORATION
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)
Shares
Preferred
Shares
Outstanding
Class A Common
Shares /
Common Shares
Outstanding
Class B
Common
Shares
Outstanding
Preferred
Stock
Class A
Common
Stock /
Common
Stock
Class B
Common
Stock
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Noncontrolling
Interest
Total Equity
Balance as of December 31, 2019
—
15,136
—
$
—
$
151
$
—
$ 200,666
$
319,987
$
(59)
$
—
$
520,745
Net loss
—
—
—
—
—
—
—
(310,557)
—
—
(310,557)
Restricted stock unit vesting
—
64
—
—
1
—
(487)
—
—
—
(486)
Cumulative effect of change in accounting principle
—
—
—
—
—
—
—
(76)
—
—
(76)
Common stock issued related to share-based
compensation and other, net
—
—
—
—
—
—
3,284
—
(72)
—
3,212
Balance as of December 31, 2020
—
15,200
—
—
152
—
203,463
9,354
(131)
—
212,838
Net income
—
—
—
—
—
—
—
40,229
—
58,689
98,918
Issuance of preferred stock
225
—
—
2
—
—
—
—
—
—
2
Issuance of Noncontrolling interest
—
—
—
—
—
—
(50,068)
—
—
229,620
179,552
Conversion of preferred stock into common stock
(225)
—
22,549
(2)
—
2
—
—
—
—
—
Issuance of common stock related to the Lonestar
Acquisition
—
5,750
—
—
575
—
162,607
—
—
—
163,182
Change in ownership related to the Lonestar
Acquisition
—
—
—
—
—
—
(57,604)
—
—
57,644
40
Common stock issued related to share-based
compensation and other, net
—
140
—
—
2
—
14,931
—
20
23
14,976
Balance as of December 31, 2021
—
21,090
22,549
—
729
2
273,329
49,583
(111)
345,976
669,508
Net income
—
—
—
—
—
—
—
217,693
—
246,825
464,518
Repurchase of Class A Common Stock
—
(2,150)
—
—
(22)
—
(75,181)
—
—
—
(75,203)
Change in ownership, net
—
—
—
—
—
—
16,796
—
—
(16,796)
—
Distributions to Noncontrolling interest
—
—
—
—
—
—
—
—
—
(3,382)
(3,382)
Dividends declared ($0.075 per share of Class A
common stock)
—
—
—
—
—
—
—
(3,020)
—
—
(3,020)
Common stock issued related to share-based
compensation and other, net
—
135
—
—
(517)
—
5,118
—
—
—
4,601
Balance as of December 31, 2022
—
19,075
22,549
$
—
$
190
$
2
$ 220,062
$
264,256
$
(111)
$
572,623
$ 1,057,022
In October 2021, the Company effected a recapitalization, pursuant to which, among other things, the Company’s common stock was renamed and reclassified as Class A common stock, par value
$0.01 per share (“Class A Common Stock”), a new class of capital stock of the Company, Class B Common Stock, par value $ 0.01 per share (“Class B Common Stock”) was authorized, and the
designation of the Series A Preferred Stock was cancelled. See Note 15 in the notes to the consolidated financial statements for further details.
Includes $4.5 million attributed to pre-combination services for replacement awards issued in connection with the Lonestar Acquisition. See Note 4 and Note 16 for further details.
See accompanying notes to consolidated financial statements.
1
1
2
__________________________________________________________________________________
1
2
75
RANGER OIL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except per share amounts or where otherwise indicated)
Note 1 – Organization and Description of Business
Ranger Oil Corporation (together with its consolidated subsidiaries, unless the context otherwise requires, “Ranger Oil,” the “Company,” “we,” “us” or “our”) is an
independent oil and gas company focused on the onshore development and production of oil, natural gas liquids (“NGLs”) and natural gas. Our current operations consist of
drilling unconventional horizontal development wells and operating our producing wells in the Eagle Ford Shale (the “Eagle Ford”) in South Texas. We operate in and report
our financial results and disclosures as one segment, which is the development and production of crude oil, NGLs and natural gas.
On January 15, 2021 (the “Juniper Closing Date”), the Company consummated the transactions (collectively, the “Juniper Transactions”) contemplated by: (i) the Contribution
Agreement, dated November 2, 2020, by and among the Company, ROCC Energy Holdings, L.P. (formerly PV Energy Holdings, L.P., the “Partnership”) and JSTX Holdings,
LLC (“JSTX”), an affiliate of Juniper Capital Advisors, L.P. (“Juniper Capital” and, together with JSTX and Rocky Creek Resources, LLC, “Juniper”); and (ii) the
Contribution Agreement, dated November 2, 2020 (the “Contribution Agreement”), by and among Rocky Creek Resources, LLC, an affiliate of Juniper Capital (“Rocky
Creek”), the Company and the Partnership pursuant to which Juniper contributed $150 million in cash and certain oil and gas assets in South Texas in exchange for equity. See
Note 3 and Note 4 for further discussion.
Note 2 – Basis of Presentation
Our consolidated financial statements include the accounts of Ranger Oil and all of our subsidiaries as of the relevant dates. Intercompany balances and transactions have been
eliminated. A substantial noncontrolling interest in our subsidiaries is provided for in our consolidated statements of operations and comprehensive income (loss) and our
consolidated balance sheets as of and for the periods ended December 31, 2022 and 2021. Our consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Preparation of these statements involves the use of estimates and judgments where appropriate. In the opinion of management, all adjustments considered necessary for a fair
presentation of our consolidated financial statements have been included. Certain reclassifications have been made to prior period amounts to conform to the current period
presentation. Such reclassifications did not have a material impact on prior period financial statements.
Note 3 – Summary of Significant Accounting Policies
Principles of Consolidation
In January 2021, Ranger Oil completed a reorganization into an Up-C structure with JSTX and Rocky Creek. Under the Up-C structure, Juniper owns all of the shares of the
Company’s Class B Common Stock which are non-economic voting only shares of the Company. Juniper’s economic interest in the Company is held through its ownership of
limited partner interests (the “Common Units”) in the Partnership. Pursuant to the amended and restated limited partnership agreement of the Partnership (the “Partnership
Agreement”), the Company’s ownership of Common Units in the Partnership at all times equals the number of shares of the Company’s Class A Common Stock then
outstanding, and Juniper’s ownership of Common Units in the Partnership at all times equals the number of shares of Class B Common Stock then outstanding. The Partnership
was formed for the purpose of executing the Company’s reorganization with Juniper into an Up-C structure. The Partnership, through its subsidiaries, owns, operates, and
manages oil and gas properties in Texas and manages the Company’s outstanding debt and derivative instruments. The Company’s wholly-owned subsidiary, ROCC Energy
Holdings GP LLC (formerly, PV Energy Holdings GP, LLC, the “GP”), is the general partner of the Partnership. Subsidiaries of the Partnership own and operate all our oil and
gas assets. Ranger Oil and the Partnership are holding companies with no other operations, material cash flows, or material assets or liabilities other than the equity interests in
their subsidiaries.
The Common Units are redeemable (concurrently with the cancellation of an equivalent number of shares of Class B Common Stock) by Juniper at any time on a one-for-one
basis in exchange for shares of Class A Common Stock or, if the Partnership elects, cash based on the 5-day average volume-weighted closing price for the Class A Common
Stock immediately prior to the redemption. In determining whether to make a cash election, the Company would consider the interests of the holders of the Class A Common
Stock, the Company’s financial condition, results of operations, earnings, projections, liquidity and capital requirements, management’s assessment of the intrinsic value of the
Class A Common Stock, the trading price of the Class A Common Stock, legal requirements, covenant compliance, restrictions in the Company’s debt agreements and other
factors it deems relevant.
76
The Partnership is considered a variable interest entity for which the Company is the primary beneficiary. The Company has benefits in the Partnership through the Common
Units, and it has power over the activities most significant to the Partnership’s economic performance through its 100% controlling interest in the GP (which, accordingly, is
acting as an agent on behalf of the Company). This conclusion was based on a qualitative analysis that considered the Partnership’s governance structure and the GP’s control
over operations of the Partnership. The GP manages the business and affairs of the Partnership, including key Partnership decision-making, and the limited partners do not
possess any substantive participating or kick-out rights that would allow Juniper to block or participate in certain operational and financial decisions that most significantly
impact the Partnership’s economic performance or that would remove the GP. As such, because the Company has both power and benefits in the Partnership, the Company
determined it is the primary beneficiary of the Partnership and consolidates the Partnership in the Company’s consolidated financial statements. The Company reflects the
noncontrolling interest in the consolidated financial statements based on the proportion of Common Units owned by Juniper relative to the total number of Common Units
outstanding. The noncontrolling interest is presented as a component of equity in the accompanying consolidated financial statements and represents the ownership interest held
by Juniper in the Partnership (the “Noncontrolling interest”).
Noncontrolling interest
The Noncontrolling interest percentage may be affected by the issuance of shares of Class A Common Stock, repurchases or cancellation of Class A Common Stock, the
exchange of Class B Common Stock and the redemption of Common Units (and concurrent cancellation of Class B Common Stock), among other things. The percentage is
based on the proportionate number of Common Units held by Juniper relative to the total Common Units outstanding. As of December 31, 2022, the Company owned
19,074,864 Common Units, representing a 45.8% limited partner interest in the Partnership, and Juniper owned 22,548,998 Common Units, representing the remaining 54.2%
limited partner interest. As of December 31, 2021, the Company owned 21,090,259 Common Units, representing a 48.3% limited partner interest in the Partnership, and Juniper
owned 22,548,998 Common Units, representing the remaining 51.7% limited partner interest. During the year ended December 31, 2022, changes in the ownership interests
were the result of share repurchases and issuances of Class A Common Stock in connection with the vesting of employees’ share-based compensation. See Note 15 for
information regarding share repurchases and Note 16 for vesting of share-based compensation.
When the Company’s relative ownership interest in the Partnership changes, adjustments to Noncontrolling interest and Paid-in capital, tax effected, will occur. Because these
changes in the ownership interest in the Partnership do not result in a change of control, the transactions are accounted for as equity transactions under Accounting Standards
Codification (“ASC”) Topic 810, Consolidation, which requires that any differences between the carrying value of the Company’s basis in the Partnership and the fair value of
the consideration received are recognized directly in equity and attributed to the controlling interest. Additionally, based on the Partnership Agreement, there are no substantive
profit sharing arrangements that would cause distributions to be other than pro rata. Therefore, profits and losses are attributed to the Class A common shareholders and the
Noncontrolling interest pro rata based on ownership interests in the Partnership.
Use of Estimates
Preparation of our consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities in our consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates include certain
asset and liability valuations as further described in these notes. Actual results could differ from those estimates.
Cash and Cash Equivalents
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Some of our account balances exceed the FDIC
coverage limits. We believe our cash and cash equivalents are not subject to any material interest rate risk, equity price risk, credit risk or other market risk.
Derivative Instruments
We utilize derivative instruments, which are placed with financial institutions that we believe are of acceptable credit risk, to mitigate our financial exposure to commodity price
and interest rate volatility. All derivative transactions are subject to our risk management policy, which has been reviewed and approved by our board of directors.
All derivative instruments are recognized in our consolidated financial statements at fair value. We have elected to report all of our derivative asset and liability positions on a
gross basis on our consolidated balance sheets and not net the positions, even when a legal right-of-setoff exists. Our derivative instruments are not formally designated as
hedges in the context of GAAP. In accordance with our internal policies, we do not utilize derivative instruments for speculative purposes. We recognize changes in fair value in
income within Derivatives gains (losses) in our consolidated statements of operations. See Note 6 for further information on our derivatives.
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Inventory
Inventory is stated at the lower of cost and net realizable value using the average cost method. Our inventory consists of tubular goods and equipment that are primarily
comprised of oil and natural gas drilling and repair items such as tubing, casing and pumping units.
Property and Equipment
Oil and Gas Properties
We apply the full cost method of accounting for our oil and gas properties. Under this method, all productive and nonproductive costs incurred in the exploration, development
and acquisition of oil and gas reserves are capitalized. Such costs may be incurred both prior to and after the acquisition of a property and include lease acquisitions, geological
and geophysical, or seismic, drilling, completion and equipment costs. Internal costs incurred that are directly attributable to exploration, development and acquisition activities
undertaken by us for our own account, and which are not attributable to production, general corporate overhead or similar activities are also capitalized. Future development
costs are estimated on a property-by-property basis based on current economic conditions and are amortized as a component of depreciation, depletion and amortization
(“DD&A”).
Unproved properties not being amortized include unevaluated leasehold costs and associated capitalized interest. These costs are reviewed quarterly to determine whether or not
and to what extent proved reserves have been assigned to a property or if an impairment has occurred due to lease expirations, general economic conditions and other factors, in
which case the related costs along with associated capitalized interest are reclassified to the proved oil and gas properties subject to DD&A.
At the end of each quarterly reporting period, the unamortized cost of our oil and gas properties, net of deferred income taxes, is limited to the sum of the estimated after-tax
discounted future net revenues from proved properties adjusted for costs excluded from amortization (the “Ceiling Test”). The estimated after-tax discounted future net revenues
are determined using the prior 12-month’s average commodity prices based on closing prices on the first day of each month, adjusted for differentials, discounted at 10%. The
calculation of the Ceiling Test and provision for DD&A are based on estimates of proved reserves. There are significant uncertainties inherent in estimating quantities of proved
reserves and projecting future rates of production, timing and plan of development.
DD&A of our oil and gas properties is computed using the units-of-production method. We apply this method by multiplying the unamortized cost of our proved oil and gas
properties, net of estimated salvage plus future development costs, by a rate determined by dividing the physical units of oil and gas produced during the period by the total
estimated units of proved oil and gas reserves at the beginning of the period.
Other Property and Equipment
Other property and equipment consists primarily of gathering systems and related support equipment, vehicles, leasehold improvements, information technology hardware and
capitalized software costs. Other property and equipment are carried at cost and include expenditures for additions and improvements which increase the productive lives of
existing assets. Renewals and betterments, which extend the useful life of the properties, are also capitalized. Maintenance and repair costs are charged to expense as incurred.
We compute depreciation and amortization of property and equipment using the straight-line method over the estimated useful life of each asset as follows: Gathering systems –
15 to 20 years and Other property and equipment – three to 20 years.
Leases
We determine if a contractual arrangement is a lease at inception and whether it is classified as operating or financing based on whether that contract conveys the right to control
the use of an identified asset in exchange for consideration for a period of time. Leases are included in Other assets, Accounts payable and accrued liabilities and Other
liabilities on our consolidated balance sheets and are identified as Right-of-use (“ROU”) assets, Current lease obligations and Noncurrent lease obligations, respectively, in Note
11 and Note 12.
ROU assets represent our right to use an underlying asset for the lease term and lease obligations represent our obligation to make lease payments arising from the underlying
contractual arrangement. Operating lease ROU assets and obligations are recognized at the commencement date based on the present value of lease payments over the lease
term. The operating lease ROU assets include any lease payments made in advance and excludes lease incentives. Our lease terms may include options to extend or terminate
the lease when it is reasonably certain that we will exercise such options. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
78
Most of our leasing arrangements do not identify or otherwise provide for an implicit interest rate. Accordingly, we utilize a secured incremental borrowing rate based on
information available at the commencement date in the determination of the present value of the lease payments. As most of our lease arrangements have terms ranging from
two to five years, our secured incremental borrowing rate is primarily based on the rates applicable to our Credit Facility.
We have lease arrangements that include lease and certain non-lease components, including amounts for related taxes, insurance, common area maintenance and similar terms.
We apply a practical expedient provided in Accounting Standards Codification (“ASC”) Topic 842, Leases, to not separate the lease and non-lease components. Accordingly,
the ROU assets and lease obligations for such leases will include the present value of the estimated payments for the non-lease components over the lease term.
Certain of our lease arrangements with contractual terms of 12 months or less are classified as short-term leases and are recognized on a straight-line basis over the lease term.
Accordingly, we do not include the underlying ROU assets and lease obligations on our consolidated balance sheets. The associated costs are aggregated with all of our other
lease arrangements and are disclosed in the tables in Note 11.
Certain of our lease arrangements result in variable lease payments which, in accordance with ASC Topic 842, do not give rise to lease obligations. Rather, the basis and terms
and conditions upon which such variable lease payments are determined are disclosed in Note 11.
Asset Retirement Obligations
We recognize the fair value of a liability for an asset retirement obligation (“ARO”) in the period in which it is incurred. Associated asset retirement costs are capitalized as part
of the carrying cost of the asset. Our AROs relate to the plugging and abandonment of oil and gas wells and the associated asset is recorded as a component of oil and gas
properties. After recording these amounts, the ARO is accreted to its future estimated value, and the additional capitalized costs are depreciated over the productive life of the
assets. Both the accretion of the ARO and the depreciation of the related long-lived assets are included in the DD&A expense caption in our consolidated statements of
operations.
Income Taxes
We recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax
returns. Using this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax bases of assets
and liabilities using enacted tax rates. In assessing our deferred tax assets, we consider whether a valuation allowance should be recorded for some or all of the deferred tax
assets which may not be realized. The ultimate realization of deferred tax assets is assessed at each reporting period and is dependent upon the generation of future taxable
income and our ability to utilize operating loss carryforwards during the periods in which the temporary differences become deductible. We also consider the scheduled reversal
of deferred tax liabilities and available tax planning strategies. We recognize interest attributable to income taxes, to the extent it may be incurred, as a component of interest
expense and penalties as a component of income tax expense.
We are subject to ongoing tax examinations in numerous domestic jurisdictions. Accordingly, we may record incremental tax expense based upon the more-likely-than-not
outcomes of uncertain tax positions. In addition, when applicable, we adjust the previously recorded tax expense to reflect examination results when the position is effectively
settled. Our ongoing assessments of the more-likely-than-not outcomes of the examinations and related tax positions require judgment and can increase or decrease our effective
tax rate, as well as impact our operating results. The specific timing of when the resolution of each tax position will be reached is uncertain.
Revenue Recognition and Associated Costs
The Company recognizes revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, which includes a five-step revenue recognition model to depict
the transfer of goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
We record revenue in the month that our oil and gas production is delivered to our customers. As a result of the numerous requirements necessary to gather information from
purchasers or various measurement locations, calculate volumes produced, perform field and wellhead allocations and distribute and disburse funds to various working interest
partners and royalty owners, the collection of revenues from oil and gas production may take up to 60 days following the month of production. Therefore, we make accruals for
revenues and accounts receivable based on estimates of our share of production. We record any differences, which historically have not been significant, between the actual
amounts ultimately received and the original estimates in the period they become finalized. See Note 5 for further discussion.
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Substantially all of our commodity product sales are short-term in nature with contract terms of one year or less. We apply a practical expedient which provides for an
exemption from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original
expected duration of one year or less. Under our commodity product sales contracts, we bill our customers and recognize revenue when our performance obligations have been
satisfied. At that time, we have determined that payment is unconditional. Accordingly, our commodity sales contracts do not create material contract assets or liabilities.
Crude oil. We sell our crude oil production to our customers at either the wellhead or a contractually agreed-upon delivery point, including certain regional central delivery
point terminals or pipeline inter-connections. We recognize revenue when control transfers to the customer considering factors associated with custody, title, risk of loss and
other contractual provisions as appropriate. Pricing is based on a market index with adjustments for product quality, location differentials and, if applicable, deductions for
intermediate transportation. Costs incurred by us for gathering and transporting the products to an agreed-upon delivery point are recognized as a component of gathering,
processing and transportation expense (“GPT”) in our consolidated financial statements.
NGLs. We have natural gas processing contracts in place with certain midstream processing vendors. We deliver “wet” natural gas to our midstream processing vendors at the
inlet of their processing facilities through gathering lines, certain of which we own and others which are owned by gathering service providers. Subsequent to processing, NGLs
are delivered or transported to a third-party customer. Depending upon the nature of the contractual arrangements with the midstream processing vendors regarding the
marketing of the NGL products, we recognize revenue for NGL products on either a gross or net basis. For those contracts where we have determined that we are the principal,
and the ultimate third party is our customer, we recognize revenue on a gross basis, with associated processing costs presented as GPT expenses. For those contracts where we
have determined that we are the agent and the midstream processing vendor is our customer, we recognize NGL product revenues on a net basis with processing costs presented
as a reduction of revenue.
Natural gas. Subsequent to the processing of “wet” natural gas and the separation of NGL products, the “dry” or residue gas is purchased by the processor or delivered to us at
the tailgate of the midstream processing vendors’ facilities and sold to a third-party customer. We recognize revenue when control transfers to the customer considering factors
associated with custody, title, risk of loss and other contractual provisions as appropriate. Pricing is based on a market index with adjustments for product quality and location
differentials, as applicable. Costs incurred by us for gathering and transportation from the wellhead through the processing facilities are recognized as a component of GPT
expenses in our consolidated financial statements.
Marketing and water disposal services. We provide marketing and water disposal services to certain of our joint venture partners and other third parties with respect to oil and
gas production for which we are the operator. Pricing for such services represents a fixed rate fee based, in the case of marketing services, on the sales price of the underlying oil
and gas products and, in the case of water services, on the quantity of water volume processed. Marketing revenue is recognized simultaneously with the sale of our commodity
production to our customers while water service revenue is recognized in the month that the service is rendered. Direct costs associated with our marketing efforts are included
in General and administrative expenses (“G&A”) and direct costs associated with our water service efforts are netted against the underlying revenue.
Credit Losses
We monitor and assess our portfolio of accounts receivable, including those from our customers, our joint interest partners and others, when applicable, for credit losses on a
monthly basis as we originate the underlying financial assets. Our review process and related internal controls take into appropriate consideration (i) past events and historical
experience with the identified portfolio segments, (ii) current economic and related conditions within the broad energy industry as well as those factors with broader
applicability and (iii) reasonable supportable forecasts consistent with other estimates that are inherent in our financial statements. In order to facilitate our processes for the
review and assessment of credit losses, we have identified the following portfolio segments: (i) customers for our commodity production and (ii) joint interest partners which
are further stratified into the following sub-segments: (a) mutual operators which includes joint interest partners with whom we are a non-operating joint interest partner in
properties for which they are the operator, (b) large partners consisting of those legal entities that maintain a working interest of at least 10% in properties for which we are the
operator and (c) all others which includes legal entities that maintain working interests of less than 10% in properties for which we are the operator as well as legal entities with
whom we no longer have an active joint interest relationship, but continue to have transactions, including joint venture audit settlements, that from time-to-time give rise to the
origination of new accounts receivable.
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Share-Based Compensation
Our stock compensation plans permit the grant of incentive and nonqualified stock options, common stock, deferred common stock units, restricted stock and restricted stock
units to our employees and directors. We measure the cost of employee services received in exchange for an award of equity-classified instruments based on the grant-date fair
value of the award. Compensation cost associated with equity-classified awards are generally amortized on a straight-line basis over the applicable vesting period. Awards that
are based on performance are amortized either on a graded basis over the term of the applicable performance periods for awards that represent in-substance multiple awards or
ratably over the requisite service period for awards that cliff vest. Compensation cost associated with liability-classified awards is measured at the end of each reporting period
and recognized based on the period of time that has elapsed during the applicable performance period. We recognize forfeitures as they occur. We recognize share-based
compensation expense related to our share-based compensation plans as a component of G&A expenses in our consolidated statements of operations.
Recent Accounting Pronouncements
We consider the applicability and impact of all Accounting Standard Updates (“ASUs”). ASUs not listed below were assessed and determined to be not applicable.
Recently Issued Accounting Pronouncements Not Yet Adopted
In October 2021, the Financial Accounting Standards Board issued ASU 2021-08, Business Combinations (Topic 805): (“ASU 2021-08”): Accounting for Contract Assets and
Contract Liabilities from Contracts with Customers. ASU 2021-08 amends Topic 805 to require the acquirer in a business combination to record contract assets and contract
liabilities in accordance with Revenue from Contracts with Customers (Topic 606) at acquisition as if it had originated the contract, rather than at fair value. This update is
effective for public companies beginning after December 15, 2022, with early adoption permitted. Adoption should be applied prospectively to business combinations occurring
on or after the effective date of the amendments unless early adoption occurs during an interim period in which other application rules apply. We do not expect the adoption of
this update to have a material impact to our financial statements.
Note 4 – Transactions
2022
Asset Acquisitions
In 2022, we completed acquisitions of additional working interests in Ranger-operated wells along with certain contiguous oil and gas producing assets and undeveloped
acreage in the Eagle Ford shale. The aggregate cash consideration for these acquisitions was $137.5 million, including customary post-closing adjustments. These transactions
were accounted for as asset acquisitions.
Asset Disposition
On July 22, 2022, we closed on the sale of the corporate office building and related assets acquired in connection with the Lonestar Acquisition (defined below) that were
classified as Assets held for sale on the consolidated balance sheet as of December 31, 2021. Gross proceeds were $11.0 million and total net proceeds were $1.8 million after
netting costs to sell of approximately $0.8 million and payoff of the related mortgage debt and accrued interest of $8.4 million.
2021
Acquisition of Lonestar Resources
On October 5, 2021 (the “Closing Date”), the Company acquired Lonestar Resources US Inc., a Delaware corporation (“Lonestar”), as a result of which Lonestar and its
subsidiaries became wholly-owned subsidiaries of the Company (the “Lonestar Acquisition”). The Lonestar Acquisition was effected pursuant to the Agreement and Plan of
Merger (the “Merger Agreement”), dated July 10, 2021, by and between the Company and Lonestar. In accordance with the terms of the Merger Agreement, Lonestar
shareholders received 0.51 shares of the Company’s common stock for each share of Lonestar common stock held immediately prior to the effective time of the Lonestar
Acquisition. Based on the closing price of the Company’s common stock on October 5, 2021 of $30.19, the total value of the Company’s common stock issued to holders of
Lonestar common stock, warrants and restricted stock units as applicable, was approximately $173.6 million.
The Lonestar Acquisition constituted a business combination and was accounted for using the acquisition method of accounting, with Ranger Oil being treated as the accounting
acquirer. Under the acquisition method of accounting, the assets and liabilities of Lonestar and its subsidiaries were recorded at their respective fair values as of the date of
completion of the Lonestar Acquisition. The Company completed the purchase price allocation during the third quarter of 2022.
81
The following table sets forth the Company’s final allocation of the purchase price to the assets acquired and liabilities assumed as of the acquisition date.
Final Purchase Price
Allocation
Consideration:
Fair value of the Company’s common stock issued
$
173,576
Less: Replacement awards attributable to post-combination compensation cost
(10,394)
Total consideration transferred
$
163,182
Assets:
Other current assets
$
50,044
Proved oil and gas properties
476,743
ARO asset
1,239
Corporate office building and related assets
11,400
Other property and equipment
2,582
Other non-current assets
37
Total assets acquired
$
542,045
Liabilities:
Current portion of long-term debt
$
24,187
Other current liabilities
66,150
Derivative liabilities
49,554
Asset retirement obligations
2,494
Long-term debt
236,478
Total liabilities assumed
$
378,863
Net Assets Acquired
$
163,182
Includes the fair value of the replacement equity awards to the extent services were provided by employees of Lonestar prior to closing of $ 4.5 million. See Note 16 for additional information about the
replacement equity awards.
Represents the fair value of the replacement equity awards considered post-combination services. See Note 16 for further details.
As of December 31, 2021, these assets met the held for sale criteria and were classified as Assets held for sale on the respective consolidated balance sheet.
Immediately following the Lonestar Acquisition, we paid approximately $ 50 million to restructure certain of Lonestar’s derivatives which were novated or terminated. We reset the majority of the swaps to
reflect then current market pricing.
For the period from the closing date of the Lonestar Acquisition on October 5, 2021 through December 31, 2021, approximately $62.5 million of revenues and $34.0 million of
direct operating expenses were included in the Company’s consolidated statement of operations for the year ended December 31, 2021.
Lonestar Acquisition-Related Expenses
The following table summarizes expenses related to the Lonestar Acquisition incurred for the year ended December 31, 2021:
Year Ended
December 31, 2021
Bank, legal and consulting fees
$
9,856
Employee severance and related costs
7,563
Replacement awards stock-based compensation costs
10,394
Integration and rebranding costs
1,746
Total acquisition-related expenses
$
29,559
Employee severance and related costs primarily related to one-time severance and change-in-control compensation costs. Replacement awards stock-based compensation costs
related to the accelerated vesting of certain Lonestar share-based awards for former Lonestar employees and directors based on the terms of the Merger Agreement and change-
in-control provisions within the former Lonestar employment agreements.
1
2
3
4
__________________________________________________________________________________
1
2
3
4
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Pro Forma Operating Results (Unaudited)
The following unaudited pro forma condensed financial data for the years ended December 31, 2021 and 2020 was derived from the historical financial statements of the
Company giving effect to the Lonestar Acquisition, as if it had occurred on January 1, 2020. The below information reflects pro forma adjustments for the issuance of the
Company’s common stock in exchange for Lonestar’s outstanding shares of common stock, as well as pro forma adjustments based on available information and certain
assumptions that the Company believes are reasonable, including (i) the Company’s common stock issued to convert Lonestar’s outstanding shares of common stock and equity
awards as of the closing date of the Lonestar Acquisition, (ii) the depletion of Lonestar’s fair-valued proved oil and natural gas properties under the full cost accounting method
as well as other impacts of converting Lonestar from successful efforts to the full cost accounting method and (iii) the estimated tax impacts of the pro forma adjustments. The
pro forma results of operations do not include any cost savings or other synergies that may result from the Lonestar Acquisition or any estimated costs that have been or will be
incurred by the Company to integrate the Lonestar assets.
The pro forma consolidated statements of operations data has been included for comparative purposes only and is not necessarily indicative of the results that might have
occurred had the Lonestar Acquisition taken place on January 1, 2020 and is not intended to be a projection of future results.
December 31,
2021
2020
Total revenues
$
729,026
$
389,495
Net income (loss) attributable to Class A common shareholders
$
74,355
$
(321,951)
Juniper Transactions
On the Juniper Closing Date, (i) pursuant to the terms of the Contribution Agreement, JSTX contributed to the Partnership, as a capital contribution, $150 million in cash in
exchange for 17,142,857 newly issued Common Units and the Company issued to JSTX 171,428.57 shares of Series A Preferred Stock, par value $0.01 per share, of the
Company (“Series A Preferred Stock”) (now Class B Common Stock as discussed below) at a price equal to the par value of the shares acquired, and (ii) pursuant to the terms
of the Asset Agreement, including certain closing adjustments based on a September 1, 2020 effective date (the “Effective Date”), Rocky Creek contributed to our operating
subsidiary certain oil and gas assets in exchange for 5,405,252 newly issued Common Units and the Company issued to Rocky Creek 54,052.52 shares of Series A Preferred
Stock (5,406,141 Common Units and 54,061.41 shares of Series A Preferred Stock after post-closing adjustments) at a price equal to the par value of the shares acquired,
including 495,900 Common Units and 4,959 shares of Series A Preferred Stock placed in a restricted account to support post-closing indemnification claims, 50% of such
amount of which was disbursed 180 days after the Juniper Closing Date and the remainder was disbursed one year after the Juniper Closing Date. In connection with the
contribution of the oil and gas assets under the Asset Agreement, we received $1.2 million of revenues attributable to production from the Rocky Creek assets for the period
from December 1, 2020 through the Juniper Closing Date.
We incurred a total of $19.0 million of professional fees, including advisory, legal, consulting fees and other costs in connection with the Juniper Transactions. A total of
$5.0 million were attributable to services and costs incurred and recognized in 2020 as G&A. The remaining $14.0 million of costs were incurred in January 2021 or otherwise
incurred contingent upon the closing of the Juniper Transactions, including $5.5 million of transaction costs incurred by Juniper that were required to be paid by the Company
under the Juniper Transaction Agreements as well as $3.8 million of costs incurred by us related to the issuance of the Series A Preferred Stock and Common Units.
Collectively, these amounts were classified as a reduction to the capital contribution on our consolidated balance sheets. The remainder of $4.7 million, representing
professional fees and other costs, was recognized as a component of G&A in the quarter ended March 31, 2021.
On October 6, 2021, the Company, JSTX and Rocky Creek entered into a Contribution and Exchange Agreement, whereby all outstanding shares of the Series A Preferred
Stock were exchanged for newly issued shares of Class B Common Stock (“Class B Common Stock”), at a ratio of one share of Class B Common Stock for each 1/100th of a
share of Series A Preferred Stock and the designation of the Series A Preferred Stock was cancelled. See Note 15 for additional information.
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The following table reconciles the initial investment by Juniper and the carrying value of their Noncontrolling interest as of the Juniper Closing Date (after post-closing
adjustments):
Cash contribution
$
150,000
Issue costs paid for Noncontrolling interest securities
(3,758)
Transaction costs paid on behalf of Noncontrolling interest
(5,543)
Fair value of Rocky Creek oil and gas properties contributed
38,561
Revenues received attributable to contributed properties
1,160
Suspense revenues attributable to the contributed properties
(146)
Asset retirement obligations of the contributed properties
(14)
Fair value of capital contributions
180,260
Income tax adjustment attributable to the Juniper Transactions
(708)
Total shareholders’ equity prior to the Juniper Closing Date
205,558
$
385,110
Juniper voting power through Series A Preferred Stock
59.6 %
Noncontrolling interest as of the Juniper Closing Date
$
229,620
Due to the Lonestar Acquisition in October 2021, a change in ownership of the Noncontrolling interest occurred. Refer to Note 15 for additional information.
Note 5 – Revenue Recognition
The Company’s revenues are derived from contracts for crude oil, natural gas and NGL sales and other services, as described in Note 3.
Our accounts receivable consists mainly of trade receivables from commodity sales and joint interest billings due from partners on properties we operate. Our allowance for
credit losses is entirely attributable to receivables from joint interest partners. We generally have the right to withhold future revenue distributions to recover past due
receivables from joint interest owners. Generally, our oil, natural gas, and NGL receivables are collected within 30 to 90 days. The following table summarizes our accounts
receivable by type as of the dates presented:
December 31,
2022
2021
Customers
$
109,149
$
96,195
Joint interest partners
30,730
21,755
Derivative settlements from counterparties
437
1,037
Other
114
18
Total
140,430
119,005
Less: Allowance for credit losses
(715)
(411)
Accounts receivable, net of allowance for credit losses
$
139,715
$
118,594
_______________________
See Note 6 for information regarding our derivative instruments.
Major Customers
For the year ended December 31, 2022, two customers accounted for 43% of our consolidated product revenues, of which 27%, and 16% of the consolidated revenues were
generated from these customers, respectively. For the year ended December 31, 2021, three customers accounted for 48% of our consolidated product revenues, of which 22%,
14%, and 12% of the consolidated revenues were generated from these customers, respectively. For the year ended December 31, 2020, three customers accounted for 56% of
our consolidated product revenues of which 27%, 19%, and 10% of the consolidated revenues were generated from these customers, respectively.
1
1
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Note 6 – Derivative Instruments
We utilize derivative instruments, typically swaps, put options and call options which are placed with financial institutions that we believe are acceptable credit risks, to
mitigate our financial exposure to commodity price volatility associated with anticipated sales of our future production and volatility in interest rates attributable to our variable
rate debt instruments. Our derivative instruments are not designated as hedges for accounting purposes. While the use of derivative instruments limits the risk of adverse
commodity price and interest rate movements, such use may also limit the beneficial impact of future product revenues and interest expense from favorable commodity price
and interest rate movements. From time to time, we may enter into incremental derivative contracts in order to increase the notional volume of production we are hedging,
restructure existing derivative contracts or enter into other derivative contracts resulting in modification to the terms of existing contracts. In accordance with our internal
policies, we do not utilize derivative instruments for speculative purposes.
For our commodity derivatives, we typically combine swaps, purchased put options, purchased call options, sold put options and sold call options in order to achieve various
hedging objectives. Certain of these objectives result in combinations that operate as collars which include purchased put options and sold call options, three-way collars, which
include purchased put options, sold put options and sold call options, and enhanced swaps, which include either sold put options or sold call options with the associated
premiums rolled into an enhanced fixed price swap, among others.
Commodity Derivatives
The following is a general description of the commodity derivative instruments we employ:
Swaps. A swap contract is an agreement between two parties pursuant to which the parties exchange payments at specified dates on the basis of a specified notional amount, or
the swap price, with the payments calculated by reference to specified commodities or indexes. The purchasing counterparty to a swap contract is required to make a payment to
selling counterparty based on the amount of the swap price in excess of the settlement price multiplied by the notional volume if the settlement price for any settlement period is
below the swap price for such contract. We are required to make a payment to the counterparty based on the amount of the settlement price in excess of the swap price
multiplied by the notional volume if the settlement price for any settlement period is above the swap price for such contract.
Put Options. A put option has a defined strike, or floor price. We have entered into put option contracts in the roles of buyer and seller depending upon our particular hedging
objective. The buyer of the put option pays the seller a premium to enter into the contract. When the settlement price is below the floor price, the seller pays the buyer an amount
equal to the difference between the settlement price and the strike price multiplied by the notional volume. When the settlement price is above the floor price, the put option
expires worthless. Certain of our purchased put options have deferred premiums. For the deferred premium puts, we agree to pay a premium to the counterparty at the time of
settlement.
Call Options. A call option has a defined strike, or ceiling price. We have entered into call option contracts in the roles of buyer and seller depending upon our particular
hedging objective. The buyer of the call option pays the seller a premium to enter into the call option. When the settlement price is above the ceiling price, the seller pays the
buyer an amount equal to the difference between the settlement price and the strike price multiplied by the notional volume. When the settlement price is below the ceiling
price, the call option expires worthless.
Two-Way Collars. A two-way collar is an arrangement that contains a sold call option, which establishes a maximum price (ceiling price) we will receive for the contract
volumes, and a purchased put, which establishes a minimum price (floor price) we will receive based on an index price. We have entered into two-way collars periodically to
achieve particular hedging objectives. When the index price is higher than the ceiling price, we pay the counterparty the difference between the index price and ceiling price. If
the index price is between the floor and ceiling prices, no payments are due from either party. When the index price is below the floor price, we will receive the difference
between the floor price and the index price.
85
The following table sets forth our commodity derivative contracts as of December 31, 2022:
Commodity Derivatives
1Q2023
2Q2023
3Q2023
4Q2023
1Q2024
2Q2024
NYMEX WTI Crude Swaps
Average Volume Per Day (bbl)
2,500
2,400
2,807
2,657
462
462
Weighted Average Swap Price ($/bbl)
$
54.4
$
54.26
$
54.92
$
54.93
$
58.75
$
58.75
NYMEX WTI Crude Collars
Average Volume Per Day (bbl)
20,972
12,775
13,043
8,967
Weighted Average Purchased Put Price ($/bbl)
$
67.75
$
63.23
$
73.13
$
72.27
Weighted Average Sold Call Price ($/bbl)
$
83.64
$
75.69
$
89.07
$
87.57
NYMEX HH Swaps
Average Volume Per Day (MMBtu)
10,000
7,500
Weighted Average Swap Price ($/MMBtu)
$
3.620
$
3.690
NYMEX HH Collars
Average Volume Per Day (MMBtu)
14,617
11,538
11,413
11,413
11,538
11,538
Weighted Average Purchased Put Price ($/MMBtu)
$
6.561
$
2.500
$
2.500
$
2.500
$
2.500
$
2.328
Weighted Average Sold Call Price ($/MMBtu)
$
12.334
$
2.682
$
2.682
$
2.682
$
3.650
$
3.000
HSC Basis Swaps
Average Volume Per Day (MMBtu)
24,617
19,038
11,413
11,413
HSC Basis Average Fixed Price ($/MMBtu)
$
(0.153)
$
(0.153)
$
(0.153)
$
(0.153)
OPIS Mt. Belvieu Ethane Swaps
Average Volume per Day (gal)
98,901
34,239
34,239
34,615
Weighted Average Fixed Price ($/gal)
$
0.2288
$
0.2275
$
0.2275
$
0.2275
Interest Rate Derivatives
Through May 2022, we had a series of interest rate swap contracts (the “Interest Rate Swaps”) establishing fixed interest rates on a portion of our variable interest rate
indebtedness. The notional amount of the Interest Rate Swaps totaled $300 million, with us paying a weighted average fixed rate of 1.36% on the notional amount, and the
counterparties paying a variable rate equal to LIBOR. As of December 31, 2022, we did not have any interest rate derivatives.
Financial Statement Impact of Derivatives
The impact of our derivatives activities on income is included within Derivatives gains (losses) on our consolidated statements of operations. Derivative contracts that have
expired at the end of a period, but for which cash had not been received or paid as of the balance sheet date, have been recognized as components of Accounts receivable (see
Note 5) and Accounts payable and accrued liabilities (see Note 12) on the consolidated balance sheets. Adjustments to reconcile net income to net cash provided by operating
activities include derivative losses and cash settlements that are reported under Net losses (gains) and Cash settlements and premiums (paid) received, net, on our consolidated
statements of cash flows, respectively.
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The following table summarizes the effects of our derivative activities for the periods presented:
Year Ended December 31,
2022
2021
2020
Interest Rate Swap gains (losses) recognized in the consolidated statements of operations
$
64
$
(2)
$
(7,510)
Commodity gains (losses) recognized in the consolidated statements of operations
(162,736)
(136,997)
95,932
$
(162,672)
$
(136,999)
$
88,422
Interest rate cash settlements recognized in the consolidated statements of cash flows
$
(1,415)
$
(3,822)
$
(2,210)
Commodity cash settlements and premiums received (paid) recognized in the consolidated statements of cash flows
(181,963)
(77,099)
80,297
Commodity cash settlements paid for acquired derivatives recognized in the consolidated statements of cash flows
—
(49,554)
—
$
(183,378)
$
(130,475)
$
78,087
The following table summarizes the fair value of our derivative instruments, which we elect to present on a gross basis, as well as the locations of these instruments on our
consolidated balance sheets as of the dates presented:
Fair Values
December 31, 2022
December 31, 2021
Type
Balance Sheet Location
Derivative Assets
Derivative
Liabilities
Derivative Assets
Derivative
Liabilities
Interest rate contracts
Derivative assets/liabilities – current
$
—
$
—
$
—
$
1,480
Commodity contracts
Derivative assets/liabilities – current
29,714
67,933
11,478
48,892
Commodity contracts
Derivative assets/liabilities – non-current
316
3,416
2,092
23,815
$
30,030
$
71,349
$
13,570
$
74,187
As of December 31, 2022, we reported net commodity derivative liabilities of $41.3 million. The contracts associated with these positions are with seven counterparties for
commodity derivatives, all of which are investment grade financial institutions and are participants in the Credit Facility. This concentration may impact our overall credit risk
in that these counterparties may be similarly affected by changes in economic or other conditions. Non-performance risk is incorporated by utilizing discount rates adjusted for
the credit risk of our counterparties if the derivative is in an asset position, and our own credit risk if the derivative is in a liability position.
The agreements underlying our derivative instruments include provisions for the netting of settlements with the counterparties for contracts of similar type. We have neither paid
to, nor received from, our counterparties any cash collateral in connection with our derivative positions. Furthermore, our derivative contracts are not subject to margin calls or
similar accelerations. No significant uncertainties exist related to the collectability of amounts that may be owed to us by these counterparties.
See Note 13 for information regarding the fair value of our derivative instruments.
87
Note 7 – Property and Equipment, Net
The following table summarizes our property and equipment as of the dates presented:
December 31,
2022
2021
Oil and gas properties (full cost accounting method):
Proved
$
3,013,854
$
2,327,686
Unproved
41,882
57,900
Total oil and gas properties
3,055,736
2,385,586
Other property and equipment
30,969
31,055
Total properties and equipment
3,086,705
2,416,641
Accumulated depreciation, depletion, amortization and impairments
(1,277,705)
(1,033,293)
Total property and equipment, net
$
1,809,000
$
1,383,348
_______________________
Excludes the corporate office building and related other assets acquired in connection with the Lonestar Acquisition that were classified as Assets held for sale on the consolidated balance sheets as of
December 31, 2021. We closed on the sale of the corporate office building in July 2022. See Note 4 for additional information. As of December 31, 2022, we had $ 1.2 million remaining other assets classified
as Assets held for sale excluded from above.
Unproved property costs of $41.9 million and $57.9 million have been excluded from amortization as of December 31, 2022 and December 31, 2021, respectively. The total
costs not subject to amortization as of December 31, 2022 were incurred in the following periods: $0.9 million in 2022, $1.3 million in 2021, $0.7 million in 2020 and $33.2
million prior to 2019 as well as $5.8 million of capitalized interest applied thereto. We transferred $25.2 million and $17.8 million of unproved leasehold costs, including
capitalized interest, associated with proved undeveloped reserves, and acreage unlikely to be drilled or expiring acreage, to the full cost pool during the years ended
December 31, 2022 and 2021, respectively. We capitalized internal costs of $ 5.3 million, $4.1 million and $2.1 million and interest of $4.3 million, $3.6 million and $2.7
million during the years ended December 31, 2022, 2021 and 2020, respectively, in accordance with our accounting policies. Average DD&A per boe of proved oil and gas
properties was $16.42, $12.96 and $15.83 for the years ended December 31, 2022, 2021 and 2020, respectively.
Ceiling Test
Beginning in early 2020, certain events such as the COVID-19 pandemic coupled with decisions by the Organization of the Petroleum Exporting Countries (“OPEC”) and
Russia (together with OPEC, collectively “OPEC+”) negatively impacted the oil and gas industry with significant declines in crude oil prices and oversupply of crude oil. Then
in early 2021 with the deployment of vaccines and resulting increased mobility and global economic activity and other factors, demand for oil increased and commodity prices
began to recover. Prior to the announced significant production cut to take effect in November 2022, OPEC+ had previously employed a strategy to gradually increase
production. These shifts in OPEC+ production levels as well as the Russia-Ukraine war and related sanctions, which began in the first quarter of 2022, continue to contribute to
a high level of uncertainty surrounding energy supply and demand resulting in volatile commodity prices. WTI crude oil and natural gas prices surged with prices over $120 per
bbl and over $9 per Mcf, respectively, during the first half of 2022 due to oil supply shortage concerns. During the second half of 2022, WTI crude oil and natural gas prices
dropped to lows under $72 per bbl and $4 per Mcf, respectively.
As discussed in Note 3, the Ceiling Test utilizes commodity prices based on a trailing 12-month average based on the closing prices on the first day of each month. With the
higher commodity prices in 2022, we did not record any impairments of our oil and gas properties during the year ended December 31, 2022. However, the years ended
December 31, 2021 and 2020 were impacted by the decline in commodity prices as a result of the various factors discussed above, resulting in impairments of our oil and gas
properties of $1.8 million and $391.8 million, respectively.
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1
88
Note 8 – Asset Retirement Obligations
The following table reconciles our AROs as of the dates presented, which are included within Other liabilities on our consolidated balance sheets:
Year Ended December 31,
2022
2021
Balance at beginning of period
$
8,413
$
5,461
Changes in estimates
182
—
Liabilities incurred
64
226
Liabilities settled
(589)
(228)
Acquisitions of properties
166
2,508
Accretion expense
613
446
Balance at end of period
$
8,849
$
8,413
Note 9 – Long-Term Debt
The following table summarizes our long-term debt as of the dates presented:
December 31, 2022
December 31, 2021
Credit Facility
$
215,000
$
208,000
9.25% Senior Notes due 2026
400,000
400,000
Mortgage debt
—
8,438
Other
238
2,516
Total
615,238
618,954
Less: Unamortized discount
(3,055)
(3,720)
Less: Unamortized deferred issuance costs
(8,106)
(9,853)
Total, net
$
604,077
$
605,381
Less: Current portion
—
(4,129)
Long-term debt
$
604,077
$
601,252
_______________________
The mortgage debt related to the corporate office building and related other assets acquired in connection with the Lonestar Acquisition for which assets were held as collateral for such debt. In July 2022, the
mortgage debt was fully repaid in connection with the sale of the corporate office building. See Note 4 for additional information on the sale.
Other debt of $2.2 million at December 31, 2022 was extinguished during 2022 and recorded as a gain on extinguishment on the consolidated statements of operations.
The discount and issuance costs of the 9.25% Senior Notes due 2026 are being amortized over its respective term using the effective-interest method.
Excludes issuance costs associated with the Credit Facility, which represent costs attributable to the access to credit over its contractual term, that have been presented as a component of Other assets (see
Note 12) and are being amortized over the term of the Credit Facility using the straight-line method.
Credit Facility
As of December 31, 2022, the Credit Facility had a $1.0 billion revolving commitment and a $950 million borrowing base, with aggregate elected commitments of $500
million, and a $25 million sublimit for the issuance of letters of credit. Availability under the Credit Facility may not exceed the lesser of the aggregate elected commitments or
the borrowing base less outstanding advances and letters of credit. The borrowing base under the Credit Facility is redetermined semi-annually, generally in the Spring and Fall
of each year. Additionally, we and the Credit Facility lenders may, upon request, initiate a redetermination at any time during the six-month period between scheduled
redeterminations. The Credit Facility is available to us for general corporate purposes, including working capital.
In June 2022, we entered into the Agreement and Amendment No. 12 to Credit Agreement (the “Twelfth Amendment”). The Twelfth Amendment, in addition to other changes
described therein, amended the Credit Facility to, effective on June 1, 2022, (1) increase the borrowing base from $725 million to $875 million, with aggregate elected
commitments remaining at $400 million and (2) replaced LIBOR with the Secured Overnight Financing Rate (“SOFR”), an index supported by short-term Treasury repurchase
agreements.
1
2
3
3, 4
1
2
3
4
89
In September 2022, we entered into the Agreement and Amendment No. 13 to Credit Agreement (the “Thirteenth Amendment”). The Thirteenth Amendment, in addition to
other changes described therein, amended the Credit Facility to (1) increase the borrowing base from $875 million to $950 million and (2) increase the aggregate elected
commitment amounts under the Credit Facility from $400 million to $500 million.
The outstanding borrowings under the Credit Facility bear interest at a rate equal to, at our option, either (a) a customary reference rate plus an applicable margin ranging from
1.50% to 2.50%, determined based on the utilization level under the Credit Facility or (b) effective June 1, 2022, a term SOFR reference rate (a Eurodollar rate, including
LIBOR prior to June 1, 2022), plus an applicable margin ranging from 2.50% to 3.50%, determined based on the utilization level under the Credit Facility. Interest on reference
rate borrowings is payable quarterly in arrears and is computed on the basis of a year of 365/366 days, and interest on Eurodollar borrowings is payable every one, three or six
months, at the election of the borrower, and is computed on the basis of a year of 360 days. At December 31, 2022, the actual weighted-average interest rate on the outstanding
borrowings under the Credit Facility was 7.25%. Unused commitment fees are charged at a rate of 0.50%.
The Credit Facility requires us to maintain (1) a minimum current ratio (as defined in the Credit Facility, which considers the unused portion of the total commitment as a
current asset), measured as of the last day of each fiscal quarter of 1.00 to 1.00 and (2) a maximum leverage ratio (consolidated indebtedness to adjusted earnings before interest,
taxes, depreciation, depletion, amortization and exploration expenses, both as defined in the Credit Facility), measured as of the last day of each fiscal quarter of 3.50 to 1.00.
The Credit Facility also contains other customary affirmative and negative covenants as well as events of default and remedies. If we do not comply with the financial and other
covenants in the Credit Facility, the lenders may, subject to customary cure rights, require immediate payment of all amounts outstanding under the Credit Facility. As of
December 31, 2022, we were in compliance with all debt covenants under the Credit Facility.
We had $215.0 million in outstanding borrowings and $1.0 million in outstanding letters of credit under the Credit Facility as of December 31, 2022. Factoring in the
outstanding letters of credit, we had $284.0 million of availability under the Credit Facility as of December 31, 2022. During the years ended December 31, 2022 and 2021, we
incurred and capitalized issue costs of $0.9 million and $2.6 million, respectively, in connection with amendments to the Credit Facility. Additionally, during 2022 and 2021, we
wrote off $0.1 million and $0.8 million of previously deferred debt issue costs associated with amendments to the Credit Facility, respectively.
9.25% Senior Notes due 2026
On August 10, 2021, our indirect, wholly-owned subsidiary completed an offering of $400 million aggregate principal amount of senior unsecured notes due 2026 (the “9.25%
Senior Notes due 2026”) that bear interest at 9.25% and were sold at 99.018% of par. Obligations under the 9.25% Senior Notes due 2026 were assumed by ROCC Holdings,
LLC (formerly, Penn Virginia Holdings, LLC, hereinafter referred to as “Holdings”), as borrower, and are guaranteed by the subsidiaries of Holdings that guarantee the Credit
Facility.
In connection with the consummation of the Lonestar Acquisition, the net proceeds from the 9.25% Senior Notes due 2026 were used to repay and discharge $249.8 million of
Lonestar’s long-term debt including accrued interest and related expenses, and the remainder, along with cash on hand, of $146.2 million was used to repay outstanding
obligations under the Second Lien Term Loan including a prepayment premium and accrued interest and related expenses. Thereafter, the Second Lien Term Loan was
terminated and $6.9 million was recorded as a loss on extinguishment of debt for costs incurred related to a prepayment premium and write off of unamortized discount and
issue costs. During 2021, we incurred and capitalized $10.4 million of issue costs in connection with the 9.25% Senior Notes due 2026. See Note 4 for additional information.
The indenture governing the 9.25% Senior Notes due 2026 also contains other customary affirmative and negative covenants as well as events of default and remedies.
As of December 31, 2022, the Company was in compliance with all debt covenants under the indenture.
90
Note 10 – Income Taxes
The following table summarizes our provision for income taxes for the periods presented:
Year Ended December 31,
2022
2021
2020
Current income tax expense (benefit)
Federal
$
—
$
—
$
(1,236)
State
764
311
357
Total current income tax expense (benefit)
764
311
(879)
Deferred income tax expense (benefit)
Federal
—
—
1,236
State
3,422
1,249
(2,660)
Total deferred income tax expense (benefit)
3,422
1,249
(1,424)
Income tax expense (benefit)
$
4,186
$
1,560
$
(2,303)
The following table reconciles the difference between the income tax expense (benefit) computed by applying the statutory tax rate to our income (loss) before income taxes
and our reported income tax expense (benefit) for the periods presented:
Year Ended December 31,
2022
2021
2020
Tax computed at federal statutory rate
$
98,428
21.0 %
$
21,100
21.0 %
$
(65,701)
21.0 %
State income taxes, net of federal income tax benefit
4,186
0.9 %
1,560
1.6 %
(1,856)
0.6 %
Change in valuation allowance
(44,070)
(9.4)%
(9,348)
(9.3)%
64,062
(20.5)%
Noncontrolling interest
(52,299)
(11.2)%
(12,501)
(12.4)%
—
— %
Other, net
(2,059)
(0.4)%
749
0.7 %
1,192
(0.4)%
Income tax expense (benefit)
$
4,186
0.9 %
$
1,560
1.6 %
$
(2,303)
0.7 %
The following table summarizes the principal components of our deferred income tax assets and liabilities as of the dates presented:
December 31,
2022
2021
Deferred tax assets:
Net operating loss (“NOL”) carryforwards
$
194,819
$
203,243
Asset retirement obligations
66
63
Property and equipment
27,530
24,585
Fair value of derivative instruments
310
493
Interest expense limitation
13,443
13,747
Other
—
18
Total deferred tax assets
236,168
242,149
Less: Valuation allowance
(158,017)
(205,617)
Total net deferred tax assets
$
78,151
$
36,532
Deferred tax liabilities:
Property and equipment
$
6,592
$
3,357
Investment in the Partnership
77,713
35,968
Other
62
—
Total deferred tax liabilities
$
84,367
$
39,325
Net deferred tax liabilities
$
(6,216)
$
(2,793)
91
Income Tax Provision
For the year ended December 31, 2022 and 2021, we did not have any current federal tax benefits. The provision for the year ended December 31, 2020 includes current federal
benefits of $1.2 million attributable to refunds of AMT credits for the 2020 tax year. The amounts attributable to 2020 combined the amounts attributable to 2019, which had
been recognized on our consolidated balance sheets as of December 31, 2019 as a current asset, were received in 2020 as an acceleration of all AMT credits in connection with
certain provisions of the CARES Act. In addition, we have recognized deferred state tax expense (benefits) of $3.4 million, $1.2 million and $(2.7) million primarily attributable
to property and equipment as well as $0.8 million, $0.3 million and $0.4 million current state expense attributable to the Texas margin tax for the years ended December 31,
2022, 2021 and 2020, respectively. Our overall effective tax rates were 0.9%, 1.6% and 0.7% for the years ended December 31, 2022, 2021 and 2020, respectively.
Deferred Tax Assets and Liabilities
As of December 31, 2022, we had federal NOL carryforwards of approximately $706.7 million, a substantial portion of which, if not utilized, expire between 2032 and 2037.
NOLs incurred after January 1, 2018 can be carried forward indefinitely. Because of the change in ownership provisions of the Code, use of a portion of our federal NOLs may
be limited in future periods. As of December 31, 2022, we carried a valuation allowance against our federal and state deferred tax assets of $158.0 million. We considered both
the positive and negative evidence in determining whether it was more likely than not that some portion or all of our deferred tax assets will be realized. The amount of deferred
tax assets considered realizable could, however, be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective
negative evidence is no longer present and additional weight is given to subjective positive evidence, including projections for growth. The valuation allowance along with
$84.4 million of deferred tax liabilities fully offset our deferred tax assets. The net deferred tax liability recognized on our consolidated balance sheets as of December 31, 2022
is attributable to certain state deferred tax liabilities associated with property and equipment and unrealized hedges. The valuation allowance related to all other net deferred tax
assets remains in full as of December 31, 2022 and 2021.
Following the Juniper Transactions, Ranger Oil is a holding company and all of its operating assets are held within the Partnership. Certain of the federal deferred tax assets and
liabilities were reclassified to investment in partnership deferred tax liability in 2021.
Other Income Tax Matters
We had no liability for unrecognized tax benefits as of December 31, 2022 and 2021. There were no interest and penalty charges recognized during the years ended
December 31, 2022, 2021 and 2020. Tax years from 2015 forward remain open for examination by the Internal Revenue Service and various state jurisdictions.
Note 11 – Leases
We generally have lease arrangements for office facilities and certain office equipment, certain field equipment including compressors, drilling rigs, crude oil storage tank
capacity, land easements and similar arrangements for rights-of-way, and certain gas gathering and gas lift assets. Our short-term leases included in the disclosures below are
primarily comprised of our contractual arrangements with certain vendors for operated drilling rigs, crude oil storage tank capacity and our field compressors. Our primary
variable lease was represented by our field gas gathering and gas lift agreement with a midstream service provider and the lease payments are charged on a volumetric basis at a
contractual fixed rate.
The following table summarizes the components of our total lease cost for the periods presented:
Year Ended December 31,
2022
2021
2020
Operating lease cost
$
889
$
891
$
979
Short-term lease cost
49,418
24,655
23,721
Variable lease cost
32,370
24,807
21,932
Less: Amounts charged as drilling costs
(43,867)
(21,213)
(20,708)
Total lease cost recognized in the consolidated statement of operations
$
38,810
$
29,140
$
25,924
___________________
Represents the combined gross amounts paid and (i) capitalized as drilling costs for our working interest share and (ii) billed to joint interest partners for their working interest share for short-term leases of
operated drilling rigs.
Includes $14.9 million, $10.8 million and $11.2 million recognized in GPT, $ 23.1 million, $17.4 million and $13.8 million recognized in Lease operating expense (“LOE”) and $ 0.8 million, $0.9 million and
$1.0 million recognized in G&A for the years ended December 31, 2022, 2021, and 2020, respectively.
1
2
1
2
92
The following table summarizes supplemental cash flow information related to leases for the periods presented:
Year Ended December 31,
2022
2021
2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
952
$
981
$
943
ROU assets obtained in exchange for operating lease obligations
$
118
$
—
$
388
The following table summarizes supplemental balance sheet information related to leases as of the dates presented:
December 31,
Leases
Balance Sheet Location
2022
2021
Assets
ROU assets – operating leases
Other assets
$
989
$
1,671
Liabilities
Current operating lease obligations
Accounts payable and accrued liabilities
$
907
$
914
Non-current operating lease obligations
Other non-current liabilities
200
975
Total operating lease obligations
$
1,107
$
1,889
The following table presents other information as it relates to operating leases as of the dates presented:
December 31,
2022
2021
Weighted-average remaining lease term – operating leases
1.5 years
2.1 years
Weighted-average discount rate – operating leases
3.33 %
3.13 %
As of December 31, 2022, maturities of our operating lease liabilities consisted of the following:
December 31, 2022
2023
$
907
2024
175
2025
29
2026
26
2027
1
Total undiscounted lease payments
1,138
Less: imputed interest
(31)
Total operating lease obligations
$
1,107
93
Note 12 – Supplemental Balance Sheet Detail
The following table summarizes components of selected balance sheet accounts as of the dates presented:
December 31,
2022
2021
Prepaid and other current assets:
Inventories
$
19,341
$
10,305
Prepaid expenses
2,923
10,693
$
22,264
$
20,998
Other assets:
Deferred issuance costs of the Credit Facility, net of amortization
$
3,218
$
3,308
Right-of-use assets – operating leases
989
1,671
Other
213
38
$
4,420
$
5,017
Accounts payable and accrued liabilities:
Trade accounts payable
$
58,592
$
32,452
Drilling and other lease operating costs
62,842
35,045
Revenue and royalties payable
104,512
95,521
Production, ad valorem and other taxes
10,547
7,905
Derivative settlements to counterparties
4,109
6,117
Compensation and benefits
6,927
13,942
Interest
14,655
15,321
Environmental remediation liability
207
2,287
Current operating lease obligations
907
914
Other
2,311
4,877
$
265,609
$
214,381
Other non-current liabilities:
Asset retirement obligations
$
8,849
$
8,413
Non-current operating lease obligations
200
975
Postretirement benefit plan obligations
885
970
$
9,934
$
10,358
_______________________
Includes tubular inventory and well materials of $ 18.7 million and $9.5 million and crude oil volumes in storage of $ 0.6 million and $0.8 million as of December 31, 2022 and 2021, respectively.
The balance as of December 31, 2022 and 2021 includes $ 0.5 million and $9.6 million, respectively, for the prepayment of drilling and completion services and materials.
The balance as of December 31, 2022 and 2021 represents estimated costs associated with remediation activities for certain wells and tanks acquired as part of the Lonestar Acquisition; the remediation was
completed in the fourth quarter of 2022.
1
2
3
1
2
3
94
Note 13 – Fair Value Measurements
We apply the authoritative accounting provisions included in GAAP for measuring fair value of both our financial and nonfinancial assets and liabilities. Fair value is an exit
price representing the expected amount we would receive upon the sale of an asset or that we would expect to pay to transfer a liability in an orderly transaction with market
participants at the measurement date.
We use a hierarchy that prioritizes the inputs we use to measure fair value into three distinct categories based upon whether such inputs are observable in active markets or
unobservable. We classify assets and liabilities in their entirety based on the lowest level of input that is significant to the fair value measurement. Our methodology for
categorizing assets and liabilities that are measured at fair value pursuant to this hierarchy gives the highest priority to unadjusted quoted prices in active markets and the lowest
level to unobservable inputs as outlined below.
Fair value measurements are classified and disclosed in one of the following three categories:
•
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Level 1 inputs
generally provide the most reliable evidence of fair value.
•
Level 2: Quoted prices in markets that are not active or inputs, which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
•
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported by little or no
market activity).
Our financial instruments, including cash and cash equivalents, accounts receivable, and accounts payable approximate fair value due to their short-term maturities. As of
December 31, 2022 and 2021, the carrying values of the borrowings outstanding under our Credit Facility approximate fair value as the borrowings bear interest at variables
rates tied to current market rates and the applicable margins represent market rates. The fair value of our fixed rate 9.25% Senior Notes due 2026 is estimated based on the
published market prices for issuances of similar risk and tenor and is categorized as Level 2 within the fair value hierarchy. As of December 31, 2022, the carrying amount and
estimated fair value of total debt (before amortization of issuance costs) was $615.2 million and $616.4 million, respectively. As of December 31, 2021, the carrying amount
and estimated fair value of total debt (before amortization of issuance costs) was $619.0 million and $634.6 million, respectively.
Recurring Fair Value Measurements
The fair values of our derivative instruments are measured at fair value on a recurring basis on our consolidated balance sheets. The following tables summarize the valuation of
those financial assets and liabilities as of the dates presented:
As of December 31, 2022
Level 1
Level 2
Level 3
Total
Financial assets:
Commodity derivative assets – current
$
—
$
29,714
$
—
$
29,714
Commodity derivative assets – non-current
—
316
—
316
Total financial assets
$
—
$
30,030
$
—
$
30,030
Financial liabilities:
Commodity derivative liabilities – current
—
67,933
—
67,933
Commodity derivative liabilities – non-current
—
3,416
—
3,416
Total financial liabilities
$
—
$
71,349
$
—
$
71,349
As of December 31, 2021
Level 1
Level 2
Level 3
Total
Financial assets:
Commodity derivative assets – current
$
—
$
11,478
$
—
$
11,478
Commodity derivative assets – non-current
—
2,092
—
2,092
Total financial assets
$
—
$
13,570
$
—
$
13,570
Financial liabilities:
Interest rate swap liabilities – current
$
—
$
1,480
$
—
$
1,480
Commodity derivative liabilities – current
—
48,892
—
48,892
Commodity derivative liabilities – non-current
—
23,815
—
23,815
Total financial liabilities
$
—
$
74,187
$
—
$
74,187
95
We used the following methods and assumptions to estimate fair values for the financial assets and liabilities described below:
•
Commodity derivatives: We determine the fair values of our commodity derivative instruments using industry-standard models that consider various assumptions
including current market and contractual prices for the underlying instruments, implied volatilities, time value and non-performance risk. For the current market
prices, we use third-party quoted forward prices, as applicable, for NYMEX WTI, MEH crude oil and NYMEX HH natural gas and OPIS Mt. Belvieu Ethane natural
gas liquids closing prices as of the end of the reporting periods. Each of these is a level 2 input.
•
Interest rate swaps: We determined the fair values of our interest rate swaps using an income approach valuation technique which discounts future cash flows back to
a single present value. We estimated the fair value of the swaps based on published interest rate yield curves as of the date of the estimate. Each of these was a Level
2 input. All interest rate swaps matured in May 2022, and as of December 31, 2022, we had not entered into any new interest rate derivative instruments.
Non-performance risk is incorporated by utilizing discount rates adjusted for the credit risk of our counterparties if the derivative is in an asset position, and our own credit risk
if the derivative is in a liability position. See Note 6 for additional details on our derivative instruments.
Non-Recurring Fair Value Measurements
In addition to the fair value measurements applied with respect to assets contributed in the Juniper Transactions and acquired with the Lonestar Acquisition, as described in
Note 4, the most significant non-recurring fair value measurements utilized in the preparation of our consolidated financial statements are those attributable to the initial
determination of AROs associated with the ongoing development of new oil and gas properties. The determination of the fair value of AROs is based upon regional market and
facility specific information. The amount of an ARO and the costs capitalized represent the estimated future cost to satisfy the abandonment obligation using current prices that
are escalated by an assumed inflation factor after discounting the future cost back to the date that the abandonment obligation was incurred using a rate commensurate with the
risk, which approximates our cost of funds. Because these significant fair value inputs are typically not observable, we have categorized the initial estimates as level 3 inputs.
Note 14 – Commitments and Contingencies
The following table sets forth our significant commitments as of December 31, 2022, by category, for the next five years and thereafter:
Year
Gathering and Intermediate
Transportation
Commitments
Other Commitments
2023
$
13,937
$
296
2024
13,976
211
2025
13,937
136
2026
7,794
—
2027
3,796
—
Thereafter
12,012
—
Total
$
65,452
$
643
Drilling and Completion Commitments
As of December 31, 2022, we had contracts for three drilling rigs with remaining terms of less than two years.
96
Gathering and Intermediate Transportation Commitments
We have long-term agreements that provide us with field gathering and intermediate pipeline transportation services for a majority of our crude oil and condensate production in
Lavaca and Gonzales Counties, Texas. We also have volume capacity support for certain downstream intrastate pipeline transportation. The following table provides details on
these contractual arrangements as of December 31, 2022:
Description of contractual arrangement
Expiration
of Contractual Arrangement
Minimum Gross Volume
Commitment (MVC)
(bbl/d)
Expiration of Minimum Volume
Commitment (MVC)
Field gathering agreement
February 2041
8,000
February 2031
Intermediate pipeline transportation services
February 2026
8,000
February 2026
Volume capacity support
April 2026
8,000
April 2026
Each of these arrangements also contain an obligation to deliver the first 20,000 gross barrels of oil per day produced from Gonzales, Lavaca and Fayette Counties, Texas. For
certain of our crude oil volumes gathered under the field gathering agreement, our rate includes an adjustment based on NYMEX WTI prices. As crude oil prices increase, up to
a cap of $90 per bbl, the gathering rate escalates pursuant to the field gathering agreement.
Under the field gathering and volume capacity support arrangements, credits for deliveries of volumes in excess of the volume commitment may be applied to any deficiency
arising in the succeeding 12-month period.
During the years ended December 31, 2022, 2021 and 2020, we recorded expense of $42.5 million, $36.0 million and $34.5 million, respectively, for these contractual
obligations in connection with these arrangements.
Crude Oil Storage
As of December 31, 2022, we had access to up to approximately 180,000 barrels of dedicated tank capacity for no additional charge at the service provider’s central delivery
point facility (“CDP”), in Lavaca County, Texas through February 2041. In addition, we had access for an additional 70,000 barrels of tank capacity at the CDP on a month-to-
month basis, which can be terminated by either party with 45-days’ notice to the counterparty. Costs associated with this monthly agreement are in the form of a monthly fixed
rate short-term lease and are charged as incurred on a monthly basis to GPT in our consolidated statements of operations.
Other Agreements
We have a long-term dedication of certain specific leases under a crude purchase and throughput terminal agreement through 2032. Under the agreement, we have rights to
transfer dedicated oil for delivery to a Gulf coast terminal in Point Comfort, Texas or oil may be transferred at alternate locations to third parties with a terminal fee.
We have agreements that provide us with field gathering, compression and short-haul transportation services for our natural gas production and gas lift for our hydrocarbon
production under various terms through 2039.
We also have agreements that provide us with services to process our wet gas production into NGL products and dry, or residue, gas. Several agreements covering the majority
of our wet gas production extend beyond three years, including one agreement that extends into 2029.
Legal
We are involved, from time to time, in various legal proceedings arising in the ordinary course of business. While the ultimate results of these proceedings cannot be predicted
with certainty, our management believes that these claims will not have a material effect on our financial position, results of operations or cash flows. As of December 31, 2022
and 2021, we had an estimated reserve of approximately $0.1 million for certain claims made against us regarding previously divested operations included in Accounts payable
and accrued liabilities on our consolidated balance sheets.
97
Environmental Compliance
Extensive federal, state and local laws govern oil and gas operations, regulate the discharge of materials into the environment or otherwise relate to the protection of the
environment. Numerous governmental departments issue rules and regulations to implement and enforce such laws that are often difficult and costly to comply with and which
carry substantial administrative, civil and even criminal penalties for failure to comply. Some laws, rules and regulations relating to protection of the environment may, in
certain circumstances, impose “strict liability” for environmental contamination, rendering a person liable for environmental and natural resource damages and cleanup costs
without regard to negligence or fault on the part of such person. Other laws, rules and regulations may restrict the rate of oil and gas production below the rate that would
otherwise exist or even prohibit exploration or production activities in sensitive areas. In addition, state laws often require some form of remedial action to prevent pollution
from former operations, such as plugging of abandoned wells. As of December 31, 2022, and 2021, we had AROs of $8.8 million and $8.4 million, respectively. Additionally,
we had environmental remediation liabilities recorded as part of the Lonestar Acquisition of $0.2 million and $2.3 million as of December 31, 2022, and 2021, respectively. The
environmental remediation activities were completed in the fourth quarter of 2022.
The regulatory burden on the oil and gas industry increases its cost of doing business and consequently affects its profitability. These laws, rules and regulations affect our
operations, as well as the oil and gas exploration and production industry in general. We believe that we are in substantial compliance with current applicable environmental
laws, rules and regulations and that continued compliance with existing requirements will not have a material impact on our financial condition or results of operations.
Nevertheless, changes in existing environmental laws or the adoption of new environmental laws, including any significant limitation on the use of hydraulic fracturing, have the
potential to adversely affect our operations.
Other Commitments
We have entered into certain contractual arrangements for other products and services and have commitments under information technology licensing and service agreements,
among others.
Note 15 – Shareholders’ Equity
Capital Stock
Prior to the Lonestar Acquisition, the Company’s authorized capital stock consisted of 115,000,000 shares including (i) 110,000,000 shares of common stock, par value $0.01
per share and (ii) 5,000,000 shares of Series A Preferred Stock, par value $0.01 per share.
On October 6, 2021, in connection with the consummation of the Lonestar Acquisition, the Company effected a recapitalization, pursuant to which (i) the Company’s common
stock was renamed and reclassified as Class A Common Stock, (ii) the authorized number of shares of capital stock of the Company was increased to 145,000,000 shares, (iii)
30,000,000 shares of Class B Common Stock was authorized, (iv) all 225,489.98 outstanding shares of the Series A Preferred Stock were exchanged for 22,548,998 newly
issued shares of Class B Common Stock, and (v) the designation of the Series A Preferred Stock was cancelled.
As of December 31, 2022, the Company had two classes of common stock: Class A Common Stock and Class B Common Stock. The holders of record of Class A Common
Stock and Class B Common Stock vote together as a single class on all matters on which holders of Class A Common Stock and Class B Common Stock are entitled to vote;
except that certain directors are elected by holders of a majority of the shares of Class B Common Stock voting as a separate class.
The holders of Class A Common Stock have no preemptive rights to purchase shares of Class A Common Stock. Shares of Class A Common Stock are not subject to any
redemption or sinking fund provisions and are not convertible into any of the Company’s other securities. In the event of the Company’s voluntary or involuntary liquidation,
dissolution or winding up, holders of Class A Common Stock will share equally in the assets remaining after it pays its creditors and preferred shareholders. Holders of Class A
Common Stock are entitled to receive dividends when and if declared by the Board of Directors.
Shares of Class B Common Stock are non-economic interests in the Company, and no dividends can be declared or paid on the Class B Common Stock. The holders of Class B
Common Stock have no preemptive rights to purchase shares of any Class B Common Stock. Shares of Class B Common stock are not subject to any redemption or sinking
fund provisions. In the event of the Company’s voluntary or involuntary liquidation, dissolution or winding up, after payment or provision for payment of its debts and other
liabilities, the holders of Class B Common Stock will be entitled to receive, out of its assets or proceeds thereof available for distribution to our shareholders, before any
distribution of such assets or proceeds is made to or set aside for the holders of Class A Common Stock and any other of the Company’s stock ranking junior to the Class B
Common Stock as to such distribution, payment in full in an amount equal to $0.01 per share of Class B Common Stock. With the exception of the aforementioned distribution,
the holders of shares of Class B Common Stock will not be entitled to receive any of the Company’s assets in the event of its voluntary or involuntary liquidation, dissolution or
winding up.
98
The Company’s Class B Common Stock is not convertible into any of the Company’s other securities. However, if a holder exchanges one common unit of the Partnership, for
one share of the Company’s Class A Common Stock, it must also surrender to the Company a share of its Class B Common Stock for each common unit exchanged.
As of December 31, 2022, the Company had (i) 110,000,000 authorized shares of Class A Common Stock and 19,074,864 shares of Class A Common Stock issued and
outstanding, (ii) 30,000,000 authorized shares of Class B Common Stock and 22,548,998 shares of Class B Common Stock issued and outstanding, and (iii) 5,000,000
authorized shares of preferred stock, par value $0.01 per share, and no shares of preferred stock were issued or outstanding.
Paid-in Capital
Paid-in capital represents the value of consideration we received in excess of par value for the original issuance of our common stock net of costs directly attributable to the
issuance transactions. In addition, paid-in capital includes amounts attributable to the amortized cost of share-based awards that have been granted to our employees and
directors, net of any adjustments with the ultimate vesting of such awards.
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income and losses are entirely attributable to our pension and postretirement health care benefit obligations. For further details on our
pension and postretirement health care plans, see Note 16.
Dividends
On July 7, 2022, the Company’s Board of Directors declared an inaugural cash dividend of $0.075 per share of Class A Common Stock and on November 2, 2022, a second
cash dividend was declared of $0.075 per share of Class A Common Stock. The related dividends were paid on August 4, 2022 and November 28, 2022 to holders of record of
Class A Common Stock as of the close of business on July 25, 2022 and November 16, 2022, respectively. In connection with any dividend, Ranger’s operating subsidiary will
also make a corresponding distribution to its common unitholders. During 2022, the dividends paid to the holders of our Class A Common Stock and distribution to common
unitholders totaled $6.3 million in the aggregate. The Company’s Credit Facility and the indenture have restrictive covenants that limit its ability to pay dividends.
Share Repurchase Program
On April 13, 2022, our Board of Directors approved a share repurchase program that authorized the Company to repurchase up to $100 million of its outstanding Class A
Common Stock. The share repurchase authorization was effective immediately and was valid through March 31, 2023. On July 7, 2022, the Board of Directors authorized an
increase in the share repurchase program from $100 million to $140 million and extended the term of the program through June 30, 2023. We do not intend to repurchase
additional shares pending closing of the Baytex Merger.
During the year ended December 31, 2022, we repurchased 2,150,486 shares of our Class A Common Stock at a total cost of $75.2 million at an average purchase price of
$34.95. The share repurchases were recorded to Class A common stock and Paid-in capital on our consolidated balance sheets. As of December 31, 2022, the remaining
authorized repurchase amount under the share repurchase program was $64.8 million.
Change in Ownership of Consolidated Subsidiaries
The following table summarizes changes in the ownership interest in consolidated subsidiaries during the periods presented:
Year Ended December 31,
2022
2021
2020
Net income (loss) attributable to Class A common shareholders
$
217,693
$
40,229
$
(310,557)
Transfers (to) from the noncontrolling interest, net
16,796
$
(57,604)
N/A
Change from net income (loss) attributable to Class A common shareholders and net transfers to
Noncontrolling interest
$
234,489
$
(17,375)
$
(310,557)
_____________________________________________
The year ended December 31, 2022 includes a net transfer of $16.8 million from Noncontrolling interest for share repurchases and common stock issuances related to employees’ share-based compensation
with a corresponding adjustment to Paid-in capital. The year ended December 31, 2021 includes a net transfer to Noncontrolling interest of $57.6 million related to (i) the Class A common stock issuances and
(2) the relative proportionate share of net assets acquired in the Lonestar Acquisition with a corresponding adjustment to Paid-in capital. These equity adjustments had no impact on earnings other than a
resulting increase (decrease) to the noncontrolling interest proportionate share of net income (loss) and a corresponding increase (decrease) to the proportionate share of net income (loss) attributable to
common shareholders.
1
1
99
During the year ended December 31, 2022, as discussed above and in Note 16, we repurchased shares of our Class A Common Stock and issued shares of our Class A Common
Stock related to the vesting of employees’ share-based compensation resulting in a change in the proportionate share of Common Units held by the Company relative to Juniper.
As such, we recognized an adjustment to the carrying amount of noncontrolling interest and a corresponding adjustment to Class A common shareholders’ equity of
$16.8 million during the year ended December 31, 2022 to reflect the revised ownership percentage of total equity. See Note 3 for further discussion.
As discussed in Note 4, on October 5, 2021, the Company completed its acquisition of Lonestar in an all-stock transaction. In accordance with the terms of the Merger
Agreement, Lonestar shareholders received 0.51 shares of Penn Virginia common stock for each share of Lonestar common stock held immediately prior to the effective time
of the Lonestar Acquisition.
In connection with the Lonestar Acquisition, 5,749,508 shares of Class A Common Stock of the Company were issued and, in accordance with the Partnership Agreement, an
equivalent number of Common Units were issued to the Company resulting in a change in the proportionate share of Common Units held by the Company relative to Juniper as
no additional Common Units in the Partnership were issued to Juniper. As such and effective upon the close of the Lonestar Acquisition, we recognized an adjustment to the
carrying amount of noncontrolling interest and a corresponding adjustment to Class A common shareholders’ equity of $57.6 million to reflect the revised ownership percentage
of total equity, inclusive of Juniper’s revised proportionate share of the fair value of net assets acquired in connection with the Lonestar Acquisition effective October 5, 2021.
Note 16 – Share-Based Compensation and Other Benefit Plans
Share-Based Compensation
We reserved 4,424,600 shares of Class A Common Stock for issuance under the Ranger Oil Management Incentive Plan (the “Incentive Plan”) for share-based compensation
awards. A total of 811,573 time-vested restricted stock units (“RSUs”) and 664,414 performance-based restricted stock units (“PRSUs”) have been granted to employees and
directors through December 31, 2022.
All of our share-based compensation awards are classified as equity instruments because they result in the issuance of common stock on the date of grant, upon exercise or are
otherwise payable in common stock upon vesting, as applicable. The compensation cost attributable to these awards has been measured at the grant date and recognized over the
applicable vesting periods as a non-cash expense.
We recognized $5.6 million, $15.6 million (including $10.4 million and $1.9 million as a result of the change-in-control events associated with the Lonestar Acquisition
discussed below and the Juniper Transactions, respectively) and $3.3 million of share-based compensation expense for the years ended December 31, 2022, 2021 and 2020,
respectively, and nil, $0.5 million and $0.1 million of related income tax benefits for the years ended December 31, 2022, 2021 and 2020, respectively.
The Merger Agreement provided the terms in which Lonestar share-based awards held by Lonestar employees were replaced with share-based awards of the Company
(“replacement awards”) on the acquisition date. For accounting purposes, the fair value of the replacement awards must be allocated between each employee’s pre-combination
and post-combination services. Amounts allocated to pre-combination services have been included as consideration transferred as part of the Lonestar Acquisition. See Note 4
for a summary of consideration transferred. Compensation costs of $10.4 million allocated to post-combination services were recorded during the year ended December 31,
2021 as stock-based compensation expense from the immediate vesting of these awards pursuant to the terms of the Merger Agreement.
Time-Vested Restricted Stock Units
The RSUs entitle the grantee to receive a share of common stock upon the achievement of the applicable service period vesting requirement. The grant date fair value of our
time-vested RSU awards are recognized on a straight-line basis over the applicable vesting period, which is generally over a three-year period.
100
The following table summarizes activity for our most recent fiscal year with respect to awarded RSUs:
Time-Vested Restricted Stock
Units
Weighted-Average
Grant Date
Fair Value
Balance at January 1, 2022
230,517
$
9.20
Granted
49,314
$
35.07
Vested
(112,509)
$
10.03
Forfeited
(17,451)
$
12.77
Balance at December 31, 2022
149,871
$
17.51
As of December 31, 2022, we had $1.6 million of unrecognized compensation cost attributable to RSUs. We expect that cost to be recognized over a weighted-average period of
1.74 years. The total grant date fair values of RSUs that vested in 2022, 2021 and 2020 were $1.1 million, $3.6 million and $2.8 million, respectively.
Performance Restricted Stock Units
The PRSUs entitle the grantee to receive a share of common stock upon the achievement of both service and market conditions.
The table below presents information pertaining to PRSUs granted in the following periods:
2022
2021
2020
2019
PRSUs granted
180,217
225,206
145,399
15,066
Monte Carlo grant date fair value
$60.60 to $74.92
$17.74 to $33.31
$
2.40
$
34.02
Average grant date fair value
$
34.68
$
13.63
not applicable
not applicable
___________________
The 2020 PRSU grants include one executive officers’ inducement award originally granted in August 2020 that was amended in April 2021 to conform vesting conditions to other PRSU awards granted in
2021.
Represents the Monte Carlo grant date fair value of PRSU grants based on the Company’s TSR performance (as defined below).
Represents the average grant date fair value of 2022 and 2021 PRSU grants based on the Company’s ROCE performance (as defined below).
Compensation expense for PRSUs with a market condition is being amortized ratably over three years for the 2022 and 2021 grants. For the 2020 and 2019 grants, compensation
expense for the PRSUs with a market condition were amortized on a graded-vesting basis. The applicable period for the amortization of compensation expense ranges from less
than one year to three years. Compensation expense for PRSUs with a performance condition is recognized ratably over three years when it is considered probable that the
performance condition will be achieved and such grants are expected to vest. PRSUs with a market condition do not allow for the reversal of previously recognized expense,
even if the market condition is not achieved and no shares ultimately vest.
The 2022 and 2021 PRSU grants contain performance measures of which 50% are based on the Company’s return on average capital employed (“ROCE”) relative to a defined
peer group and 50% are based on the Company’s absolute total shareholder return and total shareholder return (“TSR”) relative to a defined peer group over the three-year
performance period. The 2022 and 2021 PRSUs cliff vest from 0% to 200% of the original grant at the end of a three-year performance period based on satisfaction of the
respective underlying conditions.
Vesting of PRSUs granted in 2020 and 2019 range from 0% to 200% of the original grant based on TSR relative to a defined peer group over the three-year performance period.
As TSR is deemed a market condition, the grant-date fair value for the 2019, 2020 and a portion of the 2021 and 2022 PRSU grants is derived by using a Monte Carlo model.
The table below presents ranges for the assumptions used in the Monte Carlo model for the PRSUs granted in the following periods:
2022
2021
2020
2019
Expected volatility
134.98% to 138.75%
131.74% to 134.74%
101.32% to 117.71%
49.90 %
Dividend yield
0.0 %
0.0 %
0.0 %
0.0 %
Risk-free interest rate
2.59%
0.22% to 0.29%
0.18% to 0.51%
1.66 %
Performance period
2022-2024
2021-2023
2020-2022
2020-2022
___________________
One executive officer’s inducement award originally granted in August 2020 was amended in April 2021 to conform vesting conditions to other PRSU awards granted in 2021. The Monte Carlo assumptions
for both years are included above.
1
2
3
1
2
3
1
1
1
101
The following table summarizes activity for our most recent fiscal year with respect to awarded PRSUs:
Performance Restricted Stock
Units
Weighted-Average Grant
Date Fair Value
Balance at January 1, 2022
345,069
$
16.20
Granted
180,217
$
47.77
Vested
(68,190)
$
10.12
Change in units based on performance
(4,494)
$
7.01
Forfeited
(12,502)
$
21.47
Balance at December 31, 2022
440,100
$
29.87
___________________
PRSUs granted in 2020 and 2019 are granted at a target of 100% but can vest from a range of 0% to 200% of the original grant based on performance as described above. Amount represents difference
between original grant amount and amounts ultimately earned.
As of December 31, 2022, we had $6.6 million of unrecognized compensation cost attributable to PRSUs. We expect that cost to be recognized over a weighted-average period
of 1.65 years.
Executive Transition and Retirement
In August 2020, we appointed Darrin Henke as our president and chief executive officer, or CEO, and director following the retirement of John Brooks. We incurred
incremental G&A costs of approximately $1.2 million, in connection with Mr. Henke’s appointment and Mr. Brooks’ separation. In addition to those incremental costs, we
recognized $0.7 million during the year ended December 31, 2020 for the accelerated vesting of certain share-based compensation awards of Mr. Brooks in connection with his
retirement.
Defined Contribution Plan
We maintain the Ranger Oil Corporation and Affiliated Companies Employees 401(k) Plan (the “401(k) Plan”), a defined contribution plan, which covers substantially all of
our employees. We provide matching contributions on our employees’ elective deferral contributions up to 6% of compensation up to the maximum statutory limits. The 401(k)
Plan also provides for discretionary employer contributions. We recognized expense attributable to the 401(k) Plan of $1.2 million, $1.0 million, $0.9 million for the years ended
December 31, 2022, 2021 and 2020, respectively. The charges for the 401(k) Plan are included as a component of G&A expenses in our consolidated statements of operations.
Amounts representing accrued obligations to the 401(k) Plan of $0.4 million and $0.3 million are recorded within Accounts payable and accrued expenses on our consolidated
balance sheets as of December 31, 2022 and 2021, respectively.
Defined Benefit Pension and Postretirement Health Care Plans
We maintain unqualified legacy defined benefit pension and defined benefit postretirement health care plans that cover a limited number of former employees that retired prior
to January 1, 2000. The combined expense recognized with respect to these plans was less than $0.1 million for each year ended December 31, 2022, 2021 and 2020, and is
included as a component of Other, net in our consolidated statements of operations. The combined unfunded benefit obligations under these plans were $1.1 million as of
December 31, 2022 and 2021 and are included within Accounts payable and accrued liabilities (current portion) and Other liabilities (non-current portion) on our consolidated
balance sheets.
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Note 17 – Earnings Per Share
Basic net earnings (loss) per share is calculated by dividing the net income (loss) available to Class A common shareholders, excluding net income or loss attributable to
Noncontrolling interest, by the weighted average common shares outstanding for the period.
In computing diluted earnings (loss) per share, basic net earnings (loss) per share is adjusted based on the assumption that dilutive RSUs and PRSUs have vested and
outstanding Common Units (and Class B Common Stock as applicable to the years ended December 31, 2022 and 2021) held by the Noncontrolling interest in the Partnership
are exchanged for Class A Common Stock. Accordingly, our reported net income (loss) attributable to Class A common shareholders is adjusted due to the elimination of the
Noncontrolling interest assuming exchange of the Common Units (and Class B Common Stock as applicable to the years ended December 31, 2022 and 2021) held by the
Noncontrolling interest.
The following table provides a reconciliation of the components used in the calculation of basic and diluted earnings (loss) per share for the periods presented:
Year Ended December 31,
Numerator:
2022
2021
2020
Net income (loss)
$
464,518
$
98,918
$
(310,557)
Net income attributable to Noncontrolling interest
(246,825)
(58,689)
—
Net income (loss) attributable to Class A common shareholders for Basic EPS
217,693
40,229
(310,557)
Adjustment for assumed conversions of RSUs and PRSUs
1,628
—
—
Adjustment for assumed conversions and elimination of Noncontrolling interest net income
—
58,689
—
Net income (loss) attributable to Class A common shareholders for Diluted EPS
$
219,321
$
98,918
$
(310,557)
Denominator:
Weighted average shares outstanding used in Basic EPS
20,205
16,695
15,176
Effect of dilutive securities:
Common Units and Series A Preferred Stock or Class B Common Stock, as applicable, that are exchangeable for
Class A Common Stock
—
—
—
RSUs and PRSUs
621
470
—
Weighted average shares outstanding used in Diluted EPS
20,826
17,165
15,176
_____________________________________________
In connection with the Juniper Transactions in January 2021, we issued shares of Series A Preferred Stock. In October 2021, the Company effected a recapitalization and the Series A Preferred Stock were
exchanged with Class B Common Stock and the designation of the Series A Preferred Stock was cancelled.
For the years ended December 31, 2022 and 2021, approximately 22.5 million potentially dilutive Common Units (and the associated 22.5 million Class B Common Stock) had the effect of being anti-
dilutive and were excluded from the calculation of diluted earnings per share. For the year ended December 31, 2020, approximately 0.1 million potentially dilutive securities, represented by RSUs and
PRSUs, had the effect of being anti-dilutive and were excluded from the calculation of diluted earnings per share.
Note 18 – Subsequent Events
Proposed Merger with Baytex Energy Corp.
On February 27, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Baytex pursuant to which, among other things, the Company will
merge with and into a wholly owned subsidiary of Baytex with the Company surviving the merger as a wholly owned subsidiary of Baytex (the “Baytex Merger”). Subject to the
terms and conditions of the Merger Agreement, each share of our Class A Common Stock issued and outstanding immediately prior to the effective time of the Baytex Merger
(including shares of our Class A Common Stock to be issued in connection with the exchange of the Class B Common Stock and Common Units for Class A Common Stock),
will be converted automatically into the right to receive: (i) 7.49 Baytex common shares and (ii) $13.31 in cash. The transaction was unanimously approved by the board of
directors of each company and JSTX and Rocky Creek delivered a support agreement to vote their outstanding shares in favor of the Baytex Merger. The Baytex Merger is
expected to close late in the second quarter of 2023, subject to the satisfaction of customary closing conditions, including the requisite shareholder and regulatory approvals.
Dividends
On March 3, 2023, the Company’s Board of Directors declared a cash dividend of $0.075 per share of Class A Common Stock, payable on March 30, 2023 to holders of record
of Class A Common Stock as of the close of business on March 17, 2023.
1, 2
2
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103
Supplemental Information on Oil and Gas Producing Activities (Unaudited)
Oil and Gas Reserves
All of our proved oil and gas reserves are located in the continental United States. The estimates of our proved oil and gas reserves were prepared by our independent third
party engineers, DeGolyer and MacNaughton, Inc. utilizing data compiled by us. DeGolyer and MacNaughton, Inc. is an independent firm of petroleum engineers, geologists,
geophysicists and petrophysicists. Our Senior Vice President, Chief Operating Officer is primarily responsible for overseeing the preparation of the reserve estimate by
DeGolyer and MacNaughton, Inc.
Reserve engineering is a process of estimating underground accumulations of oil and gas that cannot be measured in an exact manner, and the accuracy of any reserve estimate
is a function of the quality of available data and of engineering and geological interpretation and judgment. The quantities of crude oil, NGLs and natural gas that are ultimately
recovered, production and operating costs, the amount and timing of future development expenditures and future prices for these commodities may all differ from those
assumed. In addition, reserve estimates of new discoveries are more imprecise than those of properties with a production history. Accordingly, these estimates are subject to
change as additional information becomes available.
The following table sets forth our estimate of net quantities of proved reserves, including changes therein and proved developed and proved undeveloped reserves for the
periods presented:
Proved Developed and Undeveloped Reserves
Oil
(Mbbl)
NGLs
(Mbbl)
Natural
Gas
(MMcf)
Total
Equivalents
(Mboe)
December 31, 2019
98,896
19,154
90,449
133,125
Revisions of previous estimates
(23,554)
(5,599)
(26,712)
(33,606)
Extensions and discoveries
29,966
3,208
15,357
35,734
Production
(6,829)
(1,165)
(5,360)
(8,887)
December 31, 2020
98,479
15,598
73,734
126,366
Revisions of previous estimates
(5,633)
(2,606)
(11,154)
(10,098)
Extensions and discoveries
45,709
9,877
47,774
63,548
Production
(7,711)
(1,326)
(6,712)
(10,155)
Purchase of reserves
32,278
18,476
121,550
71,012
December 31, 2021
163,122
40,019
225,192
240,673
Revisions of previous estimates
(35,615)
(7,381)
(44,239)
(50,369)
Extensions and discoveries
46,176
12,644
70,700
70,603
Production
(10,668)
(2,205)
(12,100)
(14,890)
Purchase of reserves
6,217
1,331
5,516
8,468
December 31, 2022
169,232
44,408
245,069
254,485
Proved Developed Reserves:
December 31, 2020
36,360
7,979
37,597
50,605
December 31, 2021
59,957
16,431
94,033
92,060
December 31, 2022
69,881
19,136
106,566
106,778
Proved Undeveloped Reserves:
December 31, 2020
62,119
7,619
36,137
75,761
December 31, 2021
103,165
23,588
131,159
148,613
December 31, 2022
99,351
25,272
138,503
147,707
The following is a discussion and analysis of the significant changes in our proved reserve estimates for the periods presented:
Year Ended December 31, 2022
In 2022, our proved reserves increased by 13.8 MMboe due to acquisitions and proved undeveloped reserves extensions. During 2022, Ranger Oil continued to drill and
complete wells and increased drilling efficiencies in lateral footage capabilities. We optimized and refreshed the existing drilling inventory to access stranded acreage and
optimize for longer laterals, resulting in an increase in average treatable lateral per well. This process resulted in an increase to extensions and discoveries of 70.6 MMboe that
was offset by 34.3 MMboe of negative revisions due to schedule adjustments that moved wells beyond our five-year drilling window schedule. In addition, our revisions of
previous estimates reflect: (i) 9.3 MMboe of unfavorable revisions attributable to changes in lateral lengths and type curves, (ii) unfavorable revisions of 10.0 MMboe due to
performance, offset by (iii) favorable revisions due to pricing of 3.3 MMboe.
104
Year Ended December 31, 2021
In 2021, our proved reserves increased by 114.3 MMboe due primarily to the Juniper transactions and the Lonestar Acquisition increasing our reserves. During the COVID-19
pandemic, Ranger Oil continued to drill and complete wells and increased drilling efficiencies in lateral footage capabilities. Additionally, we optimized and refreshed the
existing drilling inventory to access stranded acreage and optimize for longer laterals, resulting in an increase in average treatable lateral per well, thus increasing the average
reserves per well. This process resulted in an increase to extensions and discoveries of 63.5 MMboe that was offset by 14.0 MMboe of negative revisions due to schedule
adjustments that moved wells beyond our five-year drilling window schedule. In addition, our revisions of previous estimates reflect: (i) 5.8 MMboe of favorable revisions
attributable to changes in lateral lengths and type curves and (ii) favorable revisions due to pricing of 3.6 MMboe, offset by (iii) unfavorable revisions of 5.5 MMboe due to
performance.
Year Ended December 31, 2020
In 2020, our proved reserves declined by 6.8 MMboe due primarily to lower commodity pricing reducing our reserves in excess of the positive revisions to replace production.
In light of the ongoing COVID-19 pandemic and its impact on our capital resources, we undertook a substantial review of our drilling plans and available site inventory that
resulted in a substantial shift in the focus of our near-term drilling schedule to a greater focus on our core, oilier prospects. This process resulted in an increase to extensions and
discoveries of 35.7 MMboe that was largely offset by 34.0 MMboe of negative revisions due primarily to certain wells that moved beyond our five-year drilling window
schedule. In addition, our revisions of previous estimates reflect: (i) 6.9 MMboe of favorable revisions attributable to changes in lateral lengths and type curves, substantially
offset by (ii) unfavorable revisions of 3.2 MMboe due to performance and (iii) declines in pricing of 3.2 MMboe.
Capitalized Costs Relating to Oil and Gas Producing Activities
The following table sets forth capitalized costs related to our oil and gas producing activities and accumulated DD&A for the periods presented:
December 31,
2022
2021
2020
Oil and gas properties:
Proved
$
3,013,854
$
2,327,686
$
1,545,910
Unproved
41,882
57,900
49,935
Total oil and gas properties
3,055,736
2,385,586
1,595,845
Other property and equipment
25,318
26,131
23,068
Total capitalized costs relating to oil and gas producing activities
3,081,054
2,411,717
1,618,913
Accumulated depreciation and depletion
(1,273,005)
(1,028,970)
(896,219)
Net capitalized costs relating to oil and gas producing activities
$
1,808,049
$
1,382,747
$
722,694
_____________________________________________
Excludes property and equipment attributable to our corporate operations which is comprised of certain capitalized hardware, software, leasehold improvements and office furniture and fixtures.
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Costs Incurred in Certain Oil and Gas Activities
The following table summarizes costs incurred in our oil and gas property acquisition, exploration and development activities for the periods presented:
Year Ended December 31,
2022
2021
2020
Development costs
$
516,616
$
262,439
$
126,739
Proved property acquisition costs
137,532
—
—
Unproved property acquisition costs
6,882
3,687
3,448
Exploration costs
1,214
86
342
$
662,244
$
266,212
$
130,529
_____________________________________________
Excludes the fair value of proved properties of $478.0 million recorded in the purchase price allocation with respect to the Lonestar Acquisition for the year ended December 31, 2021. The purchase was funded
through the issuance of our common stock.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
Future cash inflows were computed by applying the average prices of oil and gas during the 12-month period prior to the period end, determined as an unweighted arithmetic
average of the first-day-of-the-month price for each month within the period and estimated costs as of that fiscal year end, to the estimated future production of proved reserves.
Future prices actually received may materially differ from current prices or the prices used in the standardized measure.
Future production and development costs represent the estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves,
assuming continuation of existing economic conditions. Future income tax expenses were computed by applying statutory income tax rates to the difference between pre-tax net
cash flows relating to our proved reserves and the tax basis of proved oil and gas properties. In addition, the effects of statutory depletion in excess of tax basis, available NOL
carryforwards and alternative minimum tax credits were used in computing future income tax expense. The resulting annual net cash inflows were then discounted using a 10%
annual rate.
The standardized measure of discounted future net cash flows is not intended, and should not be interpreted, to represent the fair value of our oil and gas reserves. An estimate
of the fair value would also consider, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and cost, and a
discount factor more representative of economic conditions and risks inherent in reserve estimates. Accordingly, the changes in standardized measure reflected below do not
necessarily represent the economic reality of such transactions.
Crude oil and natural gas prices were based on average (beginning of month basis) sales prices per bbl and MMBtu with the representative price of natural gas adjusted for basis
premium and energy content to arrive at the appropriate net price. NGL prices were estimated as a percentage of the base crude oil price.
The following table summarizes the price measurements utilized, by product, with respect to our estimates of proved reserves as well as in the determination of the standardized
measure of the discounted future net cash flows for the periods presented:
Crude Oil
NGLs
Natural Gas
$/bbl
$/bbl
$/MMBtu
December 31, 2020
$
39.54
$
7.51
$
1.99
December 31, 2021
$
66.57
$
22.99
$
3.60
December 31, 2022
$
93.67
$
35.42
$
6.36
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The following table sets forth the standardized measure of the discounted future net cash flows attributable to our proved reserves for the periods presented:
December 31,
2022
2021
2020
Future cash inflows
$
18,918,984
$
12,157,254
$
3,832,194
Future production costs
(4,204,946)
(2,938,528)
(1,356,505)
Future development costs
(2,876,385)
(1,809,394)
(926,904)
Future net cash flows before income tax
11,837,653
7,409,332
1,548,785
Future income tax expense
(1,720,781)
(978,510)
(60,598)
Future net cash flows
10,116,872
6,430,822
1,488,187
10% annual discount for estimated timing of cash flows
(5,268,597)
(3,373,661)
(837,897)
Standardized measure of discounted future net cash flows
$
4,848,275
$
3,057,161
$
650,290
Changes in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves
The following table summarizes the changes in the standardized measure of the discounted future net cash flows attributable to our proved reserves for the periods presented:
Year Ended December 31,
2022
2021
2020
Sales of oil and gas, net of production costs
$
(957,736)
$
(476,734)
$
(194,660)
Net changes in prices and production costs
2,145,419
1,324,982
(950,201)
Changes in future development costs
(81,629)
(129,058)
450,286
Extensions and discoveries
1,139,833
753,601
74,830
Development costs incurred during the period
380,463
131,743
102,459
Revisions of previous quantity estimates
(1,325,864)
(188,804)
(303,219)
Purchases of reserves-in-place
348,926
926,169
—
Changes in production rates and all other
144,547
353,520
(282,055)
Accretion of discount
341,872
65,755
160,010
Net change in income taxes
(344,717)
(354,303)
103,958
Net increase (decrease)
1,791,114
2,406,871
(838,592)
Beginning of year
3,057,161
650,290
1,488,882
End of year
$
4,848,275
$
3,057,161
$
650,290
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures
(as defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2022. Our disclosure controls and procedures are designed to ensure that information required to be
disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the issuer’s management, including our Chief Executive Officer and
our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and our Chief
Financial Officer concluded that, as of December 31, 2022, such disclosure controls and procedures were effective.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting. Our management assessed the effectiveness of our
internal control over financial reporting as of December 31, 2022. This evaluation was completed based on the framework established in Internal Control—Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that assessment, our management has concluded that, as of December 31, 2022, our internal control over financial reporting was effective.
(c) Attestation Report of the Registered Public Accounting Firm
Grant Thornton LLP, the independent registered public accounting firm that audited and reported on the consolidated financial statements contained in this Form 10-K, has
issued an attestation report on the internal control over financial reporting as of December 31, 2022, which is included in Item 8 of this Annual Report on Form 10-K.
(d) Changes in Internal Control Over Financial Reporting
No changes were made in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
108
Part III
Item 10. Directors, Executive Officers and Corporate Governance
In accordance with General Instruction G(3), the information required will be filed as an amendment to this Form 10-K within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors, officer and employees, including our principal executive, principal financial and
principal accounting officers, or persons performing similar functions. Our Code of Business Conduct and Ethics is posted on our website located at
https://ir.rangeroil.com/governance-docs. We intend to disclose future amendments to certain provisions of the Code of Business Conduct and Ethics, and any waivers of the
Code of Business Conduct and Ethics granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.
Item 11. Executive Compensation
In accordance with General Instruction G(3), the information required will be filed as an amendment to this Form 10-K within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
In accordance with General Instruction G(3), the information required will be filed as an amendment to this Form 10-K within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
Item 13. Certain Relationships and Related Transactions, and Director Independence
In accordance with General Instruction G(3), the information required will be filed as an amendment to this Form 10-K within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
Item 14. Principal Accountant Fees and Services
In accordance with General Instruction G(3), the information required will be filed as an amendment to this Form 10-K within 120 days after the end of the fiscal year covered
by this Annual Report on Form 10-K.
109
Part IV
Item 15. Exhibits and Financial Statement Schedules
(1) Financial Statements
The financial statements filed herewith are listed in the Index to Consolidated Financial Statements on page 67 of this Annual Report on Form 10-K.
(2) Exhibits
The following documents are included as exhibits to this Annual Report on Form 10-K. Those exhibits incorporated by reference are indicated as such in the parenthetical
following the description. All other exhibits are included herewith.
Exhibit
Number
Description
(2.1)
Contribution Agreement, dated as of November 2, 2020, by and among Penn Virginia Corporation, PV Energy Holdings, L.P. and JSTX Holdings, LLC
(incorporated by reference to Exhibit 2.1 to Registrant’s Current Report on Form 8-K filed on November 5, 2020).
(2.2)
Contribution Agreement, dated as of November 2, 2020, by and among Penn Virginia Corporation, PV Energy Holdings, L.P. and Rocky Creek Resources, LLC
(incorporated by reference to Exhibit 2.2 to Registrant’s Current Report on Form 8-K filed on November 5, 2020).
(2.3)
Merger Agreement, dated as of July 10, 2021, by and among Penn Virginia, Merger Sub Inc, Merger Sub LLC and Lonestar (incorporated by reference to Exhibit 2.1
to Registrants Current Report on Form 8-K filed on July 13, 2021).
(3.1)
Fourth Amended and Restated Articles of Incorporation of Ranger Oil Corporation, effective as of October 6, 2021 (incorporated by reference to Exhibit 3.2 to
Registrant’s Current Report on Form 8-K filed on October 7, 2021).
(3.2)
Articles of Amendment, dated as of October 14, 2021, to the Fourth Amended and Restated Articles of Incorporation of Ranger Oil Corporation (incorporated by
reference to Exhibit 3.1 to Registrant’s Current Report on Form 8-K filed on October 19, 2021).
(3.3)
Seventh Amended and Restated Bylaws of Ranger Oil Corporation, effective as of October 6, 2021 (incorporated by reference to Exhibit 3.3 to Registrant’s Current
Report on Form 8-K filed on October 7, 2021).
(3.4)
Amendment to the Seventh Amended and Restated Bylaws of Ranger Oil Corporation, effective October 14, 2021 (incorporated by reference to Exhibit 3.2 to
Registrant’s Current Report on Form 8-K filed on October 19, 2021).
(4.1.1)
Indenture, dated as of August 10, 2021 among Penn Virginia Escrow LLC, the guarantors party thereto and Citibank, N.A., as Trustee (incorporated by reference to
Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed on August 13, 2021).
(4.1.2)
Supplemental Indenture – Escrow Merger, dated as of October 5, 2021, by and among Penn Virginia Holdings, LLC, each of the parties identified therein as
Guarantors and Citibank, N.A. (incorporated by reference to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed on October 13, 2021).
(4.1.3)
Supplemental Indenture – Subsidiary Guarantee, dated as of October 6, 2021, by and among Penn Virginia Holdings, LLC, each of the parties identified therein as
Subsequent Guarantors and Citibank, N.A. (incorporated by reference to Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed on October 13, 2021).
(4.2)
Form of 9.250% Senior Note due 2026 (incorporated by reference as Exhibit A to Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed on August 13, 2021).
(4.3)
Description of Capital Stock (incorporated by reference to Exhibit 4.3 to Registrant's Annual Report on Form 10-K filed on March 8, 2022).
(10.1)
Pledge and Security Agreement, dated as of September 12, 2016, by Penn Virginia Holding Corp., Penn Virginia Corporation and the other grantors party thereto in
favor of Wells Fargo Bank, National Association, as administrative agent for the benefit of the secured parties thereunder (incorporated by reference to Exhibit 10.2
to Registrant’s Current Report on Form 8-K filed on September 15, 2016).
(10.2)
Registration Rights Agreement, dated as of September 12, 2016 between Penn Virginia Corporation and the holders party thereto (incorporated by reference to
Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed on September 15, 2016).
(10.3)
Contribution and Exchange Agreement, dated as of October 6, 2021, by and between Penn Virginia Corporation, JSTX Holdings, LLC and Rocky Creek Resources,
LLC (incorporated by reference to Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed on October 7, 2021).
(10.4)
Second Amended and Restated Construction and Field Gathering Agreement by and between Republic Midstream, LLC and Penn Virginia Oil & Gas, L.P. dated
August 1, 2016 (incorporated by reference to Exhibit 10.5 to Registrant’s Quarterly Report on Form 10-Q/A filed on November 28, 2016).
(10.5.1)
Amendment No. 1 to the Second Amended and Restated Construction and Field Gathering Agreement dated as of April 13, 2017 but effective August 1, 2016 by and
between Republic Midstream, LLC and Penn Virginia Oil & Gas, L.P. (incorporated by reference to Exhibit 10.4.1 to Registrant ’s Registration Statement on Form S-
3/A (Amendment No. 2) filed on May 2, 2017).
(10.5.2)
Second Amendment to Second Amended and Restated Construction and Field Gathering Agreement dated as of July 2, 2018 by and between Republic Midstream,
LLC and Penn Virginia Oil & Gas L.P. (incorporated by reference to Exhibit 10.1 to Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2018).
(10.5.3)
Third Amendment to Second Amended and Restated Construction and Field Gathering Agreement dated as of December 14, 2018 by and between Republic
Midstream, LLC and Penn Virginia Oil & Gas L.P. (incorporated by reference to Exhibit 10.9.3 to Registrant’s Annual Report on Form 10-K filed on February 27,
2019).
(10.5.4) *
Fifth Amendment to Second Amended and Restated Construction and Field Gathering Agreement dated as of July 26, 2022 but made effective as of July 1, 2022, by
and between Ironwood Shiner Pipeline, LLC, as successor to Nuevo Dos Gathering and Transportation, LLC, as successor to Republic Midstream, LLC and Penn
Virginia Oil & Gas L.P. (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q filed on November 3, 2022).
110
(10.6.1)
First Amended and Restated Crude Oil Marketing Agreement dated as of August 1, 2016, by and between Penn Virginia Oil & Gas, L.P., Republic Midstream
Marketing, LLC and solely for purposes of Article V therein, Penn Virginia Corporation (incorporated by reference to Exhibit 10.6 to Registrant’s Quarterly Report
on Form 10-Q/A filed on November 28, 2016).
(10.6.2)†
First Amendment to First Amended and Restated Crude Oil Marketing Agreement dated as of July 2, 2018 by and between Penn Virginia Oil & Gas, L.P. and
Republic Midstream Marketing, LLC.(incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q filed on November 8, 2018).
(10.7)*
Penn Virginia Corporation 2019 Management Incentive Plan (incorporated by reference to Appendix A to Company ’s Definitive Proxy Statement for its 2019
Annual General Meeting of Shareholders filed on July 1, 2019).
(10.7.1)*
Form of Officer Restricted Stock Unit Award Agreement under 2019 Management Incentive Plan (incorporated by reference to Exhibit 10.11.2 to Registrant’s
Annual Report on Form 10-K filed on February 28, 2020).
(10.7.2)*
Form of Performance Restricted Stock Unit Award Agreement under 2019 Management Incentive Plan (incorporated by reference to Exhibit 10.11.3 to
Registrant’s Annual Report on Form 10-K filed on February 28, 2020).
(10.7.3)*
Form of Director Restricted Stock Award Agreement under 2019 Management Incentive Plan (incorporated by reference to Exhibit 10.1 to Registrant ’s Current
Report on Form 8-K filed on September 6, 2019).
(10.7.4)*
Penn Virginia Corporation 2017 Special Severance Plan Amended and Restated Effective August 17, 2020 (incorporated by reference to Exhibit 10.2 to
Registrant’s Current Report on Form 8-K filed on August 21, 2020).
(10.7.5)*
Form of Performance Restricted Stock Unit Award Agreement (Officer) (incorporated by reference to Exhibit 10.2 to Registrant’s Quarterly Report on Form 10-Q
filed on August 4, 2021).
(10.7.6)*
Amendment No. 1 to the Penn Virginia Corporation 2017 Special Severance Plan (incorporated by reference to Exhibit 10.14 to Registrant's Current Report on
Form 10-K filed on March 9, 2021).
(10.7.7)*
Ranger Oil Corporation Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on May 27,
2022).
(10.8)
Form of Director Indemnification Agreement (incorporated by reference to Exhibit 10.6 to Registrant’s Current Report on Form 8-K filed on October 11, 2016).
(10.9)*
Form of Officer Indemnification Agreement (incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed on August 21, 2020).
(10.10)
Second Amended and Restated Agreement of Limited Partnership, dated as of October 6, 2021, by and among PV Energy Holdings GP, LLC, Penn Virginia
Corporation, JSTX Holdings, LLC and Rocky Creek Resources, LLC (incorporated by reference to Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed
on October 7, 2021).
(10.11)
Amended and Restated Investor and Registration Rights Agreement, dated October 6, 2021, by and among Penn Virginia Corporation, JSTX Holdings, LLC and
Rocky Creek Resources, LLC (incorporated by reference to Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed on October 7, 2021).
(10.12)
Master Assignment, Agreement and Amendment No. 13 to Credit Agreement, dated as of September 27, 2022, among ROCC Holdings, LLC, as borrower, Ranger
Oil Corporation, as holdings, the subsidiaries of holdings party thereto, certain lenders party thereto, and Wells Fargo Bank, National Association, as administrative
agent for the lenders and as an issuing lender (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on September 28,
2022).
(21.1)#
Subsidiaries of Ranger Oil Corporation.
(23.1)#
Consent of Grant Thornton LLP.
(23.2)#
Consent of DeGolyer and MacNaughton.
(31.1)#
Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2)#
Certification Pursuant to 18 Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1)††
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(32.2)††
Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(99.1)#
Report of DeGolyer and MacNaughton dated February 2, 2023 concerning evaluation of oil and gas reserves.
(101.INS)#
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL
document.
(101.SCH)#
Inline XBRL Taxonomy Extension Schema Document
(101.CAL)#
Inline XBRL Taxonomy Extension Calculation Linkbase Document
(101.DEF)#
Inline XBRL Taxonomy Extension Definition Linkbase Document
(101.LAB)#
Inline XBRL Taxonomy Extension Label Linkbase Document
(101.PRE)#
Inline XBRL Taxonomy Extension Presentation Linkbase Document
(104)#
The cover page of Ranger Oil Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in Inline XBRL (included within the
Exhibit 101 attachments).
____________________
* Management contract or compensatory plan or arrangement.
# Filed herewith.
† Confidential treatment has been requested for this exhibit and confidential portions have been filed separately with the Securities and Exchange Commission.
†† Furnished herewith.
Item 16. Form 10-K Summary
None.
111
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RANGER OIL CORPORATION
March 9, 2023
By:
/s/ RUSSELL T KELLEY, JR.
Russell T Kelley, Jr.
Senior Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer)
March 9, 2023
By:
/s/ KAYLA D. BAIRD
Kayla D. Baird
Vice President, Chief Accounting Officer and Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities
and on the dates indicated.
/s/ DARRIN J. HENKE
President and Chief Executive Officer and Director
March 9, 2023
Darrin J. Henke
(Principal Executive Officer)
/s/ RUSSELL T KELLEY, JR.
Senior Vice President, Chief Financial Officer and Treasurer
March 9, 2023
Russell T Kelley, Jr.
(Principal Financial Officer)
/s/ KAYLA D. BAIRD
Vice President, Chief Accounting Officer and Controller
March 9, 2023
Kayla D. Baird
(Principal Accounting Officer)
/s/ RICHARD BURNETT
Director
March 9, 2023
Richard Burnett
/s/ TIFFANY THOM CEPAK
Director
March 9, 2023
Tiffany Thom Cepak
/s/ GARRETT CHUNN
Director
March 9, 2023
Garrett Chunn
/s/ KEVIN CUMMING
Director
March 9, 2023
Kevin Cumming
/s/ EDWARD GEISER
Chairman of the Board
March 9, 2023
Edward Geiser
/s/ TIMOTHY W. GRAY
Director
March 9, 2023
Timothy W. Gray
/s/ JOSHUA SCHMIDT
Director
March 9, 2023
Joshua Schmidt
/s/ JEFFREY WOJAHN
Director
March 9, 2023
Jeffrey Wojahn
112
Exhibit 21.1
Subsidiaries of Ranger Oil Corporation
Name
Jurisdiction of Organization
Boland Building, LLC
Texas
Eagleford Gas, LLC
Texas
Eagleford Gas 2, LLC
Texas
Eagleford Gas 3, LLC
Texas
Eagleford Gas 5, LLC
Texas
Eagleford Gas 7, LLC
Texas
Eagleford Gas 8, LLC
Texas
Eagleford Gas 11, LLC
Texas
La Salle Eagle Ford Gathering Line LLC
Texas
ROCC BR Disposal LLC
Texas
ROCC Operating, LLC
Texas
ROCC Resources America LLC
Delaware
ROCC Resources, LLC
Delaware
ROCC Holdings, LLC
Delaware
ROCC Oil & Gas, LLC
Virginia
ROCC Oil & Gas, L.P.
Texas
ROCC Oil & Gas GP LLC
Delaware
ROCC Oil & Gas LP LLC
Delaware
ROCC Intermediate LLC
Delaware
ROCC Energy Holdings GP, LLC
Delaware
ROCC Energy Holdings, L.P.
Delaware
T-N-T Engineering, LLC
Delaware
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated March 9, 2023, with respect to the consolidated financial statements and internal control over financial reporting included in the Annual
Report of Ranger Oil Corporation on Form 10-K for the year ended December 31, 2022. We consent to the incorporation by reference of said reports in the Registration
Statements of Ranger Oil Corporation on Form S-4 (File No. 333-259017), Forms S-3 (File No. 333-254050, File No. 333-238137, and File No. 333-214709) and Forms S-8
(File No. 333-258443, File No. 333-252026, File No. 333-248403, File No. 333-213979, and File No. 333-233364).
/s/ GRANT THORNTON LLP
Houston, Texas
March 9, 2023
DeGolyer and MacNaughton
5001 Spring Valley Road
Suite 800 East
Dallas, Texas 75244
March 6, 2023
Ranger Oil Corporation
16285 Park Ten Place, Suite 500
Houston, Texas 77084
Ladies and Gentlemen:
We hereby consent to the reference to DeGolyer and MacNaughton and to the incorporation of the estimates contained in our report entitled “Report as of December 31,
2022 on Reserves and Revenue of Certain Properties with interests attributable to Ranger Oil Corporation” (our Report) in Part I and in the “Notes to Consolidated Financial
Statements” portions of the Annual Report on Form 10-K of Penn Virginia Corporation for the year ended December 31, 2022 (the Annual Report), to be filed with the United
States Securities and Exchange Commission on or about March 10, 2023. In addition, we hereby consent to the incorporation by reference of our report of third party dated
February 2, 2023, in the “Exhibits and Financial Statement Schedules” portion of the Annual Report. We further consent to the incorporation by reference of references to
DeGolyer and MacNaughton and to our Report in Ranger Oil Corporation’s Registration Statements on Form S-4 (File No. 333-259017), Forms S-3 (File No. 333-254050, File
No. 333-238137, and File No. 333-214709) and Forms S-8 (File No. 333-258443, File No. 333-252026, File No. 333-248403, File No.333-213979, and File No. 333-233364).
Very truly yours,
/s/ DeGolyer and MacNaughton
DeGOLYER and MacNAUGHTON
Texas Registered Engineering Firm F-716
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Darrin J. Henke, President and Chief Executive Officer of Ranger Oil Corporation (the “Registrant”), certify that:
1. I have reviewed this Annual Report on Form 10-K of the Registrant (this “Report”);
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this Report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
(d)
Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal
quarter (the Registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s
auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over
financial reporting.
Date: March 9, 2023
/s/ DARRIN J. HENKE
Darrin J. Henke
President and Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Russell T Kelley, Jr., Senior Vice President, Chief Financial Officer and Treasurer of Ranger Oil Corporation (the “Registrant”), certify that:
1. I have reviewed this Annual Report on Form 10-K of the Registrant (this “Report”);
2. Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3. Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition,
results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly
during the period in which this Report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
(d)
Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal
quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
Registrant’s internal control over financial reporting; and
5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s
auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over
financial reporting.
Date: March 9, 2023
/s/ RUSSELL T KELLEY, JR
Russell T Kelley, Jr.
Senior Vice President, Chief Financial Officer and Treasurer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ranger Oil Corporation (the “Company”) on Form 10-K for the year ended December 31, 2022, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Darrin J. Henke, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 9, 2023
/s/ DARRIN J. HENKE
Darrin J. Henke
President and Chief Executive Officer
This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Report. A signed original of this written statement required by
Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Ranger Oil Corporation (the “Company”) on Form 10-K for the year ended December 31, 2022, as filed with the Securities and
Exchange Commission on the date hereof (the “Report”), I, Russell T Kelley, Jr., Senior Vice President, Chief Financial Officer and Treasurer of the Company, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 9, 2023
/s/ RUSSELL T KELLEY, JR.
Russell T Kelley, Jr.
Senior Vice President, Chief Financial Officer and Treasurer
This written statement is being furnished to the Securities and Exchange Commission as an exhibit to the Report. A signed original of this written statement required by
Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.1
DeGolyer and MacNaughton
5001 Spring Valley Road Suite 800 East
Dallas, Texas 75244
February 2, 2023
Ranger Oil Corporation
16285 Park Ten Place
Suite 500
Houston, Texas 77084
Ladies and Gentlemen:
Pursuant to your request, this report of third party presents an independent evaluation, as of December 31, 2022, of the extent and value of the estimated net proved oil,
condensate, natural gas liquids (NGL), and gas reserves of certain properties in which Ranger Oil Corporation (Ranger) has represented it holds an interest. This evaluation was
completed on February 2, 2023. The properties evaluated herein consist of working and royalty interests located in Texas. Ranger has represented that these properties account
for 100 percent on a net equivalent barrel basis of Ranger’s net proved reserves as of December 31, 2022. The net proved reserves estimates have been prepared in accordance
with the reserves definitions of Rules 4–10(a) (1)–(32) of Regulation S–X of the United States Securities and Exchange Commission (SEC). This report was prepared in
accordance with guidelines specified in Item 1202 (a)(8) of Regulation S–K and is to be used for inclusion in certain SEC filings by Ranger.
Reserves estimates included herein are expressed as net reserves. Gross reserves are defined as the total estimated petroleum remaining to be produced from these
properties after December 31, 2022. Net reserves are defined as that portion of the gross reserves attributable to the interests held by Ranger after deducting all interests held by
others.
Values for proved reserves in this report are expressed in terms of future gross revenue, future net revenue, and present worth. Future gross revenue is defined as that
revenue which will accrue to the evaluated interests from the production and sale of the estimated net reserves. Future net revenue is calculated by deducting production taxes,
ad valorem taxes, operating expenses, capital costs, and abandonment costs from future gross revenue. Operating expenses include field operating expenses, transportation and
processing expenses, and an allocation of overhead that directly relates to production activities. Capital costs include drilling and completion costs, facilities costs, and field
maintenance costs. Abandonment costs are represented by Ranger to be inclusive of those costs associated with the removal of equipment, plugging of wells, and reclamation
and restoration associated with the abandonment. At the request of Ranger, future income taxes were not taken into account in the preparation of these estimates. Present worth
is defined as future net revenue discounted at a discount rate of 10 percent per year compounded monthly over the expected period of realization. Present worth should not be
construed as fair market value because no consideration was given to additional factors that influence the prices at which properties are bought and sold.
Estimates of reserves and revenue should be regarded only as estimates that may change as further production history and additional information become available.
Not only are such estimates based on that information which is currently available, but such estimates are also subject to the uncertainties inherent in the application of
judgmental factors in interpreting such information.
Information used in the preparation of this report was obtained from Ranger and from public sources. In the preparation of this report we have relied, without
independent verification, upon information furnished by Ranger with respect to the property interests being evaluated, production from such properties, current costs of
operation and development, current prices for production, agreements relating to current and future operations and sale of production, and various other information and data
that were accepted as represented. A field examination was not considered necessary for the purposes of this report.
Definition of Reserves
Petroleum reserves included in this report are classified as proved. Only proved reserves have been evaluated for this report. Reserves classifications used in this report
are in accordance with the reserves definitions of Rules 4–10(a) (1)–(32) of Regulation S–X of the SEC. Reserves are judged to be economically producible in future years from
known reservoirs under existing economic and operating conditions and assuming continuation of current regulatory practices using conventional production methods and
equipment. In the analyses of production-decline curves, reserves were estimated only to the limit of economic rates of production under existing economic and operating
conditions using prices and costs consistent with the effective date of this report, including consideration of changes in existing prices provided only by contractual arrangements
but not including escalations based upon future conditions. The petroleum reserves are classified as follows:
Proved oil and gas reserves – Proved oil and gas reserves are those quantities of oil and gas, which, by analysis of geoscience and engineering data, can be estimated
with reasonable certainty to be economically producible—from a given date forward, from known reservoirs, and under existing economic conditions, operating methods, and
government regulations—prior to the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of
whether deterministic or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator must be reasonably
certain that it will commence the project within a reasonable time.
(i) The area of the reservoir considered as proved includes:
(A) The area identified by drilling and limited by fluid contacts, if any, and (B) Adjacent undrilled portions of the reservoir that can, with reasonable certainty,
be judged to be continuous with it and to contain economically producible oil or gas on the basis of available geoscience and engineering data.
(ii) In the absence of data on fluid contacts, proved quantities in a reservoir are limited by the lowest known hydrocarbons (LKH) as seen in a well penetration
unless geoscience, engineering, or performance data and reliable technology establishes a lower contact with reasonable certainty.
(iii) Where direct observation from well penetrations has defined a highest known oil (HKO) elevation and the potential exists for an associated gas cap,
proved oil reserves may be assigned in the structurally higher portions of the reservoir only if geoscience, engineering, or performance data and reliable
technology establish the higher contact with reasonable certainty.
(iv) Reserves which can be produced economically through application of improved recovery techniques (including, but not limited to, fluid injection) are
included in the proved classification when:
(A) Successful testing by a pilot project in an area of the reservoir with properties no more favorable than in the reservoir as a whole, the operation of an
installed program in the reservoir or an analogous reservoir, or other evidence using reliable technology establishes the reasonable certainty of the engineering
analysis on which the project or program was based; and (B) The project has been approved for development by all necessary parties and entities, including
governmental entities.
(v) Existing economic conditions include prices and costs at which economic producibility from a reservoir is to be determined. The price shall be the average
price during the 12‑month period prior to the ending date of the period covered by the report, determined as an unweighted arithmetic average of the first-day-
of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future
conditions.
Developed oil and gas reserves – Developed oil and gas reserves are reserves of any category that can be expected to be recovered:
(i) Through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared
to the cost of a new well; and
(ii) Through installed extraction equipment and infrastructure operational at the time of the reserves estimate if the extraction is by means not
involving a well.
Undeveloped oil and gas reserves – Undeveloped oil and gas reserves are reserves of any category that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major expenditure is required for recompletion.
(i) Reserves on undrilled acreage shall be limited to those directly offsetting development spacing areas that are reasonably certain of production when drilled,
unless evidence using reliable technology exists that establishes reasonable certainty of economic producibility at greater distances.
(ii) Undrilled locations can be classified as having undeveloped reserves only if a development plan has been adopted indicating that they are scheduled to be
drilled within five years, unless the specific circumstances justify a longer time.
(iii) Under no circumstances shall estimates for undeveloped reserves be attributable to any acreage for which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been proved effective by actual projects in the same reservoir or an analogous
reservoir, as defined in [section 210.4–10 (a) Definitions], or by other evidence using reliable technology establishing reasonable certainty.
Methodology and Procedures
Estimates of reserves were prepared by the use of appropriate geologic, petroleum engineering, and evaluation principles and techniques that are in accordance with the
reserves definitions of Rules 4–10(a) (1)–(32) of Regulation S–X of the SEC and with practices generally recognized by the petroleum industry as presented in the publication
of the Society of Petroleum Engineers entitled “Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information (revised June 2019) Approved by the
SPE Board on 25 June 2019” and in Monograph 3 and Monograph 4 published by the Society of Petroleum Evaluation Engineers. The method or combination of methods used
in the analysis of each reservoir was tempered by experience with similar reservoirs, stage of development, quality and completeness of basic data, and production history.
Based on the current stage of field development, production performance, the development plans provided by Ranger, and analyses of areas offsetting existing wells
with test or production data, reserves were classified as proved. The proved undeveloped reserves estimates were based on opportunities identified in the plan of development
provided by Ranger.
Ranger has represented that its senior management is committed to the development plan provided by Ranger and that Ranger has the financial capability to execute
the development plan, including the drilling and completion of wells and the installation of equipment and facilities.
For the evaluation of unconventional reservoirs, a performance-based methodology integrating the appropriate geology and petroleum engineering data was utilized for
this report. Performance-based methodology primarily includes (1) production diagnostics, (2) decline-curve analysis, and (3) model-based analysis (if necessary, based on
availability of data). Production diagnostics include data quality control, identification of flow regimes, and characteristic well performance behavior. These analyses were
performed for all well groupings (or type-curve areas).
Characteristic rate-decline profiles from diagnostic interpretation were translated to modified hyperbolic rate profiles, including one or multiple b-exponent values
followed by an exponential decline. Based on the availability of data, model-based analysis may be integrated to evaluate long-term decline behavior, the effect of dynamic
reservoir and fracture parameters on well performance, and complex situations sourced by the nature of unconventional reservoirs.
In the evaluation of undeveloped reserves, type-well analysis was performed using well data from analogous reservoirs for which more complete historical
performance data were available.
Data provided by Ranger from wells drilled through December 31, 2022, and made available for this evaluation were used to prepare the reserves estimates herein.
These reserves estimates were based on consideration of monthly production data available for certain properties only through November 2022. Estimated cumulative
production, as of December 31, 2022, was deducted from the estimated gross ultimate recovery to estimate gross reserves. This required that production be estimated for up to
1 month.
Oil and condensate reserves estimated herein are those to be recovered by normal field separation. NGL reserves estimated herein include pentanes and heavier
fractions (C ) and liquefied petroleum gas (LPG), which consists primarily of propane and butane fractions, and are the result of low-temperature plant processing. Oil,
condensate, and NGL reserves included in this report are expressed in thousands of barrels (Mbbl). In these estimates, 1 barrel equals 42 United States gallons. For reporting
purposes, oil and condensate reserves have been estimated separately and are presented herein as a summed quantity.
Gas quantities estimated herein are expressed as sales gas. Sales gas is defined as the total gas to be produced from the reservoirs, measured at the point of delivery,
after reduction for fuel usage, flare, and shrinkage resulting from field separation and processing. Gas reserves estimated herein are reported as sales gas. Gas quantities are
expressed at a temperature base of 60 degrees Fahrenheit (°F) and at a pressure base of 14.65 pounds per square inch absolute (psia). Gas quantities included in this report are
expressed in millions of cubic feet (MMcf).
Gas quantities are identified by the type of reservoir from which the gas will be produced. Nonassociated gas is gas at initial reservoir conditions with no oil present in
the reservoir. Associated gas is both gas-cap gas and solution gas. Gas-cap gas is gas at initial reservoir conditions and is in communication with an underlying oil zone.
Solution gas is gas dissolved in oil at initial reservoir conditions. Gas quantities estimated herein include both associated and nonassociated gas.
At the request of Ranger, sales gas reserves estimated herein were converted to oil equivalent using an energy equivalent factor of 6,000 cubic feet of gas per 1 barrel
of oil equivalent.
Primary Economic Assumptions
Revenue values in this report were estimated using initial prices, expenses, and costs provided by Ranger. Future prices were estimated using guidelines established by the SEC
and the Financial Accounting Standards Board (FASB). The following economic assumptions were used for estimating the revenue values reported herein:
Oil, Condensate, and NGL Prices
Ranger has represented that the oil, condensate, and NGL prices were based on a reference price, calculated as the unweighted arithmetic average of the first-
day-of-the-month price for each month within the 12-month period prior to the end of the reporting period, unless prices are defined by contractual agreements.
Ranger supplied differentials to a West Texas Intermediate (WTI) reference price of $93.67 per barrel and the prices were held constant thereafter. The volume-
weighted average prices attributable to the estimated proved reserves over the lives of the properties were $93.63 per barrel of oil and condensate and $35.42
per barrel of NGL.
5+
Gas Prices
Ranger has represented that the gas prices were based on a reference price, calculated as the unweighted arithmetic average of the first-day-of-the-month price
for each month within the 12‑month period prior to the end of the reporting period, unless prices are defined by contractual agreements. Ranger supplied
differentials to a Henry Hub reference price of $6.357 per million Btu and the prices were held constant thereafter. Btu factors provided by Ranger were used to
convert prices from dollars per million Btu to dollars per thousand cubic feet. The volume-weighted average price attributable to the estimated proved reserves
over the lives of the properties was $6.128 per thousand cubic feet of gas.
Production and Ad Valorem Taxes
Production taxes were calculated using the tax rates for Texas. Ad valorem taxes were calculated using rates provided by Ranger based on recent payments.
Operating Expenses, Capital Costs, and Abandonment Costs
Estimates of operating expenses and future capital expenditures, provided by Ranger and based on existing economic conditions, were held constant for the
lives of the properties. In certain cases, future expenditures, either higher or lower than current expenditures, may have been used because of anticipated
changes in operating conditions, but no general escalation that might result from inflation was applied. Abandonment costs, which are those costs associated
with the removal of equipment, plugging of the wells, and reclamation and restoration associated with the abandonment, were provided by Ranger for all
properties and were not adjusted for inflation. At the request of Ranger, abandonment costs and any associated negative future net revenue have been included
herein for those proved developed properties for which reserves were estimated to be zero. Operating expenses, capital costs, and abandonment costs were
considered, as appropriate, in determining the economic viability of the undeveloped reserves estimated herein.
In our opinion, the information relating to estimated proved reserves, estimated future net revenue from proved reserves, and present worth of estimated future net
revenue from proved reserves of oil, condensate, NGL, and gas contained in this report has been prepared in accordance with Paragraphs 932‑235-50-4, 932‑235-50-6, 932-235-
50-7, 932-235-50-9, 932-235-50-30, and 932‑235-50-31(a), (b), and (e) of the Accounting Standards Update 932-235-50, Extractive Industries – Oil and Gas (Topic 932): Oil
and Gas Reserve Estimation and Disclosures (January 2010) of the FASB and Rules 4–10(a) (1)–(32) of Regulation S–X and Rules 302(b), 1201, 1202(a) (1), (2), (3), (4), (8),
and 1203(a) of Regulation S–K of the SEC; provided, however, that (i) future income tax expenses have not been taken into account in estimating the future net revenue and
present worth values set forth herein and (ii) estimates of the proved developed and proved undeveloped reserves are not presented at the beginning of the year.
To the extent the above-enumerated rules, regulations, and statements require determinations of an accounting or legal nature, we, as engineers, are necessarily unable
to express an opinion as to whether the above-described information is in accordance therewith or sufficient therefor.
Summary of Conclusions
DeGolyer and MacNaughton has performed an independent evaluation of the extent and value of the estimated net proved oil, condensate, NGL and gas reserves of
certain properties in which Ranger has represented it holds an interest. The estimated net proved reserves, as of December 31, 2022, of the properties evaluated herein were
based on the definition of proved reserves of the SEC and are summarized in the following table, expressed in thousands of barrels (Mbbl), millions of cubic feet (MMcf), and
thousands of barrels of oil equivalent (Mboe):
Estimated by DeGolyer and MacNaughton
Net Proved Reserves
as of December 31, 2022
Oil and
Condensate
(Mbbl)
NGL
(Mbbl)
Sales
Gas
(MMcf)
Oil Equivalent
(Mboe)
Proved Developed
69,881
19,136
106,566
106,778
Proved Undeveloped
99,351
25,272
138,503
147,707
Total Proved
169,232
44,408
245,069
254,485
Note: Sales gas reserves estimated herein were converted to oil equivalent using an energy equivalent factor of 6,000 cubic feet
of gas per 1 barrel of oil equivalent.
The estimated future revenue to be derived from the production and sale of the net proved reserves, as of December 31, 2022, of the properties evaluated using the
guidelines established by the SEC is summarized as follows, expressed in thousands of dollars (M$):
Proved
Developed
(M$)
Total
Proved
(M$)
Future Gross Revenue
7,872,644
18,918,984
Production and Ad Valorem Taxes
587,380
1,048,423
Operating Expenses
1,493,856
2,796,523
Capital and Abandonment Costs
57,480
2,876,385
Future Net Revenue
5,733,928
11,837,653
Present Worth at 10 Percent
3,210,439
5,554,551
Note: Future income taxes have not been taken into account in the preparation of these estimates.
While the oil and gas industry may be subject to regulatory changes from time to time that could affect an industry participant’s ability to recover its reserves, we are
not aware of any such governmental actions which would restrict the recovery of the December 31, 2022, estimated reserves.
DeGolyer and MacNaughton is an independent petroleum engineering consulting firm that has been providing petroleum consulting services throughout the world
since 1936. DeGolyer and MacNaughton does not have any financial interest, including stock ownership, in Ranger. Our fees were not contingent on the results of our
evaluation. This report has been prepared at the request of Ranger. DeGolyer and MacNaughton has used all assumptions, data, procedures, and methods that it considers
necessary and appropriate to prepare this report.
Submitted,
/s/ DeGOLYER and MacNAUGHTON
DeGOLYER and MacNAUGHTON Texas Registered Engineering Firm F-716
/s/ Dilhan Ilk, P.E.
____________________________________
Dilhan Ilk, P.E.
Senior Vice President
DeGolyer and MacNaughton
CERTIFICATE of QUALIFICATION
I, Dilhan Ilk, Petroleum Engineer with DeGolyer and MacNaughton, 5001 Spring Valley Road, Suite 800 East, Dallas, Texas, 75244 U.S.A., hereby certify:
1.
That I am an Executive Vice President with DeGolyer and MacNaughton, which firm did prepare the report of third party addressed to Ranger dated February 2, 2023,
and that I, as Executive Vice President, was responsible for the preparation of this report of third party.
2.
That I attended Istanbul Technical University, and that I graduated with a Bachelor of Science degree in Petroleum Engineering in the year 2003, a Master of Science
degree in Petroleum Engineering from Texas A&M University in 2005, and a Doctor of Philosophy degree in Petroleum Engineering from Texas A&M University in
2010; that I am a Registered Professional Engineer in the State of Texas; that I am a member of the Society of Petroleum Engineers; and that I have in excess of 12 years
of experience in oil and gas reservoir studies and reserves evaluations.
/s/ Dilhan Ilk, P.E.
____________________________________
Dilhan Ilk, P.E.
Senior Vice President
DeGolyer and MacNaughton