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What changed in BATTALION OIL CORP's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of BATTALION OIL CORP's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+346 added−343 removedSource: 10-K (2025-03-31) vs 10-K (2024-04-01)

Top changes in BATTALION OIL CORP's 2024 10-K

346 paragraphs added · 343 removed · 263 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

80 edited+26 added−12 removed79 unchanged
Biggest changeImplementation of the 2015 standard has been ongoing and has resulted in expansion of ozone nonattainment areas across the United States, including areas in which we operate. Oil and natural gas operations in ozone nonattainment areas could be subject to increased regulatory burdens in the form of more stringent emission controls, emission offset requirements, and increased permitting delays and costs.
Biggest changeOil and natural gas operations in ozone nonattainment areas could be subject to increased regulatory burdens in the form of more stringent emission controls, emission offset requirements, and increased permitting delays and costs. Climate Change Various studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere.
Pursuant to the terms of the agreement governing the joint venture, we believe we have multiple remedies to recover such advance, including (1) declaring such payment a loan, which pursuant to the agreement would have an interest rate of the lesser of 15% or the maximum rate permitted by law, (2) recoupment from distributions from the joint venture and (3) reallocation of equity of the joint venture based on the relative level of total capital contributions by the parties after taking into account the advance.
Pursuant to the terms of the agreement governing the joint venture, we believe that we have multiple remedies to recover such advance, including (1) declaring such payment a loan, which pursuant to the agreement would have an interest rate of the lesser of 15% or the maximum rate permitted by law, (2) recoupment from distributions from the joint venture and (3) reallocation of equity of the joint venture based on the relative level of total capital contributions by the parties after taking into account the advance.
However, our decision on the price at which we choose to hedge our production is based in part on our view of current and future market conditions. Our hedge policies and objectives change as our operational profile changes but remain consistent with the requirements in effect under our Amended Term Loan Agreement.
However, our decision on the price at which we choose to hedge our production is based in part on our view of current and future market conditions. Our hedge policies and objectives change as our operational profile changes but remain consistent with the requirements in effect under our 2024 Amended Term Loan Agreement.
As operator, we are able to evaluate industry drilling results and implement improved operating practices that may enhance our initial production rates, ultimate recovery factors and rate of return on invested capital. We continue to focus on cost-saving measures including reducing corporate administrative expenses and pursuing operational efficiencies. ​ 8 Table of Contents ● Maintain Adequate Liquidity.
As operator, we are able to evaluate industry drilling results and implement improved operating practices that may enhance our initial production rates, ultimate recovery factors and rate of return on invested capital. We continue to focus on cost-saving measures including reducing corporate administrative expenses and pursuing operational efficiencies. ​ 7 Table of Contents ● Maintain Adequate Liquidity.
He has approximately 14 years of oil and natural gas operations experience and has earned a Bachelor of Science degree in Petroleum Engineering from Texas A&M University, a Master of Business Administration degree from Rice University and is an active member of the Society of Petroleum Engineers. The reserves information in this Annual Report on Form 10-K represents only estimates.
He has approximately 15 years of oil and natural gas operations experience and has earned a Bachelor of Science degree in Petroleum Engineering from Texas A&M University, a Master of Business Administration degree from Rice University and is an active member of the Society of Petroleum Engineers. The reserves information in this Annual Report on Form 10-K represents only estimates.
As of December 31, 2023, we have no additional borrowing capacity under our current Amended Term Loan Agreement, and as such, we will continue to pursue additional sources of liquidity and cost-saving opportunities further described in Item 7, Management’s Discussion and Analysis, “Capital Resources and Liquidity”. ● Attain Growth Through Strategic Business Combinations.
As of December 31, 2024, we have no additional borrowing capacity under our current 2024 Amended Term Loan Agreement, and as such, we will continue to pursue additional sources of liquidity and cost-saving opportunities further described in Item 7, Management’s Discussion and Analysis, “Capital Resources and Liquidity”. ● Attain Growth Through Strategic Business Combinations.
Except to the extent we acquire additional properties containing proved reserves or conduct successful exploration and development activities or both, our proved reserves will decline as reserves are produced. Proved reserve estimates are based on the unweighted arithmetic average prices on the first day of each month for the 12-month period ended December 31, 2023.
Except to the extent we acquire additional properties containing proved reserves or conduct successful exploration and development activities or both, our proved reserves will decline as reserves are produced. Proved reserve estimates are based on the unweighted arithmetic average prices on the first day of each month for the 12-month period ended December 31, 2024.
Our team is comprised of individuals with extensive technical, industry and other professional experience. By recruiting, hiring and retaining an experienced and diverse team, we are able to leverage years of experience, new ideas and problem solving in a collaborative environment. As of December 31, 2023, we had 38 full-time employees.
Our team is comprised of individuals with extensive technical, industry and other professional experience. By recruiting, hiring and retaining an experienced and diverse team, we are able to leverage years of experience, new ideas and problem solving in a collaborative environment. As of December 31, 2024, we had 38 full-time employees.
We had no exploratory or extension wells drilled for the years ended December 31, 2023 and 2022. We own interests in developed and undeveloped oil and natural gas acreage in the locations set forth in the table below. These ownership interests generally take the form of working interests in oil and natural gas leases that have varying provisions.
We had no exploratory or extension wells drilled for the years ended December 31, 2024 and 2023. We own interests in developed and undeveloped oil and natural gas acreage in the locations set forth in the table below. These ownership interests generally take the form of working interests in oil and natural gas leases that have varying provisions.
The federal Safe Drinking Water Act (SDWA), the Underground Injection Control (UIC) regulations promulgated under the SDWA, and related state programs regulate the drilling and operation of salt water disposal wells. The EPA directly administers the UIC program in some states, and in others it is delegated to the state.
The federal Safe Drinking Water Act (“SDWA”), the Underground Injection Control (“UIC”) regulations promulgated under the SDWA, and related state programs regulate the drilling and operation of salt water disposal wells. The EPA directly administers the UIC program in some states, and in others it is delegated to the state.
We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Forms 3, 4 and 5 filed on behalf of directors and officers, and any 20 Table of Contents amendments to such reports, available free of charge through our corporate website at www.battalionoil .com as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC.
We make our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and Forms 3, 4 and 5 filed on behalf of directors and officers, and any amendments to such reports, available free of charge through our corporate website at www.battalionoil .com as soon as reasonably practicable after such reports are filed with, or furnished to, the SEC.
In addition, our reports, proxy and information statements, and our other filings are also available to the public over the internet at the SEC’s website at www.sec .gov . Unless specifically incorporated by reference in this Annual Report on Form 10-K, information that you may find on our website is not part of this report.
In addition, our reports, proxy 20 Table of Contents and information statements, and our other filings are also available to the public over the internet at the SEC’s website at www.sec .gov . Unless specifically incorporated by reference in this Annual Report on Form 10-K, information that you may find on our website is not part of this report.
Consolidated Financial Statements and Supplementary Data —Note 4, “Oil and Natural Gas Properties.” Wells and Acreage Our principal properties consist of leasehold interests in developed and undeveloped oil and natural gas properties and the reserves associated with these properties.
Consolidated Financial Statements and Supplementary Data —Note 6, “Oil and Natural Gas Properties.” Wells and Acreage Our principal properties consist of leasehold interests in developed and undeveloped oil and natural gas properties and the reserves associated with these properties.
In such areas, this data demonstrated consistent, continuous reservoir characteristics in addition to significant quantities of economic estimated ultimate recoveries from individual producing wells. We relied only on production flow tests and historical production data, along with the reliable geologic data mentioned above to estimate proved reserves.
In such areas, this data demonstrated consistent, continuous reservoir characteristics in addition to significant quantities of economic estimated ultimate recoveries from individual 12 Table of Contents producing wells. We relied only on production flow tests and historical production data, along with the reliable geologic data mentioned above to estimate proved reserves.
There is also competition between oil and natural gas producers and other industries producing energy and fuel. Furthermore, competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of the United States and the states in which our properties are located.
There is also competition between oil and natural gas producers and other industries producing energy and fuel. Furthermore, competitive conditions may be substantially affected by various forms of energy legislation and/or regulation considered from time to time by the government of the U.S. and the states in which our properties are located.
Management’s Discussion and Analysis, “Capital Resources and Liquidity”. ● H 2 S Treating Joint Venture. In May 2022, we entered into a joint venture agreement with Caracara Services, LLC (“Caracara”) to develop a strategic acid gas treatment and carbon sequestration facility (the “Facility”) in Winkler County, Texas.
Management’s Discussion and Analysis, “Capital Resources and Liquidity”. ● H 2 S Treating Joint Venture. In May 2022, we entered into a joint venture agreement with Caracara Services, LLC (“Caracara”) to develop a strategic acid gas treatment and carbon sequestration facility (the “AGI Facility”) in Winkler County, Texas.
The following table sets forth the number of productive oil and natural gas wells in which we owned an interest as of December 31, 2023 and 2022.
The following table sets forth the number of productive oil and natural gas wells in which we owned an interest as of December 31, 2024 and 2023.
The preferred stock (as defined below) of the Company held by the Investors (as defined below) will be contributed to Parent in exchange for new preferred shares of Parent, or sold to Parent for cash, in each case at a valuation based on the conversion or redemption value of such preferred stock.
In addition, the preferred stock (as defined below) of the Company held by the Investors (as defined below) would be contributed to Parent in exchange for new preferred shares of Parent, or sold to Parent for cash, in each case at a valuation based on the conversion or redemption value of such preferred stock.
We also engage the services of independent contractors and consultants along with certain professional service firms to support our work in specific areas. We have no collective bargaining agreements with our employees. We believe that we have good relations with our employees.
We also engage the services of 19 Table of Contents independent contractors and consultants along with certain professional service firms to support our work in specific areas. We have no collective bargaining agreements with our employees. We believe that we have good relations with our employees.
All of our PUD reserves are planned to be developed within five years from the date they were initially recorded. During 2023, approximately $33.0 million in capital expenditures went toward the development of PUD reserves, which includes drilling, completion and other facility costs associated with developing PUD wells.
All of our PUD reserves are planned to be developed within five years from the date they were initially recorded. During 2024, approximately $28.0 million in capital expenditures went toward the development of PUD reserves, which includes drilling, completion and other facility costs associated with developing PUD wells.
We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States. Our properties and drilling activities are currently focused in the Delaware Basin, where we have an extensive drilling inventory that we believe offers attractive long-term economics.
We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the U.S. Our properties and drilling activities are currently focused in the Delaware Basin, where we have an extensive drilling inventory that we believe offers attractive long-term economics.
In addition, the Occupational Safety and Health Administration’s hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees. 19 Table of Contents Human Capital Employees At Battalion, our success is delivered through our highly capable and diverse workforce.
In addition, the Occupational Safety and Health Administration’s hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees. Human Capital Employees At Battalion, our success is delivered through our highly capable and diverse workforce.
In 2023, two individual purchasers of our production, Western Refining Company L.P. and Sunoco Inc., each accounted for more than 10% of total sales, collectively representing 79% of our total sales for the year.
In 2024 and 2023, two individual purchasers of our production, Western Refining Company L.P. and Sunoco Inc., each accounted for more than 10% of total sales, collectively representing 86% and 79%, respectively, of our total sales for the year.
That statute imposes a fee on certain excess methane emissions from oil and gas facilities of $900 per metric ton of methane for 2024, $1,200 per metric ton for 2025, and $1,500 per metric ton each year thereafter.
That statute imposes a fee on certain 18 Table of Contents excess methane emissions from oil and gas facilities of $900 per metric ton of methane for 2024, $1,200 per metric ton for 2025, and $1,500 per metric ton each year thereafter.
Threatened and endangered species, migratory birds, and other natural resources Various state and federal statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds, wetlands, and other natural resources. These statutes include the Endangered Species Act, the Migratory Bird Treaty Act and the Clean Water Act.
Threatened and endangered species, migratory birds, and other natural resources Various state and federal statutes prohibit certain actions that adversely affect endangered or threatened species and their habitat, migratory birds, wetlands, and other natural resources. These statutes include the Endangered Species Act, the Migratory Bird Treaty Act and the CWA.
In the event of a discharge of oil into United States waters, we could be liable under the Oil Pollution Act for cleanup costs, damages and economic losses. Our oil and natural gas production also generates salt water, which is disposed of by underground injection.
In the event of a discharge of oil into U.S. waters, we could be liable under the Oil Pollution Act for cleanup costs, damages and economic losses. Our oil and natural gas production also generates salt water, which is disposed of by underground injection.
In the United States, at the state level, many states, either individually or through multi-state regional initiatives, have been implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emissions targets, product bans, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.
In the U.S., many states, either individually or through multi-state regional initiatives, have been implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emissions targets, product bans, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.
We believe our internally-generated cash flows from operations, cash on hand, and preferred equity funding and commitments during 2023 as further described below will provide us with sufficient liquidity to execute our capital and operating program over the next twelve months, address near-term debt maturities of approximately $50.1 million in 2024, and maintain compliance with our debt covenants.
We believe our internally-generated cash flows from operations, cash on hand, and preferred equity funding and commitments during 2024 as further described below will provide us with sufficient liquidity to execute our capital and operating program over the next twelve months, address near-term debt maturities of approximately $16.9 million in 2025, and maintain compliance with our debt covenants.
Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the federal Clean Air Act and associated state laws and regulations.
Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the federal CAA and associated state laws and regulations.
Our working interests in 39,867 net acres in the Delaware Basin as of December 31, 2023 are in Pecos, Reeves, Ward and Winkler Counties, Texas. This resource play is characterized by high oil and liquids-rich natural gas content in thick, continuous sections of source rock that can provide repeatable drilling opportunities and significant initial production rates.
Our working interests in 40,476 net acres in the Delaware Basin as of December 31, 2024 are in Pecos, Reeves, Ward and Winkler Counties, Texas. This resource play is characterized by high oil and liquids-rich natural gas content in thick, continuous sections of source rock that can provide repeatable drilling opportunities and significant initial production rates.
Under the federal Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, referred to as RCRA, most wastes generated by the exploration and production of oil and natural gas are not regulated as hazardous waste.
Under the federal Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 (“RCRA”) most wastes generated by the exploration and production of oil and natural gas are not regulated as hazardous waste.
Reserves were prepared using a crude oil price of West Texas Intermediate (“WTI”) of $78.21 per Bbl and a Henry Hub natural gas price of $2.64 per MMBtu, based on the preceding 12-month first day of the month average spot prices as required by the Securities and Exchange Commission (the “SEC”).
Reserves were prepared using a crude oil price of West Texas Intermediate (“WTI”) of $76.32 per Bbl and a Henry Hub natural gas price of $2.13 per MMBtu, based on the preceding 12-month first day of the month average spot prices as required by the Securities and Exchange Commission (the “SEC”).
Shut-in wells currently not capable of production are excluded from the well information below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2023 ​ 2022 ​ Gross Net Gross Net Oil ​ 109 ​ 86.2 ​ 111 ​ 91.2 Natural Gas ​ — ​ — ​ 9 ​ 6.9 Total ​ 109 ​ 86.2 ​ 120 ​ 98.1 ​ The table below sets forth the results of our drilling activities for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2023 ​ 2022 ​ ​ Gross Net Gross Net Development Wells: ​ ​ ​ ​ ​ ​ ​ ​ ​ Productive (1) ​ 3 ​ 3.0 ​ 9 ​ 8.5 ​ Dry ​ — ​ — ​ — ​ — ​ Total Development ​ 3 ​ 3.0 ​ 9 ​ 8.5 ​ Total Wells: ​ ​ ​ ​ ​ ​ ​ ​ ​ Productive (1) ​ 3 ​ 3.0 ​ 9 ​ 8.5 ​ Dry ​ — ​ — ​ — ​ — ​ Total ​ 3 ​ 3.0 ​ 9 ​ 8.5 ​ (1) Although a well may be classified as productive upon completion, future changes in oil and natural gas prices, operating costs and production may result in the well becoming uneconomical, particularly extension or exploratory wells where there is no production history.
Shut-in wells currently not capable of production are excluded from the well information below. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2024 ​ 2023 ​ Gross Net Gross Net Oil ​ 108 ​ 86.9 ​ 109 ​ 86.2 Natural Gas ​ — ​ — ​ — ​ — Total ​ 108 ​ 86.9 ​ 109 ​ 86.2 ​ The table below sets forth the results of our drilling activities for the periods indicated: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ ​ 2024 ​ 2023 ​ ​ Gross Net Gross Net Development Wells: ​ ​ ​ ​ ​ ​ ​ ​ ​ Productive (1) ​ 4 ​ 3.9 ​ 3 ​ 3.0 ​ Total Development ​ 4 ​ 3.9 ​ 3 ​ 3.0 ​ Total Wells: ​ ​ ​ ​ ​ ​ ​ ​ ​ Productive (1) ​ 4 ​ 3.9 ​ 3 ​ 3.0 ​ Total ​ 4 ​ 3.9 ​ 3 ​ 3.0 ​ (1) Although a well may be classified as productive upon completion, future changes in oil and natural gas prices, operating costs and production may result in the well becoming uneconomical, particularly extension or exploratory wells where there is no production history.
Various members of Congress likewise have from time to time introduced bills that would result in more stringent control or outright bans of the hydraulic fracturing process. In addition, the Department of the Interior promulgated regulations concerning the use of hydraulic fracturing on lands under its jurisdiction, which includes lands on which we conduct or plan to conduct operations.
Various members of Congress likewise occasionally have introduced bills that would result in more stringent control or outright bans of the hydraulic fracturing process. 17 Table of Contents In addition, the Department of the Interior promulgated 2015 regulations concerning the use of hydraulic fracturing on lands under its jurisdiction, which includes lands on which we conduct or plan to conduct operations.
Our requirement, under our Amended Term Loan Agreement, is to hedge approximately 50% to 85% of our anticipated oil and natural gas production, in varying percentages by year, and on a rolling basis for the next four years.
Under the 2024 Amended Term Loan Agreement, we are required to hedge approximately 85% to 50% of our anticipated oil and natural gas production, in varying percentages by year, on a rolling basis for the next four years.
Approximately 59% of our estimated proved reserves were classified as proved developed and we maintain operational control of 99.9% of our estimated proved reserves as of December 31, 2023.
Approximately 56% of our estimated proved reserves were classified as proved developed and we maintain operational control of 99.9% of our estimated proved reserves as of December 31, 2024.
This is an energy content correlation and does not reflect the value or price relationship between the commodities. At December 31, 2023, total estimated proved reserves were approximately 68.1 MMBoe, a 23.9 MMBoe net decrease from the previous year’s estimate of 92.0 MMBoe.
This is an energy content correlation and does not reflect the value or price relationship between the commodities. At December 31, 2024, total estimated proved reserves were approximately 64.9 MMBoe, a 3.2 MMBoe net decrease from the previous year’s estimate of 68.1 MMBoe.
Hazardous Substances and Wastes The federal Comprehensive Environmental Response, Compensation and Liability Act, referred to as CERCLA or the Superfund law, and comparable state laws impose liability, without regard to fault, on certain classes of persons that are considered to be responsible for the release of a hazardous substance into the environment.
Hazardous Substances and Wastes The federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or the “Superfund law”) and comparable state laws impose liability, without regard to fault, on certain classes of persons that are considered to be responsible for the release of a hazardous substance into the environment.
In exchange for contributing to the joint venture a 9 Table of Contents wellbore with an approved permit for the injection of acid gas and surface land , we retained a 5% equity interest in WAT, an unconsolidated subsidiary.
In exchange for contributing to the joint venture a wellbore with an approved permit for the injection of acid gas and surface land , we retained a 5% equity interest in WAT, an equity investment.
Our primary targets in this area are the Wolfcamp and Bone Spring formations. As of December 31, 2023, we had 90 operated wells producing in this area in addition to minor working interests in 19 non-operated wells. Our average daily net production from this area for the year ended December 31, 2023 was 13,784 Boe/d.
Our primary targets in this area are the Wolfcamp and Bone Spring formations. As of December 31, 2024, we had 91 operated wells producing in this area in addition to minor working interests in 13 non-operated wells. Our average daily net production for the year ended December 31, 2024 was 12,667 Boe/d.
Average prices for the 12-month period were as follows: WTI crude oil spot price of $78.21 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $2.64 per MMBtu, adjusted by lease or field for energy content, transportation fees, and market differentials.
Average prices for the 12-month period were as follows: WTI crude oil spot price of $76.32 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $2.13 per MMBtu, adjusted by lease or field for energy content, transportation fees, 11 Table of Contents and market differentials.
Our near-term development plans are focused on acreage preservation primarily in our liquids-rich Monument Draw area, maintaining production levels, and developing through the drilling and completion of new wells. ​ ● Enhance Returns Through Continued Improvements in Operational and Cost Efficiencies.
Our near-term development plans are focused on acreage preservation primarily in our liquids-rich Monument Draw area, maintaining production levels, and developing through the drilling and completion of new wells.
Environmental Regulations Our operations are subject to stringent federal, state and local laws regulating the discharge of materials into the environment or otherwise relating to health and safety or the protection of the environment.
Environmental Regulations Our operations are subject to stringent federal, state and local laws regulating the discharge of materials into the environment or otherwise relating to health and safety or the protection of the environment. Numerous governmental agencies, such as the U.S.
Where takings of or harm to species or damages to wetlands, habitat, or other natural resources occur or may occur, government entities or at times private parties may act to prevent or restrict oil and gas exploration activities or seek damages for any injury, whether resulting from drilling or construction or releases of oil, wastes, hazardous substances or other regulated materials, and in some cases, criminal penalties may result.
Government entities or at times private parties may act to prevent or seek damages for any injury to protected species or other natural resources, whether resulting from drilling or construction or releases of oil, wastes, hazardous substances or other regulated materials, and in some cases, criminal penalties may result.
In addition, BLM has proposed new rules to reduce venting, flaring and leaks from oil and gas production on public lands. Aside from new controls, the 2022 Inflation Reduction Act creates incentives designed to increase use of electric cars and fuels other than oil and natural gas.
In addition, the federal Bureau of Land Management (“BLM”) promulgated new rules in 2024 to reduce venting, flaring and leaks from oil and gas production on public lands. Aside from new controls, the 2022 Inflation Reduction Act creates incentives designed to increase use of electric cars and fuels other than oil and natural gas.
Our board of directors has established a reserves committee composed of independent directors with experience in energy company reserve evaluations. Our independent engineering firm reports jointly to the reserves committee and to our Director of Corporate Development and Reserves.
Our board of directors has established a reserves committee composed of independent directors with experience in energy company reserve evaluations. Our independent engineering firm reports jointly to the reserves committee and to our Vice President of Strategy and Planning.
On an annual basis, employees are required to acknowledge and agree to abide by these policies. Principal Office As of December 31, 2023, we lease corporate office space in Houston, Texas at 820 Gessner Road.
Employees are required to acknowledge and agree to abide by these policies upon employment. Principal Office As of December 31, 2024, we lease corporate office space in Houston, Texas at 820 Gessner Road.
Working at the direction of Congress, the EPA issued a study in 2016 finding that hydraulic fracturing could potentially harm drinking water resources under adverse circumstances such as injection directly into groundwater or into production wells lacking mechanical integrity.
Working at the direction of Congress, the EPA issued a study in 2016 finding that hydraulic fracturing could potentially harm drinking water resources under adverse circumstances such as injection directly into groundwater or into production wells lacking mechanical integrity. That study led to calls from environmental groups for increased federal regulatory controls.
Of our 8,996 net undeveloped acres at December 31, 2023, approximately 5,300 acres are subject to continuous development clauses and 3,692 acres are “held by production.” We continually review our acreage subject to these clauses or agreements when determining our drilling program. ​ Production Volumes, Sales Prices, and Average Costs The following table summarizes our oil, natural gas and NGLs production volumes, average sales price per unit and average costs per unit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 Production: ​ ​ ​ ​ ​ ​ ​ Crude oil - MBbls ​ ​ 2,415 ​ ​ 2,837 ​ Natural gas - MMcf ​ ​ 8,718 ​ ​ 9,337 ​ Natural gas liquids - MBbls ​ ​ 1,163 ​ ​ 1,242 ​ Total MBoe (1) ​ ​ 5,031 ​ ​ 5,635 ​ Average daily production - Boe (1) ​ ​ 13,784 ​ ​ 15,438 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average price per unit (excluding impact of settled derivatives) : ​ ​ ​ ​ ​ ​ ​ Crude oil price - Bbl ​ $ 76.04 ​ $ 94.36 ​ Natural gas price - Mcf ​ ​ 1.27 ​ ​ 4.95 ​ Natural gas liquids price - Bbl ​ ​ 20.48 ​ ​ 35.02 ​ Barrel of oil equivalent price - Boe (1) ​ ​ 43.43 ​ ​ 63.43 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average price per unit ( including impact of settled derivatives) (2) : ​ ​ ​ ​ ​ ​ ​ Crude oil price - Bbl ​ $ 68.28 ​ $ 53.54 ​ Natural gas price - Mcf ​ ​ 2.36 ​ ​ 3.40 ​ Natural gas liquids price - Bbl ​ ​ 20.48 ​ ​ 35.02 ​ Barrel of oil equivalent price - Boe (1) ​ ​ 41.59 ​ ​ 40.31 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average cost per Boe: ​ ​ ​ ​ ​ ​ ​ Production: ​ ​ ​ ​ ​ ​ ​ Lease operating ​ $ 8.92 ​ $ 8.54 ​ Workover and other ​ ​ 1.42 ​ ​ 1.19 ​ Taxes other than income ​ ​ 2.37 ​ ​ 3.28 ​ Gathering and other ​ ​ 12.64 ​ ​ 11.38 ​ Total average cost ​ ​ 25.35 ​ ​ 24.39 ​ (1) Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency.
Of our 4,714 net undeveloped acres at December 31, 2024, approximately 4,246 acres are subject to continuous development clauses and 468 acres are “held by production.” We continually review our acreage subject to these clauses or agreements when determining our drilling program. ​ Production Volumes, Sales Prices, and Average Costs The following table summarizes our oil, natural gas and NGLs production volumes, average sales price per unit and average costs per unit: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2024 2023 Production: ​ ​ ​ ​ ​ ​ ​ Crude oil - MBbls ​ ​ 2,363 ​ ​ 2,415 ​ Natural gas - MMcf ​ ​ 7,814 ​ ​ 8,718 ​ Natural gas liquids - MBbls ​ ​ 971 ​ ​ 1,163 ​ Total MBoe (1) ​ ​ 4,636 ​ ​ 5,031 ​ Average daily production - Boe (1) ​ ​ 12,667 ​ ​ 13,784 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average price per unit (excluding impact of settled derivatives) : ​ ​ ​ ​ ​ ​ ​ Crude oil price - Bbl ​ $ 73.89 ​ $ 76.04 ​ Natural gas price - Mcf (3) ​ ​ (0.28) ​ ​ 1.27 ​ Natural gas liquids price - Bbl ​ ​ 21.44 ​ ​ 20.48 ​ Barrel of oil equivalent price - Boe (1) ​ ​ 41.68 ​ ​ 43.43 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average price per unit ( including impact of settled derivatives) (2) : ​ ​ ​ ​ ​ ​ ​ Crude oil price - Bbl ​ $ 62.57 ​ $ 68.28 ​ Natural gas price - Mcf ​ ​ 2.02 ​ ​ 2.36 ​ Natural gas liquids price - Bbl ​ ​ 21.44 ​ ​ 20.48 ​ Barrel of oil equivalent price - Boe (1) ​ ​ 39.78 ​ ​ 41.59 ​ ​ ​ ​ ​ ​ ​ ​ ​ Average cost per Boe: ​ ​ ​ ​ ​ ​ ​ Production: ​ ​ ​ ​ ​ ​ ​ Lease operating ​ $ 9.77 ​ $ 8.92 ​ Workover and other ​ ​ 1.12 ​ ​ 1.42 ​ Taxes other than income ​ ​ 2.42 ​ ​ 2.37 ​ Gathering and other ​ ​ 11.67 ​ ​ 12.64 ​ Total average cost ​ ​ 24.98 ​ ​ 25.35 ​ (1) Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency.
New federal programs relating to climate change appear to be likely through at least 2024. For example, EPA announced new final regulations in December 2023 that impose more comprehensive restrictions on emissions of methane (a greenhouse gas) and volatile organic compounds from new, existing, and modified facilities in the oil and gas sector (such as wells and storage tank batteries).
For example, the EPA announced new final regulations in December 2023 that impose more comprehensive restrictions on emissions of methane (a greenhouse gas) and volatile organic compounds from new, existing, and modified facilities in the oil and gas sector (such as wells and storage tank batteries).
At December 31, 2023, our estimated total proved oil and natural gas reserves were approximately 68.1 MMBoe, consisting of 34.6 MMBbls of oil, 14.9 MMBbls of NGLs and 111.7 Bcf of natural gas, as prepared by our independent reserve engineering firm, Netherland, Sewell & Associates, Inc. (“NSAI”).
At December 31, 2024, our estimated total proved oil and natural gas reserves were approximately 64.9 MMBoe, consisting of 34.8 MMBbls of oil, 12.6 MMBbls of NGLs and 105.4 Bcf of natural gas, as prepared by our independent reserve engineering firm, Netherland, Sewell & Associates, Inc. (“NSAI”).
No other alternative methods or technologies were used to estimate 12 Table of Contents proved reserves. Out of total PUD reserves of 27.9 MMBoe at December 31, 2023, 12.7 MMBoe were associated with 16 gross PUD locations that were more than one offset location from a producing well.
No other alternative methods or technologies were used to estimate proved reserves. Out of total PUD reserves of 28.6 MMBoe at December 31, 2024, 7.5 MMBoe were associated with 10 gross PUD locations that were more than one offset location from a producing well.
Our future performance is subject to commodity price risks and our future cash flows from operations may be volatile. We do not enter into derivative contracts for speculative trading purposes. While there are many different types of derivatives available, we typically use fixed-price swaps, costless collars, basis swaps and WTI NYMEX roll agreements to attempt to manage price risk.
We do not enter into derivative contracts for speculative trading purposes. 10 Table of Contents While there are many different types of derivatives available, we typically use fixed-price swaps, costless collars, basis swaps and WTI NYMEX roll agreements to attempt to manage price risk.
Many factors, including public perception, can materially impact the ability to secure an environmental construction or operation permit. Failure to comply with environmental laws and regulations may result in the assessment of substantial administrative, civil and criminal penalties, as well as the issuance of injunctions limiting or prohibiting our activities.
Failure to comply with environmental laws and regulations may result in the assessment of substantial administrative, civil and criminal penalties, as well as the issuance of injunctions limiting or prohibiting our activities.
Hydraulic Fracturing Our completion operations are subject to regulations that may become more stringent in either the short- or long-term. In particular, the well completion technique known as hydraulic fracturing, which is used to stimulate production of oil and natural gas, has come under increased scrutiny by the environmental community, and many local, state and federal regulators.
In particular, the well completion technique known as hydraulic fracturing, which is used to stimulate production of oil and natural gas, has from time to time come under increased scrutiny by the environmental community, and many local, state and federal regulators.
In addition, the EPA has developed and may continue to develop stringent regulations governing emissions of toxic air pollutants at specified sources, including oil and natural gas production facilities.
Air Emissions The federal Clean Air Act (the “CAA”) and comparable state laws regulate emissions of various air pollutants through permitting programs and the imposition of other requirements. In addition, the EPA has developed and may continue to develop stringent regulations governing emissions of toxic air pollutants at specified sources, including oil and natural gas production facilities.
Methane, a primary component of natural gas, and carbon dioxide, a byproduct of burning oil, natural gas and refined petroleum products, are considered greenhouse gases. Internationally, the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement address greenhouse gas emissions, and several countries, including those comprising the European Union, have established greenhouse gas regulatory systems.
Internationally, the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement address greenhouse gas emissions, and several countries, including those comprising the European Union, have established greenhouse gas regulatory systems.
Numerous governmental agencies, such as the United States Environmental Protection Agency (the “EPA”), issue regulations to implement and enforce these laws, which often require difficult and costly compliance measures. Among other things, environmental regulatory programs typically govern the permitting, construction and operation of a facility.
Environmental Protection Agency (the “EPA”), issue regulations to implement and enforce these laws, which often require difficult and costly compliance measures. Among other things, environmental regulatory programs typically govern the permitting, construction and operation of a facility. Many factors, including public perception, can materially impact the ability to secure an environmental construction or operation permit.
(“Parent”) and San Jacinto Merger Sub, Inc (“Merger Sub”), a direct wholly-owned subsidiary of Parent, pursuant to which Parent will acquire all of the outstanding shares of common stock of the Company for $9.80 per share in cash, which represents a total transaction value of approximately $450.0 million (the “Merger”).
(“Parent”) and San Jacinto Merger Sub, Inc (“Merger Sub”), a direct wholly-owned subsidiary of Parent, pursuant to which Parent was to acquire all of the outstanding shares of common stock of the Company (the “Merger”).
The following table presents a summary of our acreage interests as of December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Developed Acreage ​ Undeveloped Acreage ​ Total Acreage State Gross Net Gross Net Gross Net Texas ​ 33,113 ​ 30,871 ​ 9,927 ​ 8,996 ​ 43,040 ​ 39,867 13 Table of Contents ​ Generally, our oil and natural gas leases remain in force as long as production in paying quantities is maintained.
The following table presents a summary of our acreage interests as of December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Developed Acreage ​ Undeveloped Acreage ​ Total Acreage State Gross Net Gross Net Gross Net Texas ​ 38,333 ​ 35,762 ​ 5,649 ​ 4,714 ​ 43,982 ​ 40,476 13 Table of Contents ​ Generally, our oil and natural gas leases remain in force as long as production in paying quantities is maintained.
Caracara provided the initial capital for the construction of the Facility, which is expected to have an initial capacity of approximately 30 MMcf per day, and a design capacity to treat up to 10% combined concentrations for H2S and CO2. During commissioning and initial operations, it was determined that additional pressure was required to initiate gas injection.
Caracara provided the initial capital for the construction of the Facility, which is expected to have an initial capacity of approximately 30 MMcf per day, and a design capacity to treat up to 10% combined concentrations for H 2 S and CO 2 .
Proved developed reserves of 40.1 MMBoe decreased approximately 6.2 MMBoe from December 31, 2022 primarily as a result of negative revisions of 3.6 MMBoe and production of 5.0 MMBoe offset by proved undeveloped (“PUD”) reserve development of 2.4 MMBoe.
Proved developed reserves of 36.3 MMBoe decreased approximately 3.8 MMBoe from December 31, 2023 primarily as a result of negative revisions of 2.1 MMBoe due primarily to the decrease in pricing and changes in differentials, deducts and marketing expenses and production of 4.6 MMBoe offset by proved undeveloped (“PUD”) reserve development of 2.9 MMBoe.
Midland) where the product is sold and the relevant pricing index under which the oil production is hedged (i.e. Cushing).
Midland) where the product is sold and the relevant pricing index under which the oil production is hedged (i.e. Cushing). WTI NYMEX roll agreements account for pricing adjustments to the trade month versus the delivery month for contract pricing.
Under CERCLA, RCRA and analogous state laws, we have been and may be required to remove or remediate such materials. Water Discharges Our operations also may be subject to the federal Clean Water Act and analogous state statutes. Those laws regulate discharges of wastewater, oil, and other pollutants to surface water bodies, such as lakes, rivers, wetlands, and streams.
Among other things, they impose new requirements for certain pits and for land application of waste. Water Discharges Our operations also may be subject to the federal Clean Water Act (the “CWA”) and analogous state statutes. Those laws regulate discharges of wastewater, oil, and other pollutants to surface water bodies, such as lakes, rivers, wetlands, and streams.
Within NSAI, the technical persons primarily responsible for preparing the estimates set forth in their reserves reports incorporated herein each have over 20 years of industry experience.
Oil and Natural Gas Reserves The proved reserves estimates reported herein for the years ended December 31, 2024 and 2023, have been independently evaluated by NSAI, our independent reserve engineering firm. Within NSAI, the technical persons primarily responsible for preparing the estimates set forth in their reserves reports incorporated herein each have over 20 years of industry experience.
All prices and costs associated with operating wells were held constant in accordance with SEC guidelines. 11 Table of Contents The following table presents certain proved reserve information as of December 31, 2023 (dollars in thousands): ​ ​ ​ Proved Reserves (MBoe) (1) ​ Developed ​ 40,129 Undeveloped ​ 27,978 Total ​ 68,107 PV-10 (2) $ 613,238 Discounted Future Income Taxes ​ (14,757) Standardized measure of discounted future net cash flows $ 598,481 (1) Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency.
The following table presents certain proved reserve information as of December 31, 2024 (dollars in thousands): ​ ​ ​ Proved Reserves (MBoe) (1) ​ Developed ​ 36,304 Undeveloped ​ 28,643 Total ​ 64,947 PV-10 (2) $ 458,496 Discounted Future Income Taxes ​ (10,793) Standardized measure of discounted future net cash flows $ 447,703 (1) Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency.
PUD reserves of 27.9 MMBoe decreased approximately 17.7 MMBoe from December 31, 2022 as a result of the transfer of 2.4 MMBoe to proved developed producing reserves and downward revisions of 15.3 MMBoe due primarily to the removal of 13.0 MMBoe of PUDS due to decreased activity associated with managing cash flow, servicing debt and financial covenants, and ongoing work to recapitalize the business coupled with a downward revision of 2.3 MMBoe due to decreased SEC prices.
PUD reserves of 28.6 MMBoe increased approximately 0.7 MMBoe from December 31, 2023 as a result of extensions of 4.0 MMBoe primarily associated with infill drilling activity offset by the transfer of 2.9 MMBoe to proved developed producing reserves and downward revisions of 0.4 MMBoe due to decreased SEC prices.
The United States Fish and Wildlife Service may designate critical habitat areas that it believes are necessary for survival of threatened or endangered species. A critical habitat designation could result in further material restrictions on federal land use or on private land use and could delay or prohibit land access or development.
A critical habitat designation could result in further material restrictions on federal or private land use and could delay or prohibit land access or development.
During the third quarter of 2023, additional complications were encountered with the workover operation causing higher than expected costs. To fund this workover operation, we advanced capital contributions totaling approximately $15.1 million during the year ended December 31, 2023 on behalf of our joint venture partner in WAT.
To fund this workover operation, we advanced capital contributions totaling approximately $18.5 million as of December 31, 2024 on behalf of our joint venture partner in WAT.
In October 2015, the EPA announced that it was lowering the primary national ambient air quality standard for ozone from 75 parts per billion to 70 parts per billion, but is reconsidering whether an even stricter standard is warranted.
In October 2015, the EPA announced that it was lowering the primary national ambient air quality standard for ozone from 75 parts per billion to 70 parts per billion. Implementation of the 2015 standard has been ongoing and has resulted in expansion of ozone nonattainment areas across the U.S., including areas in which we operate.
The following table presents estimated proved reserves at December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved ​ Proved ​ Total ​ Developed Undeveloped Proved Oil (MBbls) ​ 18,626 ​ 15,996 ​ 34,622 Natural Gas Liquids (MBbls) ​ 9,661 ​ 5,199 ​ 14,860 Natural Gas (MMcf) ​ 71,051 ​ 40,698 ​ 111,749 Equivalent (MBoe) (1) ​ 40,129 ​ 27,978 ​ 68,107 (1) Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency.
The following table presents estimated proved reserves at December 31, 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ Proved ​ Proved ​ Total ​ Developed Undeveloped Proved Oil (MBbls) ​ 17,661 ​ 17,124 ​ 34,785 Natural Gas Liquids (MBbls) ​ 7,916 ​ 4,677 ​ 12,593 Natural Gas (MMcf) ​ 64,361 ​ 41,052 ​ 105,413 Equivalent (MBoe) (1) ​ 36,304 ​ 28,643 ​ 64,947 (1) Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency.
While the Trump 17 Table of Contents Administration rescinded those rules, that decision is being challenged in court. Regardless of how the federal issues are eventually resolved, states have been imposing new restrictions or bans on hydraulic fracturing. Even local jurisdictions, such as Denton, Texas and several cities in Colorado, have adopted, or tried to adopt, regulations restricting hydraulic fracturing.
Those rules were rescinded in 2017, but that decision was challenged in court, and the parties recently have been involved in settlement discussions. Regardless of how the federal issues are eventually resolved, states have been imposing new restrictions or bans on hydraulic fracturing.
To correct this issue, a positive displacement pump was ordered and installed. The Facility’s injection well also experienced pressure communication between the tubing and annular space after an injection procedure. We commenced workover operations to remediate this issue and such workover operations on the well and injection tests were completed.
The AGI Facility’s injection well also experienced pressure communication between the tubing and annular space after an injection procedure. We commenced workover operations to remediate this issue. During the third quarter of 2023, additional complications were encountered with the workover operation at the AGI Facility causing higher than expected costs.
WTI NYMEX roll agreements account for pricing adjustments to the trade month versus the delivery month for contract pricing. 10 Table of Contents It is our policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers.
It is our policy to enter into derivative contracts only with counterparties that are creditworthy financial institutions deemed by management as competent and competitive market makers. As of December 31, 2024, we did not post collateral under any of our derivative contracts as they are secured under our 2024 Amended Term Loan Agreement.
Additional information regarding our risks can be found in Item 1A. Risk Factors. Recent Developments ● Merger with Fury Resources. On December 14, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Fury Resources, Inc.
For further details on the 2024 Amended Term Loan Agreement, see Item 7. Management’s Discussion and Analysis on Financial Condition - “Recent Developments ”. ​ ● Merger with Fury Resources. On December 14, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Fury Resources, Inc.
Climate Change Various studies over recent years have indicated that emissions of certain gases may be contributing to warming of the Earth’s atmosphere. In response, governments increasingly have been adopting domestic and international climate change regulations that require reporting and reductions of the emission of such greenhouse gases.
In response, governments increasingly have been adopting domestic and international climate change regulations that require reporting and reductions of the emission of such greenhouse gases. Methane, a primary component of natural gas, and carbon dioxide, a byproduct of burning oil, natural gas and refined petroleum products, are considered greenhouse gases.
An aggregate of 35,000 shares of preferred stock were sold on December 15, 2023 under such support letter to the Investors for proceeds of $34.1 million, net of $0.9 million of original issue discount. At December 31, 2023, $20.0 million remained available for issuance under the support letter from the Investors.
We received $19.5 million in proceeds, net of $0.5 million in original issue discount. On May 13, 2024, we sold, in a private placement, an aggregate of 20,000 shares of preferred stock to the Investors for $19.5 million in proceeds, net of $0.5 million in original issue discount.
Additional hydraulic fracturing requirements at the federal, state or local level may limit our ability to operate or increase our operating costs. Air Emissions The federal Clean Air Act and comparable state laws regulate emissions of various air pollutants through permitting programs and the imposition of other requirements.
Even local jurisdictions, such as Denton, Texas and several cities in Colorado, have adopted, or tried to adopt, regulations restricting hydraulic fracturing. Additional hydraulic fracturing requirements at the federal, state or local level may limit our ability to operate or increase our operating costs.
As of December 31, 2023, we did not post collateral under any of our derivative contracts as they are secured under our Amended Term Loan Agreement. We will continue to evaluate the benefit of employing derivatives in the future. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk and Item 8.
We will continue to evaluate the benefit of employing derivatives in the future. See Item 7A. Quantitative and Qualitative Disclosures about Market Risk and Item 8. Consolidated Financial Statements and Supplementary Data— Note 9 , “Derivative and Hedging Activities,” for additional information.
On November 8, 2023, we obtained an additional support letter from Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, who represent our largest three existing shareholders (the “Investors”) to purchase additional preferred equity securities in an amount up to $55.00 million over the next 12 months.
On March 27, 2024, we sold, in a private placement, the remaining 20,000 shares of preferred stock under a commitment letter received during the third quarter of 2023 to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, who represent our largest three existing stockholders (the “Investors”).

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese uncertainties could result in an inability to meet our expectations for reserves and production. ● Title to the properties in which we have an interest may be impaired by title defects. ● We depend substantially on the continued presence of key personnel for critical management decisions and industry contacts. ● There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders. ● Future sales of our common stock in the public market or the issuance of securities senior to our common stock, or the perception that these sales may occur, could adversely affect the trading price of our common stock and our ability to raise funds in stock offerings. ● We may choose to delist our securities from NYSE American and deregister our common stock under the Exchange Act, which could negatively affect the liquidity and trading prices of our common stock and would result in less disclosure about the Company. ● We are subject to complex federal, state, local and other laws and regulations that frequently are amended to impose more stringent requirements that could adversely affect the cost, manner or feasibility of doing business. ● Federal, state and local legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays. ● Regulation related to global warming and climate change could have an adverse effect on our operations and demand for oil and natural gas. ● Our operations substantially depend on the availability of water.
Biggest changeConsequently, the financial and voting interests in our Company of the holders of our common stock may be diluted. ● We are subject to complex federal, state, local and other laws and regulations that frequently are amended to impose more stringent requirements that could adversely affect the cost, manner or feasibility of doing business. ● Federal, state and local legislation and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays. ● Regulation or litigation related to global warming and climate change could have an adverse effect on our operations and demand for oil and natural gas. ● Our operations substantially depend on the availability of water.
If we are unable to obtain water to use in our operations from local sources, we may be unable to economically produce oil, natural gas liquids and natural gas, which could have an adverse effect on our business, financial condition and results of operations. Wastewaters from our operations typically are disposed of via underground injection.
If we are unable to obtain water from local sources to use in our operations, we may be unable to economically produce oil, natural gas liquids and natural gas, which could have an adverse effect on our business, financial condition and results of operations. Wastewaters from our operations typically are disposed of via underground injection.
In particular, the Amended Term Loan Agreement limits our and our subsidiaries’ ability to, among other things: ● pay dividends on, redeem or repurchase shares of our common stock and any other capital stock we may issue; ● make loans to others; ● make investments; ● incur additional indebtedness; ● create certain liens; ● sell assets; ● enter into agreements that restrict dividends or other payments from our restricted subsidiaries to us; ● consolidate, merge or transfer all or substantially all of our assets and those of our restricted subsidiaries taken as a whole; ● engage in transactions with affiliates; ● increase our exposure to commodity price fluctuations; ● create unrestricted subsidiaries; and ● enter into sale and leaseback transactions.
In particular, the 2024 Amended Term Loan Agreement limits our and our subsidiaries’ ability to, among other things: ● pay dividends on, redeem or repurchase shares of our common stock and any other capital stock we may issue; ● make loans to others; ● make investments; ● incur additional indebtedness; ● create certain liens; ● sell assets; ● enter into agreements that restrict dividends or other payments from our restricted subsidiaries to us; ● consolidate, merge or transfer all or substantially all of our assets and those of our restricted subsidiaries taken as a whole; ● engage in transactions with affiliates; ● increase our exposure to commodity price fluctuations; ● create unrestricted subsidiaries; and ● enter into sale and leaseback transactions.
In order to manage our exposure to price risks in the marketing of our oil, natural gas, and natural gas liquids production and comply with the requirements of our Amended Term Loan Agreement, we have entered into oil and natural gas hedging arrangements with respect to a portion of our anticipated production and we may enter into additional hedging transactions in the future.
In order to manage our exposure to price risks in the marketing of our oil, natural gas, and natural gas liquids production and comply with the requirements of our 2024 Amended Term Loan Agreement, we have entered into oil and natural gas hedging arrangements with respect to a portion of our anticipated production and we may enter into additional hedging transactions in the future.
In addition, if we fail to comply with the limitations under our Amended Term Loan Agreement, our creditors, to the extent the agreement so provides, may accelerate the related indebtedness as well as any other indebtedness to which a cross-acceleration or cross-default provision applies.
In addition, if we fail to comply with the limitations under our 2024 Amended Term Loan Agreement, our creditors, to the extent the agreement so provides, may accelerate the related indebtedness as well as any other indebtedness to which a cross-acceleration or cross-default provision applies.
Failure to comply with the covenants in our Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our Amended Term Loan Agreement to become immediately due and payable.
Failure to comply with the covenants in our 2024 Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our 2024 Amended Term Loan Agreement to become immediately due and payable.
Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business. ● Estimates of proved oil and natural gas reserves involve assumptions and any material inaccuracies in these assumptions will materially affect the quantities and the value of our reserves. ● We are subject to various contractual limitations that affect the discretion of our management in operating our business. ● Federal legislation and rulemaking could have an adverse impact on our ability to use derivative instruments to reduce the effects of commodity prices, interest rates and other risks associated with our business. ● We cannot be certain that the insurance coverage maintained by us will be adequate to cover all losses that may be sustained in connection with all oil and natural gas activities. 21 Table of Contents ● Our ability to use net operating loss carryforwards and realized built in losses to offset future taxable income for United States federal income tax purposes is subject to limitation. ● We may be required to take non-cash asset write-downs. ● Hedging transactions may limit our potential gains and increase our potential losses. ● We are substantially dependent upon our drilling success on our Delaware Basin properties. ● Our exploration and development drilling efforts and the operation of our wells may not be profitable or achieve our targeted rates of return. ● Increasing attention to environmental, social and corporate governance (“ESG”) matters may impact our business. ● We could experience periods of higher costs for various reasons, including due to higher commodity prices, increased drilling activity in the Delaware Basin and trade disputes or inflation that affect the costs of steel and other raw materials that we and our vendors rely upon, which could adversely affect our ability to execute our exploration and development plans on a timely basis and within budget. ● We may not be able to drill wells on a substantial portion of our acreage. ● Certain of our undeveloped leasehold acreage could expire if we are unable to meet continuous development clauses or similar provisions in our leases requiring development of our undeveloped acreage and/or maintaining production on units containing the acreage. ● Our oil and natural gas activities are subject to various risks that are beyond our control. ● Our ability to sell our production and/or receive market prices for our production may be adversely affected by transportation capacity constraints and interruptions. ● Our strategy involves drilling in shale formations, using horizontal drilling and modern completion techniques.
Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business. ● Estimates of proved oil and natural gas reserves involve assumptions and any material inaccuracies in these assumptions will materially affect the quantities and the value of our reserves. ● We are subject to various contractual limitations that affect the discretion of our management in operating our business. ● Federal legislation and rulemaking could have an adverse impact on our ability to use derivative instruments to reduce the effects of commodity prices, interest rates and other risks associated with our business. ● We cannot be certain that the insurance coverage maintained by us will be adequate to cover all losses that may be sustained in connection with all oil and natural gas activities. ● Our ability to use net operating loss carryforwards and realized built in losses to offset future taxable income for U.S. federal income tax purposes is subject to limitation. ● We may be required to take non-cash asset write-downs. ● Hedging transactions may limit our potential gains and increase our potential losses. ● We are substantially dependent upon our drilling success on our Delaware Basin properties. ● Our exploration and development drilling efforts and the operation of our wells may not be profitable or achieve our targeted rates of return. ● Increasing attention to environmental, social and corporate governance (“ESG”) matters may impact our business. ● We could experience periods of higher costs for various reasons, including due to higher commodity prices, increased drilling activity in the Delaware Basin and trade disputes or inflation that affect the costs of steel and other raw materials that we and our vendors rely upon, which could adversely affect our ability to execute our exploration and development plans on a timely basis and within budget. ● We may not be able to drill wells on a substantial portion of our acreage. ● Certain of our undeveloped leasehold acreage could expire if we are unable to meet continuous development clauses or similar provisions in our leases requiring development of our undeveloped acreage and/or maintaining production on units containing the acreage. ● Our oil and natural gas activities are subject to various risks that are beyond our control. ● Our ability to sell our production and/or receive market prices for our production may be adversely affected by transportation capacity constraints and interruptions. ● Our strategy involves drilling in shale formations, using horizontal drilling and modern completion techniques.
Any new environmental initiatives or regulations that restrict injection of fluids, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and gas, or that limit the withdrawal, storage or use of surface water or ground water necessary for hydraulic 37 Table of Contents fracturing of our wells, could increase our operating costs and cause delays, interruptions or cessation of our operations, the extent of which cannot be predicted, and all of which would have an adverse effect on our business, financial condition, results of operations and cash flows.
Any new environmental initiatives or regulations that restrict injection of fluids, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and gas, or that limit the withdrawal, storage or use of surface water or ground water necessary for hydraulic fracturing of our wells, could increase our operating costs and cause delays, interruptions or cessation of our operations, the extent of which cannot be predicted, and all of which would have an adverse effect on our business, financial condition, results of operations and cash flows.
While no decision has been made, should we ultimately make the decision to go dark, there would be a substantial decrease in disclosure by us of our operations and prospects, and a potential decrease in the liquidity in our common stock even though stockholders may still continue to trade our common stock on an over-the-counter (OTC) market.
While no decision has been made, should we ultimately make the decision to go dark, there would be a substantial decrease in disclosure by us of our operations and prospects, and a potential decrease in the liquidity in our common stock even though stockholders may still continue to trade our common stock on an over-the-counter (“OTC”) market.
The ceiling test is an impairment test and generally establishes a maximum, or “ceiling,” of the book value of oil and natural gas properties that is equal to the expected after tax present value (discounted at 10%) of the future net cash flows from proved reserves, including the effect of cash flow hedges when hedge accounting is applied, calculated using the unweighted arithmetic average of the 29 Table of Contents first day of each month for the 12-month period ending at the balance sheet date.
The ceiling test is an impairment test and generally establishes a maximum, or “ceiling,” of the book value of oil and natural gas properties that is equal to the expected after tax present value (discounted at 10%) of the future net cash flows from proved reserves, including the effect of cash flow hedges when hedge accounting is applied, calculated using the unweighted arithmetic average of the first day of each month for the 12-month period ending at the balance sheet date.
In particular, in accordance with SEC requirements, estimates of oil and gas reserves, future net revenue from proved reserves and the present value of our oil and gas properties are based on the assumption that future oil and gas prices remain the same as the 12-month first-day-of-the-month average oil and gas prices for the year ended December 31, 2023.
In particular, in accordance with SEC requirements, estimates of oil and gas reserves, future net revenue from proved reserves and the present value of our oil and gas properties are based on the assumption that future oil and gas prices remain the same as the 12-month first-day-of-the-month average oil and gas prices for the year ended December 31, 2024.
In particular, cyber-security attacks on systems are increasing in frequency and sophistication and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data.
In particular, cybersecurity attacks on systems are increasing in frequency and sophistication and include, but are not limited to, malicious software, attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information, and corruption of data.
If we are unable to raise sufficient capital to fund our capital expenditures, we may be required to curtail our drilling, development, land acquisitions and other activities, which could result in a decrease in our production of oil and 25 Table of Contents natural gas, forfeiture of leasehold interests if we are unable or unwilling to renew them, and the sale of some of our assets on an unfavorable basis, each of which could have a material adverse effect on our results and future operations.
If we are unable to raise sufficient capital to fund our capital expenditures, we may be required to curtail our drilling, development, land acquisitions and other activities, which could result in a decrease in our production of oil and natural gas, forfeiture of leasehold interests if we are unable or unwilling to renew them, and the sale of some of our assets on an unfavorable basis, each of which could have a material adverse effect on our results and future operations.
Consequently, the financial and voting interests in our Company of the holders of our common stock may be diluted. As noted elsewhere herein, the Company has issued shares of Redeemable Preferred Stock with an initial aggregate liquidation value of $98.0 million.
Consequently, the financial and voting interests in our Company of the holders of our common stock may be diluted. As noted elsewhere herein, the Company has issued shares of Redeemable Preferred Stock with an initial aggregate liquidation value of $138.0 million.
Our industry is cyclical. When oil, natural gas and natural gas liquids prices increase, shortages of drilling rigs, equipment, supplies, water or qualified personnel may result. During these periods, the costs and delivery times of rigs, equipment and supplies are substantially greater.
Our industry is cyclical. When oil, natural gas and NGLs prices increase, shortages of drilling rigs, equipment, supplies, water or qualified personnel may result. During these periods, the costs and delivery times of rigs, equipment and supplies are substantially greater.
The Dodd-Frank Act and any new regulations could significantly increase the cost of some commodity derivative contracts (including through requirements to post collateral, which could adversely affect our available liquidity), 28 Table of Contents materially alter the terms of some commodity derivative contracts, limit our ability to trade some derivatives to hedge risks, reduce the availability of some derivatives to protect against risks we encounter, and reduce our ability to monetize or restructure our existing commodity derivative contracts.
The Dodd-Frank Act and any new regulations could significantly increase the cost of some commodity derivative contracts (including through requirements to post collateral, which could adversely affect our available liquidity), materially alter the terms of some commodity derivative contracts, limit our ability to trade some derivatives to hedge risks, reduce the availability of some derivatives to protect against risks we encounter, and reduce our ability to monetize or restructure our existing commodity derivative contracts.
Similar rules and limitations may apply for state income tax purposes. As of December 31, 2023, no additional ownership change has occurred. We may be required to take non-cash asset write-downs.
Similar rules and limitations may apply for state income tax purposes. As of December 31, 2024, no additional ownership change has occurred. We may be required to take non-cash asset write-downs.
The estimates of our reserves as of December 31, 2023 are based upon various assumptions about future production levels, prices and costs that may not prove to be correct over time.
The estimates of our reserves as of December 31, 2024 are based upon various assumptions about future production levels, prices and costs that may not prove to be correct over time.
Matters subject to regulation include: ● water discharge and disposal permits for drilling operations; ● drilling bonds; ● drilling permits; ● reports concerning operations; ● air quality, air emissions, noise levels and related permits; ● spacing of wells; ● rights-of-way and easements; ● unitization and pooling of properties; ● pipeline construction; ● gathering, transportation and marketing of oil and natural gas; ● taxation; and ● waste transport and disposal permits and requirements.
Matters subject to regulation include: ● water discharge and disposal permits for drilling operations; ● drilling bonds; ● drilling permits; 33 Table of Contents ● reports concerning operations; ● air quality, air emissions, noise levels and related permits; ● spacing of wells; ● rights-of-way and easements; ● unitization and pooling of properties; ● pipeline construction; ● gathering, transportation and marketing of oil and natural gas; ● taxation; and ● waste transport and disposal permits and requirements.
Negative economic conditions could also adversely affect the collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations. All of the foregoing may adversely affect our business, financial condition, results of operations and cash flows.
Negative economic conditions could also 36 Table of Contents adversely affect the collectability of our trade receivables or performance by our vendors and suppliers or cause our commodity hedging arrangements to be ineffective if our counterparties are unable to perform their obligations. All of the foregoing may adversely affect our business, financial condition, results of operations and cash flows.
Among the factors that affect volatility are: ● domestic and foreign supplies of oil, NGLs and natural gas; ● the ability of members of the Organization of Petroleum Exporting Countries and other oil exporting countries, including Russia, to agree upon and maintain production quotas; ● social unrest and political instability, particularly in major oil and natural gas producing regions outside the United States, such as the Middle East, and armed conflict or terrorist attacks; ● the level of consumer demand for oil and natural gas, including demand growth in developing countries, such as China and India; ● labor unrest in oil and natural gas producing regions; ● weather conditions, including hurricanes and other natural occurrences that affect the supply and/or demand for oil and natural gas; ● the price and availability of alternative fuels and energy sources; ● the price and availability of foreign imports and domestic exports; and ● worldwide and regional economic and political conditions impacting the global supply and demand for oil and natural gas, which may be driven by many factors, including sanctions, import and export restrictions, climate change initiatives and environmental protection affects, health epidemics (such as the global COVID-19 coronavirus outbreak) and numerous other factors.
Among the factors that affect volatility are: ● domestic and foreign supplies of oil, natural gas and NGLs and natural gas; ● the ability of members of the Organization of Petroleum Exporting Countries and other oil exporting countries, including Russia, to agree upon and maintain production quotas; ● social unrest and political instability, particularly in major oil and natural gas producing regions outside the U.S., such as the Middle East, and armed conflict or terrorist attacks; ● the level of consumer demand for oil and natural gas, including demand growth in developing countries, such as China and India; 22 Table of Contents ● labor unrest in oil and natural gas producing regions; ● weather conditions, including hurricanes and other natural occurrences that affect the supply and/or demand for oil and natural gas; ● the price and availability of alternative fuels and energy sources; ● the price and availability of foreign imports and domestic exports; and ● worldwide and regional economic and political conditions impacting the global supply and demand for oil and natural gas, which may be driven by many factors, including sanctions, import and export restrictions, climate change initiatives and environmental protection affects, health epidemics (such as the global COVID-19 coronavirus outbreak) and numerous other factors.
Accordingly, a significant change in these factors, many of which are beyond our control, may shift a significant amount of cost from unevaluated properties into the full cost pool that is subject to depletion and the ceiling test limitation. Hedging transactions may limit our potential gains and increase our potential losses.
Accordingly, a significant change in these factors, many of which are 27 Table of Contents beyond our control, may shift a significant amount of cost from unevaluated properties into the full cost pool that is subject to depletion and the ceiling test limitation. Hedging transactions may limit our potential gains and increase our potential losses.
Our actual drilling activities and future drilling budget will depend on drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and 31 Table of Contents equipment, lease expirations, gathering system and pipeline transportation constraints, regulatory approvals and other factors.
Our actual drilling activities and future drilling budget will depend on drilling results, oil and natural gas prices, the availability and cost of capital, drilling and production costs, availability of drilling services and equipment, lease expirations, gathering system and pipeline transportation constraints, regulatory approvals and other factors.
We generally obtain title opinions on significant properties that we drill or acquire. However, there is no assurance that we will not suffer a monetary loss from title defects or title failure. Additionally, undeveloped acreage has greater 33 Table of Contents risk of title defects than developed acreage.
We generally obtain title opinions on significant properties that we drill or acquire. However, there is no assurance that we will not suffer a monetary loss from title defects or title failure. Additionally, undeveloped acreage has greater risk of title defects than developed acreage.
Competition for qualified personnel can be intense, particularly in the oil and natural gas industry, and there are a limited number of people with the requisite knowledge and experience. Under these conditions, we could be unable to attract and retain these personnel.
Competition for qualified personnel can be intense, particularly in the oil and 31 Table of Contents natural gas industry, and there are a limited number of people with the requisite knowledge and experience. Under these conditions, we could be unable to attract and retain these personnel.
Such risks and hazards include: ● human error, accidents and other events beyond our control that may cause personal injuries or death to persons and destruction or damage to equipment and facilities; ● blowouts, fires, adverse weather events, pollution and equipment failures that may result in damage to or destruction of wells, producing formations, production facilities and equipment; ● accidental releases of natural gas, including gas with high levels of hydrogen sulfide (H2S), and other hydrocarbons or toxic or hazardous materials in the environment as a result of human error or the malfunction of equipment or facilities, which can result in personal injury and loss of life, pollution, damage to equipment and suspension of operations; ● well-on-well interference that may reduce recoveries; ● unavailability of materials and equipment; ● engineering and construction delays; ● unanticipated transportation costs and delays; ● unfavorable weather conditions; ● hazards resulting from unusual or unexpected geological or environmental conditions; ● changes in laws and regulations, including laws and regulations applicable to oil and natural gas activities or markets for the oil and natural gas produced; ● fluctuations in supply and demand for oil and natural gas causing variations of the prices we receive for our oil and natural gas production; and ● the availability of alternative fuels and the price at which they become available. 32 Table of Contents Some of these risks may be exacerbated by other risks that we face.
Such risks and hazards include: ● human error, accidents and other events beyond our control that may cause personal injuries or death to persons and destruction or damage to equipment and facilities; ● blowouts, fires, adverse weather events, pollution and equipment failures that may result in damage to or destruction of wells, producing formations, production facilities and equipment; ● accidental releases of natural gas, including gas with high levels of hydrogen sulfide (H2S), and other hydrocarbons or toxic or hazardous materials into the environment as a result of human error or the malfunction of equipment or facilities, which can result in personal injury and loss of life, pollution, damage to equipment and suspension of operations; ● well-on-well interference that may reduce recoveries; ● unavailability of materials and equipment; ● engineering and construction delays; ● unanticipated transportation costs and delays; ● unfavorable weather conditions; ● hazards resulting from unusual or unexpected geological or environmental conditions; ● changes in laws and regulations, including laws and regulations applicable to oil and natural gas activities or markets for the oil and natural gas produced; ● fluctuations in supply and demand for oil and natural gas causing variations of the prices we receive for our oil and natural gas production; and ● the availability of alternative fuels and the price at which they become available.
Investment in Securities Risk Factors There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders. Funds advised by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC held approximately 37.4%, 24.2% and 14.4%, respectively, of our common stock as of March 25, 2024.
Investment in Securities Risk Factors There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders. Funds advised by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC held approximately 37.4%, 24.2% and 14.4%, respectively, of our common stock as of March 27, 2025.
As a result of going dark, investors may find it more difficult to dispose of or obtain accurate quotations as to the market value of our common stock, and the ability of our stockholders to sell our common stock in the secondary market may be materially limited.
As a result of going dark, investors may find it more difficult to dispose of or obtain accurate 32 Table of Contents quotations as to the market value of our common stock, and the ability of our stockholders to sell our common stock in the secondary market may be materially limited.
Any significant variance in the actual future prices from these assumptions could materially affect the estimated quantity and value of our reserves set forth in this report. In addition, at December 31, 2023, approximately 41% of our estimated proved reserves were classified as proved undeveloped. Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations.
Any significant variance in the actual future prices from these assumptions could materially affect the estimated quantity and value of our reserves set forth in this report. In addition, at December 31, 2024, approximately 44% of our estimated proved reserves were classified as proved undeveloped. Recovery of proved undeveloped reserves requires significant capital expenditures and successful drilling operations.
If we are unable to accurately predict and control the costs of drilling and completing a well, we may be forced to limit, delay or cancel drilling operations. Increasing attention to ESG matters may impact our business.
If we are unable to accurately predict and control the costs of drilling and completing a well, we may be forced to limit, delay or cancel drilling operations. 28 Table of Contents Increasing attention to ESG matters may impact our business.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (NOLs), and realized built in losses (RBILS), to offset future taxable income.
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses (“NOLs”), and realized built in losses (“RBILs”), to offset future taxable income.
Environmental and other governmental laws and regulations also 35 Table of Contents increase the costs to plan, design, drill, install, operate and abandon oil and natural gas wells. Moreover, public interest in environmental protection has increased in recent years, and environmental organizations have opposed, with some success, certain drilling and pipeline projects.
Environmental and other governmental laws and regulations also increase the costs to plan, design, drill, install, operate and abandon oil and natural gas wells. Moreover, public interest in environmental protection has increased in recent years, and environmental organizations have opposed, with some success, certain drilling and pipeline projects.
Currently, our leases on undeveloped oil and natural gas properties are either categorized as “held by production” or perpetuated by continuous development clauses contained in our leases or tolling agreements. We continually review our leases on acreage subject to these clauses or agreements when planning for our future drilling programs.
Currently, our leases on undeveloped oil and natural gas properties are either categorized as “held by production” or perpetuated by continuous development clauses contained in our leases or tolling agreements. We continually review our leases on acreage subject to these clauses or agreements 29 Table of Contents when planning for our future drilling programs.
In addition, BLM has proposed new rules to reduce venting, flaring and leaks from oil and gas production on public lands. Aside from new controls, the 2022 Inflation Reduction Act creates incentives designed to increase use of electric cars and fuels other than oil and natural gas.
In addition, BLM promulgated new rules in 2024 to reduce venting, flaring and leaks from oil and gas production on public lands. Aside from new controls, the 2022 Inflation Reduction Act creates incentives designed to increase use of electric cars and fuels other than oil and natural gas.
We use these systems and data to, among other things, estimate 38 Table of Contents quantities of oil, natural gas liquids and natural gas reserves, process and record financial data and communicate with our employees and third parties.
We use these systems and data to, among other things, estimate quantities of oil, natural gas liquids and natural gas reserves, process and record financial data and communicate with our employees and third parties.
The Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act establishes, among other provisions, federal oversight and regulation of the over-the-counter derivatives market and entities that participate in that market. The Dodd-Frank Act also establishes margin requirements and certain transaction clearing and trade execution requirements.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) establishes, among other provisions, federal oversight and regulation of the over-the-counter (“OTC”) derivatives market and entities that participate in that market. The Dodd-Frank Act also establishes margin requirements and certain transaction clearing and trade execution requirements.
As of March 25, 2024, we have also reserved an additional $1.1 million shares for future issuance to our directors, officers and employees under our 2020 Long-Term Incentive Plan. The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock.
As of March 27, 2025, we have also reserved an additional 1.2 million shares for future issuance to our directors, officers and employees under our 2020 Long-Term Incentive Plan. The potential issuance of such additional shares of common stock may create downward pressure on the trading price of our common stock.
Actual or anticipated declines in domestic or foreign economic growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S. or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from efforts to contain the COVID-19 coronavirus or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price we receive for our oil and natural gas production.
Actual or anticipated declines in domestic or foreign economic growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S. or global financial system and markets and a severe economic contraction either regionally or worldwide could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price we receive for our oil and natural gas production.
Our ability to achieve our target results is dependent upon current and future market prices for our oil and natural gas, costs associated with producing oil and natural gas and our ability to add reserves at an 30 Table of Contents acceptable cost.
Our ability to achieve our target results is dependent upon current and future market prices for our oil and natural gas, costs associated with producing oil and natural gas and our ability to add reserves at an acceptable cost.
These policies generally cover: ● personal injury; ● bodily injury; ● third party property damage; ● medical expenses; ● legal defense costs; ● pollution in some cases; ● well blowouts in some cases; and ● workers compensation.
These policies generally cover: ● personal injury; ● bodily injury; 26 Table of Contents ● third party property damage; ● medical expenses; ● legal defense costs; ● pollution in some cases; ● well blowouts in some cases; and ● workers compensation.
Restrictions on our ability to obtain, dispose of or recycle water may impact our ability to execute our drilling and development plans in a timely or cost-effective manner. Water is an essential component of our drilling and hydraulic fracturing processes.
Our operations substantially depend on the availability of water. Restrictions on our ability to obtain, dispose of or recycle water may impact our ability to execute our drilling and development plans in a timely or cost-effective manner. Water is an essential component of our drilling and hydraulic fracturing processes.
Additionally, if we are unable to successfully operate our specialized treating facilities or secure adequate sour gas takeaway capacity from third parties when and if necessary, our ability to effectively manage the H2S levels we see in our natural gas production may be adversely impacted.
Additionally, if we are unable to successfully operate our specialized treating facilities or secure adequate sour gas takeaway capacity from third parties when and if necessary, our ability to effectively manage the H 2 S levels we see in our natural gas production may be adversely impacted and our processing costs may increase.
By way of example, in 2015 the EPA lowered the primary national ambient air quality standard for ozone from 75 parts per billion to 70 parts per billion and is reconsidering whether an even stricter standard is warranted. Implementation eventually could result in more stringent emissions controls and additional permitting obligations for our operations.
By way of example, in 2015 the EPA lowered the primary national ambient air quality standard for ozone from 75 parts per billion to 70 parts per billion. Implementation eventually could result in more stringent emissions controls and additional permitting obligations for our operations.
As of December 31, 2023, we owned leasehold interests in approximately 40,000 net acres in the Delaware Basin in West Texas of which approximately 9,000 net acres are undeveloped. Generally, our oil and natural gas leases remain in force as long as production in paying quantities is maintained.
As of December 31, 2024, we owned leasehold interests in approximately 40,500 net acres in the Delaware Basin in West Texas of which approximately 4,700 net acres are undeveloped. Generally, our oil and natural gas leases remain in force as long as production in paying quantities is maintained.
As further discussed in Item 7. Management’s Discussion and Analysis, “Capital Resources and Liquidity,” we are exploring strategic transactions and looking at opportunities to significantly reduce expenses in the near term to bolster liquidity.
Management’s Discussion and Analysis, “Capital Resources and Liquidity,” we are exploring strategic transactions and looking at opportunities to significantly reduce expenses in the near term to bolster liquidity.
Our ability to meet our debt obligations and other expenses will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we are unable to control.
We may incur substantially more debt in the future. Our ability to meet our debt obligations and other expenses will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors, many of which we are unable to control.
Estimated proved reserves as of December 31, 2023 assume that we will make future capital expenditures of approximately $387.2 million in the aggregate primarily from 2024 through 2027, which are necessary to develop and realize the value of proved reserves on our properties.
Estimated proved reserves as of December 31, 2024 assume that we will make future capital expenditures of approximately $319.6 million in the aggregate primarily from 2025 through 2028, which are necessary to develop and realize the value of proved reserves on our properties.
As a result, our production, revenues, operating costs and liabilities and expenses may be materially and adversely affected and may differ materially from those anticipated by us and availability of certain facilities may impact our processing costs. Our ability to sell our production and/or receive market prices for our production may be adversely affected by transportation capacity constraints and interruptions.
As a result, our production, revenues, operating costs and liabilities and expenses may be materially and adversely affected and may differ materially from those anticipated by us. 30 Table of Contents Our ability to sell our production and/or receive market prices for our production may be adversely affected by transportation capacity constraints and interruptions.
Average prices for oil and natural gas for the 12-month period were as follows: WTI crude oil spot price of $78.21 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $2.64 per MMBtu, adjusted by 27 Table of Contents lease or field for energy content, transportation fees, and market differentials.
Average prices for oil and natural gas for the 12-month period were as follows: WTI crude oil spot price of $76.32 per Bbl, adjusted by lease or field for quality, transportation fees, and market differentials and a Henry Hub natural gas spot price of $2.13 per MMBtu, adjusted by lease or field for energy content, transportation fees, and market differentials.
As of March 25, 2024, we had approximately 16.5 million shares of common stock outstanding and options and restricted stock units to purchase or receive an aggregate of 0.4 million shares of our common stock.
As of March 27, 2025, we had approximately 16.5 million shares of common stock outstanding and options and restricted stock units to purchase or receive an aggregate of 0.3 million shares of our common stock.
Costs associated with unevaluated properties, which were approximately $58.9 million at December 31, 2023, are not initially subject to the ceiling test limitation.
Costs associated with unevaluated properties, which were approximately $49.1 million at December 31, 2024, are not initially subject to the ceiling test limitation.
Certain states, including Texas where we conduct our operations, likewise are considering or have adopted more stringent requirements for various aspects of hydraulic fracturing operations, such as permitting, disclosure, air emissions, well construction, seismic monitoring, waste disposal and water use.
That study led to calls for additional federal regulatory control. 34 Table of Contents Certain states, including Texas where we conduct our operations, likewise are considering or have adopted more stringent requirements for various aspects of hydraulic fracturing operations, such as permitting, disclosure, air emissions, well construction, seismic monitoring, waste disposal and water use.
Decline rates are typically greatest early in the productive life 26 Table of Contents of a well. Estimates of the decline rate of an oil or natural gas well are inherently imprecise, and are less precise with respect to new or emerging oil and natural gas formations with limited production histories than for more developed formations with established production histories.
Estimates of the decline rate of an oil or natural gas well are inherently imprecise, and are less precise with respect to new or emerging oil and natural gas formations with limited production histories than for more developed formations with established production histories.
As of December 31, 2023, we had approximately $200.0 million of indebtedness outstanding and approximately $0.3 million of letters of credit outstanding under the Amended Term Loan Agreement. As of December 31, 2023, we have no additional borrowing capacity under the Amended Term Loan.
As of December 31, 2024, we had approximately $162.0 million of indebtedness outstanding under the 2024 Amended Term Loan Agreement. As of December 31, 2024, we have no additional borrowing capacity under the 2024 Amended Term Loan Agreement.
Restrictions on our ability to obtain, dispose of or recycle water may impact our ability to execute our drilling and development plans in a timely or cost-effective manner. ● Events beyond our control, including a global or domestic health crisis, may result in unexpected adverse operating and financial results. ● A financial downturn could negatively affect our business, results of operations, financial condition and liquidity. ● We depend on computer, telecommunications and information technology systems to conduct our business, and failures, disruptions, cyber-attacks or other breaches in data security could significantly disrupt our business operations, create liability and increase our costs. 22 Table of Contents Risks Related to the Proposed Merger Failure to complete, and delays in completing, the Merger with could materially and adversely affect our results of operations and our stock price. ​ On December 14, 2023, we entered into the Merger Agreement with Fury Resources, Inc.
Restrictions on our ability to obtain, dispose of or recycle water may impact our ability to execute our drilling and development plans in a timely or cost-effective manner. ● Events beyond our control, including a global or domestic health crisis, may result in unexpected adverse operating and financial results. ● A financial downturn could negatively affect our business, results of operations, financial condition and liquidity. ● We depend on computer, telecommunications and information technology systems to conduct our business, and failures, disruptions, cyber-attacks or other breaches in data security could significantly disrupt our business operations, create liability and increase our costs.
Meanwhile, several countries, including those comprising the European Union, have established greenhouse gas regulatory systems. 36 Table of Contents In the United States, many states, either individually or through multi-state regional initiatives, have been implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emission targets, product bans, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.
In the U.S., many states, either individually or through multi-state regional initiatives, have been implementing legal measures to reduce emissions of greenhouse gases, primarily through emission inventories, emission targets, product bans, greenhouse gas cap and trade programs or incentives for renewable energy generation, while others have considered adopting such greenhouse gas programs.
The estimates of these oil and natural gas reserves and the costs associated with development of these reserves have been prepared in accordance with SEC regulations; however, actual capital expenditures will likely vary from estimated capital expenditures, development may not occur as scheduled and actual results may not be as estimated.
The estimates of these oil and natural gas reserves and the costs associated with development of these reserves have been prepared in accordance with SEC regulations; however, actual capital expenditures will likely vary from estimated capital expenditures, development may not occur as scheduled and actual results may not be as estimated. 25 Table of Contents We are subject to various contractual limitations that affect the discretion of our management in operating our business.
An adverse judgment in such cases could have a negative impact on our liquidity and financial condition or could prevent the Merger from being completed. ​ If the Merger does not close, we may be unable to either redeem or pay cash dividends on the outstanding shares of our Redeemable Preferred Stock, resulting in increases in the liquidation preference of the Redeemable Preferred Stock and the right of the holders of the Redeemable Preferred Stock to receive a greater number of shares of our common stock in the event such holders elect to exercise their conversion rights.
We may be unable to either redeem or pay cash dividends on the outstanding shares of our Redeemable Preferred Stock, resulting in increases in the liquidation preference of the Redeemable Preferred Stock and the right of the holders of the Redeemable Preferred Stock to receive a greater number of shares of our common stock in the event such holders elect to exercise their conversion rights.
We have substantial indebtedness and we may incur substantially more debt in the future. Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business. We have approximately $200.0 million principal amount of debt, including current portions, as of December 31, 2023.
We have substantial indebtedness and we may incur substantially more debt in the future. Higher levels of indebtedness make us more vulnerable to economic downturns and adverse developments in our business.
Internationally, the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement address greenhouse gas emissions, and international negotiations over climate change and greenhouse gases are continuing.
Internationally, the United Nations Framework Convention on Climate Change, the Kyoto Protocol and the Paris Agreement address greenhouse gas emissions, and international negotiations over climate change and greenhouse gases are continuing. Meanwhile, several countries, including those comprising the European Union, have established greenhouse gas regulatory systems.
Lower prices may also reduce the amount of oil and natural gas that we can economically produce and have an adverse effect on the value of our properties. Oil, NGL and natural gas prices are volatile.
Prices also affect the amount of cash flow we have available for capital expenditures and our ability to borrow and raise additional capital. Lower prices may also reduce the amount of oil and natural gas that we can economically produce and have an adverse effect on the value of our properties. Oil, natural gas and NGLs prices are volatile.
On November 24, 2021, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (Borrower) entered into an Amended and Restated Senior Secured Credit Agreement (Term Loan Agreement) with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders.
On December 26, 2024, the Company and its wholly owned subsidiary, Halcón Holdings, LLC (the “Borrower”) entered into a Second Amended and Restated Senior Secured Credit Agreement (the “2024 Term Loan Agreement”) with Fortress Credit Corp., as administrative agent, and certain other financial institutions party thereto, as lenders.
That statute imposes a fee on certain excess methane emissions from oil and gas facilities of $900 per metric ton of methane for 2024, $1,200 per metric ton for 2025, and $1,500 per metric ton each year thereafter.
That statute imposes a fee on certain excess methane emissions from oil and gas facilities of $900 per metric ton of methane for 2024, $1,200 per metric ton for 2025, and $1,500 per metric ton each year thereafter. As a general matter, recent Democratic Presidential Administrations have been spearheading the development of federal climate policies and controls.
Consequently, the financial and voting interests in our Company of the holders of our common stock may be diluted. ● We are subject to various uncertainties and restrictions on the conduct of our business while the Merger is pending, which could have a material adverse effect on our business, results of operations and financial condition. ● The opinion of the financial advisor delivered to our Board prior to the signing of the Merger Agreement (as defined below) did not reflect changes in circumstances since the date of such opinion. ● Oil and natural gas prices are volatile, and low prices could have a material adverse impact on our business. ● We may have difficulty financing our planned capital expenditures which could adversely affect our growth. ● Failure to comply with the covenants in our Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our Amended Term Loan Agreement to become immediately due and payable. ● Unless we replace our reserves, our reserves and production will decline, which would adversely affect our financial condition, results of operations and cash flows. ● Historically, we have had substantial indebtedness and we may incur substantially more debt in the future.
RISK FACTORS Risk Factors Summary The following is a summary of the principal factors that make an investment in our common stock speculative or risky. ● Oil and natural gas prices are volatile, and low prices could have a material adverse impact on our business. ● We may have difficulty financing our planned capital expenditures which could adversely affect our growth. ● Failure to comply with the covenants in our 2024 Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our 2024 Amended Term Loan Agreement to become immediately due and payable. ● Unless we replace our reserves, our reserves and production will decline, which would adversely affect our financial condition, results of operations and cash flows. ● Historically, we have had substantial indebtedness and we may incur substantially more debt in the future.
In the courts, several decisions have been issued that may increase the risk of claims being filed by governments and private parties against companies that cause or contribute to significant greenhouse gas emissions. Such cases may seek emissions reductions, challenge air emissions or other permits or request damages for alleged climate change impacts to the environment, people, and property.
In the courts, several decisions have been issued that may increase the risk of claims being filed by governments and private parties against companies that cause or contribute to significant greenhouse gas emissions.
Failure to comply with the covenants in our Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our Amended Term Loan Agreement to become immediately due and payable.
Failure to comply with the covenants in our 2024 Amended Term Loan Agreement may limit our ability to borrow, result in an event of default and cause amounts outstanding under our 2024 Amended Term Loan Agreement to become immediately due and payable. ​ Unless we replace our reserves, our reserves and production will decline, which would adversely affect our financial condition, results of operations and cash flows.
As a result of our indebtedness, we will need to use a portion of our cash flow to pay interest, and outstanding principal during 2024, which will reduce the amount of cash flow we will have available to finance our operations and other business activities and could limit our flexibility in planning for or reacting to changes or adverse developments in our business or economic downturns impacting the industry in which we operate.
As a result of our indebtedness, we will need to use a portion of our cash flow to pay interest, and outstanding principal during 2025, which will reduce the amount of cash flow we will have available to finance our operations and other business activities and could limit our flexibility in planning for or reacting to changes or adverse developments in our business or economic downturns impacting the industry in which we operate. 24 Table of Contents Indebtedness under our 2024 Amended Term Loan Agreement is at a variable interest rate, and so a rise in interest rates will generate greater interest expense to the extent we do not have hedging arrangements that are effective in offsetting interest rate fluctuations.
Any new initiatives that may be adopted to reduce emissions of greenhouse gases could require us to incur additional operating costs, such as costs to purchase and operate emissions controls, to obtain emission allowances or to pay emission taxes, and reduce demand for our products. Our operations substantially depend on the availability of water.
Such cases may seek emissions reductions, challenge air emissions or other permits or request damages for alleged climate change impacts to the environment, people, and property. 35 Table of Contents Any new initiatives that may be adopted to reduce emissions of greenhouse gases could require us to incur additional operating costs, such as costs to purchase and operate emissions controls, to obtain emission allowances or to pay emission taxes, and reduce demand for our products.
Additionally, our Amended Term Loan Agreement contains certain covenants (namely our Current Ratio covenant) as well as a mandatory repayment schedule requiring us to make scheduled amortization payments in the aggregate amount of $50.0 million in 2024 and $35.0 million in the aggregate from the fiscal quarter ending March 31, 2025 through the fiscal quarter ending September 30, 2025.
Additionally, our 2024 Amended Term Loan Agreement contains certain covenants 23 Table of Contents as well as a mandatory repayment schedule requiring us to make scheduled amortization payments in the aggregate amount of $16.9 million in 2025 and $22.5 million in 2026.
We are subject to various contractual limitations that affect the discretion of our management in operating our business. Our Amended Term Loan Agreement contains various provisions that may limit our management’s discretion in certain respects.
Our 2024 Amended Term Loan Agreement contains various provisions that may limit our management’s discretion in certain respects.
We cannot predict the effect, if any, that future sales or issuances of shares of our common stock or other equity securities, or the availability of shares of common stock or such other equity securities for future sale or issuance, will have on the trading price of our common stock. 34 Table of Contents We may choose to delist our securities from NYSE American and deregister our common stock under the Exchange Act, which could negatively affect the liquidity and trading prices of our common stock and would result in less disclosure about the Company.
We may choose to delist our securities from NYSE American and deregister our common stock under the Exchange Act, which could negatively affect the liquidity and trading prices of our common stock and would result in less disclosure about the Company. As further discussed in Item 7.
Accordingly, if the Merger does not close and the Company is unable to redeem the Redeemable Preferred Stock or is unable to pay, or elects not to pay, dividends on the Redeemable Preferred Stock in cash, the liquidation preference of the Redeemable Preferred Stock will continue to increase, thereby diluting the financial interests of the holders of our common stock in our Company and diluting the voting interests of the holders of our common stock to the extent holders of the Redeemable Preferred Stock elect to convert such shares into shares of our common stock. ​ We are subject to various uncertainties and restrictions on the conduct of our business while the Merger is pending, which could have a material adverse effect on our business, results of operations and financial condition. ​ Uncertainty about the pendency of the Merger and the effect of the Merger on our employees, customers, suppliers and other third parties who deal with us may have a material adverse effect on our business, results of operations and financial condition.
Accordingly, if the Company is unable to redeem the Redeemable Preferred Stock or is unable to pay, or elects not to pay, dividends on the Redeemable Preferred Stock in cash, the liquidation preference of the Redeemable Preferred Stock will continue to increase, thereby diluting the financial interests of the holders of our common stock in our Company and diluting the voting interests of the holders of our common stock to the extent holders of the Redeemable Preferred Stock elect to convert such shares into shares of our common stock.
If we are unable to attract and retain qualified and highly skilled personnel our ability to effectively manage this and other risks may be adversely impacted.
Safely handling H 2 S gas requires complex operations and highly skilled field personnel as well as specialized infrastructure, treating facilities, disposal facilities, and/or third-party sour gas takeaway. If we are unable to attract and retain qualified and highly skilled personnel, our ability to effectively manage this and other risks may be adversely impacted.
Unless we replace our reserves, our reserves and production will decline, which would adversely affect our financial condition, results of operations and cash flows. Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors.
Producing oil and natural gas reservoirs generally are characterized by declining production rates that vary depending upon reservoir characteristics and other factors. Decline rates are typically greatest early in the productive life of a well.
The opinion does not speak as of the time the Merger will be completed or as of any date other than the date of such opinion. Financial and Liquidity Risk Factors Oil, NGL and natural gas prices are volatile, and low prices could have a material adverse impact on our business.
Financial and Liquidity Risk Factors Oil, natural gas and NGLs and natural gas prices are volatile, and low prices could have a material adverse impact on our business. Our revenues, profitability, future growth and the carrying value of our properties depend substantially on prevailing oil, natural gas and NGLs prices.
Our Amended Term Loan Agreement contains the following financial covenants (as defined), including the maintenance of the following ratios: ● Asset Coverage Ratio of not less than 1.80 to 1.00 as of December 31, 2023 and the last day of each fiscal quarter thereafter; ● Total Net Leverage Ratio of not greater than 2.50 to 1.00 as of December 31, 2023 and each fiscal quarter thereafter, and ● Current Ratio of not less than 1.00 to 1.00, determined as of the last day of any fiscal quarter period, as of December 31, 2023 and for each fiscal quarter thereafter. ​ As of December 31, 2023, the Company was in compliance with its financial covenants under the Amended Term Loan Agreement.
Our 2024 Amended Term Loan Agreement contains the following financial covenants (as defined), including the maintenance of the following ratios: ● Asset Coverage Ratio not to fall below 1.70x as of March 31, 2025 through and including June 30, 2025, 1.85x as of September 30, 2025 through and including December 31, 2025 and 2.00x for each fiscal quarter thereafter, determined as of the last day of each fiscal quarter; ● Total Net Leverage Ratio not to exceed 2.75x as of March 31, 2025 through and including June 30, 2025 and 2.50x for each fiscal quarter thereafter, determined as of the last day of each fiscal quarter; ● Current Ratio not to fall below 1.00x, determined on the last day of each calendar month commencing with the calendar month ending March 31, 2025 ; and ● Liquidity not to fall below the greater of (x) $10,000,000 and (y) the amount equal to the scheduled principal and interest payments for the immediately succeeding three month period, determined as of the last day of any fiscal quarter. ​ In the past, we have periodically sought amendments to the covenants under our revolving credit agreements, including the financial covenants, where we have anticipated difficulty in maintaining compliance.
For instance, certain of our wells produce high levels of H2S, a highly toxic, naturally-occurring gas frequently associated with oil and natural gas production. Safely handling H2S gas requires highly skilled operations and field personnel as well as specialized infrastructure, treating facilities, disposal facilities, and/or third party sour gas takeaway.
Some of these risks may be exacerbated by other risks that we face. For instance, certain of our wells produce high levels of H 2 S, a highly toxic, naturally-occurring gas frequently associated with oil and natural gas production.
A rise in interest rates could impact on our borrowing costs and could have an adverse effect on our cash flows.
A rise in interest rates could impact on our borrowing costs and could have an adverse effect on our cash flows. Borrowings under the 2024 Amended Term Loan Agreement bear interest at a rate per annum equal to the Secured Overnight Financing Rate (“SOFR”) (with a credit spread of adjustment of 0.15% per annum) plus an applicable margin of 7.75%.
Removed
RISK FACTORS Risk Factors Summary The following is a summary of the principal factors that make an investment in our common stock speculative or risky. ● Failure to complete, and delays in completing, the Merger (as defined below) which could materially and adversely affect our results of operations and our stock price. ● We will continue to incur substantial transaction-related costs in connection with the Merger. ● If the Merger does not close for any reason, it may increase the potential that we elect to “go dark”. ● We and our directors and officers are, and may continue to be, subject to lawsuits relating to the Merger. ● If the merger does not close, we may be unable to either redeem or pay cash dividends on the outstanding shares of our Redeemable Preferred Stock, resulting in increases in the liquidation preference of the Redeemable Preferred Stock and the right of the holders of Redeemable Preferred Stock to receive a greater number of shares of our common stock in the event such holders elect to exercise their conversion rights.
Added
These uncertainties could result in an inability to meet our expectations for reserves and production. ● Title to the properties in which we have an interest may be impaired by title defects. 21 Table of Contents ● We depend substantially on the continued presence of key personnel for critical management decisions and industry contacts. ● There may be circumstances in which the interests of our significant stockholders could be in conflict with the interests of our other stockholders. ● Future sales of our common stock in the public market or the issuance of securities senior to our common stock, or the perception that these sales may occur, could adversely affect the trading price of our common stock and our ability to raise funds in stock offerings. ● We may choose to delist our securities from NYSE American and deregister our common stock under the Exchange Act, which could negatively affect the liquidity and trading prices of our common stock and would result in less disclosure about the Company. ● Our failure to meet the continued listing standards of NYSE American could result in a delisting of our common stock. ● We may be unable to either redeem or pay cash dividends on the outstanding shares of our Redeemable Preferred Stock, resulting in increases in the liquidation preference of the Redeemable Preferred Stock and the right of the holders of Redeemable Preferred Stock to receive a greater number of shares of our common stock in the event such holders elect to exercise their conversion rights.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeThe Audit Committee receives quarterly reports from Company management, which includes cybersecurity risk factors. 39 Table of Contents The Board routinely receives information and updates from Company management and the Audit Committee with respect to the effectiveness of the Company’s information systems’ security framework, which may include cybersecurity assessments, risk management, and mitigation measures.
Biggest changeThe Board routinely receives information and updates from Company management and the Audit Committee with respect to the effectiveness of the Company’s information systems’ security framework, which may include cybersecurity assessments, risk management, and mitigation measures. The Board will also be provided updates on any material incidents relating to information systems security and cybersecurity incidents.
In addition, the Audit Committee, with the assistance and advice of Company management and third-party consultants, oversees operational information technology risks, including cybersecurity, as they relate to the technical aspects of the Company’s operations.
In addition, the Audit Committee, with the assistance and advice of Company management and third-party consultants, oversees operational information technology risks, including cybersecurity, as they relate to the technical aspects of the Company’s operations. The Audit Committee receives periodic reports from Company management regarding cybersecurity risk factors.
We have not identified an indication of a substantive cybersecurity incident that would have a material impact on our business, results of operations or financial statements. For additional information regarding risks from cybersecurity threats, please refer to Item 1A Risk Factors above.
As discussed above, we maintain endpoint and other protection systems, and incident response processes, both internally and through third-party experts. We have not identified an indication of a substantive cybersecurity incident that would have a material impact on our business, results of operations or financial statements. For additional information regarding risks from cybersecurity threats, please refer to Item 1A.
With the assistance and advice of our expert consultants, responsibility for the identification and assessment of risks and the recommendation of upgrades to our systems resides with our Director of Information Technology, who reports to our Chief Executive Officer.
With the assistance and advice of our expert consultants, responsibility for the identification and assessment of risks and the recommendation of upgrades to our systems resides with our Director of Information Technology, who reports to our Chief Executive Officer. 37 Table of Contents Governance Our Board oversees the risks involved in our operations as part of its general oversight function, integrating risk management into our compliance policies and procedures.
Governance Our Board oversees the risks involved in our operations as part of its general oversight function, integrating risk management into our compliance policies and procedures. With respect to cybersecurity, the Board has the ultimate oversight responsibility, with the Audit Committee of the Board having certain responsibilities relating to risk management of cybersecurity.
With respect to cybersecurity, the Board has the ultimate oversight responsibility, with the Audit Committee of the Board having certain responsibilities relating to risk management of cybersecurity.
Removed
The Board will also be provided updates on any material incidents relating to information systems security and cybersecurity incidents. As discussed above, we maintain endpoint and other protection systems, and incident response processes, both internally and through third-party experts.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWe are not party to any such proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Biggest changeWe are not party to any such proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 38 Table of Contents PART II
ITEM 3. LEGAL PROCEEDINGS A description of our legal proceedings is included in Item 8. Consolidated Financial Statements and Supplementary Data— Note 9 , “Commitments and Contingencies,” and is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS A description of our legal proceedings is included in Item 8. Consolidated Financial Statements and Supplementary Data— Note 11 , “Commitments and Contingencies,” and is incorporated herein by reference.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeFor additional information and a description of conversion, see Part I. Item 8. Consolidated Financial Statements and Supplementary Data – Footnote 11 “Redeemable Convertible Preferred Stock” to this Annual Report on Form 10-K. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities None. ITEM 6. RESERVE D ​ 41 Table of Contents
Biggest changeConsolidated Financial Statements and Supplementary Data— Note 12, “Redeemable Convertible Preferred Stock” to this Annual Report on Form 10-K. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities None. ITEM 6. RESERVE D ​ 39 Table of Contents
Any future determination to pay dividends on common stock will be at the discretion of the board of directors and will be dependent upon then existing conditions, including our prospects, and such other factors, as the board of directors deems relevant. We are also restricted from paying cash dividends on common stock under our Amended Term Loan Agreement.
Any future determination to pay dividends on common stock will be at the discretion of the board of directors and will be dependent upon then existing conditions, including our prospects, and such other factors, as the board of directors deems relevant. We are also restricted from paying cash dividends on common stock under our 2024 Amended Term Loan Agreement.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES On February 20, 2020, our common stock commenced trading on the NYSE American exchange under the symbol “BATL.” Approximately 50 registered stockholders of record as of March 18, 2024 held our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES On February 20, 2020, our common stock commenced trading on the NYSE American exchange under the symbol “BATL.” Approximately 50 registered stockholders of record as of March 27, 2025 held our common stock.
During 2023, we sold, in private placements, an aggregate of 98,000 shares of redeemable convertible preferred stock, par value $0.0001 per share, for total net proceeds of $95.6 million to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, the Company’s largest three existing stockholders (collectively, the “Investors”) that represent 50 percent of our board of directors.
During 2024, we sold, in private placements, an aggregate of 40,000 shares of redeemable convertible preferred stock, par value $0.0001 per share, for total net proceeds of $39.0 million to certain funds managed by Luminus Management, LLC, Oaktree Capital Management, LP, and LSP Investment Advisors, LLC, the Company’s largest three existing stockholders (collectively, the “Investors”) that represent 50 percent of our board of directors.
Proceeds from 40 Table of Contents such sales were used to fund operations and meet debt payment requirements. The private placements of the redeemable convertible preferred stock were undertaken in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof.
Proceeds from such sales were used to fund operations and meet debt payment requirements. The private placements of the redeemable convertible preferred stock were undertaken in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. For additional information and a description of conversion, see Part I. Item 8.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeITEM 6. ​ Reserved ​ 41 ITEM 7. ​ Management’s discussion and analysis of financial condition and results of operations ​ 42 ITEM 7A. ​ Quantitative and qualitative disclosures about market risk ​ 54 ITEM 8. ​ Consolidated financial statements and supplementary data ​ 55
Biggest changeITEM 6. ​ Reserved ​ 39 ITEM 7. ​ Management’s discussion and analysis of financial condition and results of operations ​ 40 ITEM 7A. ​ Quantitative and qualitative disclosures about market risk ​ 53 ITEM 8. ​ Consolidated financial statements and supplementary data ​ 54

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeOn November 14, 2022, we paid approximately $2.4 million and entered into the Amended Term Loan Agreement with our lenders which modified certain provisions of our original Term Loan Agreement and includes the maintenance of the following ratios (as defined in the Amended Term Loan Agreement): ● Asset Coverage Ratio of not less than 1.80 to 1.00 as of December 31, 2023 and the last day of each fiscal quarter thereafter, ​ ● Total Net Leverage Ratio of not greater than 2.50 to 1.00 as of December 31, 2023 and each fiscal quarter thereafter, and ● Current Ratio of not less than 1.00 to 1.00, determined as of the last day of any fiscal quarter period, as of December 31, 2023 and each fiscal quarter thereafter. 46 Table of Contents We may elect, at our option, to prepay any borrowing outstanding under the Amended Term Loan Agreement subject to the following prepayment premiums: ​ ​ ​ ​ ​ Period (after applicable borrowing date (1) ) ​ ​ Premium Months 0 - 12 ​ ​ Make-whole amount equal to 12 months of interest plus 2.00% Months 13 - 24 ​ ​ 2.00% Months 25 - 36 ​ ​ 1.00% Months 37 - 48 ​ ​ 0.00% ​ (1) Applicable borrowing dates are November 2021 for the original $200.0 million borrowed and April and November 2022 for the $20.0 million and $15.0 million in delayed draw borrowings, respectively. ​ We may be required to make mandatory prepayments of the loans under the Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales, and with cash on hand in excess of certain maximum levels beginning in 2023.
Biggest changeSuch voluntary prepayments, certain mandatory prepayments and change of control prepayments are subject to the following prepayment premium, as applicable: ​ ​ ​ ​ Period ​ ​ Premium Months 0 - 12 ​ ​ Make-whole amount equal to 12 months of interest plus 4.00% Months 13 - 30 ​ ​ 2.00% Thereafter ​ ​ 0.00% ​ In the event we shall receive a disapproval notice (as defined in the 2024 Term Loan Agreement) from the required lenders under the 2024 Amended Term Loan Agreement rejecting or otherwise disqualifying a proposed buyer in connection with a permitted change in control thereunder to be consummated within 12 months following the Initial Closing Date, such voluntary prepayments, certain mandatory prepayments and change of control prepayments are subject to the following prepayment premium, as applicable: ​ ​ ​ ​ Period ​ ​ Premium Months 0 - 9 ​ ​ Make-whole amount equal to 9 months of interest plus 2.00% Months 10 - 30 ​ ​ 2.00% Thereafter ​ ​ 0.00% ​ We may be required to make mandatory prepayments of the loans under the 2024 Amended Term Loan Agreement in connection with the incurrence of non-permitted debt, certain asset sales and with excess cash on hand in excess of certain maximum levels.
Lastly, actual or anticipated declines in domestic or foreign economic activity or growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S. or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from international conflicts, efforts to contain pandemics or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price received for oil and natural gas production or adversely impacting our ability to comply with covenants in our Amended Term Loan Agreement.
Lastly, actual or anticipated declines in domestic or foreign economic activity or growth rates, regional or worldwide increases in tariffs or other trade restrictions, turmoil affecting the U.S. or global financial system and markets and a severe economic contraction either regionally or worldwide, resulting from international conflicts, efforts to contain pandemics or other factors, could materially affect our business and financial condition and impact our ability to finance operations by worsening the actual or anticipated future drop in worldwide oil demand, negatively impacting the price received for oil and natural gas production or adversely impacting our ability to comply with covenants in our 2024 Amended Term Loan Agreement.
While we use derivative instruments to provide partial protection against declines in oil and natural gas prices, the total volumes we hedge are less than our expected production, vary from period to period based on our view of current and future market conditions, remain consistent with the requirements in effect under our Amended Term Loan Agreement and extend, on a rolling basis, for the next four years.
While we use derivative instruments to provide partial protection against declines in oil and natural gas prices, the total volumes we hedge are less than our expected production, vary from period to period based on our view of current and future market conditions, remain consistent with the requirements in effect under our 2024 Amended Term Loan Agreement and extend, on a rolling basis, for the next four years.
The Facility’s injection well also experienced pressure communication between the tubing and annular space after an injection procedure. We commenced workover operations to remediate this issue. During the third quarter of 2023, additional complications were encountered with the workover operation at the Facility causing higher than expected costs.
The AGI Facility’s injection well also experienced pressure communication between the tubing and annular space after an injection procedure. We commenced workover operations to remediate this issue. During the third quarter of 2023, additional complications were encountered with the workover operation at the AGI Facility causing higher than expected costs.
During the third quarter of 2023, we obtained an additional support letter from the Investors to purchase additional preferred equity securities in an amount up to $55.0 million over the next 12 months and an aggregate of 35,000 shares of preferred stock were sold on December 15, 2023 under such support letter to the Investors for proceeds of $34.1 million, net of $0.9 million of original issue discount.
Preferred Stock Equity Issuance During the third quarter of 2023, we obtained a support letter from the Investors to purchase additional preferred equity securities in an amount up to $55.0 million over the next 12 months and an aggregate of 35,000 shares of preferred stock were sold on December 15, 2023 under such support letter to the Investors for proceeds of $34.1 million, net of $0.9 million of original issue discount.
We will, however, continue to pursue alternative liquidity sources which could include entering into other financing arrangements (e.g. future equity raises), a sale of a portion of our non-core assets, seeking capital partners for our drilling program, pursuing strategic merger opportunities or joint ventures, the sale of the Company, or pursuing additional general and administrative or other cost reduction opportunities.
We will, however, continue to consider alternative liquidity sources which could include entering into other financing arrangements (e.g. future equity raises), a sale of a portion of our non-core assets, seeking capital partners for our drilling program, pursuing strategic merger opportunities or joint ventures, the sale of the Company, or pursuing additional general and administrative or other cost reduction opportunities.
Changes in oil and natural gas prices, operating costs and expected performance from a given reservoir also will result in revisions to the amount of our estimated proved reserves. Our estimated proved reserves for the years ended December 31, 2023 and 2022 were prepared by NSAI, an independent oil and natural gas reservoir engineering consulting firm.
Changes in oil and natural gas prices, operating costs and expected performance from a given reservoir also will result in revisions to the amount of our estimated proved reserves. Our estimated proved reserves for the years ended December 31, 2024 and 2023 were prepared by NSAI, an independent oil and natural gas reservoir engineering consulting firm.
This is an energy content correlation and does not reflect the value or price relationship between the commodities. (2) Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting. ​ ​ 52 Table of Contents Operating Revenues .
This is an energy content correlation and does not reflect the value or price relationship between the commodities. (2) Amounts exclude the impact of cash paid/received on settled contracts as we did not elect to apply hedge accounting. 51 Table of Contents Operating Revenues .
The Amended Term Loan Agreement also contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy. 47 Table of Contents Changes in the level and timing of our production, drilling and completion costs, the cost and availability of transportation for our production and other factors varying from our expectations can affect our ability to comply with the covenants under our Amended Term Loan Agreement.
The 2024 Amended Term Loan Agreement also contains certain events of default, including non-payment; breaches of representations and warranties; non-compliance with covenants or other agreements; cross-default to material indebtedness; judgments; change of control; and voluntary and involuntary bankruptcy. ​ Changes in the level and timing of our production, drilling and completion costs, the cost and availability of transportation for our production and other factors varying from our expectations can affect our ability to comply with 46 Table of Contents the covenants under our 2024 Amended Term Loan Agreement.
For more information, see “ Special note regarding forward-looking statements .” Overview We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States.
For more information, see “ Special note regarding forward-looking statements .” Overview We are an independent energy company focused on the acquisition, production, exploration and development of onshore liquids-rich oil and natural gas assets in the United States (“U.S.”).
During the year ended December 31, 2023, we spent $46.3 million on oil and natural gas capital expenditures, of which $40.4 million related to drilling and completion costs and $4.7 million related to the development of our treating equipment and gathering support infrastructure.
During the year ended December 31, 2023, we spent $46.3 million on oil and natural gas capital expenditures, of which $40.4 million related to drilling and completion costs and $4.7 million related to the development of our treating equipment and gathering support infrastructure. Financing Activities.
Additionally, in the event of a change of control, holders have the right to receive, (i) at any time on or prior to 150 days following the closing date, and at the election of the Company, a cash payment equal to the Liquidation Preference or equity consideration equal to the 107.5% of the Liquidation Preference, or (ii) at any time after 150 days following the closing date, a cash payment equal to between 100-120% of the Liquidation Preference determined by the redemption date or conversion into common stock.
Additionally, in the event of a change of control, holders have the right to receive, (i) at any time on or prior to 150 days following the closing date, and at the election of the Company, a cash payment equal to the Liquidation Preference or equity 42 Table of Contents consideration equal to the 107.5% of the Liquidation Preference, or (ii) at any time after 150 days following the closing date, a cash payment equal to between 100-120% of the Liquidation Preference determined by the redemption date or conversion into common stock.
Some accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. Actual results may differ from the estimates and assumptions used in the preparation of our consolidated financial statements.
Some accounting policies involve judgments and uncertainties to such an extent that there is reasonable 47 Table of Contents likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used. Actual results may differ from the estimates and assumptions used in the preparation of our consolidated financial statements.
For more information regarding reserve estimation, including historical reserve revisions, refer to Item 8. Consolidated Financial Statements and Supplementary Data—“Supplemental Oil and Gas Information (Unaudited). ” 49 Table of Contents Depletion Expense Our rate of recording depletion expense is primarily dependent upon our estimate of proved reserves, which is utilized in our unit-of-production method calculation.
For more information regarding reserve estimation, including historical reserve revisions, refer to Item 8. Consolidated Financial Statements and Supplementary Data—“Supplemental Oil and Gas Information (Unaudited). ” Depletion Expense Our rate of recording depletion expense is primarily dependent upon our estimate of proved reserves, which is utilized in our unit-of-production method calculation.
Our ability to complete transactions and maintain or increase our liquidity is subject to a number of variables, including our level of oil and natural gas production, proved reserves and commodity prices, the amount and cost of our indebtedness, as well as various economic and market conditions that have historically 45 Table of Contents affected the oil and natural gas industry.
Our ability to complete transactions and maintain or increase our liquidity is subject to a number of variables, including our level of oil and natural gas production, proved reserves and commodity prices, the amount and cost of our indebtedness, as well as various economic and market conditions that have historically affected the oil and natural gas industry.
We enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil and natural gas production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes.
Net gain on derivative contracts . We enter into derivative commodity instruments to economically hedge our exposure to price fluctuations on our anticipated oil and natural gas production. Consistent with prior years, we have elected not to designate any positions as cash flow hedges for accounting purposes.
See Item 8. Consolidated Financial Statements and Supplementary Data —Note 1, “ Summary of Significant Events and Accounting Policies,” for a discussion of additional accounting policies and estimates made by management. Oil and Natural Gas Activities Full Cost Method We use the full cost method of accounting for our oil and natural gas activities.
Consolidated Financial Statements and Supplementary Data —Note 1, “ Summary of Significant Events and Accounting Policies,” for a discussion of additional accounting policies and estimates made by management. Oil and Natural Gas Activities Full Cost Method We use the full cost method of accounting for our oil and natural gas activities.
All of the foregoing may adversely affect our business, financial condition, results of operations, cash flows and, potentially, compliance with the covenants contained in our Amended Term Loan Agreement. Capital Expenditures . During 2023, we spent approximately $46.6 million in capital expenditures, including drilling, completion, support infrastructure and other capital costs.
All of the foregoing may adversely affect our business, financial condition, results of operations, cash flows and, potentially, compliance with the covenants contained in our 2024 Amended Term Loan Agreement. Capital Expenditures . During 2024, we spent approximately $64.6 million in capital expenditures, including drilling, completion, support infrastructure and other capital costs.
Consolidated Financial Statements and Supplementary Date – Note 6, Debt for the next 12 months from the issuance of these consolidated financial statements.
Consolidated Financial Statements and Supplementary Date – Note 7, Debt for the next 12 months from the issuance of these consolidated financial statements.
Production for the years ended December 31, 2023 and 2022 averaged 13,784 Boe/d and 15,438 Boe/d, respectively. Production is lower in 2023 compared with 2022 in total due largely to the timing of capital expenditures spent to bring new wells online and natural production declines on our existing producing wells.
Production for the years ended December 31, 2024 and 2023 averaged 12,667 Boe/d and 13,784 Boe/d, respectively. Production is lower in 2024 compared with 2023 in total due largely to the timing of capital expenditures spent to bring new wells online and natural production declines on our existing producing wells.
Amounts outstanding under the Amended Term Loan Agreement are guaranteed by certain of the Borrower’s direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and of the equity interests of the Borrower held by us.
Amounts outstanding under the 2024 Amended Term Loan Agreement are guaranteed by certain of our direct and indirect subsidiaries and secured by a security interest in substantially all of the assets of the Borrower and such direct and indirect subsidiaries, and of the equity interests of the Borrower held by the Company.
We consider all available evidence (both positive and negative) in determining whether a valuation allowance is required. Based upon the evaluation of available evidence, a valuation allowance of $425.0 million has been applied against our deferred tax asset balance as of December 31, 2023.
We consider all available evidence (both positive and negative) in determining whether a valuation allowance is required. Based upon the evaluation of available evidence, a valuation allowance of $317.4 million has been applied against our deferred tax asset balance as of December 31, 2024.
At December 31, 2023, a five percent increase in future development and abandonment costs would increase the depletion rate by approximately $0.31 per Boe and a five percent decrease in future development and abandonment costs would decrease the depletion rate by $0.31 per Boe.
At December 31, 2024, a five percent increase in future development and abandonment costs would increase the depletion rate by approximately $0.34 per Boe and a five percent decrease in future development and abandonment costs would decrease the depletion rate by $0.33 per Boe.
The Merger Agreement provides, that upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into us (the “Merger”), with us surviving as a wholly owned subsidiary of Parent.
The Merger Agreement provided, that upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub would merge with and into us, with us surviving as a wholly owned subsidiary of Parent.
ASC 815 establishes accounting and reporting that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. From time to time, in accordance with our policy, we may hedge a portion of our 50 Table of Contents forecasted oil and natural gas production.
ASC 815 establishes accounting and reporting that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at fair value. From time to time, in accordance with our policy, we may hedge a portion of our forecasted oil and natural gas production. We elected to not designate any of our positions for hedge accounting.
Caracara provided the initial capital for the construction of the Facility, which is expected to have an initial capacity of approximately 30 MMcf per day, and a design capacity to treat up to 10% combined concentrations for H2S and CO2.
Caracara provided the initial capital for the construction of the Facility, which is expected to have an initial capacity of approximately 30 MMcf per day, and a design capacity to treat up to 10% combined concentrations for H 2 S and CO 2 .
Our financial position and results of operations could have been significantly different had we used the successful efforts method of accounting for our oil and natural gas activities. Proved Oil and Natural Gas Reserves Estimates of our proved reserves included in this report are prepared in accordance with accounting principles generally accepted in the United States and SEC guidelines.
Our financial position and results of operations could have been significantly different had we used the successful efforts method of accounting for our oil and natural gas activities. Proved Oil and Natural Gas Reserves Estimates of our proved reserves included in this report are prepared in accordance with U.S. GAAP and SEC guidelines.
Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes. Recent Developments Merger with Fury Resources.
Our hedge policies and objectives may change significantly as our operational profile changes and/or commodities prices change. We do not enter into derivative contracts for speculative trading purposes.
We elected to not designate any of our positions for hedge accounting. Accordingly, we record the net change in the mark-to-market valuation of these positions, as well as payments and receipts on settled contracts, in “Net gain (loss) on derivative contracts” on the consolidated statements of operations. Income Taxes Our provision for taxes includes both state and federal taxes.
Accordingly, we record the net change in the mark-to-market valuation of these positions, as well as payments and receipts on settled contracts, in “Net gain (loss) on derivative contracts” on the consolidated statements of operations. 49 Table of Contents Income Taxes Our provision for income taxes includes both state and federal taxes.
Using the first-day-of-the-month average for the 12-months ended December 31, 2023 of the WTI crude oil spot price of $78.21 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended December 31, 2023 of the Henry Hub natural gas price of $2.64 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials, our ceiling test calculation would not have generated an impairment at December 31, 2023, holding all other inputs and factors constant.
Using the first-day-of-the-month average for the 12-months ended December 31, 2024 of the WTI crude oil spot price of $76.32 per barrel, adjusted by lease or field for quality, transportation fees, and regional price differentials, and the first-day-of-the-month average for the 12-months ended December 31, 2024 of the Henry Hub natural gas price of $2.13 per MMBtu, adjusted by lease or field for energy content, transportation fees, and regional price differentials, our ceiling test calculation did not generate an impairment at December 31, 2024, holding all other inputs and factors constant.
The preferred stock receives annual dividends, paid either in cash at a fixed rate of 14.5% annually or accrued at a fixed rate of 16.0% annually (“PIK accrual”) at our option. Currently, our Amended Term Loan Agreement prohibits the payment of cash dividends.
Holders have no voting rights with respect to the shares of preferred stock. The preferred stock receives annual dividends, paid either in cash at a fixed rate of 14.5% annually or accrued at a fixed rate of 16.0% annually (“PIK accrual”) at our option. Currently, our Amended Term Loan Agreement prohibits the payment of cash dividends.
Investing Activities. Net cash flows used in investing activities for the years ended December 31, 2023 and 2022 were approximately $51.8 million and $126.1 million, respectively.
Net cash flows used in investing activities for the years ended December 31, 2024 and 2023 were approximately $65.4 million and $51.8 million, respectively.
Net cash flows provided by operating activities for the years ended December 31, 2023 and 2022 were $17.6 million and $78.8 million, respectively.
Net cash flows provided by operating activities for the years ended December 31, 2024 and 2023 were $35.4 million and $17.6 million, respectively.
Described below are the significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under accounting principles generally accepted in the United States. We also describe the significant estimates and assumptions we make in applying these policies. We discussed the development, selection and disclosure of each of these with our audit committee.
Described below are the significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under U.S. GAAP. We also describe the significant estimates and assumptions we make in applying these policies. We discussed the development, selection and disclosure of each of these with our audit committee. See Item 8.
On a per unit basis, general and administrative expense were $3.99 per Boe and $2.74 per Boe for the years ended December 31, 2023 and 2022, respectively. Depletion, Depreciation, and Amortization Expense.
On a per unit basis, general and administrative expense were $3.93 per Boe and $3.99 per Boe for the years ended December 31, 2024 and 2023, respectively. Depletion, Depreciation, and Amortization Expense. Depletion expense was $51.3 million and $55.2 million for the years ended December 31, 2024 and 2023, respectively.
Until (i) a termination of or certain amendments to the Amended Term Loan Agreement or (ii) one year past the maturity date of the Amended Term Loan Agreement, an election of the cash payment option by holders in a change of control scenario is not permitted. For additional information, see Item 8.
Consistent with the terms of the 2021 Amended Term Loan Agreement, an election of the cash payment option by holders in a change of control scenario is not permitted until (i) a termination of or certain amendments to the 2024 Amended Term Loan Agreement or (ii) one year past the maturity date of the 2024 Amended Term Loan Agreement.
On a per unit basis, taxes other than income were $2.37 per Boe and $3.28 per Boe for the years ended December 31, 2023 and 2022, respectively. Gathering and Other Expenses. Gathering and other expenses were $63.6 million ($12.64 per Boe) and $64.1 million ($11.38 per Boe) for the years ended December 31, 2023 and 2022, respectively.
On a per unit basis, taxes other than income were $2.42 per Boe and $2.37 per Boe for the years ended December 31, 2024 and 2023, respectively. Gathering and Other Expenses. Gathering and other expenses were $54.1 million and $63.6 million for the years ended December 31, 2024 and 2023, respectively.
During 2023, we ran one operated rig in the Delaware Basin. We drilled and completed 2 gross (2 net) operated wells and put online 3 gross (3 net) operated wells during the year. Debt Obligations .
During 2024, we ran one operated rig in the Delaware Basin. We drilled and cased 4.0 gross (3.95 net) operated wells, completed 4.0 gross (3.95 net), and put online 4.0 gross (3.88 net) operated wells during the year. Debt Obligations .
Our gathering and other expenses are primarily driven by the amount and location of natural gas production, the concentration of H2S in our sour gas produced, and the amounts paid to treat our sour gas volumes, either through our own hydrogen sulfide treating plant or through third parties.
Our gathering and other expenses are primarily driven by the amount and location of natural gas production, the concentration of H 2 S in our sour gas produced and the amounts paid to treat our sour gas volumes, either through the AGI Facility or through third parties.
During the year ended December 31, 2022, we spent $125.5 million on oil and natural gas capital expenditures, of which $108.3 million related to drilling and completion costs and $13.7 million related to the development of our treating equipment and gathering support infrastructure. Financing Activities.
During the year ended December 31, 2024, we spent $64.6 million on oil and natural gas capital expenditures, of which $57.8 million related to drilling and completion costs and $5.7 million related to the development of our treating equipment and gathering support infrastructure.
The increase in our depletion rate for the year ended December 31, 2023 53 Table of Contents compared to 2022 is primarily due to decreased proved reserves relative to the change in future development costs associated with those proved reserves when comparing 2023 to 2022 . Net gain (loss) on derivative contracts .
The increase in our depletion rate for the year ended December 31, 2024 compared to 2023 is primarily due to 52 Table of Contents decreased proved reserves relative to the change in future development costs associated with those reserves when comparing 2024 to 2023. Impairment of contract asset.
The unavailability or high cost of drilling rigs and/or frac crews, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and profitability.
During these periods, the costs and delivery times of rigs, equipment and supplies may also be substantially greater. The unavailability or high cost of drilling rigs and/or frac crews, pressure pumping equipment, tubulars and other supplies, and of qualified personnel can materially and adversely affect our operations and profitability.
On a per unit basis, lease operating expenses were $8.92 per Boe and $8.54 per Boe for the years ended December 31, 2023 and 2022, respectively.
Lease operating expenses were $45.3 million and $44.9 million for the years ended December 31, 2024 and 2023, respectively. On a per unit basis, lease operating expenses were $9.77 per Boe and $8.92 per Boe for the years ended December 31, 2024 and 2023, respectively.
Net increase (decrease) in cash, cash equivalents and restricted cash is summarized as follows for the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2023 2022 Cash flows provided by operating activities ​ $ 17,589 ​ $ 78,801 Cash flows used in investing activities ​ ​ (51,845) ​ ​ (126,130) Cash flows provided by financing activities ​ ​ 59,059 ​ ​ 31,786 Net increase (decrease) in cash, cash equivalents and restricted cash ​ $ 24,803 ​ $ (15,543) ​ Operating Activities.
Net (decrease) increase in cash, cash equivalents and restricted cash is summarized as follows for the periods presented (in thousands): ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended December 31, ​ 2024 2023 Cash flows provided by operating activities ​ $ 35,355 ​ $ 17,589 Cash flows used in investing activities ​ ​ (65,443) ​ ​ (51,845) Cash flows (used in) provided by financing activities ​ ​ (7,728) ​ ​ 59,059 Net (decrease) increase in cash, cash equivalents and restricted cash ​ $ (37,816) ​ $ 24,803 ​ Operating Activities.
At December 31, 2023, we had a $13.9 million derivative asset, $9.0 million of which was classified as current, and we had a $33.3 million derivative liability, $17.2 million of which was classified as current. Interest Expense and Other. Interest expense and other was $33.3 million and $23.6 million for the years ended December 31, 2023 and 2022, respectively.
At December 31, 2024, we had a $11.0 million derivative asset, $7.0 million of which was classified as current, and we had a $19.3 million derivative liability, $12.3 million of which was classified as current. Interest Expense and Other. Interest expense and other was $15.0 million and $33.3 million for the years ended December 31, 2024 and 2023, respectively.
On December 14, 2023, we entered into an Agreement and Plan of Merger, as amended (the “Merger Agreement”) with Fury Resources, Inc., a Delaware corporation (“Parent”) and San Jacinto Merger Sub, Inc. (“Merger Sub”), a Delaware corporation and a direct, wholly owned subsidiary of Parent.
Merger with Fury Resources On December 14, 2023, we entered into the Merger Agreement with Parent and Merger Sub, a Delaware corporation and a direct, wholly owned subsidiary of Parent.
Our current estimates of facility in-service dates and future treating fee reductions are subject to various operational and other risk factors, some of which are beyond our control, which could impact the timing and extent of these estimates. Capital Resources and Liquidity Overview.
The GTA has a tiered-rate structure based on actual volumes delivered. Our current estimates of future treating fee reductions are subject to various operational and other risk factors, some of which are beyond our control, which could impact the timing and extent of these estimates. Capital Resources and Liquidity Overview.
The tax position is measured at the largest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement. ​ ​ 51 Table of Contents Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The table below set forth financial information for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended ​ ​ December 31, In thousands (except per unit and per Boe amounts) 2023 2022 Operating revenues: ​ ​ ​ ​ ​ ​ Oil ​ $ 183,634 ​ $ 267,690 Natural gas ​ ​ 11,057 ​ ​ 46,210 Natural gas liquids ​ ​ 23,814 ​ ​ 43,501 Other ​ ​ 2,257 ​ ​ 1,663 Total operating revenues ​ ​ 220,762 ​ ​ 359,064 Operating expenses: ​ ​ ​ ​ ​ ​ Production: ​ ​ ​ ​ ​ ​ Lease operating ​ ​ 44,864 ​ ​ 48,095 Workover and other ​ ​ 7,149 ​ ​ 6,683 Taxes other than income ​ ​ 11,943 ​ ​ 18,483 Gathering and other ​ ​ 63,575 ​ ​ 64,117 General and administrative: ​ ​ ​ ​ ​ ​ General and administrative ​ ​ 20,095 ​ ​ 15,425 Stock-based compensation ​ ​ (1,070) ​ ​ 2,210 Depletion, depreciation and accretion: ​ ​ ​ ​ ​ ​ Depletion – Full cost ​ ​ 55,179 ​ ​ 51,020 Depreciation – Other ​ ​ 652 ​ ​ 367 Accretion expense ​ ​ 793 ​ ​ 528 Other income (expenses): ​ ​ ​ ​ ​ ​ Net gain (loss) on derivative contracts ​ ​ 12,689 ​ ​ (110,006) Interest expense and other ​ ​ (33,319) ​ ​ (23,591) Net (loss) income ​ $ (3,048) ​ $ 18,539 ​ ​ ​ ​ ​ ​ ​ Production: ​ ​ ​ ​ ​ ​ Crude oil – MBbls ​ ​ 2,415 ​ ​ 2,837 Natural gas – MMcf ​ ​ 8,718 ​ ​ 9,337 Natural gas liquids – MBbls ​ ​ 1,163 ​ ​ 1,242 Total MBoe (1) ​ ​ 5,031 ​ ​ 5,635 Average daily production – Boe (1) ​ ​ 13,784 ​ ​ 15,438 ​ ​ ​ ​ ​ ​ ​ Average price per unit (2) : ​ ​ ​ ​ ​ ​ Crude oil price - Bbl ​ $ 76.04 ​ $ 94.36 Natural gas price - Mcf ​ ​ 1.27 ​ ​ 4.95 Natural gas liquids price - Bbl ​ ​ 20.48 ​ ​ 35.02 Total per Boe (1) ​ ​ 43.43 ​ ​ 63.43 ​ ​ ​ ​ ​ ​ ​ Average cost per Boe: ​ ​ ​ ​ ​ ​ Production: ​ ​ ​ ​ ​ ​ Lease operating ​ $ 8.92 ​ $ 8.54 Workover and other ​ ​ 1.42 ​ ​ 1.19 Taxes other than income ​ ​ 2.37 ​ ​ 3.28 Gathering and other ​ ​ 12.64 ​ ​ 11.38 Restructuring ​ ​ — ​ ​ — General and administrative: ​ ​ ​ ​ ​ ​ General and administrative ​ ​ 3.99 ​ ​ 2.74 Stock-based compensation ​ ​ (0.21) ​ ​ 0.39 Depletion ​ ​ 10.97 ​ ​ 9.05 (1) Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency.
The tax position is measured at the largest amount of benefit/expense that is more likely than not of being realized upon ultimate settlement. ​ ​ 50 Table of Contents Results of Operations Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 The table below set forth financial information for the periods presented. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Years Ended ​ ​ December 31, In thousands (except per unit and per Boe amounts) 2024 2023 Operating revenues: ​ ​ ​ ​ ​ ​ Oil ​ $ 174,607 ​ $ 183,634 Natural gas ​ ​ (2,213) ​ ​ 11,057 Natural gas liquids ​ ​ 20,822 ​ ​ 23,814 Other ​ ​ 677 ​ ​ 2,257 Total operating revenues ​ ​ 193,893 ​ ​ 220,762 Operating expenses: ​ ​ ​ ​ ​ ​ Production: ​ ​ ​ ​ ​ ​ Lease operating ​ ​ 45,275 ​ ​ 44,864 Workover and other ​ ​ 5,215 ​ ​ 7,149 Taxes other than income ​ ​ 11,238 ​ ​ 11,943 Gathering and other ​ ​ 54,117 ​ ​ 63,575 General and administrative: ​ ​ ​ ​ ​ ​ General and administrative ​ ​ 18,204 ​ ​ 20,095 Stock-based compensation ​ ​ 152 ​ ​ (1,070) Depletion, depreciation and accretion: ​ ​ ​ ​ ​ ​ Depletion – Full cost ​ ​ 51,297 ​ ​ 55,179 Depreciation – Other ​ ​ 638 ​ ​ 652 Accretion expense ​ ​ 991 ​ ​ 793 Impairment of contract asset ​ ​ 18,511 ​ ​ — Other income (expenses): ​ ​ ​ ​ ​ ​ Net gain on derivative contracts ​ ​ 2,308 ​ ​ 12,689 Interest expense and other ​ ​ (14,956) ​ ​ (33,319) Loss on extinguishment of debt ​ ​ (7,489) ​ ​ — Net loss ​ $ (31,882) ​ $ (3,048) ​ ​ ​ ​ ​ ​ ​ Production: ​ ​ ​ ​ ​ ​ Crude oil – MBbls ​ ​ 2,363 ​ ​ 2,415 Natural gas – MMcf ​ ​ 7,814 ​ ​ 8,718 Natural gas liquids – MBbls ​ ​ 971 ​ ​ 1,163 Total MBoe (1) ​ ​ 4,636 ​ ​ 5,031 Average daily production – Boe (1) ​ ​ 12,667 ​ ​ 13,784 ​ ​ ​ ​ ​ ​ ​ Average price per unit (2) : ​ ​ ​ ​ ​ ​ Crude oil price - Bbl ​ $ 73.89 ​ $ 76.04 Natural gas price - Mcf ​ ​ (0.28) ​ ​ 1.27 Natural gas liquids price - Bbl ​ ​ 21.44 ​ ​ 20.48 Total per Boe (1) ​ ​ 41.68 ​ ​ 43.43 ​ ​ ​ ​ ​ ​ ​ Average cost per Boe: ​ ​ ​ ​ ​ ​ Production: ​ ​ ​ ​ ​ ​ Lease operating ​ $ 9.77 ​ $ 8.92 Workover and other ​ ​ 1.12 ​ ​ 1.42 Taxes other than income ​ ​ 2.42 ​ ​ 2.37 Gathering and other ​ ​ 11.67 ​ ​ 12.64 General and administrative: ​ ​ ​ ​ ​ ​ General and administrative ​ ​ 3.93 ​ ​ 3.99 Stock-based compensation ​ ​ 0.03 ​ ​ (0.21) Depletion ​ ​ 11.06 ​ ​ 10.97 (1) Determined using a ratio of six Mcf of natural gas to one barrel of oil, condensate, or NGLs based on approximate energy equivalency.
General and administrative expense was $20.1 million and $15.4 million for the years ended December 31, 2023 and 2022, respectively. The increase in general and administrative expense for 2023 is primarily associated with an increase in professional fees and nonrecurring costs related to the merger partially offset by a decrease in payroll and employee benefits.
The decrease in general and administrative expense for 2024 is primarily associated with a decrease in payroll and employee benefits, partially offset by an increase in professional fees and nonrecurring costs related to the terminated merger.
Oil, natural gas and natural gas liquids revenues were $218.5 million and $357.4 million for the years ended December 31, 2023 and 2022, respectively. The decrease of $138.9 million in revenue is primarily attributable to a decrease in average realized prices and lower production volumes in 2023 compared to 2022.
Oil, natural gas and NGLs revenues were $193.2 million and $218.5 million for the years ended December 31, 2024 and 2023, respectively. The decrease of $25.3 million in revenue is primarily attributable to a $7.6 million decrease resulting from lower average realized prices and a $17.7 million decrease due to lower production volumes in 2024 compared to 2023.
Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger, each of our issued and outstanding shares of Common Stock, par value $0.0001 per share (“Common Stock”) shall be converted into the right to receive $9.80 in cash, without interest, which represents a total transaction value of approximately $450. million (the “Merger Consideration”), and such shares shall otherwise cease to be outstanding, shall automatically be canceled and retired and cease to exist; and each outstanding share of redeemable convertible preferred 42 Table of Contents stock will be contributed to Parent in exchange for new preferred shares of Parent, or sold to Parent for cash, in each case at valuation based on the conversion or redemption value of such preferred stock.
Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger, each of our issued and outstanding shares of Common Stock, par value $0.0001 per share (“Common Stock”) were to be converted into the right to receive cash, without interest, and such shares would cease to be outstanding, would automatically be canceled and retired and cease to exist; and each outstanding share of redeemable convertible preferred stock would be contributed to Parent in exchange for new preferred shares of Parent, or sold to Parent for cash, in each case at valuation based on the conversion or redemption value of such preferred stock. 41 Table of Contents If the Merger was consummated, our shares of Common Stock would no longer trade on the NYSE American and would be deregistered under the Securities Exchange Act of 1934, as amended.
Depletion expense was $55.2 million and $51.0 million for the years ended December 31, 2023 and 2022, respectively. On a per unit basis, depletion expense was $10.97 per Boe and $9.05 per Boe for the years ended December 31, 2023 and 2022, respectively.
On a per unit basis, depletion expense was $11.06 per Boe and $10.97 per Boe for the years ended December 31, 2024 and 2023, respectively.
Net cash flows provided by financing activities for the years ended December 31, 2023 and 2022 were approximately $59.1 million and $31.8 million, respectively. During the year ended December 31, 2023, we received $95.6 million in proceeds from the sales and issuance of preferred stock and we made $35.0 million of repayments under our Amended Term Loan Agreement.
We received $38.8 million in proceeds from the sales and issuance of preferred stock during the year ended December 31, 2024. During the year ended December 31, 2023, we received $95.6 million in proceeds from the sales and issuance of preferred stock and we made $35.0 million of repayments under our 2021 Amended Term Loan Agreement.
In exchange for contributing to the joint venture a wellbore with an approved 43 Table of Contents permit for the injection of acid gas and surface land , we retained a 5% equity interest in WAT, an unconsolidated subsidiary.
The joint venture, operating as WAT, also entered into a GTA with us for natural gas production from our Monument Draw area. In exchange for contributing to the joint venture a wellbore with an approved permit for the injection of acid gas and surface land , we retained a 5% equity interest in WAT, an unconsolidated subsidiary.
Accordingly, we recorded the net change in the mark-to-market value of these derivative contracts in the consolidated statements of operations. We recorded a net derivative gain of $12.7 million ($21.9 million net gain on unsettled contracts and $9.2 million net loss on settled contracts) for the year ended December 31, 2023.
We recorded a net derivative gain of $2.3 million ($11.1 million net gain on unsettled contracts and $8.8 million net loss on settled contracts) for the year ended December 31, 2024 and a net derivative gain of $12.7 million ($21.9 million net gain on unsettled contracts and $9.2 million net loss on settled contracts) for the year ended December 31, 2023.
As a consequence, we endeavor to anticipate potential covenant compliance issues and work with our lenders to address any such issues ahead of time.
As a consequence, we endeavor to anticipate potential covenant compliance issues and work with our lenders to address any such issues ahead of time. The results presented in this Form 10-K are not necessarily indicative of future operating results.
For the first quarter of 2024, we anticipate our interest rate will be 12.99% on outstanding borrowings. Recently Issued Accounting Pronouncements We discuss recently adopted and issued accounting standards in Item 8. Consolidated Financial Statements and Supplementary Data —Note 1, “ Summary of Significant Events and Accounting Policies .”
Recently Issued Accounting Pronouncements We discuss recently adopted and issued accounting standards in Item 8. Consolidated Financial Statements and Supplementary Data —Note 1, “ Summary of Significant Events and Accounting Policies .”
Management believes that based upon its operational forecasts, cash and cash equivalents on hand, including the $10.0 million Initial Deposit Amount under the Merger Agreement, the March 2024 sale of $19.5 million in additional preferred equity and continued cost reduction measures, it is probable that we will have sufficient liquidity to fund our operations, meet our debt requirements and maintain compliance with our future debt covenants as described in Item 8.
We believe that, based upon our operational forecasts, cash and cash equivalents on hand and cost reduction measures, it is probable that we will have sufficient liquidity to fund our operations, meet our debt requirements and maintain compliance with our future debt covenants as described in Item 8.
At December 31, 2023, $20.0 million remained available for issuance under the support letter from the Investors. The issuances of preferred stock were approved by our board of directors upon recommendation by a special committee of disinterested directors that was established to evaluate the proposed terms of the preferred stock.
The issuances of preferred stock were approved by our board of directors upon recommendation by a special committee of disinterested directors that was established to evaluate the proposed terms of the preferred stock.
The decrease in lease operating expenses in 2023 results primarily from lower production in 2023 compared to 2022 while the increase year over year in lease operating expenses on a per unit basis is primarily a result of an inflationary market increase in maintenance, power, and chemical costs. Workover and Other Expenses .
The increase year over year in lease operating expenses and on a per unit basis is primarily a result of an inflationary market increase in maintenance, power, and chemical costs. Workover and Other Expenses . Workover and other expenses were $5.2 million and $7.2 million for the years ended December 31, 2024 and 2023, respectively.
To fund this workover operation, we advanced capital contributions totaling approximately $15.1 million during the year ended December 31, 2023 on behalf of our joint venture partner in WAT.
To fund this workover operation, we advanced capital contributions totaling approximately $18.5 million to date as of September 30, 2024 on behalf of our joint venture partner in WAT.
Even if we are otherwise successful in growing our proved reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted.
Even if we are otherwise successful in growing our proved reserves and production, if oil and natural gas prices decline for a sustained period of time, our ability to fund our capital expenditures, complete acquisitions, reduce debt, meet our financial obligations and become profitable may be materially impacted. 44 Table of Contents Additionally, in periods of increasing commodity prices, we continue to be at risk to supply chain issues, including, but not limited to, labor shortages, pipe restrictions and potential delays in obtaining frac and/or drilling related equipment that could impact our business.
Consolidated Financial Statements and Supplementary Date – Note 11, Redeemable Convertible Preferred Stock. H2S Treating Joint Venture. In May 2022, we entered into a joint venture agreement with Caracara to develop the Facility in Winkler County, Texas. The joint venture, operating as WAT, also entered into a GTA with us for natural gas production from our Monument Draw area.
For additional information, see Item 8. Consolidated Financial Statements and Supplementary Date – Note 12, Redeemable Convertible Preferred Stock. H 2 S Treating Joint Venture In May 2022, we entered into a joint venture agreement with Caracara to develop the AGI Facility in Winkler County, Texas.
We have incurred approximately $3.2 million as of March 20, 2024, and will continue to incur significant costs and expenses, including fees for professional services and other transaction costs, in connection with the Merger. Preferred Stock Equity Issuance.
We incurred approximately $5.5 million as of December 31, 2024, in costs and expenses, including fees for professional services and other transaction costs, in connection with the terminated Merger.
Our financial results depend upon many factors but are largely driven by the volume of our oil and natural gas production and the price that we receive for that production. Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire properties with existing production.
Our production volumes will decline as reserves are depleted unless we expend capital in successful development and exploration activities or acquire properties with existing production.
Most production taxes are based on production volumes and realized prices at the wellhead. As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease.
As revenues or volumes from oil and natural gas sales increase or decrease, production taxes on these sales also increase or decrease, as such, taxes other than income decreased due to the decrease in revenues.
Full Cost Ceiling Test Limitation Under the full cost method, we are subject to quarterly calculations of a ceiling or limitation on the amount of our oil and natural gas properties that can be capitalized on our balance sheet.
At December 31, 2024, a five percent positive revision to proved reserves would decrease the depletion rate by approximately $0.54 per Boe and a five percent negative revision to proved reserves would increase the depletion rate by approximately $0.61 per Boe. 48 Table of Contents Full Cost Ceiling Test Limitation Under the full cost method, we are subject to quarterly calculations of a ceiling or limitation on the amount of our oil and natural gas properties that can be capitalized on our balance sheet.
On November 24, 2021, we and our wholly owned subsidiary, Halcón Holdings, LLC (‘ Borrower’ ), entered into a Term Loan Agreement with Macquarie Bank Limited, as administrative agent, and certain other financial institutions party thereto, as lenders. The Term Loan Agreement amended and restated in its entirety our previous revolving credit agreement entered into in 2019.
Recent Developments Term Loan Credit Facility On December 26, 2024, we and our wholly-owned subsidiary Halcón Holdings, LLC entered into the 2024 Term Loan Agreement with Fortress Credit Corp., as administrative agent, and certain other financial institutions party thereto, as lenders.
Workover and other expenses were $7.2 million and $6.7 million for the years ended December 31, 2023 and 2022, respectively. On a per unit basis, workover and other expenses were $1.42 per Boe and $1.19 per Boe for the year ended December 31, 2023 and 2022, respectively.
On a per unit basis, gathering and other expenses were $11.67 per Boe and $12.64 per Boe for the years ended December 31, 2024 and 2023, respectively.
On January 24, 2024, Parent and we agreed to cause an amount equal to $10.0 million to be distributed from the escrow account to the Company.
As a result, we would have become a private company. On January 24, 2024, Parent and we agreed to cause an amount equal to $10.0 million to be distributed from the escrow account to the Company. The distribution was initially recorded as a deposit liability in “Other” long-term liabilities on the consolidated balance sheet.
Consolidated Financial Statements and Supplementary Date – Note 6, Debt ) and a total of $50.0 million in debt repayments due under our Amended Term Loan Agreement through December 2024. At December 31, 2023, $20.0 million remained available for issuance under the support letter from the Investors.
Consolidated Financial Statements and Supplementary Date – Note 7, Debt ) and a total of $12.2 million in debt repayments due under our 2024 Term Loan Agreement through December 2025.
We have continued to execute on a plan to reduce operating and capital costs to improve cash flow, including a reduction in headcount in April 2023 to align with planned drilling activity and the issuance of preferred stock totaling $95.6 million during 2023.
We continued to execute on a plan to reduce operating and capital costs to improve cash flow, including the issuance of preferred stock totaling $134.6 million during the years ended December 31, 2024 and 2023 and entry into our 2024 Amended Term Loan Agreement.
Even if successful, alternative sources of financing could prove more expensive than borrowings under our Amended Term Loan Agreement. The results presented in this Form 10-K are not necessarily indicative of future operating results. For further information regarding these risks and uncertainties on us, see “Risk Factors” in Item 1A of this Annual Report on Form 10-K. Cash Flow .
For further information regarding these risks and uncertainties on us, see “Risk Factors” in Item 1A of this Annual Report on Form 10-K. Cash Flow .
Sufficient levels of available cash are required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves. As of December 31, 2023, we had $57.5 million of cash and cash equivalents, no additional borrowing capacity under our Amended Term Loan Agreement (in Item 8.
Sufficient levels of available cash are required to fund capital expenditures necessary to offset inherent declines in our production and proven reserves. We generated a net loss of $64.1 million for the year ended December 31, 2024 and had negative working capital of $23.6 million as of December 31, 2024.
The increased workover and other expenses in 2023 relate to more significant workover projects undertaken in the current year as well as inflationary market increases in service and material costs in 2023. Taxes Other than Income . Taxes other than income were $11.9 million and $18.5 million for the years ended December 31, 2023 and 2022, respectively.
On a per unit basis, workover and other expenses were $1.12 per Boe and $1.42 per Boe for the years ended December 31, 2024 and 2023, respectively. The decreased workover and other expenses in 2024 relate to fewer significant workover projects undertaken in the current year compared to 2023. Taxes Other than Income .
On March 27, 2024, we sold, in a private placement, the remaining 20,000 shares under the support letter to the Investors for proceeds of $19.5 million, net of $0.5 million of original issue discount. Holders have no voting rights with respect to the shares of preferred stock.
On May 13, 2024, we sold, in a private placement, an aggregate of 20,000 shares of preferred stock to the Investors for $19.5 million in proceeds, net of $0.5 million in original issue discount, and such proceeds were used to make a $17.3 million prepayment of outstanding borrowings under the 2021 Amended Term Loan Agreement to cure noncompliance of the Total Net Leverage Ratio as of March 31, 2024.
Under the GTA, we will pay a treating rate that varies based on volumes delivered to the Facility for a term that will last 20 years from the in-service date of the Facility and have a minimum volume commitment of 20 MMcf per day, with certain rollover rights and start-up flexibility, for an initial term of five years from the in service date of the Facility, which can be extended up to seven years under certain conditions.
The continued processing delays and interruptions in 2024 have resulted in higher processing fees than forecasted as we pay higher processing rates with other service providers. Under the GTA, we pay a treating rate that varies based on volumes delivered to the AGI Facility and have a minimum volume commitment of 20 MMcf per day.
In 2023, we have put online 3 gross (3 net) operated wells while in 2022 we put online 9 gross (8.5 net) operated wells. In addition, 2 of the 3 operated wells we put online in 2023 were put online at the end of December. As such, these wells had minimal impact on 2023 productions.
In 2024, we put online 4.0 gross (3.88 net) operated wells while in 2023 we put online 3.0 gross (3.00 net) operated wells. However, two of the four operated wells placed online in 2024 were put online during the fourth quarter. As such, these wells had minimal impact on 2024 production. Lease Operating Expenses .
We advanced additional capital contributions on behalf of our joint venture partner during the first quarter of 2024 of approximately $3.0 million to fund WAT with the necessary capital required to complete the sidetrack of the AGI well.
We had advanced total capital contributions of approximately $18.5 million on behalf of our joint venture partner in WAT to fund a workover operation on the AGI Facility, of which $15.1 million was incurred during 2023 and the remaining $3.4 million during 2024.
During the year ended December 31, 2022, we borrowed the remaining $35.0 million available under the Amended Term Loan Agreement and paid approximately $2.9 million in deferred financing costs, including $2.4 million upon entering into the Amended Term Loan Agreement with its lenders in November 2022. 48 Table of Contents Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.
Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. (“U.S. GAAP”).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThese estimates involve uncertainties and cannot be determined with precision. The estimated fair value of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. See Item 8. Consolidated Financial Statements and Supplementary Data —Note 7, “ Fair Value Measurements,” for additional information.
Biggest changeThe estimated fair value of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximates their carrying value due to their short-term nature. See Item 8. Consolidated Financial Statements and Supplementary Data —Note 8, “ Fair Value Measurements,” for additional information. Interest Rate Sensitivity We are also exposed to market risk related to adverse changes in interest rates.
The total volumes that we hedge through the use of our derivative instruments varies from period to period, however, our requirement under our Amended Term Loan Agreement, is to hedge approximately 50% to 85% of our anticipated oil and natural gas production, in varying percentages by year, on a rolling basis for the next four years, when derivative contracts are available at terms and prices acceptable to us.
The total volumes that we hedge through the use of our derivative instruments varies from period to period, however, our requirement under our Amended Term Loan Agreement, is to hedge approximately 85% to 50% of our anticipated oil and natural gas production, in varying percentages by year, on a rolling basis for the next four years, when derivative contracts are available at terms and prices acceptable to us.
Our hedge policies and objectives may change significantly as our operational profile and contractual obligations change but remain consistent with the requirements in effect under our Amended Term Loan Agreement. We do not enter into derivative contracts for speculative trading purposes. We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties.
Our hedge policies and objectives may change significantly as our operational profile and contractual obligations change but remain consistent with the requirements in effect under our 2024 Amended Term Loan Agreement. We do not enter into derivative contracts for speculative trading purposes. We are exposed to market risk on our open derivative contracts related to potential non-performance by our counterparties.
It is our policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competitive market makers. As of December 31, 2023, we did not post collateral under any of our derivative contracts as they are secured under our Amended Term Loan Agreement.
It is our policy to enter into derivative contracts only with counterparties that are creditworthy institutions deemed by management as competitive market makers. As of December 31, 2024, we did not post collateral under any of our derivative contracts as they are secured under our 2024 Amended Term Loan Agreement.
We expect energy prices to remain volatile and unpredictable, therefore we have designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil and natural gas prices by reducing the risk of price volatility and the affect it could have on our operations.
We expect energy prices to remain volatile and unpredictable, therefore we have designed a risk management policy which provides for the use of derivative instruments to provide partial protection against declines in oil and natural gas prices 53 Table of Contents by reducing the risk of price volatility and the affect it could have on our operations.
At December 31, 2023, the principal amount of our debt was $200.00 million, of which substantially all bears interest at floating and variable interest rates that are tied to SOFR. Fluctuations in market interest rates will cause our annual interest costs to fluctuate.
At December 31, 2024, the principal amount of our debt was $162.00 million, of which substantially all bears interest at floating and variable interest rates that are tied to SOFR. Fluctuations in market interest rates will cause our annual interest costs to fluctuate.
At December 31, 2023, the weighted average interest rate on our variable rate debt was 12.99% per year. If the balance of our variable interest rate debt at December 31, 2023 were to remain constant, a 10% change in market interest rates would impact our cash flows by approximately $2.6 million per year.
At December 31, 2024, the weighted average interest rate on our variable rate debt was 12.88% per year. If the balance of our variable interest rate debt at December 31, 2024 were to remain constant, a 10% change in market interest rates would impact our cash flows by approximately $2.0 million per year.
Interest Rate Sensitivity We are also exposed to market risk related to adverse changes in interest rates. Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are SOFR (and previously, LIBOR) based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.
Our interest rate risk exposure results primarily from fluctuations in short-term rates, which are SOFR-based and may result in reductions of earnings or cash flows due to increases in the interest rates we pay on these obligations.
Consolidated Financial Statements and Supplementary Data —Note 7, “Derivative and Hedging Activities,” for more details. 54 Table of Contents Fair Market Value of Financial Instruments The estimated fair values for financial instruments under ASC 825, Financial Instruments , (ASC 825) are determined at discrete points in time based on relevant market information.
Consolidated Financial Statements and Supplementary Data —Note 9, “Derivative and Hedging Activities,” for more details. Fair Market Value of Financial Instruments The estimated fair values for financial instruments under ASC 825, Financial Instruments , (ASC 825) are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision.

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