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What changed in Vitesse Energy, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Vitesse Energy, Inc.'s 2022 and 2023 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 2023 report.

+429 added−447 removedSource: 10-K (2024-02-26) vs 10-K (2023-02-16)

Top changes in Vitesse Energy, Inc.'s 2023 10-K

429 paragraphs added · 447 removed · 302 edited across 5 sections

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

152 edited+73 added−80 removed211 unchanged
Biggest changeFor non-U.S. holders of our common stock, brokers or other withholding agents may overwithhold taxes from dividends paid, in which case a stockholder generally would have to timely file a U.S. tax return or an appropriate claim for refund to claim a refund of the overwithheld taxes. ■ Our business involves the selling and shipping by rail of oil, which involves risks of derailment, accidents and liabilities associated with cleanup and damages, as well as potential regulatory changes that may adversely impact our business, financial condition or results of operations. ■ Some stockholders might be deemed to have received a taxable distribution as a result of our repurchase of our own stock. ■ Our derivative activities expose us to potential regulatory risks. ■ Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.
Biggest changeFor non-U.S. holders of our common stock, brokers or other withholding agents may overwithhold taxes from dividends paid, in which case a stockholder generally would have to timely file a U.S. tax return or an appropriate claim for refund to claim a refund of the overwithheld taxes. ■ Some stockholders might be deemed to have received a taxable distribution as a result of our repurchase of our own stock.
Potential future legislation or the imposition of new or increased taxes or fees may generally affect the taxation of natural gas and oil exploration and development companies and may adversely affect our operations and cash flows.
Potential future legislation or the imposition of new or increased taxes or fees may generally affect the taxation of oil and natural gas exploration and development companies and may adversely affect our operations and cash flows.
In addition, failure to report dividend income in a manner consistent with the IRS Forms 1099-DIV may cause the IRS to assert audit adjustments to a stockholder’s U.S. federal income tax return.
In addition, failure to report dividend income in a manner consistent with the IRS Forms 1099-DIV may cause the IRS to assert audit adjustments to a stockholder’s U.S. federal income tax return.
Our business involves the selling and shipping by rail of oil, which involves risks of derailment, accidents and liabilities associated with cleanup and damages, as well as potential regulatory changes that may adversely impact our business, financial condition or results of operations. A portion of our oil production is transported to market centers by rail.
Our business involves the selling and shipping of oil by rail, which involves risks of derailment, accidents and liabilities associated with cleanup and damages, as well as potential regulatory changes that may adversely impact our business, financial condition or results of operations. A portion of our oil production is transported to market centers by rail.
The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including: ■ actual or anticipated fluctuations in our business, financial condition and results of operations due to factors related to our business; ■ competition in the oil and natural gas industry and our ability to compete successfully; ■ success or failure of our business strategies; ■ our ability to retain and recruit qualified personnel; ■ our quarterly or annual earnings, or those of other companies in our industry; ■ our level of indebtedness, our ability to make payments on or service our indebtedness and our ability to obtain financing as needed; ■ announcements by us or our competitors of significant acquisitions or dispositions; ■ changes in accounting standards, policies, guidance, interpretations or principles; ■ the failure of securities analysts to cover our common stock; ■ changes in earnings estimates by securities analysts or our ability to meet those estimates; ■ the operating and stock price performance of other comparable companies; ■ investor perception of our company and the oil and natural gas industry; ■ overall market fluctuations, including the cyclical nature of the oil and natural gas market; ■ results from any material litigation or government investigation; ■ changes in laws and regulations (including tax laws and regulations) affecting our business; and ■ general economic conditions, credit and capital market conditions and other external factors.
The market price of our common stock may fluctuate widely, depending on many factors, some of which may be beyond our control, including: ■ actual or anticipated fluctuations in our business, financial condition and results of operations due to factors related to our business; ■ competition in the oil and natural gas industry and our ability to compete successfully; ■ success or failure of our business strategies; ■ our ability to retain and recruit qualified personnel; ■ our quarterly or annual earnings, or those of other companies in our industry; ■ our level of indebtedness, our ability to make payments on or service our indebtedness and our ability to obtain financing as needed; ■ announcements by us or our competitors of significant acquisitions or dispositions; ■ changes in accounting standards, policies, guidance, interpretations or principles; ■ the failure of securities analysts to continue to cover our common stock; ■ changes in earnings estimates by securities analysts or our ability to meet those estimates; ■ the operating and stock price performance of other comparable companies; ■ investor perception of our company and the oil and natural gas industry; ■ overall market fluctuations, including the cyclical nature of the oil and natural gas market; ■ results from any material litigation or government investigation; ■ changes in laws and regulations (including tax laws and regulations) affecting our business; and ■ general economic conditions, credit and capital market conditions and other external factors.
Summary Risk Factors We believe that the risks associated with our business, and consequently the risks associated with an investment in our equity or debt securities, fall within the following categories: Risks Relating to Our Common Stock ■ Vitesse is an emerging growth company and the information we provide stockholders may be different from information provided by other public companies, which may result in a less active trading market for our common stock and higher volatility in our stock price. ■ Although we expect to pay dividends, we cannot provide assurance that we will pay dividends on our common stock, and our indebtedness may limit our ability to pay dividends on our common stock. ■ Certain provisions in our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Delaware law may discourage takeovers. ■ Your percentage ownership in Vitesse may be diluted in the future. ■ Our Amended and Restated Certificate of Incorporation designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
Summary Risk Factors We believe that the risks associated with our business, and consequently the risks associated with an investment in our equity or debt securities, fall within the following categories: Risks Relating to Our Common Stock ■ Vitesse is an emerging growth company and the information we provide stockholders may be different from information provided by other public companies, which may result in a less active trading market for our common stock and higher volatility in our stock price. ■ Although we expect to continue to pay dividends, we cannot provide assurance that we will pay dividends on our common stock, and our indebtedness may limit our ability to pay dividends on our common stock. ■ Certain provisions in our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Delaware law may discourage takeovers. ■ Your percentage ownership in Vitesse may be diluted in the future. ■ Our Amended and Restated Certificate of Incorporation designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
The successful acquisition of producing properties requires an assessment of several factors, including: ■ recoverable reserves; ■ future oil and natural gas prices and their appropriate differentials; ■ availability and cost of transportation of production to markets; ■ availability and cost of drilling equipment and of skilled personnel; ■ development and operating costs including access to water and potential environmental and other liabilities; and ■ regulatory, permitting and similar matters.
The successful acquisition of properties requires an assessment of several factors, including: ■ recoverable reserves; ■ future oil and natural gas prices and their appropriate differentials; ■ availability and cost of transportation of production to markets; ■ availability and cost of drilling equipment and of skilled personnel; ■ development and operating costs including access to water and potential environmental and other liabilities; and ■ regulatory, permitting and similar matters.
For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to: ■ not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002; ■ exemption from new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies; 30 Table of Contents ■ reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and ■ exemptions from the requirement of holding a nonbinding advisory vote on executive compensation and stockholder approval on golden parachute compensation not previously approved.
For as long as we are an emerging growth company, we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including, but not limited to: ■ not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act of 2002; ■ exemption from new or revised financial accounting standards applicable to public companies until such standards are also applicable to private companies; ■ reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and 28 Table of Contents ■ exemptions from the requirement of holding a nonbinding advisory vote on executive compensation and stockholder approval on golden parachute compensation not previously approved.
Rather, we typically rely upon the judgment of our own oil and natural gas landmen who conduct due diligence and perform the fieldwork in examining records in the appropriate governmental or county clerk’s office before attempting to acquire a lease or other developed rights in a specific mineral interest.
Rather, we typically rely upon the judgment of our own oil and natural gas landmen who conduct due diligence and perform the fieldwork in examining records in the appropriate governmental or county clerk’s office before attempting to acquire a lease or other developed rights in a specific interest.
A failure to comply with the covenants, ratios or tests in our Revolving Credit Facility or any other indebtedness could result in an event of default under our Revolving Credit Facility, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations.
A failure to comply with the covenants, ratios or tests in our Revolving Credit Facility or any other indebtedness could result in an event of default, which, if not cured or waived, could have a material adverse effect on our business, financial condition and results of operations.
If an examination of the title history of a property reveals that an oil or natural gas lease or other developed rights have been purchased in error from a person who is not the owner of the mineral interest desired, our interest would substantially decline in value or be eliminated.
If an examination of the title history of a property reveals that an oil or natural gas lease or other developed rights have been purchased in error from a person who is not the owner of the interest desired, our interest would substantially decline in value or be eliminated.
Unrealized hedging losses on commodity derivatives attributable to significant increases in oil prices may also cause a net loss for a given period. In addition, fluctuations in oil and natural gas prices have impacted our unit-based compensation expense for prior periods and may impact our stock-based compensation expense.
Unrealized hedging losses on commodity derivatives attributable to significant increases in oil prices may also cause a net loss for a given period. In addition, fluctuations in oil and natural gas prices have impacted our Predecessor unit-based compensation expense for prior periods and may impact our stock-based compensation expense.
In such cases, the amount paid for such oil or natural gas lease or leases or other developed rights may be lost. It is generally our practice not to incur the expense of retaining lawyers to examine the title to the mineral interest to be acquired.
In such cases, the amount paid for such oil or natural gas lease or leases or other developed rights may be lost. It is generally our practice not to incur the expense of retaining lawyers to examine the title to the interest to be acquired.
Disruptions in the financial markets could lead to sudden decreases in a counterparty’s liquidity, which could make it unable to perform under the terms of the contracts, and we may not be able to realize the benefit of the contracts. We are unable to predict sudden changes in a counterparty’s creditworthiness or ability to perform.
Disruptions in the financial markets could lead to sudden decreases in a counterparty’s liquidity, which could make it unable to perform under the terms of the contracts, and we may not be able to realize the benefit of the contracts. We may be unable to predict changes in a counterparty’s creditworthiness or ability to perform.
Any acquisition involves other potential risks, including, among other things: ■ the validity of our assumptions about reserves, future production, revenues and costs; ■ a decrease in our liquidity by using a significant portion of our cash from operations or borrowing capacity to finance acquisitions; ■ a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions; ■ the ultimate value of any contingent consideration agreed to be paid in an acquisition; ■ dilution to stockholders if we use equity as consideration for, or to finance, acquisitions; ■ the assumption of unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate; ■ geological risk, which refers to the risk that hydrocarbons may not be present or, if present, may not be recoverable economically; 37 Table of Contents ■ an inability to hire, train or retain qualified personnel to manage and operate our growing business and assets; and ■ an increase in our costs or a decrease in our revenues associated with any potential royalty owner or landowner claims or disputes, or other litigation encountered in connection with an acquisition.
Any acquisition involves other potential risks, including, among other things: ■ the validity of our assumptions about reserves, future production, revenues and costs; ■ a decrease in our liquidity by using a significant portion of our cash from operations or borrowing capacity to finance acquisitions; ■ a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions; ■ the ultimate value of any contingent consideration agreed to be paid in an acquisition; ■ dilution to stockholders if we use equity as consideration for, or to finance, acquisitions; ■ the assumption of unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate; ■ geological risk, which refers to the risk that hydrocarbons may not be present or, if present, may not be recoverable economically; ■ an inability to hire, train or retain qualified personnel to manage and operate our growing business and assets; and ■ an increase in our costs or a decrease in our revenues associated with any potential royalty owner or landowner claims or disputes, or other litigation encountered in connection with an acquisition.
Although we expect to pay dividends, we cannot provide assurance that we will pay dividends on our common stock, and our indebtedness may limit our ability to pay dividends on our common stock. The timing, declaration, amount of and payment of future dividends, if any, to stockholders will fall within the discretion of our Board.
Although we expect to continue to pay dividends, we cannot provide assurance that we will pay dividends on our common stock, and our indebtedness may limit our ability to pay dividends on our common stock. The timing, declaration, amount of and payment of future dividends, if any, to stockholders will fall within the discretion of our Board.
Therefore, these undeveloped reserves may not be ultimately developed or produced. ■ Our acquisition strategy will subject us to certain risks associated with the inherent uncertainty in evaluating properties for which we have limited information. ■ The majority of our producing properties are located in the Williston Basin, making us vulnerable to risks associated with operating in one major geographic area. ■ The loss of any member of our management team, upon whose knowledge, relationships with industry participants, leadership and technical expertise we rely could diminish our ability to conduct our operations and harm our ability to execute our business plan. ■ Deficiencies of title to our interests could significantly affect our financial condition. ■ Inflation could adversely impact our ability to control our costs, including the operating expenses and capital costs of our operators. ■ Our derivatives activities could adversely affect our profitability, cash flow, results of operations and financial condition. 28 Table of Contents ■ Asset retirement costs may be difficult to predict and may be substantial.
Therefore, these undeveloped reserves may not be ultimately developed or produced. ■ Our acquisition strategy will subject us to certain risks associated with the inherent uncertainty in evaluating properties for which we have limited information. ■ The majority of our producing properties are located in the Williston Basin, making us vulnerable to risks associated with operating in one major geographic area. ■ The loss of any member of our management team, upon whose knowledge, relationships with industry participants, leadership and technical expertise we rely, could diminish our ability to conduct our operations and harm our ability to execute our business plan. ■ Deficiencies of title to our interests could significantly affect our financial condition. ■ Inflation could adversely impact our ability to control our costs, including the operating expenses and capital costs of our operators. ■ Our derivatives activities could adversely affect our profitability, cash flow, results of operations and financial condition. ■ Asset retirement costs are difficult to predict and may be substantial.
In addition, we may issue equity as all or part of the consideration paid for acquisitions and strategic investments that we may make in the future or as necessary to finance our ongoing operations. 31 Table of Contents In addition, our Amended and Restated Certificate of Incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our Board may generally determine.
In addition, we may issue equity as all or part of the consideration paid for acquisitions and strategic investments that we may make in the future or as necessary to finance our ongoing operations. 29 Table of Contents In addition, our Amended and Restated Certificate of Incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our Board may generally determine.
Cash reserves, cash from operations and borrowings under our Revolving Credit Facility may not be sufficient to fund our continuing operations and business plan and goals. We may require additional capital and we may be unable to obtain such capital if and when required.
Cash reserves, cash flow from operations and borrowings under our Revolving Credit Facility may not be sufficient to fund our continuing operations and business plan and goals. We may require additional capital and we may be unable to obtain such capital if and when required.
A continued period of low prices may force us to incur further material write-downs of our oil and natural gas properties, which could have a material effect on the value of our properties and cause the value of our securities to decline.
A continued period of low prices may force us to incur material write-downs of our oil and natural gas properties, which could have a material effect on the value of our properties and cause the value of our securities to decline.
We have in the past and could in the future incur additional impairments of oil and natural gas properties which may be material. We have incurred net losses in the past, in part due to fluctuations in oil and gas prices, and we may incur such losses again in the future.
We have in the past and could in the future incur impairments of oil and natural gas properties which may be material. We have incurred net losses in the past, in part due to fluctuations in oil and gas prices, and we may incur such losses again in the future.
Our failure to obtain perfect title to our leaseholds may adversely affect our current production and reserves and our ability in the future to increase production and reserves. We conduct business in a highly competitive industry. The oil and natural gas industry is highly competitive.
Our failure to obtain perfect title to our leaseholds may adversely affect our production and reserves and our ability in the future to increase production and reserves. We conduct business in a highly competitive industry. The oil and natural gas industry is highly competitive.
Our ability to declare and pay dividends to our stockholders is subject to certain laws, regulations, and policies, including minimum capital requirements and, as a Delaware corporation, we are subject to certain restrictions on dividends under the DGCL.
Our ability to declare and pay dividends to our stockholders is subject to certain laws and regulations, including minimum capital requirements and, as a Delaware corporation, we are subject to certain restrictions on dividends under the DGCL.
The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our common stock.
The failure of an active and liquid trading market to continue would likely have a material adverse effect on the value of our common stock.
The CFTC’s aggregation rules are now in effect, although CFTC staff has granted relief until August 12, 2022 from various conditions and requirements in the final aggregation rules. These rules may affect both the size of the positions that we may hold and the ability or willingness of counterparties to trade with us, potentially increasing the costs of transactions.
The CFTC’s aggregation rules are now in effect, although CFTC staff has granted relief until August 12, 2025 from various conditions and requirements in the final aggregation rules. These rules may affect both the size of the positions that we may hold and the ability or willingness of counterparties to trade with us, potentially increasing the costs of transactions.
With the continued volatility in oil and natural gas prices, and the possibility that interest rates will continue to rise in the near term, increasing the cost of borrowing, certain investors have emphasized capital efficiency and free cash flow from earnings as key drivers for energy companies, especially shale producers.
With the continued volatility in oil and natural gas prices, and the possibility that interest rates may continue to rise in the near term, increasing the cost of borrowing, certain investors have emphasized capital efficiency and free cash flow from earnings as key drivers for energy companies, especially shale producers.
Financial Conduct Authority announced that it intended to phase out LIBOR, and in 2021, it announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of one-week and two-month U.S.
In 2017, the U.K. Financial Conduct Authority announced that it intended to phase out LIBOR, and in 2021, it announced that all LIBOR settings will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of one-week and two-month U.S.
Because our oil and natural gas properties are not as diversified geographically as some of our competitors, our profitability may be disproportionately exposed to the effect of any regional events, including fluctuations in prices of oil and natural gas produced from the wells in the region, natural disasters, restrictive governmental regulations, transportation capacity constraints, weather, curtailment of production or interruption of transportation and processing, and any resulting delays or interruptions of production from existing or planned new wells.
Because our oil and natural gas properties are not as diversified 36 Table of Contents geographically as some of our competitors, our profitability may be disproportionately exposed to the effect of any regional events, including fluctuations in prices of oil and natural gas produced from the wells in the region, natural disasters, restrictive governmental regulations, transportation capacity constraints, weather, curtailment of production or interruption of transportation and processing, and any resulting delays or interruptions of production from existing or planned new wells.
The terms of the Tax Matters Agreement require us to indemnify Jefferies and certain related parties for certain taxes and losses that (i) result primarily from, individually or in the aggregate, the breach of certain representations and warranties made by us (including in connection with the receipt by Jefferies of the IRS Ruling or the opinion of Morgan, Lewis & Bockius LLP regarding the tax treatment of the Distribution) or covenants made by us (applicable to actions or failures to act by us and our subsidiaries following the completion of the Distribution), (ii) are attributable to actions we take following the Distribution and result from the failure of the transfer of the Vitesse Energy equity interests to Vitesse, together with the Distribution, to qualify as (a) a reorganization described in Section 355(a) and Section 368(a)(1)(D) of the Code, (b) a transaction in which the stock distributed thereby is “qualified property” for purposes of Sections 355(c) and 361(c) of the Code, or (c) a transaction in which Jefferies, Vitesse and the holders of Jefferies common stock recognize no income or gain for U.S. federal income tax purposes pursuant to Sections 355, 361 and 1032 of the Code, including, as a result of the application of Section 355(e) of the Code to the Distribution as a result of a 50% or 45 Table of Contents greater change in ownership as described below, or (iii) are attributable to taxes with respect to Vitesse Energy or Vitesse Oil for tax periods or portions thereof ending before the Distribution, including as may arise on audit.
The terms of the Tax Matters Agreement require us to indemnify Jefferies and certain related parties for certain taxes and losses that (i) result primarily from, individually or in the aggregate, the breach of certain representations and warranties made by us (including in connection with the IRS ruling or the tax opinion regarding the tax treatment of the Distribution) or covenants made by us (applicable to actions or failures to act by us and our subsidiaries following the completion of the Distribution), (ii) are attributable to actions we take 48 Table of Contents following the Distribution and result from the failure of the transfer of the Vitesse Energy equity interests to Vitesse, together with the Distribution, to qualify as (a) a reorganization described in Section 355(a) and Section 368(a)(1)(D) of the Code, (b) a transaction in which the stock distributed thereby is “qualified property” for purposes of Sections 355(c) and 361(c) of the Code, or (c) a transaction in which Jefferies, Vitesse and the holders of Jefferies common stock recognize no income or gain for U.S. federal income tax purposes pursuant to Sections 355, 361 and 1032 of the Code, including, as a result of the application of Section 355(e) of the Code to the Distribution as a result of a 50% or greater change in ownership as described below, or (iii) are attributable to taxes with respect to Vitesse Energy or Vitesse Oil for tax periods or portions thereof ending before the Distribution, including as may arise on audit.
Even if we do accurately predict sudden changes, our ability to negate the risk may be limited depending upon market conditions. Asset retirement costs may be difficult to predict and may be substantial. Unplanned costs could divert resources from other projects.
Even if we do accurately predict changes, our ability to negate the risk may be limited depending upon market conditions. Asset retirement costs are difficult to predict and may be substantial. Unplanned costs could divert resources from other projects.
Our earnings and cash flow may vary significantly from year to year due to the cyclical nature of our industry. As a result, the amount of debt that we can service in some periods may not be appropriate for us in other periods.
Our earnings and cash flow may vary significantly due to the cyclical nature of our industry. As a result, the amount of debt that we can service in some periods may not be appropriate for us in other periods.
In addition, drilling and producing operations on our acreage may be curtailed, delayed or canceled by our operators as a result of other factors, including: ■ declines in oil or natural gas prices; ■ infrastructure limitations, such as the natural gas gathering and processing constraints experienced in the Williston Basin in 2019; ■ the high cost, shortages or delays of equipment, materials and services; ■ unexpected operational events, pipeline ruptures or spills, adverse weather conditions and natural disasters, facility or equipment malfunctions, and equipment failures or accidents; ■ title problems; ■ pipe or cement failures and casing collapses; ■ lost or damaged oilfield development and services tools; ■ laws, regulations, and other initiatives related to environmental matters, including those addressing alternative energy sources, the phase-out of fossil fuel vehicles and the risks of global climate change; ■ compliance with environmental and other governmental requirements; ■ increases in severance taxes; ■ regulations, restrictions, moratoria and bans on hydraulic fracturing; ■ unusual or unexpected geological formations, and pressure or irregularities in formations; ■ loss of drilling fluid circulations; ■ environmental hazards, such as oil, natural gas or well fluids spills or releases, pipeline or tank ruptures and discharges of toxic gas; ■ fires, blowouts, craterings and explosions; ■ uncontrollable flows of oil, natural gas or well fluids; ■ pipeline capacity curtailments; and ■ demand from investors to return capital to investors and/or conduct share repurchases.
In addition, drilling and producing operations on our acreage may be curtailed, delayed or canceled by our operators as a result of other factors, including: ■ declines in oil or natural gas prices; ■ infrastructure limitations, such as the natural gas gathering and processing constraints experienced in the Williston Basin in 2019; ■ the high cost, shortages or delays of equipment, materials and services; ■ unexpected operational events, pipeline ruptures or spills, adverse weather conditions and natural disasters, facility or equipment malfunctions, and equipment failures or accidents; ■ title problems; ■ pipe or cement failures and casing collapses; ■ lost or damaged oilfield development and services tools; ■ laws, regulations, and other initiatives related to environmental matters, including those addressing alternative energy sources, the phase-out of fossil fuel vehicles and the risks of global climate change; ■ compliance with environmental and other governmental requirements; ■ increases in severance taxes; ■ regulations, restrictions, moratoria and bans on hydraulic fracturing; ■ unusual or unexpected geological formations, and pressure or irregularities in formations; ■ loss of drilling fluid circulations; ■ environmental hazards, such as oil, natural gas or well fluids spills or releases, pipeline or tank ruptures and discharges of toxic gas; ■ fires, blowouts, craterings and explosions; ■ uncontrollable flows of oil, natural gas or well fluids; and ■ pipeline capacity curtailments.
Development of undeveloped reserves may take longer and require higher levels of capital expenditures than we currently anticipate.
Development of undeveloped reserves may take longer and require higher levels of capital expenditures than we anticipate.
Our competitors also include those entities with greater technical, physical and financial resources. Finally, companies and certain private equity firms not previously investing in oil and natural gas may choose to acquire reserves to establish a firm supply or simply as an investment. Any such companies will also increase market competition which may directly affect us.
Our competitors include entities with greater technical, physical and financial resources. In addition, companies and certain private equity firms not previously investing in oil and natural gas may choose to acquire reserves to establish a firm supply or simply as an investment. Any such companies will also increase market competition which may directly affect us.
The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require us to incur costs to remedy such discharge, regardless of whether we were responsible for the release or contamination and regardless of 50 Table of Contents whether our operators met previous standards in the industry at the time they were conducted.
The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require us to incur costs to remedy such discharge, regardless of whether we were responsible for the release or contamination and regardless of whether our operators met previous standards in the industry at the time they were conducted.
The accuracy of these assessments is inherently uncertain. In connection with these assessments, we have performed reviews of the subject properties that we believe to be generally consistent with industry practices. The reviews are based on our analysis of historical production data, assumptions regarding capital expenditures and anticipated production declines without review by an independent petroleum engineering firm.
The accuracy of these assessments is inherently uncertain. In connection with these assessments, we perform reviews of the subject properties that we believe to be generally consistent with industry practices. The reviews are based on our analysis of historical production data, assumptions regarding capital expenditures and anticipated production declines without review by an independent petroleum engineering firm.
In July 2020, a federal district court vacated the DAPL’s easement to cross the Missouri River at Lake Oahe and ordered the pipeline be shut down pending the completion of an environmental impact statement (“EIS”) to determine whether the DAPL poses a threat to the Missouri River and drinking water supply of the Standing Rock Sioux Reservation.
In July 2020, a federal district court vacated the DAPL’s easement to cross the Missouri River at Lake Oahe and ordered the pipeline be shut down pending the completion of an environmental impact 33 Table of Contents statement (“EIS”) to determine whether the DAPL poses a threat to the Missouri River and drinking water supply of the Standing Rock Sioux Reservation.
In the event that we are unable to timely determine the portion of our distributions that constitute a “dividend” for U.S. federal income tax purposes, or a stockholder’s broker or withholding agent chooses to withhold taxes from distributions in a manner inconsistent with our determination of the amount that constitutes a “dividend” for such purposes, a stockholder’s broker or other withholding agent may overwithhold taxes from distributions paid.
In the event that we are unable to timely determine the portion of our distributions that constitute a “dividend” for U.S. federal income tax purposes, or a stockholder’s broker or withholding agent chooses to withhold taxes from distributions in a manner inconsistent with our determination of the amount that constitutes a “dividend” for such purposes, a stockholder’s broker or other withholding agent may overwithhold taxes 49 Table of Contents from distributions paid.
For a non-U.S. holder of our common stock, “dividends” for U.S. federal income tax purposes will be subject to withholding of U.S. federal income tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) unless the 48 Table of Contents dividends are effectively connected with the conduct of a U.S. trade or business.
For a non-U.S. holder of our common stock, “dividends” for U.S. federal income tax purposes will be subject to withholding of U.S. federal income tax at a 30% rate (or such lower rate as may be specified by an applicable income tax treaty) unless the dividends are effectively connected with the conduct of a U.S. trade or business.
Our Amended and Restated Certificate of Incorporation provides that, in all cases to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: ■ any derivative action or proceeding brought on our behalf; ■ any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee or stockholder of our company to us or our stockholders; ■ any action or proceeding asserting a claim arising pursuant to, or seeking to enforce any right, obligation or remedy under, any provision of Delaware law or our Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws (with respect to each, as may be amended from time to time); or ■ any action or proceeding asserting a claim governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL.
Our Amended and Restated Certificate of Incorporation provides that, in all cases to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for: ■ any derivative action or proceeding brought on our behalf; ■ any action or proceeding asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee or stockholder of our company to us or our stockholders; ■ any action or proceeding asserting a claim arising pursuant to, or seeking to enforce any right, obligation or remedy under, any provision of Delaware law or our Amended and Restated Certificate of Incorporation or our Amended and Restated Bylaws; or ■ any action or proceeding asserting a claim governed by the internal affairs doctrine or any other action asserting an “internal corporate claim” as that term is defined in Section 115 of the DGCL.
If an event of default under our Revolving Credit Facility occurs and remains uncured, the lenders thereunder would not be required to lend any additional amounts to us and could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
If an event of default under our Revolving Credit 41 Table of Contents Facility occurs and remains uncured, the lenders thereunder would not be required to lend any additional amounts to us and could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable.
Competition in our markets is intense and depends, among other things, on the number of competitors in the market, their financial resources, their degree of geological, geophysical, engineering and management expertise and capabilities, their pricing policies, their ability to develop properties on time and on budget, their ability to select, acquire and develop reserves and their ability to foster and maintain relationships with the relevant authorities.
Competition in our markets is intense and depends, among other things, on the number of competitors in the market, their financial resources, their degree of geological, geophysical, engineering and management expertise and capabilities, their pricing policies, their ability to develop properties on time and on budget, their ability to select, acquire and develop reserves and their ability to foster and maintain relationships.
Losses could therefore occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. The occurrence of an event that is not fully covered by insurance could have a material adverse impact on our business activities, financial condition and results of operations.
Losses could therefore occur for uninsurable or uninsured risks or in amounts in excess of existing 31 Table of Contents insurance coverage. The occurrence of an event that is not fully covered by insurance could have a material adverse impact on our business activities, financial condition and results of operations.
These factors include, but are not limited to, the following: ■ changes in global supply and demand for oil and natural gas; ■ changes in NYMEX WTI oil prices and NYMEX Henry Hub natural gas prices; ■ the volatility and uncertainty of regional pricing differentials; ■ future repurchases (or additional possible releases) of oil from the strategic petroleum reserve by the United States Department of Energy; ■ the actions of OPEC and other major oil producing countries; ■ worldwide and regional economic, political and social conditions impacting the global supply and demand for oil and natural gas, which may be driven by various risks including war, terrorism, political unrest, or health epidemics (such as the global COVID-19 coronavirus outbreak); 32 Table of Contents ■ the price and quantity of imports of foreign oil and natural gas; ■ political and economic conditions, including embargoes, in oil-producing countries or affecting other oil-producing activity; ■ the outbreak or escalation of military hostilities, including between Russia and Ukraine, and the potential destabilizing effect such conflicts may pose for the European continent or the global oil and natural gas markets; ■ inflation; ■ the level of global oil and natural gas exploration, production activity and inventories; ■ changes in U.S. energy policy; ■ weather conditions; ■ outbreak of disease; ■ technological advances affecting energy consumption; ■ domestic and foreign governmental taxes, tariffs and/or regulations; ■ proximity and capacity of processing, gathering, and storage facilities, oil and natural gas pipelines and other transportation facilities; ■ the price and availability of competitors’ supplies of oil and natural gas in captive market areas; and ■ the price and availability of alternative fuels.
These factors include, but are not limited to, the following: ■ changes in global supply and demand for oil and natural gas; ■ changes in NYMEX WTI oil prices and NYMEX Henry Hub natural gas prices; ■ the volatility and uncertainty of regional pricing differentials; ■ future repurchases (or additional possible releases) of oil from the strategic petroleum reserve by the United States Department of Energy; ■ the actions of OPEC and other major oil producing countries; ■ worldwide and regional economic, political and social conditions impacting the global supply and demand for oil and natural gas, which may be driven by various risks including war, terrorism, political unrest, or health epidemics; ■ the price and quantity of imports of foreign oil and natural gas; 30 Table of Contents ■ political and economic conditions, including embargoes, in oil-producing countries or affecting other oil-producing activity; ■ the outbreak or escalation of military hostilities, including between Russia and Ukraine and in the Middle East, and the potential destabilizing effect such conflicts may pose for the global oil and natural gas markets; ■ inflation; ■ the level of global oil and natural gas exploration, production activity and inventories; ■ changes in U.S. energy policy; ■ weather conditions; ■ outbreak of disease; ■ technological advances affecting energy consumption; ■ domestic and foreign governmental taxes, tariffs and/or regulations; ■ proximity and capacity of processing, gathering, and storage facilities, oil and natural gas pipelines and other transportation facilities; ■ the price and availability of competitors’ supplies of oil and natural gas in captive market areas; and ■ the price and availability of alternative fuels.
In addition, the third 35 Table of Contents parties on whom operators rely for transportation services are subject to complex federal, state, tribal, and local laws that could adversely affect the cost, manner, or feasibility of conducting business on our oil and natural gas properties.
In addition, the third parties on whom operators rely for transportation services are subject to complex federal, state, tribal, and local laws that could adversely affect the cost, manner, or feasibility of conducting business on our oil and natural gas properties.
If the amount of capital we are able to raise from financing activities, together with our cash from operations, is not sufficient to satisfy our capital requirements, we may not be able to implement our business 44 Table of Contents plan and may be required to scale back our operations, sell assets at unattractive prices or obtain financing on unattractive terms, any of which could adversely affect our business, results of operations and financial condition.
If the amount of capital we are able to raise from financing activities, together with our cash flow from operations, is not sufficient to satisfy our capital requirements, we may not be able to implement our business plan and may be required to scale back our operations, sell assets at unattractive prices or obtain financing on unattractive terms, any of which could adversely affect our business, results of operations and financial condition.
Our election to use the extended transition period permitted by this election may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the extended transition period and who will comply with new or revised financial accounting standards.
Our election to use the extended transition period may make it difficult to compare our financial statements to those of non-emerging growth companies and other emerging growth companies that have opted out of the extended transition period and who will comply with new or revised financial accounting standards.
We ordinarily maintain insurance against various losses and liabilities arising from our operations; however, insurance against all operational risks is not available to us. 33 Table of Contents Additionally, we may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the perceived risks presented.
We ordinarily maintain insurance against various losses and liabilities arising from our operations; however, insurance against all operational risks is not available to us. Additionally, we may elect not to obtain insurance if we believe that the cost of available insurance is excessive relative to the perceived risks presented.
The use of other funds to satisfy such asset retirement costs could impair our ability to dedicate our capital to other areas of our business. We depend on computer and telecommunications systems, and failures in our systems or cyber security threats, attacks or other disruptions could significantly disrupt our business operations.
The use of other funds to satisfy such asset retirement costs could impair our ability to dedicate our capital to other areas of our business. We depend on computer and telecommunications systems, and failures in our systems or cybersecurity threats, attacks or other disruptions could significantly disrupt our business operations.
Your percentage ownership in Vitesse may be diluted in the future. Your percentage ownership in Vitesse may be diluted in the future because of the settlement or exercise of equity-based awards that have been granted and will continue to grant to our directors, officers and other employees under our equity incentive plan.
Your percentage ownership in Vitesse may be diluted in the future. Your percentage ownership in Vitesse may be diluted in the future because of the settlement or exercise of equity-based awards that have been granted and that we expect will continue to be granted to our directors, officers and other employees under our equity incentive plan.
In accordance with applicable accounting principles, we are required to record our derivatives at fair market value, and they are included on our balance sheet as assets or liabilities and in our 40 Table of Contents statements of operations as gain (loss) on commodity derivatives, net.
In accordance with applicable accounting principles, we are required to record our derivatives at fair market value, and they are included on our balance sheet as assets or liabilities and in our statements of operations as gain (loss) on commodity derivatives, net.
The same could also arise from other factors, including but not limited to lower commodity prices or production; operating difficulties; changes in oil and natural gas reserve engineering; increased operating and/or capital costs; lending requirements or regulations; or other factors affecting our lenders’ ability or willingness to 42 Table of Contents lend (including factors that may be unrelated to our company).
The same could also arise from other factors, including but not limited to lower commodity prices or production; operating difficulties; changes in oil and natural gas reserve engineering; increased operating and/or capital costs; lending requirements or regulations; or other factors affecting our lenders’ ability or willingness to lend (including factors that may be unrelated to our company).
Delays in obtaining regulatory approvals or drilling permits, the failure to obtain a drilling permit for a well or the receipt of a permit with unreasonable conditions or costs could have a material adverse effect on the development of our properties.
Delays in obtaining regulatory approvals or drilling permits, the failure to obtain a drilling permit for a well or 45 Table of Contents the receipt of a permit with unreasonable conditions or costs could have a material adverse effect on the development of our properties.
Risks Relating to the Recent Spin-Off If the Distribution does not qualify as a transaction that is tax-free for U.S. federal income tax purposes, Jefferies and holders of Jefferies common stock who received shares of Vitesse common stock in connection with the Spin-Off could be subject to significant tax liability.
Risks Relating to Tax Matters If the Distribution does not qualify as a transaction that is tax-free for U.S. federal income tax purposes, Jefferies and holders of Jefferies common stock who received shares of our common stock in connection with the Spin-Off could be subject to significant tax liability.
In situations where cost inflation exceeds oil and natural gas price inflation, our profitability and cash flow, and our operators’ ability to complete development activities as scheduled and on budget, may be negatively impacted. Any delay in the drilling of new wells or significant increase in drilling costs could reduce our revenues and profitability.
In situations where cost inflation exceeds oil and natural gas price inflation, our profitability and cash flow, and our operators’ ability to complete development activities as scheduled and on budget, may be negatively impacted. Any delay in drilling or significant increase in drilling costs could reduce our revenues and profitability.
It is possible that we, or these third parties, could incur interruptions from cyber security attacks, computer viruses or malware, or that third-party service providers could cause a breach of our data.
It is possible that we, or these third parties, could incur interruptions from cybersecurity attacks, computer viruses or malware, or that third-party service providers could cause a breach of our data.
Certain provisions in our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Delaware law may discourage takeovers. Several provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Delaware law may discourage, delay or prevent a merger or acquisition that is opposed by our Board.
Several provisions of our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and Delaware law may discourage, delay or prevent a merger or acquisition that is opposed by our Board.
Any person holding, purchasing or otherwise acquiring any interest in shares of capital stock of us will be deemed to have notice of and have consented to this provision and deemed to have waived any argument relating to the inconvenience of the forum in connection with any action or proceeding described in this provision.
Any person holding, purchasing or otherwise acquiring shares of our stock will be deemed to have notice of and have consented to this provision and deemed to have waived any argument relating to the inconvenience of the forum in connection with any action or proceeding described in this provision.
Any significant variance could materially affect the estimated quantities and present value of reserves shown in this Form 10-K, subsequent reports we file with the SEC or other company materials. Our future success depends on our ability to replace reserves.
Any significant variance could materially affect the estimated quantities and present value of reserves shown in this Annual Report on Form 10-K, subsequent reports we file with the SEC or other company materials. 32 Table of Contents Our future success depends on our ability to replace reserves.
Our ability to pay dividends to our stockholders is restricted by applicable laws and regulations and limited by requirements under our Revolving Credit Facility. Holders of our common stock are only entitled to receive such cash dividends as our Board, in its sole discretion, may declare out of funds legally available for such payments.
Our ability to pay dividends to our stockholders is restricted by requirements under our Revolving Credit Facility. Holders of our common stock are only entitled to receive such cash dividends as our Board, in its sole discretion, may declare out of funds legally available for such payments.
The development of our proved undeveloped reserves may take longer and may require higher levels of capital expenditures than we currently anticipate. Therefore, these undeveloped reserves may not be ultimately developed or produced. Approximately 38% of our estimated net proved reserves volumes were classified as proved undeveloped as of December 31, 2022.
The development of our proved undeveloped reserves may take longer and may require higher levels of capital expenditures than we anticipate. Therefore, these undeveloped reserves may not be ultimately developed or produced. Approximately 30% of our estimated net proved reserves volumes were classified as proved undeveloped as of December 31, 2023.
If any of those representations, covenants or assumptions are inaccurate, Morgan, Lewis & Bockius LLP’s opinion may not be valid and the tax consequences of the Distribution and certain related transactions could differ from those described above.
If any of those representations, covenants or assumptions are inaccurate, the tax opinion may not be valid and the tax consequences of the Distribution and certain related transactions could differ from those described above.
In connection with the Spin-Off, Jefferies’ received (1) the IRS Ruling and (2) an opinion of Morgan, Lewis & Bockius LLP, each substantially to the effect that, subject to the limitations specified therein and the accuracy of and compliance with certain representations, warranties and covenants, the Distribution, together with certain related transactions, qualified as a tax-free “reorganization” for U.S. federal income tax purposes under Section 368(a)(1)(D) of the Code and the Distribution qualified as a tax-free distribution within the meaning of Section 355 of the Code.
In connection with the Spin-Off, Jefferies’ received (1) a ruling from the IRS and (2) a tax opinion from legal counsel, each substantially to the effect that, subject to the limitations specified therein and the accuracy of and compliance with certain representations, warranties and covenants, the Distribution, together with certain related transactions, qualified as a tax-free “reorganization” for U.S. federal income tax purposes under Section 368(a)(1)(D) of the Code and the Distribution qualified as a tax-free distribution within the meaning of Section 355 of the Code.
We had net income of $118.9 million, net income of $18.1 million, net loss of $8.9 million and net loss of $7.4 million during the years ended December 31, 2022, November 30, 2021 and 2020 and the month ended December 31, 2021, respectively.
We had net loss of $19.7 million, net income of $118.9 million, net income of $18.1 million and net loss of $7.4 million during the years ended December 31, 2023, December 31, 2022 and November 30, 2021 and the month ended December 31, 2021, respectively.
If our interpretation of the applicable regulations is incorrect, or if we receive a non-appealable order to pay royalty on past and future flared volumes in North Dakota, such royalty payments could materially and adversely affect our financial condition and cash flows. Item 1B. Unresolved Staff Comments None.
If our interpretation of the applicable regulations is incorrect, or if we receive a non-appealable order to pay royalty on past and future flared volumes in North Dakota, such royalty payments could materially and adversely affect our financial condition and cash flows.
Our Board 43 Table of Contents may change the timing and amount of any future dividend payments or eliminate the payment of future dividends to our stockholders at its discretion, without notice to our stockholders.
Our Board may change the timing and amount of any future dividend payments or eliminate the payment of future dividends to our stockholders at its discretion, without advance notice to our stockholders.
While we believe that any currently contemplated repurchase of our stocks, even if it were to satisfy such circumstances, would be an “isolated redemption” which would not result in taxable income to the non-redeemed stockholders, we have not requested, nor do we intend to request, a ruling to that effect.
While we believe that the repurchase of our stock under the Stock Repurchase Program and any other possible contemplated repurchase of our stocks, even if it were to satisfy such circumstances, would be an “isolated redemption” which would not result in taxable income to the non-redeemed stockholders, we have not requested, nor do we intend to request, a ruling to that effect.
For a description of the covenants limiting our ability to pay dividends and distributions, see “—Our ability to pay dividends to our stockholders is restricted by applicable laws and regulations and limited by requirements under our Revolving Credit Facility.” In addition, the Revolving Credit Facility requires us to maintain compliance with certain financial covenants and other covenants.
For a description of the covenants limiting our ability to pay dividends, see —Our ability to pay dividends to our stockholders is restricted by requirements under our Revolving Credit Facility. In addition, the Revolving Credit Facility requires us to maintain compliance with certain financial covenants and other covenants.
Seasonal weather conditions, which may be impacted by climate change, may adversely affect our operators’ ability to conduct drilling and completion activities and to sell oil and natural gas for periods of time, in some of the areas where our properties are located.
Seasonal weather conditions, extreme climatic events, and shifts in meteorological conditions, which may be impacted by climate change, may adversely affect our operators’ ability to conduct drilling and completion activities and to sell oil and natural gas for periods of time or affect demand for oil and gas, in some of the areas where our properties are located.
For example, our estimated proved reserves as of December 31, 2022 were calculated under SEC rules by applying year-end SEC prices based on the twelve-month unweighted arithmetic average of the first day of the month oil and natural gas prices for such year end of $94.14 per Bbl and $6.36 per MMBtu, which for certain periods during this time were substantially different from the available market prices.
For example, our estimated proved reserves as of December 31, 2023 were calculated under SEC rules by applying year-end SEC prices based on the twelve-month unweighted arithmetic average of the first day of the month oil and natural gas prices for such year end of $78.21 per Bbl and $2.64 per MMBtu, which for certain periods during this time were substantially different from the available market prices.
We are responsible for costs associated with plugging, abandoning and reclaiming wells, pipelines and other facilities that we use for production of oil and natural gas reserves.
We are responsible for costs associated with plugging, abandoning and reclaiming wells, pipelines and other facilities that we use for production of oil and natural gas reserves where we have a working interest.
The integration process may be subject to delays or changed circumstances, and we can give no assurance that our recently acquired assets will perform in accordance with our expectations or that our expectations with respect to integration or cost savings as a result of such acquisitions will materialize.
The integration process may be subject to delays or changed circumstances, and we can give no assurance that our acquired assets will perform in accordance with our expectations or that our expectations with respect to integration or the benefits of such acquisitions will materialize.
The extent to which our operating and financial results are affected by COVID-19 will depend on various factors and consequences beyond our control, such as the emergence of more contagious and harmful variants of the COVID-19 virus, the duration and scope of the pandemic, additional actions by businesses and governments in response to the pandemic, and the speed and effectiveness of responses to combat the virus.
The extent to which our operating and financial results are affected by pandemic will depend on various factors and consequences beyond our control, such as the duration and scope of the pandemic, additional actions by businesses and governments in response to the pandemic, and the speed and effectiveness of responses to combat the pandemic.
The order was subsequently blocked by a federal district court within 13 protesting states, including Montana. The DOI’s comprehensive review of the federal leasing program resulted in a reduction in the volume of onshore land held for lease and an increased royalty rate.
The order was subsequently blocked by a federal district court within 13 protesting states, including Montana and then lifted following negotiations pursuant to the passage of the IRA. The DOI’s comprehensive review of the federal leasing program resulted in a reduction in the volume of onshore land held for lease and an increased royalty rate.
Also, institutional lenders may, of their own accord, elect not to provide funding for fossil fuel energy companies based on climate change related concerns, which could affect our access to capital for potential growth projects.
Also, institutional lenders may, of their own accord, decide not to provide funding for fossil fuel energy companies or related infrastructure projects based on climate or other ESG-related concerns, which could affect our access to capital for potential growth projects.
We routinely make estimates of oil and natural gas reserves in connection with managing our business and preparing reports to our lenders and investors, including in some cases estimates prepared by our internal reserve engineers and professionals that are 34 Table of Contents not reviewed or audited by an independent reserve engineering firm.
We routinely make estimates of oil and natural gas reserves in connection with managing our business, including in some cases estimates prepared by our internal reserve engineers and professionals that are not reviewed or audited by an independent reserve engineering firm.
In rendering its opinion, Morgan, Lewis & Bockius LLP relied on (1) customary representations and covenants made by Jefferies and Vitesse and (2) specified assumptions, including an assumption regarding the completion of the Distribution and certain related transactions in the manner contemplated by the transaction agreements.
In addition, in rendering its tax opinion, legal counsel relied on (1) customary representations and covenants made by Jefferies and Vitesse and (2) specified assumptions, including an assumption regarding the completion of the Distribution and certain related transactions in the manner contemplated by the transaction agreements.
Increasing attention to climate change, increasing societal expectations on companies to address climate change, increasing investor and societal expectations regarding voluntary ESG disclosures, and increasing consumer demand for alternatives to oil and natural gas may result in increased costs, reduced demand for our products, reduced profits, increased investigations and litigation, and negative impacts on our access to capital markets.
Increasing attention to climate change, increasing societal expectations on companies to address climate change, increasing investor and societal expectations regarding voluntary ESG disclosures, increasing mandatory ESG disclosures, and increasing consumer demand for alternatives to oil and natural gas may result in increased costs, reduced demand for our products, reduced profits, increased administrative, legislative, and judicial scrutiny, reputational damage, and negative impacts on our access to capital markets.
Risks Relating to Our Indebtedness ■ Any significant reduction in the borrowing base under our Revolving Credit Facility may negatively impact our liquidity and could adversely affect our business and financial results. ■ Our Revolving Credit Facility and other agreements governing indebtedness may contain operating and financial restrictions that may restrict our business and financing activities. ■ Our ability to pay dividends to our stockholders is restricted by applicable laws and regulations and limited by requirements under our Revolving Credit Facility. ■ Variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase significantly. ■ We may be adversely affected by developments in the SOFR market, changes in the methods by which SOFR is determined or the use of alternative reference rates. ■ Our business plan requires the expenditure of significant capital, which we may be unable to obtain on favorable terms or at all.
Unplanned costs could divert resources from other projects. ■ Increased attention to ESG matters, including climate change, may impact our business and access to capital. 26 Table of Contents Risks Relating to Our Indebtedness ■ Any significant reduction in the borrowing base under our Revolving Credit Facility may negatively impact our liquidity and could adversely affect our business and financial results. ■ Our Revolving Credit Facility and other agreements governing indebtedness may contain operating and financial restrictions that may restrict our business and financing activities. ■ Our ability to pay dividends to our stockholders is restricted by requirements under our Revolving Credit Facility. ■ Variable rate indebtedness could subject us to interest rate risk, which could cause our debt service obligations to increase significantly. ■ We may be adversely affected by developments in the SOFR market, changes in the methods by which SOFR is determined or the use of alternative reference rates. ■ Our business plan requires the expenditure of significant capital, which we may be unable to obtain on favorable terms or at all.
The success and timing of development activities by our operators will depend on a number of factors that will largely be outside of our control, including oil and natural gas prices and other factors generally affecting the oil and natural gas industry’s operating environment; the timing and amount of capital expenditures; their expertise and financial resources; approval of other participants in drilling wells; selection of technology; and the rate of production of reserves, if any.
The success and timing of development activities by our operators will depend on a number of factors that will largely be outside of our control, including oil and natural gas prices and other factors generally affecting the oil and natural gas industry’s operating environment; the timing and amount of capital expenditures; their expertise and financial resources; approval of other participants in drilling wells; selection of technology; and the rate of production of reserves, if any. 34 Table of Contents The inability of one or more of our operators to meet their financial obligations to us may adversely affect our financial results.

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Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMine Safety Disclosures None. 52 Table of Contents PART II
Biggest changeMine Safety Disclosures None. 51 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeItem 1A Risk Factors—Risks Relating to Our Common Stock—Our ability to pay dividends to our stockholders is restricted by applicable laws and regulations and may be limited by requirements under our Revolving Credit 53 Table of Contents Facility.
Biggest changeRisk Factors, including —Risks Relating to Our Common Stock—Although we expect to continue to pay dividends, we cannot provide assurance that we will pay dividends on our common stock, and our indebtedness may limit our ability to pay dividends on our common stock and–Risks Relating to Our Indebtedness—Our ability to pay dividends to our stockholders is restricted by requirements under our Revolving Credit Facility.
Notwithstanding this current expectation regarding our dividend policy, the timing, declaration, amount of and payment of any dividends will be within the discretion of our Board and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt service obligations, legal requirements or limitations, industry practice, and other factors deemed relevant by our Board.
Dividend Policy The timing, declaration, amount of and payment of any dividends will be within the discretion of our Board and will depend upon many factors, including our financial condition, earnings, capital requirements of our operating subsidiaries, covenants associated with certain of our debt service obligations, legal requirements or limitations, industry practice, and other factors deemed relevant by our Board.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the New York Stock Exchange under the symbol “VTS.” The closing price for our common stock on February 15, 2023 was $18.60 per share.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the New York Stock Exchange under the symbol “VTS.” The closing price for our common stock on February 15, 2024 was $22.16 per share.
Shares of Vitesse common stock were issued to Jefferies Capital Partners and Gerrity Bakken as consideration for their respective ownership interests in Vitesse Oil pursuant to Section 4(a)(2) of the Securities Act. Purchases of Equity Securities by the Issuer and Affiliated Purchasers None.
Shares of Vitesse common stock were issued to Jefferies Capital Partners and Gerrity Bakken as consideration for their respective ownership interests in Vitesse Oil pursuant to Section 4(a)(2) of the Securities Act.
Shares of Vitesse common stock were issued to Vitesse Energy Finance and such holders of vested Vitesse Energy MIUs as consideration for their respective ownership interests in Vitesse Energy pursuant to Section 4(a)(2) of the Securities Act.
The transfers were consummated shortly before the 52 Table of Contents Distribution. Shares of Vitesse common stock were issued to Vitesse Energy Finance and such holders of vested Vitesse Energy MIUs as consideration for their respective ownership interests in Vitesse Energy pursuant to Section 4(a)(2) of the Securities Act.
Authorized Capital Stock The Company has authorized 95,000,000 shares of common stock, par value $0.01 per share and 5,000,000 shares of preferred stock, par value $0.01 per share. Shares Outstanding As of February 1, 2023, we had 28,524,435 shares of our common stock outstanding, held by approximately 1,231 stockholders of record.
Authorized Capital Stock The Company has authorized 95,000,000 shares of common stock, par value $0.01 per share and 5,000,000 shares of preferred stock, par value $0.01 per share. Shares Outstanding As of February 15, 2024, we had 29,453,975 shares of our common stock outstanding, held by approximately 1,188 stockholders of record.
Gerrity and Cree) transferred their respective equity interests in Vitesse Energy to Vitesse in exchange for 25,918,163 shares and 163,544 shares, respectively, of common stock of Vitesse. The transfers were consummated shortly before the Distribution.
Recent Sales of Unregistered Securities In connection with the Pre-Spin-Off Transactions, Vitesse Energy Finance and holders of vested Vitesse Energy MIUs (other than Messrs. Gerrity and Cree) transferred their respective equity interests in Vitesse Energy to Vitesse in exchange for 25,918,163 shares and 163,544 shares, respectively, of common stock of Vitesse.
The number of record holders does not necessarily bear any relationship to the number of beneficial owners of our common stock. Securities Authorized for Issuance Under Equity Compensation Plans As of December 31, 2022, we did not maintain an equity compensation plan and none of our securities were available for issuance under an equity compensation plan.
The number of record holders does not necessarily bear any relationship to the number of beneficial owners of our common stock. Securities Authorized for Issuance Under Equity Compensation Plans See the information incorporated by reference under Part III. Item 12. Security Ownership of Certain Beneficial Owners and Management regarding securities authorized for issuance under our equity compensation plans.
However, going forward, we expect to prioritize the dividend while sustaining production through maintenance capital expenditures. We have not adopted, and do not currently expect to adopt, a separate written dividend policy to reflect our Board’s policy. For a description of the covenants limiting our ability to pay dividends, see Part I.
We have not adopted, and do not expect to adopt, a separate written dividend policy. For factors that could affect our ability to pay dividends, see Part I. Item 1A.
Removed
While the board of directors adopted the Vitesse Energy, Inc. Long-Term Incentive Plan in connection with the Spin-Off, it was not outstanding as of December 31, 2022. Accordingly, no equity compensation plan information table is provided.
Added
Comparison Performance Chart The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or to the liabilities of Section 18 of the Exchange Act, and will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent we specifically incorporate it by reference into such a filing.
Removed
Recent Sales of Unregistered Securities In connection with its incorporation, on August 5, 2022, Vitesse issued 1,000 shares of its common stock at par value to Vitesse Energy Finance pursuant to Section 4(a)(2) of the Securities Act. In connection with the Pre-Spin-Off Transactions, Vitesse Energy Finance and holders of vested Vitesse Energy MIUs (other than Messrs.
Added
The following graph compares the cumulative total stockholder return on our common stock since January 17, 2023 (VTS’s first trading day following the Spin-Off), and the cumulative total returns of Standard & Poor’s 500 Index (“S&P 500”) and the S&P Oil & Gas Exploration & Production Select Industry Index (“S&P O&G E&P”) for the same period.
Removed
Dividend Policy We expect that we will initially pay quarterly cash dividends and dividend equivalents totaling approximately $66.0 million per fiscal year, of which the first quarterly dividend of approximately $16.5 million was approved by our Board for payment on March 31, 2023.
Added
This graph tracks the performance of a $100 investment in our common stock and in each index (including reinvestment of all dividends) from January 17, 2023 to December 31, 2023. The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Removed
Moreover, if as expected we determine to initially pay a dividend following the Distribution, there can be no assurance that we will continue to pay dividends in the same amounts or at all thereafter. We pay dividends out of distributable cash flow, which we define as Adjusted EBITDA less interest expense and cash taxes.
Added
Purchases of Equity Securities by the Issuer and Affiliated Purchasers Issuer Purchases of Equity Securities In February 2023, our Board approved a Stock Repurchase Program authorizing the repurchase of up to $60 million of the Company’s common stock.
Removed
During the year ended December 31, 2022, we generated Adjusted EBITDA of $167.6 million. Historically, we have used our distributable cash flow for multiple purposes, including capital expenditures (which includes acquisitions), repayment of debt and payment of distributions.
Added
Under the Stock Repurchase Program, Vitesse may repurchase shares of its common stock from time to time in open market transactions or such other means as will comply with applicable rules, regulations and contractual limitations. Our Board may limit or terminate the Stock Repurchase Program at any time without prior notice.
Removed
Due to our strategy to grow oil and natural gas production levels during 2021 and 2022, we incurred levels of capital expenditures above a maintenance level. Given the amount of these capital expenditures and the discretionary amount of debt repaid, we would not have been able to pay a $66.0 million distribution during the year ended November 30, 2021.
Added
The extent to which the Company repurchases its shares of common stock, and the timing of such repurchases, will depend upon market conditions and other considerations as may be considered in the Company’s sole discretion.
Removed
The covenants under our Prior Revolving Credit Facility have not limited our ability to pay distributions in the amounts declared by our Board. Item 6. Reserved
Added
The table below sets forth the information with respect to purchases made by or on behalf of the Company, or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Exchange Act) of our common stock during the quarter ended December 31, 2023.
Added
Period Total Number of Shares Purchased (1) Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs October 1, 2023 to October 31, 2023 — $ — — 59.8 million November 1, 2023 to November 30, 2023 — — — 59.8 million December 1, 2023 to December 31, 2023 — — — 59.8 million Total — $ — — $ 59.8 million (1) In February 2023, our Board approved a Stock Repurchase Program authorizing the repurchase of up to $60 million of the Company’s common stock.
Added
In January 2024, 792,000 restricted stock units vested with the Company retaining 332,840 of the vested shares to fund employee tax withholding of $6.9 million with the retained shares subsequently retired by the Company. These retained and retired shares are not included in the above table because they do not constitute a repurchase of equity securities.
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We paid cash dividends of $58.0 million to our equity holders during the year ended December 31, 2023.
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While we believe that our future cash flows from operations will be able to sustain the current level of dividends, there can be no guarantee that we will be able to pay dividends at current levels or at all or otherwise return capital to our stockholders in the future.

Item 7. Management's Discussion & Analysis

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

136 edited+40 added−57 removed48 unchanged
Biggest changeYEAR ENDED NOVEMBER 30, INCREASE (DECREASE) ($ in thousands, except per unit data) 2021 2020 AMOUNT PERCENT Operating Results: Revenue Oil $ 151,838 $ 91,542 $ 60,296 66 % Natural gas 33,340 5,688 27,652 486 % Total revenue $ 185,178 $ 97,230 $ 87,948 90 % Operating Expenses Production $ 43,910 $ 41,731 $ 2,179 5 % Production taxes 14,535 9,173 5,362 58 % General and administrative 10,581 9,196 1,385 15 % Depletion, depreciation, amortization, and accretion 60,846 58,307 2,539 4 % Impairment of proved oil and gas properties — 13,200 (13,200) *nm Unit-based compensation 1,409 (544) 1,953 *nm Interest Expense $ 3,207 $ 4,679 $ (1,472) (31) % Commodity Derivative Gain (Loss) $ (32,590) $ 29,633 $ (62,223) (210) % Production Data: Oil (MBbls) 2,436 2,599 (163) (6) % Natural gas (MMcf) 7,065 5,609 1,456 26 % Combined volumes (MBoe) 3,613 3,534 79 2 % Daily combined volumes (Boe/d) 9,899 9,655 244 3 % Average Realized Prices before Hedging: Oil (per Bbl) $ 62.34 $ 35.22 $ 27.12 77 % Natural gas (per Mcf) 4.72 1.01 3.71 367 % Combined (per Boe) 51.25 27.51 23.74 86 % Average Realized Prices with Hedging: Oil (per Bbl) $ 56.97 $ 45.67 $ 11.30 25 % Natural gas (per Mcf) 4.60 1.01 3.59 355 % Combined (per Boe) 47.40 35.20 12.20 35 % Average Costs (per Boe): Production $ 12.15 $ 11.81 $ 0.34 3 % Production taxes 4.02 2.60 1.42 55 % General and administrative 2.93 2.60 0.33 13 % Depletion, depreciation, amortization, and accretion 16.84 16.50 0.34 2 % * Not meaningful Oil and Natural Gas Revenue and Volumes.
Biggest changeYEAR ENDED DECEMBER 31, INCREASE (DECREASE) ($ in thousands, except per unit data) 2023 2022 AMOUNT PERCENT Operating Results: Revenue Oil $ 218,396 $ 233,622 $ (15,226) (7 %) Natural gas 15,509 48,268 (32,759) (68 %) Total revenue $ 233,905 $ 281,890 $ (47,985) (17 %) Operating Expenses Lease operating expense $ 39,514 $ 31,133 $ 8,381 27 % Production taxes 21,625 24,092 (2,467) (10 %) General and administrative 23,934 19,833 4,101 21 % Depletion, depreciation, amortization, and accretion 81,745 63,732 18,013 28 % Equity-based compensation 32,233 (10,766) 42,999 *nm Interest Expense $ 5,276 $ 4,153 $ 1,123 27 % Income Tax Expense $ 61,946 $ — $ 61,946 *nm Commodity Derivative Gain (Loss) $ 12,484 $ (30,830) $ 43,314 140 % Production Data: Oil (MBbls) 2,968 2,575 393 15 % Natural gas (MMcf) 8,232 7,274 958 13 % Combined volumes (MBoe) 4,340 3,787 553 15 % Daily combined volumes (Boe/d) 11,889 10,376 1,513 15 % Average Realized Prices before Hedging: Oil (per Bbl) $ 73.59 $ 90.73 $ (17.14) (19 %) Natural gas (per Mcf) 1.88 6.64 (4.76) (72 %) Combined (per Boe) 53.90 74.43 (20.53) (28 %) Average Realized Prices with Hedging: Oil (per Bbl) $ 73.99 $ 72.66 $ 1.33 2 % Natural gas (per Mcf) 1.88 6.56 (4.68) (71 %) Combined (per Boe) 54.17 61.99 (7.82) (13 %) Average Costs (per Boe): Lease operating expense $ 9.11 $ 8.22 $ 0.89 11 % Production taxes 4.98 6.36 (1.38) (22 %) General and administrative 5.52 5.24 0.28 5 % Depletion, depreciation, amortization, and accretion 18.84 16.83 2.01 12 % * Not meaningful Oil and Natural Gas Revenue and Volumes.
Management believes the separate presentation of the realized and unrealized commodity derivative gains and losses is useful because the realized cash settlement portion provides a better understanding of our hedge position.
Management believes the separate presentation of the realized and unrealized commodity derivative gains and losses is useful because the realized cash settlement portion provides a better understanding of our hedge position.
Conversely, in a period of declining prices, associated cost declines are likely to lag and may not adjust downward in proportion. Material changes in prices also impact our current revenue stream, estimates of future reserves, borrowing base calculations of bank loans, impairment assessments of oil and natural gas properties, and values of properties in purchase and sale transactions.
Conversely, in a period of declining prices, associated cost declines are likely to lag and may not adjust downward in proportion. Material changes in prices also impact our revenue stream, estimates of future reserves, borrowing base calculations of bank loans, impairment assessments of oil and natural gas properties, and values of properties in purchase and sale transactions.
We continually monitor potential capital sources for opportunities to enhance liquidity or otherwise improve our financial position. Working Capital. Our working capital balance fluctuates as a result of changes in commodity pricing and production volumes, the collection of receivables, capital expenditures related to our acquisition and development, and production operations and the impact of our outstanding commodity derivative instruments.
We continually monitor potential capital sources for opportunities to enhance liquidity or otherwise improve our financial position. Working Capital. Our working capital balance fluctuates as a result of changes in commodity pricing and production volumes, the collection of revenue receivables, expenditures related to our acquisition and development, and production operations and the impact of our outstanding commodity derivative instruments.
General and administrative expenses include overhead, including payroll and benefits for our corporate staff, costs of maintaining our headquarters, costs of managing our acquisition and development operations, franchise taxes, audit and other professional fees and legal compliance. For fiscal 2022, general and administrative expenses included non-recurring costs related to the Spin-Off. Interest expense.
General and administrative expenses include overhead, including payroll and benefits for our corporate staff, costs of maintaining our headquarters, costs of managing our acquisition and development operations, franchise taxes, audit and other professional fees and legal compliance. For fiscal 2022 and 2023, general and administrative expenses included non-recurring costs related to the Spin-Off. Interest expense.
We cannot provide specific timing for repayments of outstanding borrowings on our Prior Revolving Credit Facility, or the associated interest payments, as the timing and amount of borrowings and repayments cannot be forecasted with certainty and are based on working capital requirements, commodity prices and acquisition and divestiture activity, among other factors.
We cannot provide specific timing for repayments of outstanding borrowings on our Revolving Credit Facility, or the associated interest payments, as the timing and amount of borrowings and repayments cannot be forecasted with certainty and are based on working capital requirements, commodity prices and acquisition and divestiture activity, among other factors.
Cash flows from operations are primarily affected by production volumes and commodity prices, net of the effects of settlements of our derivative contracts, and by changes in working capital. Any interim cash needs are funded by cash on hand, cash flows from operations or borrowings under our Prior Revolving Credit Facility.
Cash flows from operations are primarily affected by production volumes and commodity prices, net of the effects of settlements of our derivative contracts, and by changes in working capital. Any interim cash needs are funded by cash on hand, cash flows from operations or borrowings under our Revolving Credit Facility.
We may need to fund acquisitions or other business opportunities that support our strategy through additional borrowings under our Revolving Credit Facility or the issuance of equity or debt. Our primary uses of capital have been for the acquisition and development of our oil and natural gas properties.
We may need to fund acquisitions or other business opportunities that support our strategy through additional borrowings under our Revolving Credit Facility or the issuance of equity or debt. Our primary uses of capital have been for the acquisition and development of our oil and natural gas properties and dividend payments.
The factors used to determine fair value may include, but are not limited to, recent sales prices of comparable properties, indications from marketing activities, the present value of future revenues, net of estimated operating and development costs using estimates 55 Table of Contents of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows.
The factors used to determine fair value may include, but are not limited to, recent sales prices of comparable properties, indications from marketing activities, the present value of future revenues, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk and current market conditions associated with realizing the projected cash flows. 55 Table of Contents Income tax expense.
Under the New Credit Agreement, we are permitted to make cash distributions without limit to our equity holders if (i) no event of default or borrowing base deficiency (i.e., outstanding debt (including loans and letters of credit) exceeds the borrowing base) then exists or would result from such distribution and (ii) after giving effect to such distribution, (a) our total outstanding credit usage does not exceed 80% of the least of (the following collectively referred to as “Commitments”): (1) $500 million, (2) our then-effective borrowing base, and (3) the then-effective aggregate amount of the aggregate elected commitments and (b) as of the date of such distribution, the EBITDAX Ratio does not exceed 1.50 to 1.00.
Under the Revolving Credit Facility, we are permitted to make cash distributions without limit to our equity holders if (i) no event of default or borrowing base deficiency (i.e., outstanding debt (including loans and letters of credit) exceeds the borrowing base) then exists or would result from such distribution and (ii) after giving effect to such distribution, (a) our total outstanding credit usage does not exceed 80% of the least of (the following collectively referred to as “Commitments”): (1) $500 million, (2) our then-effective borrowing base, and (3) the then-effective aggregate amount of the aggregate elected commitments and (b) as of the date of such distribution, the EBITDAX Ratio does not exceed 1.50 to 1.00.
Production expenses are costs incurred to bring oil and natural gas out of the ground and to market, together with the costs incurred to maintain our producing properties. Such costs include field personnel compensation, saltwater disposal, utilities, maintenance, repairs and servicing expenses related to our oil and natural gas properties. Production taxes.
Lease operating expenses are costs incurred to bring oil and natural gas out of the ground and to market, together with the costs incurred to maintain our producing properties. Such costs include field personnel compensation, saltwater disposal, utilities, maintenance, repairs and servicing expenses related to our oil and natural gas properties. Production taxes.
Factors that we expect will continue to impact commodity prices include product demand connected with global economic conditions, industry production and inventory levels, the United States Department of Energy’s future planned repurchases (or additional possible releases) of oil from the strategic petroleum reserve, technology advancements, production quotas or other actions imposed by OPEC countries, actions of regulators, and regional supply interruptions or fears thereof that may be caused by military conflicts (including invasion), civil 54 Table of Contents unrest, pandemic or political uncertainty.
Factors that we expect will continue to impact commodity prices include product demand connected with global economic conditions, inflationary factors, industry production and inventory levels, the United States Department of Energy’s future planned repurchases (or additional possible releases) of oil from the strategic petroleum reserve, technology advancements, production quotas or other actions imposed by OPEC countries, actions of regulators, and regional supply interruptions or fears thereof that may be caused by military conflicts (including invasion), civil unrest, pandemic or political uncertainty.
Production Tax Expense. Total production taxes increased to $24.1 million for the year ended December 31, 2022 from $15.0 million for the year ended December 31, 2021. Production taxes are primarily based on oil revenue and gas production, excluding gains and losses associated with hedging activities.
Total production taxes increased to $24.1 million for the year ended December 31, 2022 from $15.0 million for the year ended December 31, 2021. Production taxes are primarily based on oil revenue and gas production, excluding gains and losses associated with hedging activities.
Item 1A Risk Factors and “Cautionary Statement Concerning Forward-Looking Statements.” Executive Overview Our business strategy is focused on creating long-term stockholder value through the profitable acquisition, development and production of oil and natural gas assets at attractive rates of return, while maintaining a strong balance sheet and distributing a meaningful and growing dividend to our stockholders.
Risk Factors and “Cautionary Statement Concerning Forward-Looking Statements.” Executive Overview Our business strategy is focused on creating long-term stockholder value through the profitable acquisition, development and production of oil and natural gas assets at attractive rates of return, while maintaining a strong balance sheet and distributing a meaningful dividend to our stockholders.
Additionally, we paid distributions to our equity holders of $36.0 million and $12.0 million during the fiscal years ended December 31, 2022 and November 30, 2021, respectively, and $6.0 million during the month ended December 31, 2021. Prior Revolving Credit Facility.
Additionally, we paid distributions to our equity holders of $58.0 million, $36.0 million and $12.0 million during the fiscal years ended December 31, 2023, December 31, 2022, November 30, 2021, respectively, and $6.0 million during the month ended December 31, 2021. Prior Revolving Credit Facility.
In addition, as the prices of oil and natural gas and cost levels change from year to year, the economics of producing our reserves may change and therefore the estimate of proved reserves may also change. Approximately 38% of our proved oil and gas reserve volumes are categorized as proved undeveloped reserves.
In addition, as the prices of oil and natural gas and cost levels change from year to year, the economics of producing our reserves may change and therefore the estimate of proved reserves may also change. Approximately 30% of our proved oil and gas reserve volumes are categorized as proved undeveloped reserves.
In general, the production taxes we pay correlate to the changes in oil and natural gas revenues. Depreciation, depletion, amortization and accretion. Depreciation, depletion, amortization and accretion includes the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil and natural gas properties.
In general, the production taxes we pay correlate to the changes in oil and natural gas revenues. Depletion, depreciation, amortization, and accretion. Depletion, depreciation, amortization, and accretion (“DD&A”) includes the systematic expensing of the capitalized costs incurred to acquire, explore and develop oil and natural gas properties.
The increase in oil and natural gas revenue was due to a 49% increase in the average realized prices per Boe before hedging, along with a 4% increase in production volumes for the year ended December 31, 2022.
The increase in oil and natural gas revenue was due to a 53% increase in the average realized prices per Boe before hedging, along with a 4% increase in production volumes for the year ended December 31, 2022.
Despite such commodity price volatility, we expect that our cash flow from operations and borrowing availability under our Revolving Credit Facility will allow us to meet our liquidity needs for the next twelve months. Source of Our Revenues We derive our revenues from the sale of oil and natural gas produced from our properties.
Despite such commodity price volatility, we expect that our cash flow 54 Table of Contents from operations and borrowing availability under our Revolving Credit Facility will allow us to meet our liquidity needs for the next twelve months. Source of Our Revenues We derive our revenues from the sale of oil and natural gas produced from our properties.
The oil and natural gas industry is very cyclical and the demand for goods and services of oil field companies, suppliers and others associated with the industry put extreme pressure on the economic stability and pricing structure within the industry.
The oil and natural gas industry is cyclical and the demand for goods and services of oil field companies, suppliers and others associated with the industry put pressure on the economic stability and pricing structure within the industry.
Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in Part I.
Our actual results could differ materially from the results contemplated by these forward-looking statements due to a number of factors, including those discussed in Part I. Item 1A.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion of our results of operations and financial condition together with our Audited Consolidated Financial Statements and the notes thereto included under the section entitled “Index to Financial Statements,” as well as the discussion in Part I.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations You should read the following discussion of our results of operations and financial condition together with our Audited Consolidated Financial Statements and the notes thereto included under the section entitled “Index to Financial Statements,” as well as the discussion in Part I. Items 1 and 2.
Fluctuations in our price differentials and realizations are due to several factors such as NGL value net of processing costs, gathering and transportation fees, takeaway capacity relative to production levels, regional storage capacity, and seasonal refinery maintenance temporarily depressing demand.
Fluctuations in our price differentials and realizations are due to several factors such as NGL value net of processing costs, gathering and transportation fees, takeaway capacity relative to production levels, regional storage capacity, seasonal demand for heating fuel and seasonal refinery maintenance temporarily depressing demand.
In connection with our external petroleum engineers performing their independent reserve estimations, we furnish them with the following 71 Table of Contents information: (1) technical support data, (2) technical analysis of geologic and engineering support information, (3) economic and production data and (4) our well ownership interests.
In connection with our external petroleum engineers performing their independent reserve estimations, we furnish them with the following information: (1) technical support data, (2) technical analysis of geologic and engineering support information, (3) economic and production data and (4) our well ownership interests.
Selected Factors That Affect Our Operating Results Our revenues, cash flows from operations and future growth depend substantially upon: ■ the timing and success of drilling and production activities by our operating partners; ■ the prices and the supply and demand for oil, natural gas and NGLs; ■ the quantity of oil and natural gas production from the wells in which we participate; ■ changes in the fair value of the derivative instruments we use to reduce our exposure to fluctuations in the price of oil; ■ our ability to continue to identify and acquire high-quality acreage and drilling opportunities; and ■ the level of our operating expenses.
Selected Factors That Affect Our Operating Results Our revenues, cash flows from operations and future growth depend substantially upon: ■ the timing and success of drilling and production activities by our operating partners; ■ the prices and the supply and demand for oil, natural gas and NGLs; ■ the quantity of oil and natural gas production from the wells in which we participate; ■ changes in the fair value of the derivative instruments; ■ our ability to continue to identify and acquire high-quality acreage and drilling opportunities; and ■ the level of our operating expenses.
The price differential between our well head price for oil and the WTI benchmark price is primarily driven by the cost to transport oil via train, pipeline or truck to refineries. The price differential between our well head price for natural gas and the NYMEX benchmark price is primarily driven by BTU content along with gathering, processing and transportation costs.
The price differential between our wellhead price for oil and the WTI benchmark price is primarily driven by the cost to transport oil via pipeline, train or truck to refineries. The price differential between our wellhead price for natural gas and the NYMEX benchmark price is primarily driven by Btu content along with gathering, processing and transportation costs.
Excess liquidity was retained at December 31, 2022 in anticipation of fees related to the Spin-Off that were paid in early 2023. At December 31, 2022, we had a working capital surplus of $17.7 million, compared to a deficit of $4.2 million at December 31, 2021.
Excess liquidity was retained at December 31, 2022 in anticipation of fees related to the Spin-Off that were paid in early 2023. At December 31, 2023, we had a working capital deficit of $2.1 million, compared to a surplus of $17.7 million at December 31, 2022.
Gain (loss) on commodity derivatives, net is comprised of (1) cash gains and losses we recognize on settled commodity derivatives during the period, and (2) non-cash mark-to-market gains and losses we incur on commodity derivative instruments outstanding at period-end. Production expenses.
Gain (loss) on commodity derivatives, net is comprised of (1) cash gains and losses we recognize on settled commodity derivatives during the period, and (2) non-cash mark-to-market gains and losses we incur on commodity derivative instruments outstanding at period-end. Lease operating expenses.
For instance, the COVID-19 pandemic and efforts to mitigate the spread of the disease, combined with OPEC actions in early 2020, led to spot and future prices of oil and natural gas falling to historic lows during the second quarter of 2020 and remaining depressed through much of 2020.
Prices for oil and natural gas can be highly volatile. For instance, the COVID-19 pandemic and efforts to mitigate the spread of the disease, combined with OPEC actions in early 2020, led to spot and future prices of oil and natural gas falling to historic lows during the second quarter of 2020 and remaining depressed through much of 2020.
The discount rate is a rate that management believes is representative of current market conditions and includes estimates for a risk premium and other operational risks. For the years ended December 31, 2022 and November 30, 2021 and for the Transition Period, we did not record any impairment expense.
The discount rate is a rate that management believes is representative of current market conditions and includes estimates for a risk premium and other operational risks. For the years ended December 31, 2023, December 31, 2022, and November 30, 2021 and the month ended December 31, 2021 we did not record any impairment expense.
We invest in non-operated minority working and mineral interests in oil and natural gas properties with our core area of focus in the Bakken and Three Forks formations of the Williston Basin of North Dakota and Montana. We also have interests in wells in the Denver-Julesburg Basin located in Colorado and Wyoming and the Powder River Basin located in Wyoming.
We invest in non-operated minority working and mineral interests in oil and natural gas properties with our core area of focus in the Williston Basin of North Dakota and Montana. We also have interests in wells in the Denver-Julesburg Basin located in Colorado and Wyoming and the Powder River Basin located in Wyoming.
For the year ended December 31, 2022 total capital expenditures was $84.6 million, including development expenditures and our acquisition activity. We expect to fund future capital expenditures with cash generated from operations and, if required, borrowings under our Revolving Credit Facility. The foregoing excludes larger acquisitions, which are typically not included in our annual capital expenditures budget.
For the year ended December 31, 2023 total capital expenditures was $120.5 million, including development expenditures and our acquisition activity. We expect to fund future capital expenditures with cash generated from operations and, if required, borrowings under our Revolving Credit Facility. The foregoing excludes larger acquisitions, which are typically not included in our annual capital expenditures budget.
We monitor our capital expenditures on a regular basis, adjusting the amount up or down, and between projects, depending on projected commodity prices, cash flows and financial returns. We supplement development activity on our asset base with acquisitions of near-term drilling opportunities when development activity by our operators on our existing properties lags behind our development objectives.
We monitor our capital expenditures on a regular basis, adjusting the amount up or down, and between projects, depending on projected commodity prices, cash flows and financial returns. We supplement development activity on our asset base with opportunistic acquisitions of near-term drilling opportunities when development activity by our operators on our existing properties does not meet our development objectives.
With our cash on hand, cash flow from operations, and borrowing capacity under our Revolving Credit Facility, we believe that we will have sufficient cash flow and liquidity to fund our budgeted capital expenditures and operating expenses for at least the next twelve months. However, we may seek additional access to capital and liquidity.
With our cash on hand, cash flow from operations, and borrowing capacity under our Revolving Credit Facility, we believe that we will have sufficient cash flow and liquidity to fund our budgeted capital expenditures and operating expenses for at least the next twelve months.
Items 1 and 2 Business and Properties.”This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the oil and natural gas industry and our business and financial results.
Business and Properties. This discussion contains forward-looking statements that involve risks and uncertainties. The forward-looking statements are not historical facts, but rather are based on current expectations, estimates, assumptions and projections about the oil and natural gas industry and our business and financial results.
Unit-based compensation expense is also recognized for management incentive units granted to other employees which are classified as liabilities until the holder has borne the risk of unit ownership. Unit-based compensation expense is recorded as these units vest and expense or contra-expense is recognized as the estimated fair value of the liability changes with market conditions.
Unit-based compensation expense was also recognized for management incentive units granted to other employees which are classified as liabilities until the holder has borne the risk of unit ownership. Unit-based compensation expense was recorded as these units vested and expense or contra-expense was recognized as the estimated fair value of the liability changed with market conditions.
Cash used in financing activities was $57.8 million, $42.6 million, and $5.5 million during the fiscal years ended December 31, 2022, November 30, 2021, and 2020, respectively, and $6.0 million during the month ended December 31, 2021.
Cash used in financing activities was $30.7 million, $57.8 million, and $42.6 million during the fiscal years ended December 31, 2023, December 31, 2022, and November 30, 2021, respectively, and $6.0 million during the month ended December 31, 2021.
Factors impacting the future oil supply balance are world-wide demand for oil, as well as the growth in domestic oil production. Prices for various quantities of oil, natural gas and NGLs that we produce significantly impact our revenues and cash flows.
Factors impacting the future oil supply balance include world-wide demand for oil, as well as the growth in domestic oil production. Prices for various quantities of oil, natural gas and NGLs significantly impact our revenues and cash flows.
While we believe that our future cash flows from operations can sustain the current level of distributions, future distributions may change based on a variety of factors, including contractual restrictions, legal limitations (the most common of which are limitations set forth in a company’s organizational documents and insolvency), business developments and the judgment of our Board.
While we believe that our future cash flows from operations will be able to sustain the current level of dividends, future dividends may change based on a variety of factors, including contractual restrictions, legal limitations (the most common of which are limitations set forth in a company’s organizational documents and insolvency), business developments and the judgment of our Board.
The increase in average realized prices per Boe before hedging increased oil and natural gas revenue by approximately $94.0 million, while the increase in production volumes increased oil and natural gas revenue by approximately $12.6 million.
The increase in average realized prices per Boe before hedging increased oil and natural gas revenue by approximately $93.9 million, while the increase in production volumes increased oil and natural gas revenue by approximately $12.0 million.
Higher prices for oil and natural gas could result in increases in the costs of materials, services and personnel, which we expect to occur in 2023 compared to 2022. Typically, as prices for oil and natural gas increase, so do all associated costs.
Higher prices for oil and natural gas could result in increases in the costs of materials, services and personnel, which we have seen in 2023 and 2022 compared to 2021. Typically, as prices for oil and natural gas increase, so do all associated costs.
Fluctuations in our price differentials and realizations are due to several factors such as NGL value net of processing costs, gathering and transportation fees, takeaway capacity relative to production levels, regional storage capacity, and seasonal refinery maintenance temporarily depressing demand.
Fluctuations in our natural gas price differentials and realizations are due to several factors such as NGL value net of processing costs, gathering, and transportation costs, takeaway capacity relative to production levels, regional storage capacity, seasonal demand for heating fuel and seasonal refinery maintenance temporarily depressing demand.
Our cash spending for acquisition activities was $28.5 million, $6.2 million and $9.2 million during the fiscal years ended December 31, 2022, November 30, 2021, 2020, respectively, and $0.1 million in the month ended December 31, 2021.
Our cash spending for acquisition activities was $35.7 million, $28.5 million and $6.2 million during the fiscal years ended December 31, 2023, December 31, 2022, and November 30, 2021, respectively, and $0.1 million in the month ended December 31, 2021.
Vitesse Energy, as predecessor borrower under the Prior Revolving Credit Facility, assigned the liens and Vitesse Energy’s existing rights, liabilities and obligations under the Prior Revolving Credit Facility to Vitesse. Vitesse then entered into the 67 Table of Contents Revolving Credit Facility with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of banks, as lenders.
The Predecessor, as predecessor borrower under the Prior Revolving Credit Facility, assigned the liens and its existing rights, liabilities and obligations under the Prior Revolving Credit Facility to Vitesse. Vitesse then entered into the Revolving Credit Facility with Wells Fargo Bank, N.A., as administrative agent, and a syndicate of banks, as lenders.
The increase in production accounted for a $2.7 million increase in DD&A expense while the increase in the DD&A rate accounted for a $0.1 million increase in DD&A expense.
The increase in production accounted for a $2.7 million increase in DD&A expense while the increase in the DD&A rate accounted for a $0.1 million increase in DD&A expense. Unit-based Compensation.
The cash used in financing activities during the fiscal years ended December 31, 2022, November 30, 2021, and 2020 was related to $20.0 million, $30.5 million and $5.5 million, respectively, of net repayments under our Prior Revolving Credit Facility.
The cash used in financing activities during the fiscal years ended December 31, 2022 and November 30, 2021 was related to $20.0 million and $30.5 million, respectively, of net repayments under our Prior Revolving Credit Facility as compared to net borrowings of $28.0 million during the fiscal year ended December 31, 2023 under our Revolving Credit Facility.
As we were a private entity whose units were not publicly traded before the Spin-Off, we considered the average volatility of comparable entities to develop an estimate of expected volatility which resulted in a reasonable estimate of fair value.
As the Predecessor was a private entity whose units were not traded, we considered the average volatility of comparable entities to develop an estimate of expected volatility which resulted in a reasonable estimate of fair value.
The table below summarizes our commodity derivative gains and losses that were recorded in the periods presented. 60 Table of Contents YEAR END DECEMBER 31, 2022 2021 (in thousands) Realized gain (loss) on commodity derivatives (1) $ (47,124) $ (16,914) Unrealized gain (loss) on commodity derivatives (1) 16,294 (22,977) Total commodity derivative gain (loss) $ (30,830) $ (39,891) (1) Realized and unrealized gains and losses on commodity derivatives are presented herein as separate line items but are combined for a total commodity derivative gain (loss) in the consolidated statements of operations included in this Form 10-K.
YEAR END DECEMBER 31, (in thousands) 2022 2021 Realized gain (loss) on commodity derivatives (1) $ (47,124) $ (16,914) Unrealized gain (loss) on commodity derivatives (1) 16,294 (22,977) Total commodity derivative gain (loss) $ (30,830) $ (39,891) (1) Realized and unrealized gains and losses on commodity derivatives are presented herein as separate line items but are combined for a total commodity derivative gain (loss) in the consolidated statements of operations included in this Annual Report on Form 10-K.
We expect that our liquidity going forward will be primarily derived from cash flows from our operations, cash on hand and availability under the Revolving Credit Facility and that these sources of liquidity will be sufficient to provide us the ability to fund our material cash requirements, as described below, including our planned capital expenditures program, as well as distributions to our equity holders.
We expect that our liquidity going forward will be primarily derived from cash flows from our operations, cash on hand and availability under the Revolving Credit Facility and that these sources of liquidity will be sufficient to provide us the ability to fund our material cash requirements for the next twelve months, as described below, including our planned capital expenditures program, as well as dividends and our share repurchase program.
The decreases in cash used in investing activities from 2020 to 2021 was primarily attributable to reduced development activity by our operators due to the COVID-19 pandemic, while increased activity during the year ended December 31, 2022 represent a recovery from these same factors.
The reduced level of cash used in investing activities in 2021 was primarily attributable to reduced development activity by our operators due to the COVID-19 pandemic, while increased activity during the years ended December 31, 2023 and December 31, 2022 represent a recovery from these same factors.
The change in current liabilities in 2022 as compared to 2021 was primarily due to an increase of $9.5 million in accounts payable and accrued liabilities primarily as a result of increased development activity offset by an decrease of $13.0 million in derivative instrument liabilities as a result of forward oil price decreases and more advantageous hedge instruments in place at December 31, 2022 .
The change in current liabilities in 2023 as compared to 2022 was primarily due to an increase of $27.1 million in accounts payable and accrued liabilities as a result of increased development activity offset by a decrease of $3.4 million in derivative instrument liabilities as a result of forward oil price decreases and more advantageous hedge instruments in place at December 31, 2023.
The following table lists average NYMEX prices for oil and natural gas for the periods presented. 56 Table of Contents YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED NOVEMBER 30, Average NYMEX Prices (1) 2022 2021 2021 2020 Oil (per Bbl) $ 94.90 $ 68.14 $ 65.97 $ 40.20 Natural Gas (per MMBtu) 6.45 3.89 3.79 2.00 (1) Based on average daily NYMEX closing prices.
The following table lists average NYMEX prices for oil and natural gas for the periods presented. 56 Table of Contents YEAR ENDED DECEMBER 31, YEAR ENDED NOVEMBER 30, Average NYMEX Prices (1) 2023 2022 2021 2021 WTI Oil (per Bbl) $ 77.58 $ 94.90 $ 68.14 $ 65.97 Natural Gas (per MMBtu) 2.53 6.45 3.89 3.79 (1) Based on a simple average of daily NYMEX closing prices.
See Note 5 (“Credit Facility”) to the Audited Consolidated Financial Statements for further details regarding the Prior Revolving Credit Facility. Revolving Credit Facility. In connection with the Spin-Off, we entered into the secured Revolving Credit Facility. The Revolving Credit Facility amends and restates the Prior Revolving Credit Facility of Vitesse Energy.
See Notes to the Consolidated Financial Statements —Note 5—Credit Facility for further details regarding the Prior Revolving Credit Facility. Revolving Credit Facility. In connection with the Spin-Off, we entered into the secured Revolving Credit Facility. The Revolving Credit Facility amends and restates the Prior Revolving Credit Facility.
Recently Issued or Adopted Accounting Pronouncements For discussion of recently issued or adopted accounting pronouncements, see Note 2 (“Significant Accounting Policies”) to the Audited Consolidated Financial Statements set forth in the section entitled “Index to Financial Statements.” Off Balance Sheet Arrangements We currently do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Recently Issued or Adopted Accounting Pronouncements For discussion of recently issued or adopted accounting pronouncements, see Notes to the Consolidated Financial Statements—Note 2—Significant Accounting Policies.” Off Balance Sheet Arrangements We currently do not have any off-balance sheet arrangements that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources. 68 Table of Contents
Future cash distributions to equity holders are subject to the terms of the Revolving Credit Facility, as previously described. There can be no guarantee that we will make distributions or otherwise return capital to our investors in the future. Capital Expenditures.
Future cash dividends to equity holders are subject to the terms of the Revolving Credit Facility, as previously described. There can be no guarantee that we will be able to pay dividends at current levels or at all or otherwise return capital to our investors in the future. Capital Expenditures.
Our operators in the Williston Basin responded by significantly decreasing drilling and completion activity, and by shutting in or curtailing production from a significant number of producing wells.
Oil and gas operators responded by significantly decreasing drilling and completion activity, and by shutting in or curtailing production from a significant number of producing wells.
As a result of such commodity price volatility, which we expect to continue into 2023, our earnings and operating cash flows can vary substantially, and are subject to external factors over which we have no control. While we do hedge a substantial portion of our production, we are still significantly subject to movements in commodity prices.
As a result of such commodity price volatility, which we expect to continue throughout 2024, our earnings and operating cash flows can vary substantially. While we do hedge a substantial portion of our production, we are still significantly subject to movements in commodity prices.
We finance a portion of our working capital requirements, capital expenditures and acquisitions with borrowings under our Prior Revolving Credit Facility. As a result, we incur interest expense that is affected by both fluctuations in interest rates and our financing decisions. We do not capitalize any portion of the interest paid on applicable borrowings.
We finance a portion of our working capital requirements, capital expenditures and acquisitions with borrowings under our Revolving Credit Facility and prior to the Spin-Off, under the Prior Revolving Credit Facility. As a result, we incur interest expense that is affected by both fluctuations in interest rates and our financing decisions.
Our long-term material cash requirements from currently known obligations include anticipated repayment of outstanding borrowings and interest payment obligations under our Prior Revolving Credit Facility, settlements on our outstanding commodity derivative contracts, future obligations to plug, abandon and remediate our oil and gas properties at the end of their productive lives, and operating lease obligations.
Our long-term material cash requirements from currently known obligations include settlements on our outstanding commodity derivative contracts, future obligations to plug, abandon and remediate our oil and gas properties at the end of their productive lives, and operating lease obligations.
Production taxes as a percentage of oil and natural gas sales before hedging adjustments were 8.0% and 7.8% for the years ended December 31, 2022 and 2021, respectively.
Production taxes as a percentage of oil and natural gas sales before hedging adjustments were 9.2% and 8.5% for the years ended December 31, 2023 and 2022, respectively.
In 2021, approximately 46% of our oil volumes and 8% of our natural gas volumes were subject to financial hedges, which resulted in a realized loss on oil derivatives of $13.1 million and a realized loss on natural gas derivatives of $0.8 million after settlements.
In 2021, approximately 47% of our oil volumes and 11% of our natural gas volumes were subject to financial hedges, which resulted in a realized loss on oil derivatives of $16.1 million and a realized loss on natural gas derivatives of $0.8 million after settlements. Liquidity and Capital Resources Overview.
As of December 31, 2022, we had oil swaps covering 1,340,000 Bbls at a weighted average price of $78.14 per Bbl for calendar 2023 and oil swaps covering the sale of 660,000 Bbls at a weighted average price of $75.97 per Bbl for calendar 2024. As of December 31, 2022, we had no natural gas derivative contracts.
As of December 31, 2023, we had oil swaps covering 1,374,998 Bbls at a weighted average price of $78.95 per Bbl for calendar 2024 and oil swaps covering the sale of 180,000 Bbls at a weighted average price of $75.30 per Bbl for calendar 2025. As of December 31, 2023, we had no natural gas derivative contracts.
Uncertainties are inherent in estimating quantities of proved reserves, including many risk factors beyond our control. Reserve engineering is a subjective process of estimating subsurface accumulations of oil and natural gas that cannot be measured in an exact manner. As a result, estimates of proved reserves may vary depending upon the engineer estimating the reserves.
Reserve engineering is a subjective process of estimating subsurface accumulations of oil and natural gas that cannot be measured in an exact manner. As a result, estimates of proved reserves may vary depending upon the engineer estimating the reserves.
The mark-to-market fair value can create non-cash volatility in our reported earnings during periods of commodity price volatility. We have experienced such volatility in the past and are likely to experience it in the future. Gains on our derivatives generally indicate lower oil revenues in the future while losses indicate higher future oil revenues.
The mark-to-market fair value can create non-cash volatility in our reported earnings during periods of commodity price volatility. We have experienced such volatility in the past and are likely to experience it in the future.
Our oil price differential to the WTI benchmark price during the year ended December 31, 2022 was a favorable $0.04 per barrel, as compared to a negative $3.31per barrel during the year ended December 31, 2021, primarily due to favorable local market pricing as compared to the benchmark price.
Our oil price differential to the weighted average WTI benchmark price during the year ended December 31, 2022 was negative $3.39 per Bbl as compared to a negative $6.11 per Bbl during the year ended December 31, 2021, primarily due to favorable local market pricing as compared to the weighted average benchmark price.
We include the amortization of deferred financing costs, commitment fees and annual agency fees as interest expense. Impairment expense. Under the successful efforts method of accounting, we review our oil and natural gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred.
Under the successful efforts method of accounting, we review our oil and natural gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred.
General and administrative expense increased to $19.8 million for the year ended December 31, 2022 from $10.7 million for the year ended December 31, 2021. General and administrative expense on a per Boe basis increased to $5.24 for the year ended December 31, 2022 from $2.96 for the year ended December 31, 2021.
General and administrative expense increased to $23.9 million for the year ended December 31, 2023 from $19.8 million for the year ended December 31, 2022. General and administrative expense on a per Boe basis increased to $5.52 for the year ended December 31, 2023 from $5.24 for the year ended December 31, 2022.
The price of oil can vary depending on the market in which it is sold and the means of transportation used to transport the oil to market, particularly in the Williston Basin where a substantial majority of our revenues are derived. Additional pipeline infrastructure has increased takeaway capacity in the Williston Basin which has improved wellhead values in the region.
Market Conditions The price of oil can vary depending on the market in which it is sold and the means of transportation used to transport the oil to market, particularly in the Williston Basin where a substantial majority of our revenues are derived.
Our cash flows for the fiscal years ended December 31, 2022, November 30, 2021 and November 30, 2020 and the Transition Period are presented below: YEAR ENDED DECEMBER 31, MONTH ENDED DECEMBER 31, YEAR ENDED NOVEMBER 30, (in thousands) 2022 2021 2021 2020 Cash flows provided by operating activities $ 147,041 $ 12,520 $ 86,971 $ 76,309 Cash flows used in investing activities (84,583) (3,956) (43,317) (70,808) Cash flows used in financing activities (57,807) (6,009) (42,587) (5,528) Net increase (decrease) in cash $ 4,651 $ 2,555 $ 1,067 $ (27) During the year ended December 31, 2022, we generated $147.0 million of cash from operations, a 69% increase from the year ended November 30, 2021.
Our cash flows for the years ended December 31, 2023, December 31, 2022 and November 30, 2021 and the month ended December 31, 2021 are presented below: FOR THE YEARS ENDED DECEMBER 31, FOR THE MONTH ENDED DECEMBER 31, FOR THE YEAR ENDED NOVEMBER 30, (in thousands) 2023 2022 2021 2021 Cash flows provided by operating activities $ 141,942 $ 147,041 $ 12,520 $ 86,971 Cash flows used in investing activities (120,666) (84,583) (3,956) (43,317) Cash flows used in financing activities (30,731) (57,807) (6,009) (42,587) Net (decrease) increase in cash $ (9,455) $ 4,651 $ 2,555 $ 1,067 During the year ended December 31, 2023, we generated $141.9 million of cash from operations, a decrease of 3% from the year ended December 31, 2022 despite a 17% decrease in total revenue.
See Note 4 (“Fair Value Measurements”) to the Audited Consolidated Financial Statements set forth in the section entitled “Index to Financial Statements” for further information on these contracts and their fair values as of December 31, 2022, which fair values represent 68 Table of Contents the estimated cash settlement amount required to terminate such instruments based on forward price curves for commodities as of that date.
See Notes to Consolidated Financial Statements—Note 4— Fair Value Measurements for further information on these contracts and their fair values as of December 31, 2023, which fair values represent the estimated cash settlement amount required to terminate such instruments based on forward price curves for commodities as of that date. Dividends.
The increase in average realized prices per Boe before hedging increased oil and natural gas revenue by approximately $83.9 million, while the increase in production volumes increased oil and natural gas revenue by approximately $4.0 million.
The decrease in average realized prices per Boe before hedging decreased oil and natural gas revenue by approximately $77.7 million, while the increase in production volumes increased oil and natural gas revenue by approximately $29.8 million.
Production expense increased to $13.02 per Boe for the year ended December 31, 2022 from $12.29 per Boe for the year ended December 31, 2021. The increase per Boe for the year ended December 31, 2022 compared with the year ended December 31, 2021 was primarily related to higher expense related to workovers and inflationary pressure on service costs.
The increase per Boe for the year ended December 31, 2022 compared with the year ended December 31, 2021 was primarily related to higher expense related to workovers and inflationary pressure on service costs. The increased workover costs were responsible for approximately $0.60/Boe of the increase. Production Tax Expense.
Oil and natural gas revenue increased to $300.1 million for the year ended December 31, 2022 from $193.4 million for the year ended December 31, 2021.
Oil and natural gas revenue increased to $281.9 million for the year ended December 31, 2022 from $176.0 million for the year ended December 31, 2021.
Fluctuations in our price differentials and realizations are due to several factors such as NGL value net of processing costs, gathering, and transportation costs, takeaway capacity relative to production levels, regional storage capacity, and seasonal refinery maintenance temporarily depressing demand. Another significant factor affecting our operating results is drilling costs.
Fluctuations in our natural gas price differentials and realizations are due to several factors such as NGL value net of processing costs, gathering and transportation fees, takeaway capacity relative to production 58 Table of Contents levels, regional storage capacity, seasonal demand for heating fuel and seasonal refinery maintenance temporarily depressing demand.
YEAR ENDED DECEMBER 31, INCREASE (DECREASE) ($ in thousands, except per unit data) 2022 2021 AMOUNT PERCENT Operating Results: Revenue Oil $ 242,467 $ 158,400 $ 84,067 53 % Natural gas 57,603 35,046 22,557 64 % Total revenue $ 300,070 $ 193,446 $ 106,624 55 % Operating Expenses Production $ 49,313 $ 44,561 $ 4,752 11 % Production taxes 24,092 15,012 9,080 60 % General and administrative 19,833 10,738 9,095 85 % Depletion, depreciation, amortization, and accretion 63,732 60,883 2,849 5 % Unit-based compensation (10,766) 4,037 (14,803) *nm Interest Expense $ 4,153 $ 3,125 $ 1,028 33 % Commodity Derivative Gain (Loss) $ (30,830) $ (39,891) $ 9,061 (23) % Production Data: Oil (MBbls) 2,575 2,447 128 5 % Natural gas (MMcf) 7,274 7,084 190 3 % Combined volumes (MBoe) 3,787 3,627 160 4 % Daily combined volumes (Boe/d) 10,376 9,937 439 4 % Average Realized Prices before Hedging: Oil (per Bbl) $ 94.16 $ 64.74 $ 29.42 45 % Natural gas (per Mcf) 7.92 4.95 2.97 60 % Combined (per Boe) 79.24 53.33 25.91 49 % Average Realized Prices with Hedging: Oil (per Bbl) $ 76.09 $ 58.16 $ 17.93 31 % Natural gas (per Mcf) 7.84 4.83 3.01 62 % Combined (per Boe) 66.79 48.67 18.12 37 % Average Costs (per Boe): Production $ 13.02 $ 12.29 $ 0.73 6 % Production taxes 6.36 4.14 2.22 54 % General and administrative 5.24 2.96 2.28 77 % Depletion, depreciation, amortization, and accretion 16.83 16.79 0.04 — % * Not meaningful Oil and Natural Gas Revenue and Volumes.
YEAR ENDED DECEMBER 31, INCREASE (DECREASE) (in thousands, except per unit data) 2022 2021 AMOUNT PERCENT Operating Results: Revenue Oil $ 233,622 $ 151,563 $ 82,059 54 % Natural gas 48,268 24,472 23,796 97 % Total revenue $ 281,890 $ 176,035 $ 105,855 60 % Operating Expenses Lease operating expense $ 31,133 $ 27,150 $ 3,983 15 % Production taxes 24,092 15,012 9,080 60 % General and administrative 19,833 10,738 9,095 85 % Depletion, depreciation, amortization, and accretion 63,732 60,883 2,849 5 % Equity-based compensation (10,766) 4,037 (14,803) *nm Interest Expense $ 4,153 $ 3,125 $ 1,028 33 % Commodity Derivative Gain (Loss) $ (30,830) $ (39,891) $ 9,061 23 % Production Data: Oil (MBbls) 2,575 2,447 128 5 % Natural gas (MMcf) 7,274 7,084 190 3 % Combined volumes (MBoe) 3,787 3,627 160 4 % Daily combined volumes (Boe/d) 10,376 9,937 439 4 % Average Realized Prices before Hedging: Oil (per Bbl) $ 90.73 $ 61.94 $ 28.79 46 % Natural gas (per Mcf) 6.64 3.45 3.19 92 % Combined (per Boe) 74.43 48.53 25.90 53 % Average Realized Prices with Hedging: Oil (per Bbl) $ 72.66 $ 55.36 $ 17.30 31 % Natural gas (per Mcf) 6.56 3.34 3.22 96 % Combined (per Boe) 61.99 43.87 18.12 41 % Average Costs (per Boe): Lease operating expense $ 8.22 $ 7.49 $ 0.73 10 % Production taxes 6.36 4.14 2.22 54 % General and administrative 5.24 2.96 2.28 77 % Depletion, depreciation, amortization, and accretion 16.83 16.79 0.04 — % * Not meaningful Oil and Natural Gas Revenue and Volumes.
For the year ended December 31, 2022, the relationship of capital expenditures, proved reserves and production from certain producing fields yielded a depletion rate of $16.83 per Boe compared with $16.79 per Boe for the year ended December 31, 2021. Unit-based Compensation.
For the year ended December 31, 2023, the relationship of capital expenditures, proved reserves and production from certain producing fields yielded a depletion rate (excluding depreciation, amortization and accretion) of $18.68 per Boe compared with $16.71 per Boe for the year ended December 31, 2022.
As of December 31, 2022, we had a working interest in 5,338 gross (138.0 net) productive wells and 237 gross (5.8 net) wells that were being drilled or completed, and an additional 421 gross (10.0 net) wells that had been permitted for development by our operators.
As of December 31, 2023, we had a working interest in 5,734 gross (157.5 net) productive wells and 224 gross (6.7 net) wells that were being drilled or completed, and an additional 363 gross (9.9 net) wells that had been permitted for development by our operators.
Market Conditions The price that we receive for the oil and natural gas we produce is largely a function of market supply and demand. Because our oil and gas revenues are heavily weighted toward oil, we are more significantly impacted by changes in oil prices than by changes in the price of natural gas.
Because our oil and gas revenues are heavily weighted toward oil, we are more significantly impacted by changes in oil prices than by changes in the price of natural gas.
PV-10 is a computation of the Standardized Measure on a pre-tax basis. PV-10 is equal to the Standardized Measure at the applicable date, before deducting future income taxes, discounted at ten percent.
Non-GAAP Financial Information Reconciliation of PV-10 to Standardized Measure PV-10 is derived from the Standardized Measure, which is the most directly comparable GAAP financial measure for proved reserves. PV-10 is a computation of the Standardized Measure on a pre-tax basis. PV-10 is equal to the Standardized Measure at the applicable date, before deducting future income taxes, discounted at ten percent.
Our estimated proved reserves as of December 31, 2022 were 43,797 MBoe (70% oil) and our average production was 10,376 Boe per day during the year ended December 31, 2022.
Our estimated proved reserves as of December 31, 2023 were 40,595 MBoe (68% oil) and our average production was 11,889 Boe per day during the year ended December 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

4 edited+3 added−1 removed8 unchanged
Biggest changeSETTLEMENT PERIOD OIL (barrels) WEIGHTED AVERAGE PRICE $ Swaps-Crude Oil 2023: Q1 345,000 $ 78.28 Q2 345,000 $ 78.28 Q3 345,000 $ 78.28 Q4 305,000 $ 77.66 2024: Q1 180,000 $ 75.97 Q2 180,000 $ 75.97 Q3 180,000 $ 75.97 Q4 120,000 $ 75.97 See Note 4 (“Fair Value Measurements”) and Note 6 (“Derivative Instruments”) to the Audited Consolidated Financial Statements for further details regarding our commodity derivatives, including basis swap contracts for crude oil, which are not included in the foregoing tables.
Biggest changeSETTLEMENT PERIOD OIL (barrels) WEIGHTED AVERAGE PRICE $ Swaps-Crude Oil 2024: Q1 402,498 $ 79.03 Q2 382,500 $ 79.13 Q3 327,500 $ 78.50 Q4 262,500 $ 78.53 2025: Q1 90,000 $ 75.30 Q2 90,000 $ 75.30 See Notes to the Consolidated Financial Statements—Note 4—Fair Value Measurements and —Note 6—Derivative Instruments for further details regarding our commodity derivatives.
Any interim cash needs are funded by cash from operations or borrowings under our Revolving Credit Facility. The following table summarizes our open crude oil swap contracts as of December 31, 2022, by fiscal quarter.
Any interim cash needs are funded by cash from operations or borrowings under our Revolving Credit Facility. The following table summarizes our open crude oil swap contracts as of December 31, 2023, by fiscal quarter.
The prices we receive for our 72 Table of Contents production depend on numerous factors beyond our control.
The prices we receive for our production depend on numerous factors beyond our control.
All outstanding principal is due and payable upon termination of the Revolving Credit Facility. 73 Table of Contents Item 8. Financial Statements and Supplementary Data The information required by this Item is included in this Annual Report as set forth in the “Index to Financial Statements” on page F-1 of this report and is incorporated herein by reference. Item 9.
Financial Statements and Supplementary Data The information required by this Item is included in this Annual Report as set forth in the “Index to Financial Statements” on page F-1 of this report and is incorporated herein by reference. Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.
Removed
Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.
Added
Based upon our open commodity derivative positions at December 31, 2023, a hypothetical $1 increase or decrease in the NYMEX WTI strip price would increase or decrease our net commodity derivative position by approximately $1.5 million. The hypothetical change in fair value could be a gain or a loss depending on whether commodity prices decrease or increase.
Added
All outstanding principal is due and payable upon termination of the Revolving Credit Facility.
Added
Assuming no change in the amount outstanding, the impact on interest expense of a 1% increase or decrease in the average interest rate would be an approximate $0.5 million increase or decrease in interest expense for the year ended December 31, 2023. 69 Table of Contents Item 8.

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