Centennial Resource Development, Inc. (“Centennial” or the “Company”) (NASDAQ: CDEV) today announced second quarter 2022 financial and operational results.

Second Quarter Financial and Operational Highlights

  • Reported strong net cash flow from operations
  • Generated record free cash flow1
  • Ended the quarter with approximately $200 million of cash
  • Increased daily crude oil production 12% compared to the prior quarter
  • Delivered four out of the top ten wells in Company history
  • Reduced LOE per unit costs by 13% compared to the prior quarter
  • Significantly reduced leverage1 quarter-over-quarter
  • Announced transformational merger of equals with Colgate Energy

Financial Results

For the second quarter, Centennial generated net cash from operating activities of $295.0 million and free cash flow of $137.4 million. The Company reported net income during the quarter of $191.8 million, or $0.60 per diluted share, compared to a net loss of $25.1 million, or $(0.09) per diluted share, in the prior year period.

Average daily crude oil production for the second quarter was 36,696 barrels of oil per day (“Bbls/d”) compared to 31,912 Bbls/d in the prior year period. Total equivalent production during the quarter averaged 70,240 barrels of oil equivalent per day (“Boe/d”) compared to 61,647 Boe/d in the prior year period. Second quarter average daily crude oil and total equivalent production increased 12% and 14%, respectively, quarter-over-quarter.

“Centennial’s second quarter was highlighted by outstanding well results, strong production growth, record free cash flow and an attractive leverage profile,” said Smith. “Additionally, our recently announced merger of equals with Colgate Energy will create a leading Delaware Basin E&P that is poised to capitalize on its high-quality scaled asset base to drive significant shareholder returns. The integration process is progressing well, and we look forward to closing this transaction shortly after the scheduled shareholder vote.”

Second Quarter Operational Results

Centennial continues to efficiently develop its Delaware Basin acreage position through larger well packages with extended laterals. During the quarter, the Company increased its average completed lateral length by 17% quarter-over-quarter to approximately 9,950 feet, driving enhanced economic returns. In Lea County, New Mexico, the Tostada and Gordita five-well development (average 80% working interest (“WI”)) was drilled in the Third Bone Spring Sand interval with average 9,900-foot laterals. These wells delivered an average 30-day initial production (“IP”) rate of 2,986 Boe/d, or 2,508 Bbls/d of oil, per well. Notably, the average maximum IP-24 hour rate for the Tostada State Com 601H and 602H and Gordita State Com 602H and 603H wells was approximately 4,800 barrels of oil per well. “Developed as one of our largest packages to date, these wells generated robust results and represent four of the top ten wells drilled in the Company’s history, based on both 24-hour and 30-day IP rates,” said Smith.

Also targeting the Third Bone Spring Sand interval in Lea County, the Airstream wells (average 91% WI) represent a three-well pad drilled with 9,800-foot average laterals. These wells achieved average 30-day and 60-day IP rates of 2,264 Boe/d (82% oil) and 1,750 Boe/d (82% oil) per well, respectively.

Total capital expenditures (“capex”) incurred for the quarter were $140.6 million. Second quarter drilling, completion and facilities costs were $136.8 million and included four more wells spud than originally anticipated. Infrastructure, land and other capex during the quarter totaled $3.8 million.

Capital Structure and Liquidity

During the quarter, the Company increased its cash balance by $150.5 million, resulting in $201.1 million of cash on hand at June 30, 2022. Centennial had zero borrowings outstanding under its $750.0 million revolving credit facility. Total long-term debt (before unamortized debt discount or issuance costs) and total net debt at the end of the quarter were $815.8 million and $614.7 million, respectively. Net debt-to-LTM EBITDAX at June 30, 2022 was 0.7x and represents a significant reduction from 1.1x at March 31, 2022.

Hedge Position Update

For the second half of 2022, Centennial has a total of 14,000 Bbls/d of oil hedged, consisting of approximately 57% fixed price swaps with the remainder in costless collars. For fiscal year 2023, the Company has a total of 9,736 Bbls/d of oil hedged, consisting of approximately 82% costless collars. During this period, the Company currently has 7,992 Bbls/d of WTI oil collars in place with a weighted average floor and ceiling price of $75.94 per barrel and $91.83 per barrel, respectively. Also for 2023, the Company has 1,744 Bbls/d of WTI oil hedged at a fixed price of $73.26 per barrel.

In addition to the hedge positions discussed above, Centennial has certain other natural gas hedges, crude oil and natural gas basis swaps and crude oil roll differential swaps in place. (For a summary table of Centennial’s derivative contracts as of July 31, 2022, please see the Appendix to this press release.)

Strategic Merger with Colgate Energy

On May 19, 2022, Centennial and Colgate Energy Partners III, LLC (“Colgate”) announced they had entered into an agreement to combine in a merger of equals transaction, creating the largest Delaware Basin pure-play E&P company with approximately 180,000 net leasehold acres and 40,000 net royalty acres. Centennial filed its Definitive Proxy Statement with the U.S. Securities and Exchange Commission (“SEC”) on July 28, 2022 and scheduled its shareholder meeting for August 29, 2022 to vote on the pending merger. The merger is expected to close shortly thereafter, subject to Centennial shareholder approval.

Environmental, Social and Governance

Centennial is committed to producing oil and natural gas in an ethical and responsible way that creates long term value for its stakeholders. For more information about Centennial’s second annual 2022 Corporate Sustainably Report, please visit www.cdevinc.com/corporate-sustainability. This report describes the Company’s 2021 ESG programs, initiatives and performance to its stakeholders in a transparent and measurable way.

Quarterly Report on Form 10-Q

Centennial’s financial statements and related footnotes will be available in its Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, which is expected to be filed with the SEC on August 4, 2022.

Conference Call and Webcast

Centennial will host an investor conference call on Thursday, August 4, 2022 at 8:00 a.m. Mountain (10:00 a.m. Eastern) to discuss second quarter operating and financial results. Interested parties may join the webcast by visiting Centennial’s website at www.cdevinc.com and clicking on the webcast link or by dialing (833) 634-2524, or (412) 902-4178 for international calls, and referencing “Centennial Resource Development, Inc.” at least 15 minutes prior to the start of the call. A replay of the call will be available on Centennial’s website or by phone at (877) 344-7529 (Access Code: 4165341) for a seven-day period following the call.

About Centennial Resource Development, Inc.

Centennial Resource Development, Inc. is an independent oil and natural gas company focused on the development of oil and associated liquids-rich natural gas reserves in the Permian Basin. The Company’s assets and operations, which are held and conducted through Centennial Resource Production, LLC, are concentrated in the Delaware Basin, a sub-basin of the Permian Basin. For additional information about the Company, please visit www.cdevinc.com.

Cautionary Note Regarding Forward-Looking Statements

The information in this press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this press release, regarding our strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this press release, the words “could,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “goal,” “plan,” “target” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events.

Forward-looking statements may include statements about:

  • volatility of oil, natural gas and NGL prices or a prolonged period of low oil, natural gas or NGL prices and the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries (“OPEC”), such as Saudi Arabia, and other oil and natural gas producing countries, such as Russia, with respect to production levels or other matters related to the price of oil;
  • the effects of excess supply of oil and natural gas resulting from reduced demand caused by the COVID-19 pandemic and the actions taken in response by certain oil and natural gas producing countries;
  • political and economic conditions in or affecting other producing regions or countries, including the Middle East, Russia, Eastern Europe, Africa and South America;
  • our business strategy and future drilling plans;
  • our reserves and our ability to replace the reserves we produce through drilling and property acquisitions;
  • our ability to identify, complete and effectively integrate acquisitions of properties or businesses, including our pending merger with Colgate Energy Partners III, LLC;
  • our drilling prospects, inventories, projects and programs;
  • our financial strategy, liquidity and capital required for our development program;
  • our realized oil, natural gas and NGL prices;
  • the timing and amount of our future production of oil, natural gas and NGLs;
  • our hedging strategy and results;
  • our competition and government regulations;
  • our ability to obtain permits and governmental approvals;
  • our pending legal or environmental matters;
  • the marketing and transportation of our oil, natural gas and NGLs;
  • our leasehold or business acquisitions;
  • costs of developing or operating our properties;
  • our anticipated rate of return;
  • general economic conditions;
  • weather conditions in the areas where we operate;
  • credit markets;
  • uncertainty regarding our future operating results;
  • our plans, objectives, expectations and intentions contained in this press release that are not historical; and
  • the other factors described in our most recent Annual Report on Form 10-K, and any updates to those factors set forth in our subsequent Quarterly Reports on Form 10-Q or Current Reports on Form 8-K.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the development, production, gathering and sale of oil and natural gas. These risks include, but are not limited to, commodity price volatility, inflation, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and gas reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures and the other risks described in our filings with the SEC.

Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any oil and gas reserve estimate depends on the quality of available data, the interpretation of such data, and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

Should one or more of the risks or uncertainties described in this press release occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this press release are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this press release.

Additional Information and Where to Find It

This press release discusses the proposed Merger between Centennial and Colgate. In connection with the proposed Merger, Centennial has filed with the SEC a proxy statement on Schedule 14A (the “Proxy Statement”). Centennial will also file other documents regarding the proposed Merger with the SEC. The Proxy Statement will be sent or given to the Centennial Stockholders and contains important information about the Merger and related matters. INVESTORS ARE URGED TO READ THE PROXY STATEMENT (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION WITH RESPECT TO THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE BUSINESS COMBINATION AGREEMENT. You may obtain a free copy of the Proxy Statement (if and when it becomes available) and other relevant documents filed by Centennial with the SEC at the SEC’s website at www.sec.gov. You may also obtain Centennial’s documents on its website at www.cdevinc.com.

Participants in Solicitation

Centennial, Colgate and certain of their respective directors, executive officers and employees may be deemed to be participants in the solicitation of proxies in connection with certain matters related to the Merger and may have direct or indirect interests in the Merger. Information about Centennial’s directors and executive officers is set forth in Centennial’s Proxy Statement on Schedule 14A for its 2022 Annual Meeting of Stockholders, filed with the SEC on March 15, 2022, its Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on February 24, 2022, and its other documents filed with the SEC. Other information regarding the participants in the proxy solicitations and a description of their direct and indirect interests, by security holdings or otherwise, are contained in the Proxy Statement and other relevant materials to be filed with the SEC regarding the proposed transaction when they become available. Investors should read the Proxy Statement carefully before making any voting or investment decisions. Investors may obtain free copies of these documents using the sources indicated above.

1) Free Cash Flow and Net Debt-to-LTM EBITDAX, also referred to as “leverage” in this press release, are non-GAAP financial measures. See “Non-GAAP Financial Measures” included within the Appendix of this press release for related disclosures and reconciliations to the most directly comparable financial measures calculated and presented in accordance with GAAP.

Contact:Hays MabrySr. Director, Investor Relations(832) 240-3265ir@cdevinc.comSOURCE Centennial Resource Development, Inc.

Centennial Resource Development, Inc.
 
Operating Highlights
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2022   2021   2022   2021
Net revenues (in thousands):              
Oil sales $ 349,591     $ 177,105     $ 612,358     $ 310,831  
Natural gas sales   68,030       27,015       107,048       62,466  
NGL sales   55,033       28,457       100,525       51,671  
Oil and gas sales $ 472,654     $ 232,577     $ 819,931     $ 424,968  
               
Average sales prices:              
Oil (per Bbl) $ 104.69     $ 60.99     $ 97.42     $ 57.08  
Effect of derivative settlements on average price (per Bbl)   (16.97 )     (12.59 )     (15.03 )     (11.12 )
Oil net of hedging (per Bbl) $ 87.72     $ 48.40     $ 82.39     $ 45.96  
               
Average NYMEX price for oil (per Bbl) $ 108.34     $ 66.06     $ 101.37     $ 61.95  
Oil differential from NYMEX   (3.65 )     (5.07 )     (3.95 )     (4.87 )
               
Natural gas (per Mcf) $ 6.22     $ 2.55     $ 5.13     $ 3.13  
Effect of derivative settlements on average price (per Mcf)   (1.55 )     (0.09 )     (1.06 )     0.01  
Natural gas net of hedging (per Mcf) $ 4.67     $ 2.46     $ 4.07     $ 3.14  
               
Average NYMEX price for natural gas (per Mcf) $ 7.39     $ 2.88     $ 6.00     $ 3.15  
Natural gas differential from NYMEX   (1.17 )     (0.33 )     (0.87 )     (0.02 )
               
NGL (per Bbl) $ 44.77     $ 30.37     $ 46.74     $ 30.10  
               
Net production:              
Oil (MBbls)   3,339       2,904       6,286       5,446  
Natural gas (MMcf)   10,941       10,613       20,866       19,956  
NGL (MBbls)   1,230       937       2,151       1,717  
Total (MBoe)(1)   6,392       5,610       11,914       10,488  
               
Average daily net production:              
Oil (Bbls/d)   36,696       31,912       34,729       30,086  
Natural gas (Mcf/d)   120,225       116,629       115,280       110,253  
NGL (Bbls/d)   13,507       10,297       11,881       9,484  
Total (Boe/d)(1)   70,240       61,647       65,824       57,945  

__________________________(1)  Calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Boe.

Centennial Resource Development, Inc.
 
Operating Expenses
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2022   2021   2022   2021
Operating costs (in thousands):              
Lease operating expenses $ 28,900     $ 22,976     $ 57,634     $ 48,837  
Severance and ad valorem taxes   34,695       15,784       59,746       28,367  
Gathering, processing and transportation expenses   25,756       19,494       47,647       40,119  
Operating cost metrics:              
Lease operating expenses (per Boe) $ 4.52     $ 4.10     $ 4.84     $ 4.66  
Severance and ad valorem taxes (% of revenue)   7.3 %     6.8 %     7.3 %     6.7 %
Gathering, processing and transportation expenses (per Boe) $ 4.03     $ 3.47     $ 4.00     $ 3.83  

Centennial Resource Development, Inc.
Consolidated Statements of Operations (unaudited)
(in thousands, except per share data)
 
  Three Months Ended June 30,   Six Months Ended June 30,
  2022   2021   2022   2021
Operating revenues              
Oil and gas sales $ 472,654     $ 232,577     $ 819,931     $ 424,968  
Operating expenses              
Lease operating expenses   28,900       22,976       57,634       48,837  
Severance and ad valorem taxes   34,695       15,784       59,746       28,367  
Gathering, processing and transportation expenses   25,756       19,494       47,647       40,119  
Depreciation, depletion and amortization   82,117       73,429       153,126       137,212  
General and administrative expenses   9,947       28,807       40,550       54,063  
Merger and integration expense   5,685             5,685        
Impairment and abandonment expense   506       9,199       3,133       18,399  
Exploration and other expenses   1,954       1,764       4,261       2,859  
Total operating expenses   189,560       171,453       371,782       329,856  
Net gain (loss) on sale of long-lived assets   (1,406 )     (8 )     (1,324 )     36  
Proceeds from terminated sale of assets         5,983             5,983  
Income (loss) from operations   281,688       67,099       446,825       101,131  
               
Other income (expense)              
Interest expense   (14,326 )     (15,182 )     (27,480 )     (32,667 )
Gain (loss) on extinguishment of debt         (22,156 )           (22,156 )
Net gain (loss) on derivative instruments   (34,134 )     (54,959 )     (163,657 )     (106,158 )
Other income (expense)   85       143       203       150  
Total other income (expense)   (48,375 )     (92,154 )     (190,934 )     (160,831 )
               
Income (loss) before income taxes   233,313       (25,055 )     255,891       (59,700 )
Income tax (expense) benefit   (41,487 )           (48,263 )      
Net income (loss) $ 191,826     $ (25,055 )   $ 207,628     $ (59,700 )
               
Income (loss) per share of Common Stock:              
Basic $ 0.67     $ (0.09 )   $ 0.73     $ (0.21 )
Diluted $ 0.60     $ (0.09 )   $ 0.66     $ (0.21 )

Centennial Resource Development, Inc.
Consolidated Balance Sheets (unaudited)
(in thousands, except share and per share amounts)
 
  June 30, 2022   December 31, 2021
ASSETS      
Current assets      
Cash and cash equivalents $ 201,092     $ 9,380  
Accounts receivable, net   141,598       71,295  
Prepaid and other current assets   7,189       5,860  
Total current assets   349,879       86,535  
Property and Equipment      
Oil and natural gas properties, successful efforts method      
Unproved properties   984,264       1,040,386  
Proved properties   4,929,108       4,623,726  
Accumulated depreciation, depletion and amortization   (2,140,982 )     (1,989,489 )
Total oil and natural gas properties, net   3,772,390       3,674,623  
Other property and equipment, net   13,167       11,197  
Total property and equipment, net   3,785,557       3,685,820  
Noncurrent assets      
Operating lease right-of-use assets   54,934       16,385  
Other noncurrent assets   33,660       15,854  
TOTAL ASSETS $ 4,224,030     $ 3,804,594  
LIABILITIES AND EQUITY      
Current liabilities      
Accounts payable and accrued expenses $ 208,222     $ 130,256  
Operating lease liabilities   21,124       1,413  
Derivative Instruments   83,541       35,150  
Other current liabilities   3,214       1,080  
Total current liabilities   316,101       167,899  
Noncurrent liabilities      
Long-term debt, net   801,849       825,565  
Asset retirement obligations   18,151       17,240  
Deferred income taxes   50,293       2,589  
Operating lease liabilities   35,724       16,002  
Other noncurrent liabilities   32,344       24,579  
Total liabilities   1,254,462       1,053,874  
Commitments and contingencies (Note 12)      
Shareholders’ equity      
Common stock, $0.0001 par value, 620,000,000 shares authorized; 297,060,327 shares issued and 284,992,650 shares outstanding at June 30, 2022 and 294,260,623 shares issued and 284,696,972 shares outstanding at December 31, 2021   30       29  
Additional paid-in capital   3,024,236       3,013,017  
Retained earnings (accumulated deficit)   (54,698 )     (262,326 )
Total Shareholders' equity   2,969,568       2,750,720  
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,224,030     $ 3,804,594  

Centennial Resource Development, Inc.
Consolidated Statements of Cash Flows (unaudited)
(in thousands)
 
  Six Months Ended June 30,
  2022   2021
Cash flows from operating activities:      
Net income (loss) $ 207,628     $ (59,700 )
Adjustments to reconcile net income (loss) to net cash provided by operating activities:      
Depreciation, depletion and amortization   153,126       137,212  
Stock-based compensation expense - equity awards   12,202       9,066  
Stock-based compensation expense - liability awards   5,127       25,074  
Impairment and abandonment expense   3,133       18,399  
Deferred tax expense (benefit)   47,663        
Net (gain) loss on sale of long-lived assets   1,324       (36 )
Non-cash portion of derivative (gain) loss   47,131       45,759  
Amortization of debt issuance costs and debt discount   4,226       2,886  
(Gain) loss on extinguishment of debt         22,156  
Changes in operating assets and liabilities:      
(Increase) decrease in accounts receivable   (62,751 )     (33,483 )
(Increase) decrease in prepaid and other assets   (6,201 )     (9 )
Increase (decrease) in accounts payable and other liabilities   42,491       12,301  
Net cash provided by operating activities   455,099       179,625  
Cash flows from investing activities:      
Acquisition of oil and natural gas properties   (2,592 )     (638 )
Drilling and development capital expenditures   (224,011 )     (126,665 )
Purchases of other property and equipment   (2,863 )     (471 )
Proceeds from sales of oil and natural gas properties   863       698  
Net cash used in investing activities   (228,603 )     (127,076 )
Cash flows from financing activities:      
Proceeds from borrowings under revolving credit facility   170,000       320,000  
Repayment of borrowings under revolving credit facility   (195,000 )     (395,000 )
Proceeds from issuance of convertible senior notes         170,000  
Debt issuance costs   (8,533 )     (6,421 )
Premiums paid on capped call transactions         (14,688 )
Redemption of senior secured notes         (127,073 )
Proceeds from exercise of stock options   8       15  
Restricted stock used for tax withholdings   (1,259 )     (477 )
Net cash used in financing activities   (34,784 )     (53,644 )
Net increase (decrease) in cash, cash equivalents and restricted cash   191,712       (1,095 )
Cash, cash equivalents and restricted cash, beginning of period   9,935       8,339  
Cash, cash equivalents and restricted cash, end of period $ 201,647     $ 7,244  
               

Reconciliation of cash, cash equivalents and restricted cash presented on the Consolidated Statements of Cash Flows for the periods presented:

  Six Months Ended June 30,
  2022   2021
Cash and cash equivalents $ 201,092   $ 4,702
Restricted cash   555     2,542
Total cash, cash equivalents and restricted cash $ 201,647   $ 7,244

Non-GAAP Financial Measures

In addition to disclosing financial results calculated in accordance with U.S. generally accepted accounting principles (“GAAP”), our earnings release contains non-GAAP financial measures as described below.

Adjusted EBITDAX

Adjusted EBITDAX is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define Adjusted EBITDAX as net income before interest expense, income taxes, depreciation, depletion and amortization, exploration and other expenses, impairment and abandonment expense, non-cash gains or losses on derivatives, stock-based compensation (not cash-settled), gain/loss from the sale of assets and non-recurring items. Adjusted EBITDAX is not a measure of net income as determined by GAAP.

Our management believes Adjusted EBITDAX is useful as it allows them to more effectively evaluate our operating performance and compare the results of our operations from period to period and against our peers, without regard to our financing methods or capital structure. We exclude the items listed above from net income in arriving at Adjusted EBITDAX because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired. Adjusted EBITDAX should not be considered as an alternative to, or more meaningful than, net income as determined in accordance with GAAP or as an indicator of our operating performance or liquidity. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic costs of depreciable assets, none of which are components of Adjusted EBITDAX. Our presentation of Adjusted EBITDAX should not be construed as an inference that our results will be unaffected by unusual or nonrecurring items. Our computations of Adjusted EBITDAX may not be comparable to other similarly titled measures of other companies.

The following table presents a reconciliation of Adjusted EBITDAX to net income, which is the most directly comparable financial measure calculated and presented in accordance with GAAP:

  Three Months Ended
(in thousands) 6/30/2022   3/31/2022   12/31/2021   9/30/2021   6/30/2021
Adjusted EBITDAX reconciliation to net income:                  
Net income (loss) $ 191,826     $ 15,802     $ 160,751     $ 37,124   $ (25,055 )
Interest expense   14,326       13,154       13,931       14,690     15,182  
Income tax expense (benefit)   41,487       6,776       569            
Depreciation, depletion and amortization   82,117       71,009       75,863       76,047     73,429  
Impairment and abandonment expense   506       2,627       6,400       7,712     9,199  
(Gain) loss on extinguishment of debt                         22,156  
Non-cash derivative (gain) loss   (39,514 )     86,645       (44,790 )     15,731     17,446  
Stock-based compensation expense(1)   (2,487 )     18,834       5,594       17,421     18,681  
Exploration and other expenses   1,954       2,307       3,185       1,839     1,764  
Merger and integration expense   5,685                        
(Gain) loss on sale of long-lived assets   1,406       (82 )     (34,422 )     290     8  
Proceeds from terminated sale of assets                         (5,983 )
Adjusted EBITDAX $ 297,306     $ 217,072     $ 187,081     $ 170,854   $ 126,827  

__________________________(1)   Includes stock-based compensation for equity awards and also for cash-based liability awards that have not yet been settled in cash, both of which relate to general and administrative employees only. Stock-based compensation amounts for geographical and geophysical personnel are included within the Exploration and other expenses line item.

Net Debt-to-LTM EBITDAX (Leverage)

Net debt-to-LTM EBITDAX, also referred to as “leverage" in this press release, is a non-GAAP financial measure. We define net debt as long-term debt, net, plus unamortized debt discount and debt issuance costs on our senior notes minus cash and cash equivalents.

We define net debt-to-LTM EBITDAX as net debt (defined above) divided by Adjusted EBITDAX (defined and reconciled in the section above) for the last twelve months. We refer to this metric to show trends that investors may find useful in understanding our ability to service our debt. This metric is widely used by professional research analysts, including credit analysts, in the valuation and comparison of companies in the oil and gas exploration and production industry. The following table presents a reconciliation of net debt to long-term debt, net and the calculation of net debt-to-LTM EBITDAX for each period presented:

(in thousands) June 30, 2022   March 31, 2022
Long-term debt, net 801,849     801,203  
Unamortized debt discount and debt issuance costs on senior notes 13,950     14,596  
Long-term debt 815,799     815,799  
Less: cash and cash equivalents (201,092 )   (50,624 )
Net debt (Non-GAAP) 614,707     765,175  
LTM EBITDAX(1) 872,313     701,834  
Net debt-to-LTM EBITDAX 0.7     1.1  

__________________________(1)   Represents adjusted EBITDAX (defined and reconciled in the section above) for the preceding twelve month period ended.

We do not provide guidance on the items used to reconcile between forecasted net debt-to-LTM EBITDAX to forecasted long-term debt, net, or to forecasted net income due to the uncertainty regarding timing and estimates of certain items. Therefore, we cannot reconcile forecasted net debt-to-LTM EBITDAX to long-term debt, net, or to net income without unreasonable effort.

Free Cash Flow

Free cash flow is a supplemental non-GAAP financial measure that is used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define free cash flow as net cash provided by operating activities before changes in working capital, less incurred capital expenditures.

Our management believes free cash flow is a useful indicator of the Company’s ability to internally fund its exploration and development activities and to service or incur additional debt, without regard to the timing of settlement of either operating assets and liabilities or accounts payable related to capital expenditures. The Company believes that this measure, as so adjusted, presents a meaningful indicator of the Company’s actual sources and uses of capital associated with its operations conducted during the applicable period. Our computations of free cash flow may not be comparable to other similarly titled measures of other companies. Free cash flow should not be considered as an alternative to, or more meaningful than, cash provided by operating activities as determined in accordance with GAAP or as indicator of our operating performance or liquidity.

Free cash flow is not a financial measure that is determined in accordance with GAAP. Accordingly, the following table presents a reconciliation of free cash flow to net cash provided by operating activities, which is the most directly comparable financial measure calculated and presented in accordance with GAAP:

  Three Months Ended June 30,
(in thousands) 2022   2021
Net cash provided by operating activities $ 294,979     $ 107,279  
Changes in working capital:      
Accounts receivable   8,927       18,486  
Prepaid and other assets   5,786       (255 )
Accounts payable and other liabilities   (31,666 )     (8,147 )
Operating cash flow before working capital changes   278,026       117,363  
Less: total capital expenditures incurred   (140,600 )     (83,200 )
Free cash flow $ 137,426     $ 34,163  

We do not provide guidance on the items used to reconcile between forecasted free cash flow to forecasted net cash provided by operating activities due to the uncertainty regarding timing and estimates of certain items. Therefore, we cannot reconcile forecasted free cash flow to net cash provided by operating activities without unreasonable effort.

The following table summarizes the approximate volumes and average contract prices of the hedge contracts the Company had in place as of June 30, 2022 and additional contracts entered into through July 31, 2022:

  Period   Volume(Bbls)   Volume(Bbls/d)   Wtd. Avg. Crude Price ($/Bbl)(1)
Crude oil swaps July 2022 - September 2022   782,000   8,500   $65.46
  October 2022 - December 2022   690,000   7,500   65.63
  January 2023 - March 2023   225,000   2,500   73.51
  April 2023 - June 2023   227,500   2,500   73.25
  July 2023 - September 2023   92,000   1,000   72.98
  October 2023 - December 2023   92,000   1,000   72.98
               
  Period   Volume(Bbls)   Volume(Bbls/d)   Wtd. Avg. Collar Price Ranges ($/Bbl)(2)
Crude oil collars July 2022 - September 2022   460,000   5,000   $78.00 - $107.13
  October 2022 - December 2022   644,000   7,000   80.00 - 104.17
  January 2023 - March 2023   810,000   9,000   75.56 - 91.15
  April 2023 - June 2023   819,000   9,000   75.56 - 91.15
  July 2023 - September 2023   644,000   7,000   76.43 - 92.70
  October 2023 - December 2023   644,000   7,000   76.43 - 92.70
               
  Period   Volume(Bbls)   Volume(Bbls/d)   Wtd. Avg. Differential ($/Bbl)(3)
Crude oil basis differential swaps July 2022 - September 2022   552,000   6,000   $0.29
  October 2022 - December 2022   552,000   6,000   0.29
               
  Period   Volume(Bbls)   Volume(Bbls/d)   Wtd. Avg. Differential($/Bbl)(4)
Crude oil roll differential swaps July 2022 - September 2022   920,000   10,000   $0.71
  October 2022 - December 2022   920,000   10,000   0.71

__________________________(1)  These crude oil swap transactions are settled based on the NYMEX WTI index price on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.(2)  These crude oil collars are settled based on the NYMEX WTI index price on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.(3)  These crude oil basis swap transactions are settled based on the difference between the arithmetic average of ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each applicable monthly settlement period.(4)  These crude oil roll swap transactions are settled based on the difference between the arithmetic average of NYMEX WTI calendar month prices and the physical crude oil delivery month price.

  Period   Volume(MMBtu)   Volume(MMBtu/d)   Wtd. Avg. Gas Price($/MMBtu)(1)
Natural gas swaps July 2022 - September 2022   2,760,000   30,000   $3.24
  October 2022 - December 2022   1,540,000   16,739   3.15
               
  Period   Volume(MMBtu)   Volume(MMBtu/d)   Wtd. Avg. Differential($/MMBtu)(2)
Natural gas basis differential swaps July 2022 - September 2022   1,840,000   20,000   $(0.45)
  October 2022 - December 2022   1,840,000   20,000   (0.45)
  January 2023 - March 2023   2,250,000   25,000   (1.11)
  April 2023 - June 2023   2,275,000   25,000   (1.11)
  July 2023 - September 2023   2,300,000   25,000   (1.11)
  October 2023 - December 2023   2,300,000   25,000   (1.11)
               
  Period   Volume(MMBtu)   Volume(MMBtu/d)   Wtd. Avg. Collar Price Ranges($/MMBtu)(3)
Natural gas collars July 2022 - September 2022   1,840,000   20,000   $3.50 - $3.97
  October 2022 - December 2022   2,450,000   26,630   3.87 - 5.06
  January 2023 - March 2023   4,950,000   55,000   4.09 - 7.47
  April 2023 - June 2023   4,095,000   45,000   3.72 - 7.32
  July 2023 - September 2023   4,140,000   45,000   3.72 - 7.32
  October 2023 - December 2023   4,140,000   45,000   3.76 - 7.69
  January 2024 - March 2024   1,820,000   20,000   3.25 - 5.31

__________________________(1) These natural gas swap contracts are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.(2) These natural gas basis swap contracts are settled based on the difference between the Inside FERC’s West Texas WAHA price and the NYMEX price of natural gas, during each applicable monthly settlement period.(3)  These natural gas collars are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated. 

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