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COMMITMENTS AND CONTINGENCIES | 9 Months Ended
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Sep. 30, 2023
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Legal Proceedings From time to time, the Company is involved in various commercial and regulatory claims, litigation, and other legal proceedings that arise in the ordinary course of its business. The Company assesses these claims in an effort to determine the degree of probability and range of possible loss for potential accrual in its consolidated financial statements. In accordance with authoritative accounting guidance, an accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the most likely anticipated outcome or the minimum amount within a range of possible outcomes. Because legal proceedings are inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about uncertain future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. As of the filing date of this report, there were no probable, material pending, or overtly threatened legal actions against the Company of which it was aware. Enforcement. Disclosure of certain environmental matters is required when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that the Company believes could exceed $0.3 million. The Company has received Notices of Alleged Violations (“NOAV”) from the ECMC alleging violations of various Colorado statutes and ECMC regulations governing oil and gas operations. The Company has further received notices from the Colorado Air Pollution Control Division. The Company continues to engage in discussions regarding resolution of the alleged violations. As of September 30, 2023 and December 31, 2022, the Company has accrued approximately $0.8 million and $0.7 million, respectively, associated with the NOAVs and Colorado Air Pollution Control Division notices. Commitments Firm Transportation Agreements. The Company is party to a firm pipeline transportation contract to provide a guaranteed outlet for production on an oil pipeline system. The contract requires the Company to pay minimum volume transportation charges on 12,500 barrels (“Bbl”) per day through April 2025, regardless of the amount of pipeline capacity utilized by the Company. The aggregate financial commitment fee over the remaining term was $28.5 million as of September 30, 2023. The Company has not and does not expect to incur any deficiency payments. Minimum Volume Agreement - Oil. The Company is party to a purchase agreement to deliver fixed and determinable quantities of crude oil. Under the terms of the agreement, the Company is required to make periodic deficiency payments for any shortfalls in delivering the minimum volume commitment of 20,000 Bbls per day over a term ending in December 2023. The aggregate financial commitment fee over the remaining term is $11.7 million as of September 30, 2023. The Company has not and does not expect to incur any deficiency payments. Minimum Volume Agreement - Gas and Other. The Company is party to a gas gathering and processing agreement (the “Gathering Agreement”) with a third-party midstream provider over a term ending in 2029 with an annual minimum volume commitment of 13.0 billion cubic feet of natural gas. The Gathering Agreement also includes a commitment to sell take-in-kind NGL from other processing agreements of 7,500 Bbls a day through 2026 with the ability to roll forward up to a 10% shortfall in a given month to the subsequent month. The aggregate financial commitment fee over the remaining term is $109.7 million as of September 30, 2023, which fluctuates with commodity prices as this is a value-based percentage of proceeds sales contract. During the three months ended September 30, 2023, we recorded $3.6 million in unused commitments in the statements of operations based on volumes delivered relative to the minimum volume commitment. Based on current projections, the Company may incur approximately $31.9 million, inclusive of the amounts recorded as described above, of shortfall payments under the Gathering Agreement during the remaining term of approximately six years; however, the Company is actively engaging alternative strategies to reduce any potential contract deficiencies incurred in future periods. Additionally, the Company is also party to a gas gathering and processing agreement with several third-party producers and a third-party midstream provider to deliver to two different plants over terms that end in August 2025 and July 2026. The Company’s share of these commitments requires an incremental 51.5 and 20.6 million cubic feet of natural gas (“MMcf”) per day, respectively, over a baseline volume of 65 MMcf per day for a period of seven years following the in-service dates of the plants. The Company may be required to pay a shortfall fee for any incremental volume deficiencies under these commitments. These contractual obligations can be reduced by the Company’s proportionate share of the collective volumes delivered to the plants by other incremental third-party volumes available to the midstream provider that are in excess of the total commitments. Because of the third-party producer reduction provision, we believe that the aggregate financial commitment fee over the remaining term is zero as of September 30, 2023. The Company has not and does not expect to incur any deficiency payments. The Company is also party to additional individually immaterial agreements that require the Company to pay a fee associated with the minimum volumes over various terms ending in December 2025, regardless of the amount delivered. The aggregate financial commitment fee over the remaining term for these contracts was $9.0 million as of September 30, 2023. The minimum annual payments under these agreements for the next five years as of September 30, 2023 are presented below (in thousands):
|  | Firm Transportation |  | Minimum Volume(1)
Remainder of 2023 |  | $ | 4,531 |  |  | $ | 21,688 |
2024 |  | 18,026 |  |  | 20,655 |
2025 |  | 5,910 |  |  | 21,349 |
2026 |  | — |  |  | 17,598 |
2027 |  | — |  |  | 16,900 |
2028 and thereafter |  | — |  |  | 32,240 |
Total |  | $ | 28,467 |  |  | $ | 130,430 |
___________________________ (1)The above calculation is based on the minimum volume commitment schedule (as defined in the relevant agreement) and applicable differential fees. Other commitments. The Company is party to a drilling commitment agreement with a third-party midstream provider such that the Company is required to drill and complete a total of 106 qualifying wells, whereby a minimum number of wells out of the total must be drilled by a deadline occurring every two years over a period ending December 31, 2026. The drilling commitment agreement provides for, among other things, a number of specifications such as minimum consecutive days of production, well performance, and lateral length. Wells operated by others can satisfy this commitment, subject to limitations. If the Company were to fail to complete the wells by the applicable deadline, it would be in breach of the agreement and the third-party midstream provider could attempt to assert damages against Civitas and its affiliates. As of the date of filing, the Company cannot reasonably estimate how much, if any, damages will be paid. Refer to Note 13 - Leases for lease commitments.

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