COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2024

Commitments and Contingencies Disclosure [Abstract]

Commitments

Minimum Volume Agreement - Crude Oil. We are party to a transportation services agreement to deliver fixed and determinable quantities of crude oil. Under the terms of this agreement, we are 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 2028. The aggregate financial commitment fee over the remaining term was $60.6 million as of December 31, 2024. We have not and do not expect to incur any deficiency payments.

Minimum Volume Agreement - Gas and Other. We are party to a gas gathering and processing agreement (the “Gathering Agreement”) with a third-party midstream provider over a term ending in December 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 Gathering Agreement is a value-based percentage of proceeds sales contract and our financial commitment fluctuates with commodity prices. The aggregate financial commitment fee over the remaining term was $49.8 million as of December 31, 2024. During the year ended December 31, 2024, we recorded $4.7 million in other operating expense in the accompanying consolidated statements of operations based on volume deficiencies relative to the minimum volume commitment. Based on current projections, we may incur approximately $4.0 million in additional shortfall payments under the Gathering Agreement during the remaining term of approximately five years. We are actively engaging alternative strategies to reduce any potential contract deficiencies incurred in future periods.

We are also party to additional individually immaterial agreements that require us to pay fees associated with the minimum volumes over various terms ending in April 2025, regardless of the amount delivered. The aggregate financial commitment fee over the remaining term for these contracts was $7.6 million as of December 31, 2024. We have not and do not expect to incur any deficiency payments.

The minimum annual payments under these agreements for the next five years as of December 31, 2024 are presented below (in thousands):


	Minimum Volume(1)
2025	$	31,676
2026	25,124
2027	25,470
2028	25,765
2029 and thereafter	10,010
Total	$	118,045

___________________________

(1)The above calculation is based on the minimum volume commitment schedule (as defined in the relevant agreement) and applicable differential fees.

Other commitments. We are party to a drilling commitment agreement with a third-party midstream provider such that we are 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 we 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 us and our affiliates. As of the date of filing, we cannot reasonably estimate how much, if any, damages will be paid.

Refer to Note 13 - Leases for lease commitments.

Litigation and Legal Items