Acquisitions of Oil and Natural Gas Properties

3 Months Ended

Mar. 31, 2024

Business Combination and Asset Acquisition [Abstract]

Acquisitions of Oil and Natural Gas Properties

New Mexico Acquisition

On April 3, 2023, the Company completed the New Mexico Acquisition from Pecos for $324.7 million, including customary purchase price adjustments. The assets acquired are located in Eddy County, New Mexico, and include approximately 10,600 total contiguous net acres of leasehold. The acquisition also included 18 net horizontal wells and 250 net vertical wells.

The Company funded the New Mexico Acquisition through a combination of proceeds from the issuance of $200 million of Senior Notes and borrowings under the Company's Credit Facility, including application of a $33 million escrow deposit paid during the three months ended March 31, 2023 from borrowings under the Credit Facility. For further information regarding the financing for the New Mexico Acquisition, see Note 9 - Long-Term Debt.

The New Mexico Acquisition qualified as a business combination using the acquisition method of accounting. The assets acquired and liabilities assumed were recognized at fair value as of the acquisition date. The fair value measurements of the oil and natural gas properties acquired and ARO assumed were derived utilizing an income approach and based, in part, on significant inputs not observable in the market. These inputs represent Level 3 measurements in the fair value hierarchy and include, but are not limited to, estimates of future production volumes, future development, future operating costs, future cash flows and the use of a weighted average cost of capital. These inputs required the use of significant judgments and estimates at the date of valuation, and use of different estimates and judgments could yield different results.

The following presents the allocation of the total purchase price of the New Mexico Acquisition to the identified assets acquired and liabilities assumed based on estimated fair value as of the Closing Date:


Purchase price allocation (in thousands):

Total cash consideration	$	324,686

Assets acquired:

Inventory	$	2,980
Oil and natural gas properties	342,308
Other	$	149
Amount attributable to assets acquired	$	345,437

Liabilities assumed:
Revenue payable	$	1,475
Asset retirement obligations	19,276
Amount attributable to liabilities assumed	$	20,751



Net assets acquired	$	324,686

Transaction costs associated with the New Mexico Acquisition were approximately $1.9 million for the three months ended March 31, 2023 and are included on the accompanying condensed consolidated statements of operations.

Post-Acquisition Operating Results

The results of operations attributable to the New Mexico Acquisition since the Closing Date have been included in the condensed consolidated statements of operations and include $29.0 million of total revenue, net, and $18.9 million of earnings for the three months ended March 31, 2024.

Pro Forma Operating Results

The following unaudited pro forma combined results for the three months ended March 31, 2023 reflect the consolidated results of operations of the Company as if the New Mexico Acquisition had occurred on January 1, 2022. The unaudited pro forma information includes adjustments for (i) amortization for the discount and deferred financing costs and interest expense related to the Senior Notes and Credit Facility, (ii) depletion, depreciation and amortization expense, and (iii) interest expense related to the financing for the New Mexico Acquisition. In addition, the pro forma information has been effected for income taxes with a 21.5% statutory tax rate for three months ended March 31, 2023.


		Three Months Ended
		March 31, 2023
	(In thousands, except per share amounts)
Total revenues		$	97,607
Net income		$	33,798
Basic net income per common share		$	1.72
Diluted net income per common share		$	1.70

The unaudited pro forma combined financial information is for informational purposes only and is not intended to represent or to be indicative of the combined results of operations that the Company would have reported had the New Mexico Acquisition been completed as of January 1, 2022 and should not be taken as indicative of the Company's future combined results of operations. The actual results may differ significantly from that reflected in the unaudited pro forma combined financial information for a number of reasons, including, but not limited to, differences in assumptions used to prepare the unaudited pro forma combined financial information and actual results.

Entry into Purchase and Sale Agreement

On March 22, 2024, the Company entered into a purchase and sale agreement, pursuant to which the Company agreed to purchase interest in oil and natural gas properties in Eddy County, New Mexico ("2024 NM Asset Acquisition") for a purchase price of approximately $20.5 million, subject to customary post-closing adjustments. In connection with executing the purchase and sale agreement in March 2024, a deposit of $1.9 million was paid by the Company and is included in other non-current assets, net in the accompanying condensed consolidated balance sheets. The Company closed this asset acquisition on May 7, 2024 with an effective date of December 1, 2023. See Note 14 - Subsequent Events.