Acquisitions of Oil and Natural Gas Properties

12 Months Ended

Dec. 31, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

Acquisitions of Oil and Natural Gas Properties

2023 New Mexico Acquisition

On April 3, 2023, the Company completed an acquisition of oil and natural gas properties (the "2023 New Mexico Acquisition") from Pecos Oil & Gas, LLC, a Delaware limited liability company and an affiliate of Cibolo Energy Partners LLC, for $324.7 million, funded through a combination of proceeds from the issuance of $200 million of Senior Notes and borrowings under the Company's Credit Facility. The assets acquired are located in Eddy County, New Mexico, and included approximately 10,600 total contiguous net acres of leasehold. The acquisition also included 18 net horizontal wells and 250 net vertical wells.

The 2023 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 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 2023 New Mexico Acquisition to the identified assets acquired and liabilities assumed based on estimated fair value as of the Closing Date:


Purchase price allocation as of December 31, 2023 (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

Fair value of 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 2023 New Mexico Acquisition were approximately $5.8 million for the year ended December 31, 2023.

Pro Forma Operating Results (Unaudited)

The following unaudited pro forma combined results for the years ended December 31, 2023, and 2022, reflect the consolidated results of operations of the Company as if the 2023 New Mexico Acquisition had occurred on January 1, 2022. The unaudited pro forma information includes adjustments for (i) transaction costs being reclassified to 2022 instead of being recorded during the year ended December 31, 2023, (ii) amortization for the discount and deferred financing costs related to the Senior Notes and Credit Facility, (iii) depletion, depreciation and amortization expense, and (iv) interest expense related to the financing for the 2023 New Mexico Acquisition. These adjustments reflect such costs, as described above, that would have been recognized had the Company acquired the assets on January 1, 2022. In addition, the pro forma information has been effected for taxes with a 23% tax rate for the years ended December 31, 2023, and 2022.


	Year Ended December 31,
	2023		2022
	(In thousands, except per share amounts)
Total revenues	$	405,642	$	435,157
Net income	$	121,466	$	129,741
Basic net income per common share	$	6.16	$	6.64
Diluted net income per common share	$	6.07	$	6.59

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 2023 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.

2024 New Mexico Asset Acquisition

On May 7, 2024, the Company completed the acquisition of oil and natural gas properties in Eddy County, New Mexico ("2024 New Mexico Asset Acquisition"), which added 13,900 contiguous net acres to the Company's existing acreage in Eddy County, for a cash purchase price of approximately $19.1 million plus $0.5 million in transaction costs. The 2024 New Mexico Asset Acquisition was accounted for as an asset acquisition, with the final purchase price and transaction costs being capitalized to oil and natural gas properties. This acquisition was funded through a combination of proceeds from the 2024 equity issuance ("2024 Equity Offering") discussed in Note 11 - Shareholders' Equity and cash on hand.