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CRUDE OIL AND NATURAL GAS PROPERTIES
 6 Months Ended
Jun. 30, 2025
Oil and Gas Disclosure [Abstract]  
CRUDE OIL AND NATURAL GAS PROPERTIES CRUDE OIL AND NATURAL GAS PROPERTIES
The Company follows the full cost method of accounting to account for its crude oil and natural gas operations, whereby all costs related to the exploration and development of crude oil and natural gas properties are capitalized into a single cost center (“full cost pool”).  Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling directly related to acquisition, and exploration activities.  Internal costs that are capitalized are directly attributable to acquisition, exploration and development activities and do not include costs related to production, general corporate overhead or similar activities.  Costs associated with production and general corporate activities are expensed in the period incurred.

Under the full cost method of accounting, the Company is required to perform a ceiling test each quarter.  The test determines a limit, or ceiling, on the book value of the Company’s oil and natural gas properties.  Net capitalized costs are limited to the lower of unamortized cost net of deferred income taxes, or the cost center ceiling. As a result of its ceiling test, the Company recorded a non-cash impairment charge of $115.6 million in the three and six months ended June 30, 2025. The Company did not have any impairment charges in the three and six months ended June 30, 2024.

Average commodity prices have declined in recent months. If this downward trend continues, and/or if our proved reserves decrease significantly in future months, the present value of the Company’s future net revenues could decline significantly, which could trigger the need for the Company to record an additional non-cash ceiling test impairment of its oil and natural gas property costs in future periods.

The book value of the Company’s crude oil and natural gas properties consists of all acquisition costs (including cash expenditures and the value of stock consideration), drilling costs and other associated capitalized costs.  Acquisitions are accounted for as purchases and, accordingly, the results of operations are included in the accompanying condensed statements of operations from the closing date of the acquisition. 

2025 Acquisitions

During the three and six months ended June 30, 2025, the Company acquired oil and natural gas properties through a number of smaller independent transactions for a total of $31.2 million and $36.0 million, respectively.
In April 2025, the Company completed its acquisition of certain oil and natural gas properties, interests and related assets in the Midland Permian basin from a private seller, effective June 1, 2024. The total consideration paid to the seller at closing, net to the Company, was approximately $61.7 million in cash, a portion of which was funded by a $4.0 million acquisition deposit paid in February 2025.

2024 Acquisitions

In addition to the closing of the Delaware Acquisition, as defined below, during the three and six months ended June 30, 2024, the Company acquired oil and natural gas properties through a number of smaller independent transactions for a total of $25.2 million and $30.1 million, respectively.

Delaware Acquisition

In January 2024, the Company completed its acquisition of certain oil and natural gas properties, interests and related assets in the Delaware Basin from a private seller, effective as of November 1, 2023 (the “Delaware Acquisition”).

The total consideration paid to the seller at closing included 107,657 shares of common stock and $147.8 million in cash, a portion of which was funded by a $17.1 million deposit paid at signing in November 2023.

The results of operations from the date of the Delaware Acquisition through June 30, 2024 represented approximately $11.2 million of revenue and $4.7 million of income from operations.

The Company accounted for the Delaware Acquisition as a business combination. Accordingly, transaction costs of approximately $0.6 million were included in general and administrative expense in the Company’s statements of operations. The following table reflects the fair values of the net assets and liabilities as of the closing date of the acquisition:

(In thousands)
Fair value of net assets:
Proved oil and natural gas properties$151,912 
Total assets acquired151,912 
Asset retirement obligations(380)
Net assets acquired$151,531 
Fair value of consideration paid for net assets:
Cash consideration$147,794 
Non-cash consideration3,737 
Total fair value of consideration transferred$151,531 

Point Acquisition

In September 2024, the Company completed its acquisition of certain oil and natural gas properties located in the Delaware Basin from Point Energy Partners, LLC (“Point”), effective as of April 1, 2024 (the “Point Acquisition”). At closing, the Company acquired a 20% undivided working interest in the assets sold by Point, with Vital Energy, Inc., an unaffiliated third party, acquiring the other 80% and becoming the operator of the acquired assets.

The total consideration paid to the seller at closing, net to the Company, was $205.1 million in cash, a portion of which was funded by a $22.0 million acquisition deposit paid in July 2024. As a result of customary post-closing adjustments, the Company reduced its proved oil and natural gas properties and total consideration by $7.2 million subsequent to closing.

The Company accounted for the Point Acquisition as an asset acquisition, as substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets. Accordingly, approximately $2.8 million transaction costs were capitalized to the full cost pool of the oil and natural gas properties acquired.
XCL Acquisition

In October 2024, the Company completed its acquisition of certain oil and natural gas properties in the Uinta Basin from XCL Resources, LLC and certain affiliated entities (“XCL”), effective as of May 1, 2024 (the “XCL Acquisition”). At closing, the Company acquired a 20% undivided working interest in the assets sold by XCL, with SM Energy Company, an unaffiliated third party, acquiring the other 80% and becoming the operator of the acquired assets.

The total consideration paid to the seller at closing, net to the Company, was $511.3 million in cash, a portion of which was funded by a $25.5 million acquisition deposit paid in June 2024.

The Company accounted for the XCL Acquisition as an asset acquisition, as substantially all of the fair value of the gross assets acquired were concentrated in a group of similar identifiable assets. Accordingly, approximately $9.4 million transaction costs were capitalized to the full cost pool of the oil and natural gas properties acquired.

Unproved Properties

All properties that are not classified as proved properties are considered unproved properties and, thus, the costs associated with such properties are not subject to depletion until the properties are evaluated for reserves. Once a property is evaluated, all associated acreage and drilling costs are subject to depletion.

The Company historically has acquired unproved properties by purchasing individual or small groups of leases directly from mineral owners, landmen, or lease brokers, which leases historically have not been subject to specified drilling projects, and by purchasing lease packages in identified project areas controlled by specific operators.  The Company generally participates in drilling activities on a heads up basis by electing whether to participate in each well on a well-by-well basis at the time wells are proposed for drilling.

The Company believes that the majority of its unproved property will be evaluated, and thus the related costs will become subject to depletion within the next five years. The timing by which all unproved properties will become subject to depletion will be dependent upon the timing of future drilling activities and delineation of its reserves.

Capitalized costs associated with evaluated leasehold costs, which includes leases that have expired or have been deemed uneconomic, and capitalized costs related to properties having proved reserves, plus the estimated future development costs and asset retirement costs, are depleted and amortized using the unit-of-production method. Under this method, depletion is calculated at the end of each period by multiplying total production for the period by a depletion rate. The depletion rate is determined by dividing the total unamortized cost base plus future development costs by net equivalent proved reserves at the beginning of the period. The costs of unproved properties are withheld from the depletion base until such time that they are evaluated.
When unproved properties are evaluated, their cost is added to costs subject to depletion and full cost ceiling calculations. For the three months ended June 30, 2025 and 2024, unproved properties of $3.8 million and $0.5 million, respectively, were transferred to evaluated leasehold costs. For the six months ended June 30, 2025 and 2024, unproved properties of $5.6 million and $1.6 million, respectively, were transferred to evaluated leasehold costs.