Financial Performance Overview

Our company has three main areas of operations - the Midland Basin in West Texas, the South Texas region, and the recently acquired Uinta Basin assets in Utah. During the first quarter of 2025, we remained focused on integrating the new Uinta Basin assets and continuing to return capital to shareholders through a quarterly dividend.

Our overall financial and operational results for the quarter were mixed. Average net daily production decreased 5% sequentially, driven by declines in our South Texas and Midland Basin assets, partially offset by an increase from the Uinta Basin. However, oil, gas, and NGL revenue remained flat compared to the prior quarter as higher realized commodity prices offset the production decline.

Costs increased, with oil, gas, and NGL production expense rising 5% due to higher lease operating expenses, transportation costs, and ad valorem taxes. Depletion, depreciation, and amortization expense also increased 4% sequentially. Despite these cost increases, we generated $483 million in net cash from operating activities and $182.3 million in net income for the quarter.

Revenue and Profit Trends

Our revenue is primarily driven by the prices we receive for our oil, gas, and natural gas liquids (NGL) production, as well as our overall production volumes. Realized prices increased 8% sequentially, benefiting from higher benchmark commodity prices. However, this was offset by a 5% decrease in average net daily production.

On a year-over-year basis, our revenue increased 50% due to significantly higher production volumes, particularly from the new Uinta Basin assets. Our net income also increased 41% compared to the first quarter of 2024.

The key factors impacting our profitability are commodity prices, production volumes, and operating costs. While we’ve seen volatility in benchmark prices, our use of commodity derivatives has helped partially offset this risk. Our operating costs have been rising, driven by inflation in areas like lease operating expenses and transportation. Managing these costs will be important going forward.

Strengths and Weaknesses

A key strength of our company is our diversified asset base across three major oil and gas basins. This provides us with a large inventory of future drilling locations and development opportunities. The recent Uinta Basin acquisition has added another high-quality asset to our portfolio.

Another strength is our financial position, with ample liquidity from our revolving credit facility and strong cash flow generation. This gives us flexibility to fund our capital program and return capital to shareholders. Our use of commodity derivatives also helps mitigate price volatility.

However, a weakness is the recent decline in production from our legacy Midland Basin and South Texas assets. While anticipated, this highlights the importance of successfully integrating and developing the new Uinta Basin properties to offset natural production declines elsewhere. Controlling rising operating costs will also be crucial.

Additionally, our reliance on debt financing, though manageable currently, exposes us to interest rate risk as rates rise. Maintaining our investment-grade credit ratings will be important to cost-effectively access capital markets.

Outlook for the Future

Looking ahead, we expect our 2025 capital program of $1.3 billion to be focused on developing our most promising assets, particularly in the Uinta Basin. We plan to operate an average of 3 rigs and 1 completion crew in the Uinta, 2 rigs and 1 crew in the Midland Basin, and 1-2 rigs and 1 crew in South Texas.

This capital allocation should help drive production growth, especially from the Uinta Basin. However, we anticipate continued natural declines in our legacy assets. Overall, we expect our 2025 production to be relatively flat compared to 2024 levels.

Commodity price volatility will remain a key risk, though our hedging program provides some protection. Rising costs, particularly for labor and services, could also pressure margins if we’re unable to fully offset them. Successful execution of our development plans in the Uinta Basin will be critical.

Despite these challenges, we believe our diversified asset base, strong financial position, and experienced team position us well to navigate the current environment. We remain committed to generating free cash flow, maintaining a healthy balance sheet, and returning capital to shareholders through dividends and opportunistic share repurchases.