CONTANGO OIL & GAS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and the accompanying notes and other information included elsewhere in this Quarterly Report on Form 10-Q and with our 2020 Form 10-K, previously filed with theSecurities and Exchange Commission ("SEC"). Available Information General information about us can be found on our website at www.contango.com. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments and exhibits to those reports, are available free of charge through our website as soon as reasonably practicable after we file or furnish them to theSEC . This report should be read together with our 2020 Form 10-K and our subsequent filings with theSEC . We are not including the information on our website as a part of, or incorporating it by reference into, this report.
Cautionary Statement about Forward-Looking Statements
Certain statements contained in this report may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The words and phrases "should", "could", "may", "will", "believe", "plan", "intend", "expect", "potential", "possible", "anticipate", "estimate", "forecast", "view", "efforts", "goal" and similar expressions identify forward-looking statements and express our expectations about future events. Although we believe the expectations reflected in such forward-looking statements are reasonable, such expectations may not occur. These forward-looking statements are made subject to certain risks and uncertainties that could cause actual results to differ materially from those stated. Risks and uncertainties that could cause or contribute to such differences include, without limitation, those discussed in the section entitled "Risk Factors" included in this report, in our 2020 Form 10-K, Quarterly Report on Form 10-Q for the quarter endedJune 30, 2021 and those factors summarized below:
? volatility in oil, natural gas and natural gas liquids prices, including
regional differentials;
? any reduction in our borrowing base from time to time and our ability to repay
any excess borrowings as a result of such reduction;
the impact of the COVID-19 pandemic, including reduced demand for oil and
? natural gas, economic slowdown, governmental and societal actions taken in
response to the COVID-19 pandemic, stay-at-home orders, and interruptions to
our operations;
risks related to the Pending Independence Merger, including the risk that the
Pending Independence Merger will not be completed on the timeline or terms
currently contemplated or at all, the length of time necessary to close the
? Pending Independence Merger, the ability to obtain the requisite Contango
stockholder approvals, the businesses will not be integrated successfully, that
the anticipated cost savings, synergies and growth from the Pending
Independence Merger may not be fully realized or may take longer to realize
than expected, and that management attention will be diverted;
? potential liability resulting from any future litigation related to the Pending
Independence Merger and the Wind River Basin Acquisition;
risks related to the Wind River Basin Acquisition, including the risk that the
businesses and assets will not be integrated successfully, that the anticipated
? cost savings, synergies and growth from the acquisition may not be fully
realized or may take longer to realize than expected, and that management
attention will be diverted;
the impact of the climate change initiative by
and
imposing a moratorium on new oil and natural gas leasing on federal lands and
offshore waters pending completion of a comprehensive review and
? reconsideration of federal oil and natural gas permitting and leasing
practices; the Biden administration's announcement that
aim to cut its greenhouse gas emissions from 2005 levels by 50% by 2030; the
Biden administration efforts to put the United State on a path to 100%
carbon-free electricity by 2035; and the Biden administration's coordination of
a
? our financial position;
? the potential impact of our derivative instruments;
our business strategy, including our ability to successfully execute on our
? consolidation strategy or make any desired changes in our strategy from time to
time;
? meeting our forecasts and budgets, including our 2021 capital expenditure
budget;
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? expectations regarding oil and natural gas markets in
realized prices;
the ability of the members of the
? ("OPEC") and other oil exporting nations, including
to and maintain oil price and production controls;
? outbreaks and pandemics, even outside our areas of operation, including
COVID-19;
operational constraints, start-up delays and production shut-ins at both
? operated and non-operated production platforms, pipelines and natural gas
processing facilities;
? our ability to successfully develop our undeveloped acreage in the Permian
Basin and Midcontinent region, and realize the benefits associated therewith;
? increased costs and risks associated with our exploration and development in
the
the risks associated with acting as operator of deep high pressure and high
? temperature wells, including well blowouts and explosions, onshore and
offshore;
the risks associated with exploration, including cost overruns and the drilling
? of non-economic wells or dry holes, especially in prospects in which we have
made a large capital commitment relative to the size of our capitalization
structure;
? the timing and successful drilling and completion of oil and natural gas wells;
? the concentration of drilling in the
expected production attributable to down spacing of wells;
our ability to generate sufficient cash flow from operations, borrowings or
? other sources to enable us to fund our operations, satisfy our obligations,
fund our drilling program and support our acquisition efforts;
? the cost and availability of rigs and other materials, services and operating
equipment;
? timely and full receipt of sale proceeds from the sale of our production;
? our ability to find, acquire, market, develop and produce new oil and natural
gas properties;
the conditions of the capital markets and our ability to access debt and equity
? capital markets or other non-bank sources of financing, and actions by current
and potential sources of capital, including lenders;
? interest rate volatility;
? our ability to complete strategic dispositions or acquisitions of assets or
businesses and realize the benefits of such dispositions or acquisitions;
? uncertainties in the estimation of proved reserves and in the projection of
future rates of production and timing of development expenditures;
the need to take impairments on our properties due to lower commodity prices or
? other changes in the values of our assets, which results in a non-cash charge
to earnings;
the ability to post additional collateral for current bonds or comply with new
? supplemental bonding requirements imposed by the
Management;
operating hazards attendant to the oil and natural gas business including
? weather, environmental risks, accidental spills, blowouts and pipeline
ruptures, and other risks;
? downhole drilling and completion risks that are generally not recoverable from
third parties or insurance;
? potential mechanical failure or under-performance of significant wells,
production facilities, processing plants or pipeline mishaps;
? actions or inactions of third-party operators of our properties;
? actions or inactions of third-party operators of pipelines or processing
facilities;
? the ability to retain key members of senior management and key technical
employees and to find and retain skilled personnel;
? strength and financial resources of competitors;
? federal and state legislative and regulatory developments and approvals
(including additional taxes and changes in environmental regulations);
? the uncertain impact of supply of and demand for oil, natural gas and natural
gas liquids;
? our ability to obtain goods and services critical to the operation of our
properties;
? worldwide and
? the ability to construct and operate infrastructure, including pipeline and
production facilities;
? the continued compliance by us with various pipeline and gas processing plant
specifications for the gas and condensate produced by us;
? operating costs, production rates and ultimate reserve recoveries of our oil
and natural gas discoveries;
? expanded rigorous monitoring and testing requirements;
? the ability to obtain adequate insurance coverage on commercially reasonable
terms; and
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? the limited trading volume of our common stock and general market volatility.
Any of these factors and other factors described in this report could cause our actual results to differ materially from the results implied by these or any other forward-looking statements made by us or on our behalf. Although we believe our estimates and assumptions to be reasonable when made, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. Our assumptions about future events may prove to be inaccurate. Moreover, the effects of the COVID-19 pandemic may give rise to risks that are currently unknown or amplify the risks associated with many of the factors summarized above or discussed in this report, our 2020 Form 10-K, or Quarterly Report on Form 10-Q for the quarter endedJune 30, 2021 . We caution you that the forward-looking statements contained in this report are not guarantees of future performance, and we cannot assure you that those statements will be realized or the forward-looking events and circumstances will occur. You should not place undue reliance on forward-looking statements in this report as they speak only as of the date of this report. All forward-looking statements, expressed or implied, in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or any person acting on our behalf may issue. We do not intend to publicly update or revise any forward-looking statements as a result of new information, future events or otherwise, except as required by law. Overview
We are aFort Worth, Texas based, independent oil and natural gas company. Our business is to maximize production and cash flow from our onshore properties primarily located in our Midcontinent, Permian, Rockies and other smaller onshore areas and our offshore properties in the shallow waters of theGulf of Mexico and utilize that cash flow to explore, develop and acquire oil and natural gas properties acrossthe United States . The following table lists our primary producing regions as ofSeptember 30, 2021 : Region FormationCleveland , Bartlesville, Mississippian, Woodford and Midcontinent others PermianSan Andres , Yeso,Bone Springs , Wolfcamp and others Sussex, Shannon, Muddy, Phosphoria, Embar-Tensleep, Frontier,Fort Union , Lance, Mesa Verde, Codey, Rockies Madison and others Woodbine,Lewisville ,Buda ,Georgetown , Eagleford, OffshoreGulf of Mexico properties in water depths Other off ofLouisiana in less than 300 feet, and others
Impact of the COVID-19 Pandemic
The coronavirus ("COVID-19") pandemic has significantly affected the global
economy, disrupted global supply chains and created significant volatility in
the financial markets. In addition, the COVID-19 pandemic has resulted in travel
restrictions, business closures and other restrictions that have disrupted the
demand for oil throughout the world and, when combined with the failure by OPEC
and Russia to reach an agreement on lower production quotas until April 2020 ,
resulted in oil prices declining significantly beginning in late February 2020 .
While there has been an improvement in commodity prices since early 2020, prices
remain volatile, and there is still significant uncertainty regarding the
long-term impact of the COVID-19 pandemic on global oil demand and prices.
Moreover, OPEC and Russia reached an agreement in July 2021 to increase
production over the next several months beginning in August 2021 , which may
further increase volatility. Due to the extreme volatility in oil prices and the
impact of the COVID-19 pandemic on the financial condition of our upstream
peers, we suspended our onshore drilling program in the Southern Delaware Basin
in the first quarter of 2020, further suspended all drilling in the second
quarter of 2020, and then focused on certain measures that included, but have
not been limited to, the following:
? a company-wide effort to cut costs throughout our operations;
potential acquisitions of PDP-heavy assets, with attractive, discounted
? valuations, in stressed/distressed scenarios or from non-natural owners such as
investment or lender firms that obtained ownership through a corporate restructuring;
the identification of more cost-efficient drilling and completion strategies by
our technical teams and the possible commencement of a conservative
? drilling/completion program on undeveloped opportunities in our portfolio
should oil prices, and market stability, continue to improve and provide
appropriate risk-weighted returns; and
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the extensive review of assets acquired in recent transactions for cost
? reduction opportunities, as well as opportunities to return to production wells
that had previously been shut-in by the previous owners due to limited capital
resources. Drilling Program From our initial entry into theSouthern Delaware Basin in 2016 and through early 2019, we were focused on the development of ourSouthern Delaware Basin acreage inPecos County, Texas . Due to the extreme volatility in oil prices and the impact of the COVID-19 pandemic on the financial condition of our upstream peers, we suspended drilling in this area in the first quarter of 2020 and further suspended all drilling in the second quarter of 2020. Due to strengthening oil prices in 2021, and our identification of more cost-efficient methods of drilling and completing ourPermian Basin wells, in the second quarter of 2021, we resumed a conservative one-rig drilling program in theSouthern Delaware Basin . InMay 2021 , we began drilling the first of three single-pad wells originally planned in the Permian region. Based on recent success by other operators adjacent to our position, we decided to drill one of the three wells in this first pad to the Second Bone Spring formation, which is our first well drilled to that formation. Due to the success and efficiency in the drilling of these first three wells and the improved oil price market, we commenced spudding a second three-well pad inJuly 2021 as part of our 2021 Permian drilling program. The first two wells, both drilled to the Wolfcamp A formation, were drilled to an average total measured depth of 20,440 feet with an average lateral length of 9,700 feet and 48 stages of fracture stimulation. The third well, drilled to the Second Bone Spring formation, was drilled to a total measured depth of 19,090 feet with a lateral length of 9,574 feet and 47 stages of fracture stimulation. These three wells were brought online in mid-October and are still being evaluated at this time. We plan to begin completion operations on the second three wells in late November, with first production expected inJanuary 2022 . As ofSeptember 30, 2021 , we were producing from eighteen wells over our approximate 16,200 gross operated (7,500 company net) acre position in our Permian region, prospective for the Wolfcamp A, Wolfcamp B and Second Bone Spring formations. Acquisitions OnJanuary 21, 2021 , we closed on the acquisition ofMid-Con Energy Partners, LP ("Mid-Con"), in an all-stock merger transaction in which Mid-Con became a direct, wholly owned subsidiary of Contango (the "Mid-Con Acquisition"). A total of 25,552,933 shares of Contango common stock were issued as consideration in the Mid-Con Acquisition. Effective upon the closing of the Mid-Con Acquisition, our borrowing base under the Credit Agreement increased from$75.0 million to$130.0 million , with an automatic$10.0 million reduction in the borrowing base onMarch 31, 2021 . See Item 1. Note 3 - "Acquisitions and Dispositions" and Item 1. Note 10 - "Long-Term Debt" for further details. OnFebruary 1, 2021 , we closed on the acquisition of certain oil and natural gas properties located in theBig Horn Basin inWyoming andMontana , in thePowder River Basin inWyoming and in thePermian Basin inWest Texas andNew Mexico (collectively the "Silvertip Acquisition") for aggregate consideration of approximately$58.0 million . After customary closing adjustments, including the results of operations during the period between the effective date ofAugust 1, 2020 and the closing date, the net consideration paid was approximately$53.3 million . See Item 1. Note 3 - "Acquisitions and Dispositions" for more information. OnJune 7, 2021 , we entered into a definitive agreement to combine withIndependence Energy, LLC ("Independence") in an all-stock transaction (the "Pending Independence Merger"). Independence is a diversified, well-capitalized upstream oil and gas business built and managed by KKR's Energy Real Assets team with a scaled portfolio of low-decline, producing assets with meaningful reinvestment opportunities for low-risk growth across the Eagle Ford, Rockies, Permian and Mid-Continent regions. The closing of the Pending Independence Merger remains subject to the approval of our stockholders at the Special Meeting of the Stockholders to be held onDecember 6, 2021 , and is expected to be completed inDecember 2021 . The Pending Independence Merger agreement includes certain restrictions on the conduct of the business of the Company until the closing, such as a requirement to operate in the ordinary course of business and limitations on, among other things, our ability to make acquisitions, declare or pay dividends, issue or sell equity or incur debt. Upon completion of the Pending Independence Merger, existing Independence shareholders are expected to own approximately 76% and existing Contango shareholders are expected to own approximately 24% of the combined company. See Item 1. Note 3 - "Acquisitions and Dispositions" and Item 1. Note 13 - "Subsequent Events" for further details. 33 Table of Contents OnAugust 31, 2021 , we closed on the acquisition of low decline, conventional gas assets in theWind River Basin ofWyoming (the "Wind River Basin Acquisition"). Upon closing, we acquired approximately 446 Bcfe of PDP reserves (unaudited) for a total purchase price of$67.0 million in cash. After customary closing adjustments, including the results of operations during the period between the effective date ofJune 1, 2021 and the closing date, the net consideration paid was approximately$62.6 million , subject to customary purchase price adjustments. See Item 1. Note 3 - "Acquisitions and Dispositions" for further details. Other OnApril 28, 2021 , the Board of Directors of the Company (the "Board") increased the size of the Board from five to seven directors and appointedKaren Simon andJanet Pasque to fill the vacancies created by the expansion of the Board, effective onApril 28, 2021 . Concurrent with their election as directors of the Company,Ms. Pasque was appointed to theCompensation Committee andNominating Committee of the Board, andMs. Simon was appointed to theAudit Committee andNominating Committee of the Board. The Board determined thatMs. Pasque andMs. Simon are both independent directors under the applicable rules and regulations of theSEC and within the meaning of the NYSE American listing standards. OnApril 28, 2021 , we adopted the Contango Oil & Gas Company Change in Control Severance Plan and theContango Oil & Gas Company Executive Severance Plan. For a description of these plans, see Item 1. Note 1 - "Organization and Business."
OnMay 3, 2021 , we entered into the Fifth Amendment to the Credit Agreement (the "Fifth Amendment"), which provided for, among other things, an increase in the Company's borrowing base from$120.0 million to$250.0 million , effectiveMay 3, 2021 , expanded the bank group from nine to eleven banks and reinstated the Current Ratio and Leverage Ratio requirements beginning as ofJune 30, 2021 . The Fifth Amendment also includes less restrictive hedge requirements and certain modifications to financial covenants. See Item 1. Note 10 - "Long-Term Debt" for further information regarding the Fifth Amendment. OnAugust 6, 2021 , we received notice from theSmall Business Administration that our loan received from the Paycheck Protection Program in 2020 for approximately$3.4 million was forgiven in its entirety. See Item 1. Note 10 - "Long-Term Debt" for further information. In light of the Pending Independence Merger, onOctober 28, 2021 , we entered into a waiver letter with the lenders of the Credit Agreement which, among other things, postpones theNovember 2021 scheduled redetermination of the Company's borrowing base until on or aboutFebruary 1, 2022 . See Item 1. Note 10 - "Long-Term Debt" and Item 1. Note 13 - "Subsequent Events" for further details. Capital Expenditures
We currently forecast our 2021 capital expenditure budget to be a total of approximately$30.0 -$34.0 million for recompletions, facility upgrades, waterflood development and select drilling in the West Texas Permian (3 net locations, 6 gross locations), among other things. This forecast does not account for the Pending Independence Merger. The planned capital expenditures also include development opportunities with respect to certain properties we acquired as part of the Mid-Con Acquisition and the Silvertip Acquisition. The capital expenditure program will continue to be evaluated for revision for
the remainder of the year. During the nine months endedSeptember 30, 2021 , we incurred capital expenditures of approximately$25.9 million , of which$13.2 million related to the drilling and completion of theSouthern Delaware Basin wells. We also incurred approximately$10.2 million in expenditures primarily related to redevelopment activities of recently acquired properties in our Midcontinent, Permian and Rockies regions and$2.3 million in unproved offshore prospect costs, of which$1.1 million was paid for with the proceeds of an issuance of Company common stock, pursuant to a joint development agreement between the Company andJuneau Oil & Gas, LLC . We believe that our current financial resources will be more than adequate to fund our 2021 capital budget through internally generated cash flow, and any increase to such 2021 capital expenditure budget, when and if such increase is deemed appropriate. We plan to retain the flexibility to be more aggressive in our drilling plans should results exceed expectations, commodity prices continue to improve or we reduce drilling and completion costs in certain areas, thereby making an expansion of our drilling program an appropriate business decision. 34 Table of Contents For the remainder of 2021, we intend to continue to make balance sheet strength a priority. Any excess cash flow will likely be used to reduce borrowings outstanding under our Credit Agreement (as defined below). We intend to keenly focus on continuing to reduce lease operating costs on our legacy and recently acquired assets, reducing general and administrative expenses, improving cash margins and lowering our exposure to asset retirement obligations through the possible sale of non-core properties.
Impairment of Long-Lived Assets
Under GAAP, when circumstances indicate that proved properties may be impaired, the Company compares expected undiscounted future cash flows on a field basis to the unamortized capitalized cost of the assets in that field. If the estimated future undiscounted cash flows based on the Company's estimate of future reserves, oil and natural gas prices, operating costs and production levels from oil and natural gas reserves, are lower than the unamortized capitalized cost, then the capitalized cost is reduced to fair value. We did not record any impairment expense related to proved properties during the nine months endedSeptember 30, 2021 . We recorded a$0.2 million non-cash charge for unproved impairment expense during the nine months endedSeptember 30, 2021 related to expiring leases in our Permian region. In the first quarter of 2020, the COVID-19 pandemic and the resulting deterioration in the global demand for oil, combined with the failure byOPEC andRussia to reach an agreement on lower production quotas untilApril 2020 , caused a dramatic increase in the supply of oil and a corresponding decrease in commodity prices, and lowered the demand for all commodity products. Consequently, during the nine months endedSeptember 30, 2020 , we recorded a$143.3 million non-cash charge for proved property impairment of our onshore properties related to the dramatic decline in commodity prices, as discussed above, the impact of the lower prices on the "PV-10" (present value, discounted at a 10% rate) of our proved reserves, and the associated change in our then forecasted development plans for our proved, undeveloped locations. We recorded a$2.6 million non-cash charge for unproved impairment expense during the nine months endedSeptember 30, 2020 related to expiring leases in our Midcontinent region.
Summary Production Information
Our production sales for the three months endedSeptember 30, 2021 , were comprised of 35% oil, 48% natural gas, and 17% natural gas liquids, in comparison to our production sales for the three months endedSeptember 30, 2020 , of approximately 28% oil, 52% natural gas and 20% natural gas liquids. Our production sales for the nine months endedSeptember 30, 2021 , were comprised of 37% oil, 45% natural gas, and 18% natural gas liquids, in comparison to our production sales for the nine months endedSeptember 30, 2020 , of approximately 27% oil, 53% natural gas and 20% natural gas liquids.
The table below sets forth our average net daily production sales data in MBoe/d for each of our regions for each of the periods indicated:
Three Months Ended
September 30, December 31, March 31, June 30, September 30,
2020 2020 2021 (3) 2021 (4) 2021 (5)
Midcontinent (1) 12.6 9.6 11.1 12.2 12.4
Permian 0.7 1.4 2.6 4.8 4.3
Rockies 0.1 - 2.6 4.4 7.2
Other (2) 3.8 3.4 3.4 2.7 2.5Total daily production sales volumes 17.2 14.4 19.7 24.1 26.4
Production sales during the three months ended
approximately 50,000 Bbls (0.5 MBoe/d) of second quarter 2020 oil production
(net to the Company), which was held as inventory and later sold in the third (1) quarter of 2020 at higher prices. The decrease in production sales during the
three months ended
workovers and routine repair and maintenance. The increase in production
sales in 2021 was due to the properties acquired as part of the Mid-Con
Acquisition.
Includes our offshore
near the Texas
The increase in production sales during the three months ended
was due to the Mid-Con Acquisition and the Silvertip Acquisition. The Mid-Con
Acquisition reflects production sales beginning
1.7 MBoe/d and 0.4 MBoe/d, respectively. The Silvertip Acquisition reflects
production sales beginning
production for the Permian and
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Rockies regions by 1.9 MBoe/d and 2.1 MBoe/d, respectively
The Mid-Con Acquisition impacted the 2021 second quarter production for the (4) Midcontinent and Rockies regions by 2.5 MBoe/d and 0.6 MBoe/d, respectively.
The Silvertip Acquisition impacted the 2021 second quarter production for the
Permian and Rockies regions by 3.9 MBoe/d and 3.7 MBoe/d, respectively.
The Mid-Con Acquisition impacted the 2021 third quarter production for the
Midcontinent and Rockies regions by 2.5 MBoe/d and 0.7 MBoe/d, respectively.
The Silvertip Acquisition impacted the 2021 third quarter production for the (5) Permian and Rockies regions by 3.6 MBoe/d and 2.2 MBoe/d, respectively. The
2021 third quarter production in the Rockies region also includes 4.3 MBoe/d
of production sales from the Wind River Basin Acquisition beginning September
1, 2021.
Other Investments
Our wholly owned subsidiary,Contaro Company , owns a 37% ownership interest inExaro Energy III LLC ("Exaro"). As ofSeptember 30, 2021 , Exaro had 650 producing wells over its 5,760 gross acres (1,040 net), with a working interest between 14.6% and 32.5%. These wells were producing at a rate of approximately 2.3 MBoe/d, net to Exaro, during the three months endedSeptember 30, 2021 and 2.4 MBoe/d, net to Exaro, during the nine months endedSeptember 30, 2021 . We recognized an investment loss of approximately$1.1 million , net of no tax expense, and an investment loss of approximately$1.9 million , net of no tax expense, attributable to our equity investment in Exaro for the three and nine months endedSeptember 30, 2021 , respectively. We recognized an investment loss of approximately$0.1 million , net of no tax expense, and an investment loss of$13 thousand , net of no tax expense, attributable to our equity investment in Exaro for the three and nine months endedSeptember 30, 2020 , respectively. See Item 1. Note 9 - "Investment inExaro Energy III LLC " for additional details related to this equity investment. 36
Table of Contents
Results of Operations for the Three and Nine Months Ended
The table below sets forth revenue, production sales data, average sales prices
and average production costs associated with our sales of oil, natural gas and
natural gas liquids ("NGLs") from operations for the three and nine months ended
September 30, 2021 and 2020. The 2021 results include the properties acquired in
the Mid-Con Acquisition, the Silvertip Acquisition and the Wind River Basin
Acquisition that closed on January 21, 2021 , February 1, 2021 and August 31,
2021 , respectively. We report in barrels of oil equivalents ("Boe") instead of
natural gas equivalents. Six thousand cubic feet ("Mcf") of natural gas is the
energy equivalent of one barrel of oil, condensate or NGL. Reported operating
expenses include production taxes, such as ad valorem and severance taxes.
Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % Change 2021 2020 % Change
Revenues (thousands):
Oil and condensate sales $ 56,044 $ 17,415 222 % $ 149,246 $ 48,127 210 %
Natural gas sales 26,241 7,930 231 % 55,556 22,718 145 %
NGL sales 15,175 5,003 203 % 35,735 11,918 200 %
Other operating revenues 2,467 1,000 147 % 2,980 1,000 198 %
Total revenues $ 99,927 $ 31,348 219 % $ 243,517 $ 83,763 191 %
Production Sales Volumes:
Oil and condensate (thousand
barrels)
Midcontinent 432 345 25 % 1,212 943 29 %
Permian 154 45 242 % 445 203 119 %
Rockies 214 6 * % 613 16 * %
Other 32 47 (32) % 103 147 (30) %
Total oil and condensate 832 443 88 % 2,373 1,309 81 %
Natural gas (million cubic feet)
Midcontinent 2,731 3,320 (18) % 7,978 10,415 (23) %
Permian 805 42 * % 2,097 123 * %
Rockies 2,581 - 100 % 3,689 - 100 %
Other 939 1,591 (41) % 3,317 4,530 (27) %
Total natural gas 7,056 4,953 42 % 17,081 15,068 13 %
Natural gas liquids (thousand
barrels)
Midcontinent 256 269 (5) % 713 793 (10) %
Permian 107 9 * % 270 24 * %
Rockies 18 - 100 % 63 - 100 %
Other 37 40 (8) % 129 139 (7) %
Total natural gas liquids 418 318 31 % 1,175 956 23 %
Total (thousand barrels of oil
equivalent)
Midcontinent 1,142 1,167 (2) % 3,255 3,471 (6) %
Permian 395 61 548 % 1,065 248 329 %
Rockies 662 6 * % 1,290 16 * %
Other 227 353 (36) % 785 1,041 (25) %
Total production sales volumes 2,426 1,587 53 % 6,395 4,776 34 %
Daily Production Sales Volumes:
Oil and condensate (thousand
barrels per day)
Midcontinent 4.7 3.8 24 % 4.4 3.4 29 %
Permian 1.7 0.5 240 % 1.6 0.7 129 %
Rockies 2.3 0.1 * % 2.2 0.1 * %
Other 0.3 0.4 (25) % 0.5 0.6 (17) %
Total oil and condensate 9.0 4.8 88 % 8.7 4.8 81 %
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Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 % Change 2021 2020 % Change
Natural gas (million cubic feet per day)
Midcontinent 29.7 36.1 (18) % 29.2 38.0 (23) %
Permian 8.8 0.5 * % 7.7 0.4 * %
Rockies 28.1 - 100 % 13.5 - 100 %
Other 10.1 17.2 (41) % 12.2 16.6 (27) %
Total natural gas 76.7 53.8 43 % 62.6 55.0 14 %
Natural gas liquids (thousand barrels per day)
Midcontinent 2.8 2.9 (3) % 2.6 2.9 (10) %
Permian 1.2 0.1 * % 1.0 0.1 900 %
Rockies 0.2 - 100 % 0.2 - 100 %
Other 0.3 0.5 (40) % 0.5 0.5 - %
Total natural gas liquids 4.5 3.5 29 % 4.3 3.5 23 %
Total (thousand barrels of oil equivalent per day)
Midcontinent 12.4 12.6 (2) % 11.9 12.7 (6) %
Permian 4.3 0.7 514 % 3.9 0.9 333 %
Rockies 7.2 0.1 * % 4.7 0.1 * %
Other 2.5 3.8 (34) % 2.9 3.7 (22) %Total daily production sales volumes 26.4 17.2 53 % 23.4 17.4 34 % Average Sales Price: Oil and condensate (per barrel)$ 67.39 $ 39.30 71 % $ 62.89$ 36.76 71 % Natural gas (per thousand cubic feet)$ 3.72 $ 1.60 133 % $ 3.25$ 1.51 115 % Natural gas liquids (per barrel)$ 36.30 $ 15.73 131 % $ 30.42$ 12.47 144 % Total (per barrels of oil equivalent)$ 40.18
$ 19.13 110 % $ 37.62$ 17.33 117 % Expenses (thousands): Operating expenses$ 44,916 $ 14,586 208 % $ 108,901$ 48,859 123 % Exploration expenses $ 174$ (227) (177) % $ 458$ 11,344 (96) %
Depreciation, depletion and amortization$ 9,792 $ 6,185 58 % $ 30,391$ 24,131 26 %
Impairment and abandonment of oil and natural gas $ 258 $ 47 449 % $
712 $ 145,925 (100) %
properties
General and administrative expenses$ 14,599 $ 8,699 68 % $ 39,441$ 24,186 63 % Loss from investment in affiliates (net of taxes)$ (1,093) $ (126) 767 % $ (1,897)$ (13) * % Selected data per Boe: Operating expenses$ 18.50 $ 9.20 101 % $ 17.03$ 10.24 66 %
General and administrative expenses$ 6.02 $ 5.48 10 % $ 6.17$ 5.06 22 % Depreciation, depletion and amortization$ 4.03
$ 3.90 3 % $ 4.75$ 5.05 (6) % *Greater than 1,000%
Three Months Ended
Oil, Natural Gas and NGL Sales and Production
Our revenues are primarily from the sale of our oil, natural gas and NGL production. Our revenues have varied significantly from year to year depending on production volumes and changes in commodity prices, each of which can fluctuate widely. As discussed above, oil prices declined significantly in the first quarter of 2020 as a result of the effects of the COVID-19 pandemic and the ongoing disruptions to the global energy markets. While those factors generally kept downward pressure and instability on the commodity price markets in 2020, due to domestic vaccination programs and the related improvement in, and the forecast for the economy, we have experienced meaningful commodity
price
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improvement since the first quarter of 2021. Our production sales are subject to
significant variation as a result of new operations, weather events,
transportation and processing constraints and mechanical issues. In addition,
our production from individual wells naturally declines over time as we produce
our reserves.
We reported revenues of$99.9 million for the three months endedSeptember 30, 2021 , compared to revenues of$31.3 million for the three months endedSeptember 30, 2020 . The current year quarter increase is attributable to the increases in commodity prices in 2021, the additional production sales from the properties acquired in the Mid-Con Acquisition, the Silvertip Acquisition and the Wind River Basin Acquisition, and the impact of the increase in the Company's percentage of oil/liquids sales as compared to total sales. The revenues related to the acquired properties in the third quarter of 2021 were as follows:$19.1 million attributable to the Mid-Con Acquisition,$23.7 million attributable to the Silvertip Acquisition and$9.1 million attributable to theWind River Basin Acquisition (which only includes one month of production sales, as the Wind River Basin Acquisition closed onAugust 31, 2021 ). Total production sales for the three months endedSeptember 30, 2021 were approximately 2.4 MMBoe (52% liquids), or 26.4 MBoe/d, compared to approximately 1.6 MMBoe (48% liquids), or 17.2 MBoe/d in the prior year quarter. The increase in the third quarter 2021 production sales is attributable to the production from the acquired properties as follows: 3.2 MBoe/d attributable to the Mid-Con Acquisition, 5.8 MBoe/d attributable to the Silvertip Acquisition and 4.3 MBoe/d attributable to the Wind River Basin Acquisition (which only includes one month of production sales, as theWind River Basin acquisition closed onAugust 31, 2021 ), with the overall increase in production sales partially offset by 2021 property sales. Net oil production sales were approximately 9,000 barrels per day for the three months endedSeptember 30, 2021 , compared to approximately 4,800 barrels per day in the prior year quarter. The production sales in the prior year quarter also included approximately 500 barrels per day of second quarter 2020 oil production (net to the Company), which was held as inventory and later sold in the third quarter of 2020 at higher prices. Net natural gas production sales increased to approximately 76.7 MMcf per day during the three months endedSeptember 30, 2021 , compared with approximately 53.8 MMcf per day during the three months endedSeptember 30, 2020 . Net NGL production sales were approximately 4,500 barrels per day during the three months endedSeptember 30, 2021 , compared to approximately 3,500 barrels per day in the prior year quarter. Average Sales Prices The average equivalent sales price realized for the three months endedSeptember 30, 2021 was$40.18 per Boe compared to$19.13 per Boe for the three months endedSeptember 30, 2020 . The increase in the third quarter 2021 realized prices is primarily attributable to an improvement in the economy and higher realized commodity prices in 2021 brought about by domestic vaccination programs that have helped reduce the spread of COVID-19. The lower prior year prices were attributable to the decline in all realized commodity prices in early 2020 as a result of the initial spread of the COVID-19 pandemic and its negative impact on the global demand for oil and natural gas. The realized price of oil averaged$67.39 per Bbl in the third quarter of 2021 compared to an average of$39.30 per Bbl in the prior year quarter. The realized price of natural gas averaged$3.72 per Mcf in the third quarter of 2021 compared to an average of$1.60 per Mcf in the prior year quarter, and the realized price of NGLs averaged$36.30 per Bbl in the third quarter of 2021 compared to an average of$15.73 per Bbl in the prior year quarter. Also contributing to the improvement in the average sales price per barrel of oil equivalent, period over period, was the increase in the percentage of our total production that came from the higher value of crude
oil and NGL production sales. Other Operating Revenues We reported$2.5 million of other operating revenues during the three months endedSeptember 30, 2021 related to sulfur revenues from the properties we acquired in the Wind River Basin Acquisition and plant and pipeline revenues from the properties we acquired in the Mid-Con Acquisition. We reported$1.0 million of other operating revenues during the three months endedSeptember 30, 2020 related to a fee for service agreement we had with Mid-Con prior to the Mid-Con Acquisition. Operating Expenses
Total operating expenses for the three months ended
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The table below provides additional detail of total operating expenses for the comparative three month periods:
Three Months Ended September 30,
2021 2020
(in thousands) (per Boe) (in thousands) (per Boe)
Lease operating expenses $ 24,266 $ 10.00 $ 6,105 $ 3.85
Production & ad valorem taxes 6,928 2.86 1,533 0.97
Transportation & processing costs 9,438 3.89 5,670 3.57
Workover costs 3,528 1.45 1,278 0.81
Other operating expenses 756 0.30 - -
Total operating expenses $ 44,916 $ 18.50 $ 14,586 $ 9.20
Lease operating expenses ("LOE") were $24.3 million and $6.1 million for the
three months ended September 30, 2021 and September 30, 2020 , respectively. The
increase in the third quarter 2021 LOE was primarily related to the acquired
properties, and the expenses were as follows: $6.7 million , or $22.76 per Boe,
attributable to the Mid-Con Acquisition, $6.9 million , or $13.12 per Boe,
attributable to the Silvertip Acquisition and $3.0 million , or $7.50 per Boe,
attributable to the Wind River Basin Acquisition (which only includes one month
of LOE, as the Wind River Basin Acquisition closed on August 31, 2021 ).
Production and ad valorem taxes were $6.9 million and $1.5 million for the three
months ended September 30, 2021 and September 30, 2020 , respectively. The
increase in the third quarter 2021 production and ad valorem taxes was primarily
attributable to the acquired properties, and the expenses were as follows: $1.6
million , or $5.48 per Boe, attributable to the Mid-Con Acquisition, $2.5
million , or $4.73 per Boe, attributable to the Silvertip Acquisition and $0.4
million , or $1.00 per Boe, attributable to the Wind River Basin Acquisition
(which only includes one month of production sales, as the Wind River Basin
Acquisition closed on August 31, 2021 ).
Transportation and processing costs were approximately $9.4 million compared to
$5.7 million for the three months ended September 30, 2021 and 2020,
respectively. The three months ended September 30, 2021 expense includes $3.4
million , or $6.43 per Boe, in transportation and processing costs related to the
properties acquired in the Silvertip Acquisition, which is the primary reason
for the increase in expense and rate per Boe in the current year quarter
compared to the prior year quarter.
Workover expenses were approximately $3.5 million compared to $1.3 million for
the three months ended September 30, 2021 and 2020, respectively. The increase
in the current year quarter workover expense was a result of higher commodity
prices in 2021 and includes $0.6 million related to the properties acquired in
the Mid-Con Acquisition and $0.8 million related to the properties acquiredin the Silvertip Acquisition. We reported$0.8 million of other operating expenses during the three months endedSeptember 30, 2021 specifically related to the plant and pipeline acquired in the Mid-Con Acquisition. We did not report any other operating expenses during the prior year period.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the three months endedSeptember 30, 2021 was approximately$9.8 million , or$4.03 per Boe. This compares to approximately$6.2 million , or$3.90 per Boe, for the three months endedSeptember 30, 2020 . The higher depletion expense and rate per Boe for the three months endedSeptember 30, 2021 is attributable to the properties from the Mid-Con Acquisition and the Silvertip Acquisition. The third quarter 2021 expense related to the acquired properties was approximately$2.0 million , or$6.71 per Boe, for those acquired in the Mid-Con Acquisition, approximately$2.5 million , or$4.72 per Boe, for those acquired in the Silvertip Acquisition, and$0.8 million , or$2.13 per Boe, attributable to the Wind River Basin Acquisition (which only includes one month of expense, as the Wind River Basin Acquisition closed onAugust 31, 2021 ).
Impairment and Abandonment Expenses
We did not record any impairment expense related to proved or unproved
properties during the three months ended
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General and Administrative Expenses
Total general and administrative expenses for the three months endedSeptember 30, 2021 were approximately$14.6 million , compared to$8.7 million for the three months endedSeptember 30, 2020 . The increase in the current year quarter expense is primarily attributable to$2.7 million in non-recurring fees related to the Pending Independence Merger and$1.4 million in higher stock-based compensation due to an increase in the number of annual equity grants awarded to all employees in 2021.
The table below provides additional detail of general and administrative expenses for the comparative three month periods:
Three Months Ended September 30,
2021 2020
(in thousands)Wages and employee benefits (1) $ 4,352 $
3,499
Non-cash stock-based compensation (2) 3,201
1,764
Professional fees (3) 1,859
1,857
Professional fees - special (4) 2,914
326
Recouped overhead (5) (1,938) (1,075)
Office costs (6) 1,796 1,267
Legal judgements (7) 708 90
Other (8) 1,707 971Total general and administrative expenses $ 14,599 $
8,699
Higher wages and employee benefits during the three months ended September (1) 30, 2021 due to additional employees acquired by the Company in connection
with the Mid-Con Acquisition.
Higher stock-based compensation expense for the three months ended September (2) 30, 2021 due to an increase in the number of equity awards granted to all
employees in 2021 as part of the annual incentive bonus compensation and the
related increase in expense.
(3) Primarily includes fees related to recurring legal counsel, technical
consultants and accounting and auditing costs.
Special professional fees are transaction-specific fees incurred in
conjunction with our pursuit of strategic initiatives, including theintegration of assets from our acquisitions and transaction costs associated (4) with the evaluation and closing of acquisitions categorized as business
combinations. The three months ended
in fees related to the Pending Independence Merger. See Item 1. Note 3 -
"Acquisitions and Dispositions" for further details.
These credits relate to overhead we recoup pursuant to joint operatingagreements with working interest partners on our operated properties, and (5) which are recorded as an offset to our other general and administrative
costs. The increase in the current year credit is due to the overhead
recouped on recently acquired properties.
(6) Primarily includes office rent, office supplies and software licenses for IT
applications.
The 2021 third quarter expense includes an accrual for additional interest
(7) related to a final judgment received in
further details.
(8) Includes fees related to insurance and other company expenses.
Loss from Affiliates For the three months endedSeptember 30, 2021 , we recorded a loss from affiliates of approximately$1.1 million , net of no tax expense, attributable to our equity investment in Exaro. For the three months endedSeptember 30, 2020 , we recorded a loss from affiliates of approximately$0.1 million , net of no tax expense, attributable to our equity investment in Exaro. Loss on Derivatives During the three months endedSeptember 30, 2021 , we recorded a loss on derivatives of$48.4 million . Of this amount,$35.5 million was a non-cash charge to reflect the change in the mark-to-market value of our hedges as commodity prices increased during 2021, and$12.9 million were realized losses on monthly settlements on expiring contracts during the third quarter of 2021. During the three months endedSeptember 30, 2020 , we recorded a loss on derivatives of$7.4 million . Of this amount,$13.0 million were non-cash mark-to-market losses, and$5.6 million were realized gains. 41 Table of Contents
Gain on Extinguishment of Debt
During the three months endedSeptember 30, 2021 , we recorded a$3.4 million gain on extinguishment of debt related to the PPP loan forgiveness. See Item 1. Note 10 - "Long-Term Debt" for further details.
Nine Months Ended
Oil, Natural Gas and NGL Sales and Production
Our revenues are primarily from the sale of our oil, natural gas and NGL production. Our revenues have varied significantly from year to year depending on production volumes and changes in commodity prices, each of which can fluctuate widely. As discussed above, oil prices declined significantly in the first quarter of 2020 as a result of the effects of the COVID-19 pandemic and the ongoing disruptions to the global energy markets. While those factors generally kept downward pressure and instability on the commodity price markets in 2020, due to domestic vaccination programs and the related improvement in, and the forecast for, the economy, we have experienced meaningful commodity price improvement in 2021. Our production sales are subject to significant variation as a result of new operations, weather events, transportation and processing constraints and mechanical issues. In addition, our production from individual wells naturally declines over time as we produce our reserves. We reported revenues of$243.5 million for the nine months endedSeptember 30, 2021 , compared to revenues of$83.8 million for the nine months endedSeptember 30, 2020 . The current year increase is attributable to the increases in commodity prices in 2021, the additional production sales from the properties acquired in the Mid-Con Acquisition, the Silvertip Acquisition and the Wind River Basin Acquisition, and the impact of the increase in the Company's percentage of oil/liquids sales as compared to total sales. The revenues related to the acquired properties for the nine months endedSeptember 30, 2021 were as follows:$46.2 million attributable to the Mid-Con Acquisition,$64.8 million attributable to the Silvertip Acquisition and$9.1 million attributable to the Wind River Basin Acquisition (which only includes one month of production sales, as the Wind River Basin Acquisition closed onAugust 31, 2021 ). Total production sales for the nine months endedSeptember 30, 2021 were approximately 6.4 MMBoe (55% liquids), or 23.4 MBoe/d, compared to approximately 4.8 MMBoe (47% liquids), or 17.4 MBoe/d in the prior year period. The increase in 2021 production sales is attributable to the production from the acquired properties as follows: 2.8 MBoe/d attributable to the Mid-Con Acquisition, 5.8 MBoe/d attributable to the Silvertip Acquisition and 1.4 MBoe/d attributable to the Wind River Basin Acquisition (which only includes one month of production sales, as the Wind River Basin Acquisition closed onAugust 31, 2021 ), with the overall increase in production sales partially offset by 2021 property sales. Net oil production sales were approximately 8,700 barrels per day for the nine months endedSeptember 30, 2021 , compared to approximately 4,800 barrels per day in the prior year period. Net natural gas production sales were approximately 62.6 MMcf per day during the nine months endedSeptember 30, 2021 , compared with approximately 55.0 MMcf per day during the nine months endedSeptember 30, 2020 . Net NGL production sales increased to approximately 4,300 barrels per day during the nine months endedSeptember 30, 2021 compared to approximately 3,500 barrels per day in the prior year period. Average Sales Prices The average equivalent sales price realized for the nine months endedSeptember 30, 2021 was$37.62 per Boe compared to$17.33 per Boe for the nine months endedSeptember 30, 2020 . The increase in the 2021 realized prices is primarily attributable to an improvement in the economy and higher realized commodity prices in 2021 brought about by domestic vaccination programs that have helped reduce the spread of COVID-19. The lower prior year equivalent price was a result of the decline in all realized commodity prices in early 2020, as a result of the initial spread of the COVID-19 pandemic and its negative impact on the global demand for oil and natural gas. The realized price of oil averaged$62.89 per Bbl in the current year period compared to an average of$36.76 per Bbl in the prior year period. The realized price of natural gas averaged$3.25 per Mcf in the current year period compared to an average of$1.51 per Mcf in the prior year period, and the realized price of NGLs averaged$30.42 per Bbl in the current year period compared to an average of$12.47 per Bbl in the prior year period. Also contributing to the improvement in the average sales price per barrel of oil equivalent, period over period, was the increase in the percentage of our total production that came from the higher value of crude oil and NGL production sales. 42 Table of Contents Other Operating Revenues
We reported$3.0 million of other operating revenues during the nine months endedSeptember 30, 2021 related to sulfur revenues from the properties we acquired in the Wind River Basin Acquisition and plant and pipeline revenues from the properties we acquired in the Mid-Con Acquisition. We reported$1.0 million of other operating revenues during the nine months endedSeptember 30, 2020 related to a fee for service agreement we had with Mid-Con prior to the Mid-Con Acquisition. Operating Expenses
Total operating expenses for the nine months ended
The table below provides additional detail of total operating expenses for the comparative nine month periods:
Nine Months Ended September 30,
2021 2020
(in thousands) (per Boe) (in thousands) (per Boe)
Lease operating expenses $ 59,194 $ 9.26 $ 25,943 $ 5.43
Production & ad valorem taxes 16,819 2.63 4,107 0.86
Transportation & processing costs 23,586 3.69 15,801 3.31
Workover costs 7,796 1.22 3,008 0.64
Other operating expenses 1,506 0.23 - -
Total operating expenses $ 108,901 $ 17.03 $ 48,859 $ 10.24
Lease operating expenses ("LOE") were $59.2 million and $25.9 million for the
nine months ended September 30, 2021 and September 30, 2020 , respectively. The
increase in the current year period LOE was primarily related to the acquired
properties, and the expenses were as follows: $17.4 million , or $22.78 per Boe,
attributable to the Mid-Con Acquisition, $17.0 million , or $10.70 per Boe,
attributable to the Silvertip Acquisition and $3.0 million , or $7.50 per Boe,
attributable to the Wind River Basin Acquisition (which only includes one month
of LOE, as the Wind River Basin Acquisition closed on August 31, 2021 ).
Production and ad valorem taxes were $16.8 million and $4.1 million for the nine
months ended September 30, 2021 and September 30, 2020 , respectively. The
increase in the current year period production and ad valorem taxes was
primarily related to the acquired properties, and the expenses were as follows:
$3.9 million , or $5.13 per Boe, attributable to the Mid-Con Acquisition, $6.2
million , or $3.90 per Boe, attributable to the Silvertip Acquisition and $0.4
million , or $1.00 per Boe, attributable to the Wind River Basin Acquisition
(which only includes one month of production sales, as the Wind River Basin
Acquisition closed on August 31, 2021 ).
Transportation and processing costs were approximately $23.6 million compared to
$15.8 million for the nine months ended September 30, 2021 and 2020,
respectively. The current year period includes $7.3 million , $4.58 per Boe, in
transportation and processing costs related to the properties acquired in the
Silvertip Acquisition, which is the primary reason for the increase in expense
and rate per Boe in the current year period compared to the prior year period
Workover expenses were approximately $7.8 million compared to $3.0 million for
the nine months ended September 30, 2021 and 2020, respectively. The increase in
the current year period workover expense was a result of higher commodity prices
in 2021 and includes $0.6 million related to the properties acquired in the
Mid-Con Acquisition and $1.7 million related to the properties acquired inthe Silvertip Acquisition.
We reported
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Exploration Expense
Exploration expense was $0.5 million for the nine months ended September 30,
2021 , compared to $11.3 million in the prior year period, which included $10.4
million of dry hole costs related to the unsuccessful result on the drilling of
the Iron Flea exploratory prospect in the shallow waters of the Grand Isle area of theGulf of Mexico .
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization expense for the nine months endedSeptember 30, 2021 was approximately$30.4 million , or$4.75 per Boe. This compares to approximately$24.1 million , or$5.05 per Boe, for the nine months endedSeptember 30, 2020 . The higher depletion expense for the current year period was related to the acquired properties and included approximately$6.4 million , or$8.37 per Boe, for the properties acquired in the Mid-Con Acquisition, approximately$7.6 million , or$4.82 per Boe, for the properties acquired in the Silvertip Acquisition, and$0.8 million , or$2.13 per Boe, attributable to the Wind River Basin Acquisition (which only includes one month of expense, as the Wind River Basin Acquisition closed onAugust 31 , 2021).
Impairment and Abandonment Expenses
We did not record any impairment expense related to proved properties during the nine months endedSeptember 30, 2021 . We recorded a$0.2 million non-cash charge for unproved impairment expense during the nine months endedSeptember 30, 2021 , related to expiring leases in our Permian region. During the nine months endedSeptember 30, 2020 , we recorded a$143.3 million non-cash charge for proved property impairment of our onshore properties as a result of the dramatic decline in commodity prices, the impact of the lower prices on the PV-10 of our proved reserves, and the associated change in our then forecasted development plans for proved, undeveloped locations. We also recorded a$2.6 million non-cash charge for unproved impairment expense during the nine months endedSeptember 30, 2020 , related to acquired leases in our Midcontinent region that expired in 2020.
General and Administrative Expenses
Total general and administrative expenses for the nine months endedSeptember 30, 2021 were approximately$39.4 million , compared to$24.2 million for the nine months endedSeptember 30, 2020 . The increase in the 2021 expense is primarily attributable to$5.7 million in higher stock-based compensation due to an increase in the number of annual equity grants awarded to all employees in 2021,$3.4 million in non-recurring fees related to the Mid-Con Acquisition and$3.0 million in non-recurring fees related to the Pending Independence Merger. 44 Table of Contents
The table below provides additional detail of general and administrative expenses for the comparative nine month periods:
Nine Months Ended September 30,
2021 2020
(in thousands)Wages and employee benefits (1) $ 14,364 $
9,433
Non-cash stock-based compensation (2) 8,090
2,378
Professional fees (3) 4,503
4,026
Professional fees - special (4) 6,667
2,553 Recouped overhead (5) (5,331) (2,395) Office costs (6) 4,724 4,056 Legal judgements (7) 708 246 Other (8) 5,716 3,889
Total general and administrative expenses $ 39,441 $
24,186
Higher wages and employee benefits during the nine months ended
the Mid-Con Acquisition.
Higher stock-based compensation expense for the nine months ended September (2) 30, 2021 due to an increase in the number of equity awards granted to all
employees in 2021 as part of the annual incentive bonus compensation and the
related increase in expense.
(3) Primarily includes fees related to recurring legal counsel, technical
consultants and accounting and auditing costs.
Special professional fees are transaction-specific fees incurred in
conjunction with our pursuit of strategic initiatives, including theintegration of assets from our acquisitions and transaction costs associated
with the evaluation and closing of acquisitions categorized as business
(4) combinations. The nine months ended
Acquisition and
Merger. See Item 1. Note 3 - "Acquisitions and Dispositions" for further
details.
These credits relate to overhead we recoup pursuant to joint operatingagreements with working interest partners on our operated properties, and (5) which are recorded as an offset to our other general and administrative
costs. The increase in the current year credit is due to the overhead
recouped on recently acquired properties.
(6) Primarily includes office rent, office supplies and software licenses for IT
applications.
The current year expense includes an accrual for a final judgment received in
(7)
"Commitments and Contingencies" for further details.
(8) Includes fees related to insurance and other company expenses.
Loss from Affiliates For the nine months endedSeptember 30, 2021 , we recorded a loss from affiliates of approximately$1.9 million , net of no tax expense, attributable to our equity investment in Exaro. For the nine months endedSeptember 30, 2020 , we recorded a loss from affiliates of approximately$13,000 , net of no tax expense, attributable to our equity investment in Exaro. Gain from Sale of Assets During the nine months endedSeptember 30, 2021 , we sold certain non-corePowder River Basin producing properties inWyoming , which we acquired in the first quarter of 2021 as part of the Silvertip Acquisition. We also sold certain non-core, legacy and recently acquired producing and non-producing properties located in our Midcontinent, Permian and Other regions. These properties were sold for a collective total of approximately$2.8 million in cash and the buyers' assumption of approximately$5.1 million in plugging and abandonment liabilities, resulting in a net gain of$0.5 million recorded during the nine months endedSeptember 30, 2021 . During the nine months endedSeptember 30, 2020 , we sold non-core producing and non-producing properties located in our Midcontinent region. These properties were sold for approximately$0.5 million in cash and the buyers' assumption of approximately$5.0 million in plugging and abandonment liabilities and revenue held in suspense. We recorded a gain of$4.5 million during the nine months endedSeptember 30, 2020 , primarily as a result of the buyers' assumption of the asset retirement obligations associated with the sold properties. 45 Table of Contents Gain (Loss) on Derivatives During the nine months endedSeptember 30, 2021 , we recorded a loss on derivatives of$118.0 million . Of this amount,$96.2 million was a non-cash charge related to the change in the mark-to-market value of our hedges as commodity prices increased during 2021, and$21.7 million were realized losses as a result of monthly settlements on expiring contracts. During the nine months endedSeptember 30, 2020 , we recorded a gain on derivatives of$30.5 million . Of this amount,$8.2 million were non-cash mark-to-market gains, and$22.3 million were realized gains.
Gain on Extinguishment of Debt
During the nine months endedSeptember 30, 2021 , we recorded a$3.4 million gain on extinguishment of debt related to the PPP loan forgiveness. See Item 1. Note 10 - "Long-Term Debt" for further details.
Capital Resources and Liquidity
Our primary cash requirements are for capital expenditures, working capital, operating expenses, acquisitions and principal and interest payments on indebtedness. Our primary sources of immediate liquidity are cash generated by operations, net of the realized effect of our hedging agreements, and amounts available to be drawn under our Credit Agreement (as defined below).
Cash Provided by Operating Activities
Cash flows provided by operating activities were approximately$88.5 million and$26.6 million for the nine months endedSeptember 30, 2021 and 2020, respectively. The lower 2020 change in operating assets and liabilities is primarily related to the suspension of our onshore operated drilling program beginning in the first quarter of 2020 and further suspension of all drilling in the second quarter of 2020, in response to the decrease in commodity prices. The table below provides additional detail of cash flows from operating activities for the nine months endedSeptember 30, 2021 and 2020:
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