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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
 Commission File Number:  001-35371
civi-20220630_g1.jpg
Civitas Resources, Inc.
(Exact name of registrant as specified in its charter) 
Delaware 61-1630631
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
555 17th Street,Suite 3700
Denver,Colorado 80202
(Address of principal executive offices) (Zip Code)
(303) 293-9100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of exchange on which registered
Common Stock, par value $0.01 per shareCIVINew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller reporting company 
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No
As of August 1, 2022, the registrant had 85,031,963 shares of common stock outstanding.
1

Table of Contents
CIVITAS RESOURCES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTS

         PAGE
 
Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021
 
Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2022 and 2021
 
 
 
 
 
 
 
 
 
 


 

2

Table of Contents

Information Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains various statements, including those that express belief, expectation or intention, as well as those that are not statements of historic fact, that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Quarterly Report on Form 10-Q, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project,” “plan,” “will,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management's current belief, based on currently available information, as to the outcome and timing of future events.
Forward-looking statements include statements related to, among other things:
the Company’s business strategies;
reserves estimates;
estimated sales volumes;
the amount and allocation of forecasted capital expenditures and plans for funding capital expenditures and operating expenses;
our ability to modify future capital expenditures;
anticipated costs;
compliance with debt covenants;
our ability to fund and satisfy obligations related to ongoing operations;
compliance with government regulations, including environmental, health, and safety regulations and liabilities thereunder;
the adequacy of gathering systems and continuous improvement of such gathering systems;
the impact from the lack of available gathering systems and processing facilities in certain areas;
the impact of any pandemic or other public health epidemic, including the ongoing COVID-19 pandemic;
oil, natural gas, and natural gas liquid prices and factors affecting the volatility of such prices;
the impact of lower commodity prices;
sufficiency of impairments;
the ability to use derivative instruments to manage commodity price risk and ability to use such instruments in the future;
our drilling inventory and drilling intentions;
the impact of potentially disruptive technologies;
our estimated revenue gains and losses;
the timing and success of specific projects;
our implementation of standard and long reach laterals;
our intention to continue to optimize enhanced completion techniques and well design changes;
stated working interest percentages;
our management and technical team;
outcomes and effects of litigation, claims, and disputes;
primary sources of future production growth;
our ability to replace oil and natural gas reserves;
our ability to convert proved undeveloped reserves to producing properties within five years of their initial proved booking;
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our ability to pay future cash dividends on our common stock;
the impact of the loss a single customer or any purchaser of our products;
the timing and ability to meet certain volume commitments related to purchase and transportation agreements;
the impact of customary royalty interests, overriding royalty interests, obligations incident to operating agreements, liens for current taxes, and other industry-related constraints;
our anticipated financial position, including our cash flow and liquidity;
the adequacy of our insurance;
the results, effects, benefits, and synergies of our recent mergers and acquisitions, future opportunities for the combined companies, other plans and expectations with respect to these transactions, and the anticipated impact of these transactions on the combined company’s results of operations, financial position, growth opportunities, and competitive position; and
other statements concerning our anticipated operations, economic performance, and financial condition.
We have based these forward-looking statements on certain assumptions and analyses we have made in light of our experience and our perception of historical trends, current conditions, and expected future developments as well as other factors we believe are appropriate under the circumstances. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Many such factors will be important in determining actual future results. The actual results or developments anticipated by these forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, and may not be realized or, even if substantially realized, may not have the expected consequences. Actual results could differ materially from those expressed or implied in the forward-looking statements.
Factors that could cause actual results to differ materially include, but are not limited to, the following:
the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 and in Part II, Item 1A of this report;
declines or volatility in the prices we receive for our oil, natural gas, and natural gas liquids;
general economic conditions, whether internationally, nationally or in the regional and local market areas in which we do business;
the effects of disruption of our operations or excess supply of oil and natural gas due to world health events, including the COVID-19 pandemic, and the actions by certain oil and natural gas producing countries;
the continuing effects of the COVID-19 pandemic, including any recurrence or the worsening thereof;
the ability of our customers to meet their obligations to us;
our access to capital;
our ability to generate sufficient cash flow from operations, borrowings, or other sources to enable us to fully develop our undeveloped acreage positions;
the presence or recoverability of estimated oil and natural gas reserves and the actual future sales volume rates and associated costs;
uncertainties associated with estimates of proved oil and gas reserves;
the possibility that the industry may be subject to future local, state, and federal regulatory or legislative actions (including additional taxes and changes in environmental regulation);
environmental risks;
seasonal weather conditions;
lease stipulations;
drilling and operating risks, including the risks associated with the employment of horizontal drilling and completion techniques;
our ability to acquire adequate supplies of water for drilling and completion operations;
availability of oilfield equipment, services, and personnel;
exploration and development risks;
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operational interruption of centralized oil and natural gas processing facilities;
competition in the oil and natural gas industry;
management’s ability to execute our plans to meet our goals;
our ability to attract and retain key members of our senior management and key technical employees;
our ability to maintain effective internal controls;
access to adequate gathering systems and pipeline take-away capacity;
our ability to secure adequate processing capacity for natural gas we produce, to secure adequate transportation for oil, natural gas, and natural gas liquids we produce, and to sell the oil, natural gas, and natural gas liquids at market prices;
costs and other risks associated with perfecting title for mineral rights in some of our properties;
political conditions in or affecting other producing countries, including conflicts in or relating to the Middle East, South America, and Russia (including the current events involving Russia and Ukraine), and other sustained military campaigns or acts of terrorism or sabotage; and
other economic, competitive, governmental, legislative, regulatory, geopolitical, and technological factors that may negatively impact our businesses, operations, or pricing.
All forward-looking statements speak only as of the filing date of this report. We disclaim any obligation to update or revise these statements unless required by law, and you should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions, and expectations reflected in or suggested by the forward-looking statements we make in this report are reasonable, we can give no assurance that these plans, intentions, or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from our expectations under “Item 1A. Risk Factors” and other sections of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as updated by subsequent reports we file with the SEC (including this report). These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CIVITAS RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share amounts)
June 30, 2022December 31, 2021
ASSETS  
Current assets:  
Cash and cash equivalents$439,251 $254,454 
Accounts receivable, net:  
Oil, natural gas, and NGL sales432,694 362,262 
Joint interest and other95,253 66,390 
Prepaid expenses and other31,064 21,052 
Inventory of oilfield equipment21,195 12,386 
Derivative assets— 3,393 
Total current assets1,019,457 719,937 
Property and equipment (successful efforts method):
  
Proved properties6,132,620 5,457,213 
Less: accumulated depreciation, depletion, and amortization(803,774)(430,201)
Total proved properties, net5,328,846 5,027,012 
Unproved properties666,821 688,895 
Wells in progress303,071 177,296 
Other property and equipment, net of accumulated depreciation of $6,072 in 2022 and $4,742 in 2021
50,243 51,639 
Total property and equipment, net6,348,981 5,944,842 
Right-of-use assets31,487 39,885 
Deferred income tax assets— 22,284 
Other noncurrent assets14,505 14,085 
Total assets$7,414,430 $6,741,033 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable and accrued expenses$306,270 $246,188 
Production taxes payable303,182 144,408 
Oil and natural gas revenue distribution payable494,091 466,233 
Lease liability17,452 18,873 
Derivative liability278,600 219,804 
Income tax payable50,385 — 
Asset retirement obligations24,000 24,000 
Total current liabilities1,473,980 1,119,506 
Long-term liabilities:  
Senior notes392,508 491,710 
Lease liability14,576 21,398 
Ad valorem taxes186,603 232,147 
Derivative liability43,225 19,959 
Deferred income tax liabilities107,884 — 
Asset retirement obligations203,104 201,315 
Total liabilities2,421,880 2,086,035 
Commitments and contingencies (Note 6)
Stockholders’ equity:  
Preferred stock, $.01 par value, 25,000,000 shares authorized, none outstanding
— — 
Common stock, $.01 par value, 225,000,000 shares authorized, 85,031,963 and 84,572,846 issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
4,917 4,912 
Additional paid-in capital4,197,790 4,199,108 
Retained earnings789,843 450,978 
Total stockholders’ equity4,992,550 4,654,998 
Total liabilities and stockholders’ equity$7,414,430 $6,741,033 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CIVITAS RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(in thousands, except per share amounts)
Three Months Ended June 30,Six Months Ended June 30,
 2022202120222021
Operating net revenues:
Oil, natural gas, and NGL sales$1,151,364 $156,035 $1,969,174 $230,194 
Operating expenses:
Lease operating expense41,877 11,358 77,896 17,089 
Midstream operating expense7,469 4,246 13,181 8,151 
Gathering, transportation, and processing79,519 13,721 129,922 18,688 
Severance and ad valorem taxes85,870 9,813 149,174 14,417 
Exploration1,553 3,547 2,081 3,643 
Depreciation, depletion, and amortization204,519 35,006 389,379 53,829 
Abandonment and impairment of unproved properties— 2,215 17,975 2,215 
Unused commitments1,731 4,328 2,507 4,328 
Bad debt expense— — 
Merger transaction costs1,418 18,246 21,952 21,541 
General and administrative expense (including $6,135, $2,195, $14,225, and $3,807, respectively, of stock-based compensation)
29,666 12,144 65,386 21,395 
Total operating expenses453,626 114,624 869,457 165,296 
Other income (expense):
Derivative loss(72,650)(73,970)(368,143)(97,389)
Interest expense(8,116)(3,241)(17,182)(3,660)
Gain on property transactions, net— — 16,797 — 
Other income4,313 89 5,096 277 
Total other expense(76,453)(77,122)(363,432)(100,772)
Income (loss) from operations before income taxes621,285 (35,711)736,285 (35,874)
Income tax benefit (expense)(152,464)10,392 (175,825)10,436 
Net income (loss)$468,821 $(25,319)$560,460 $(25,438)
Comprehensive income (loss)$468,821 $(25,319)$560,460 $(25,438)
Net income (loss) per common share:
Basic$5.52 $(0.83)$6.60 $(0.99)
Diluted$5.48 $(0.83)$6.56 $(0.99)
Weighted-average common shares outstanding
Basic84,993 30,655 84,917 25,774 
Diluted85,554 30,655 85,453 25,774 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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CIVITAS RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)
(in thousands, except per share amounts)
Additional
Common StockPaid-InRetained
SharesAmountCapitalEarningsTotal
Balances, December 31, 2021
84,572,846 $4,912 $4,199,108 $450,978 $4,654,998 
Restricted common stock issued579,229 — — 
Stock used for tax withholdings(215,811)(2)(12,932)— (12,934)
Exercise of stock options5,294 — 178 — 178 
Stock-based compensation— — 8,090 — 8,090 
Cash dividends, $1.2125 per share
— — — (104,444)(104,444)
Net income— — — 91,639 91,639 
Balances, March 31, 202284,941,558 4,916 4,194,444 438,173 4,637,533 
Restricted common stock issued130,309 — — 
Stock used for tax withholdings(40,646)— (2,813)— (2,813)
Exercise of stock options742 — 24 — 24 
Stock-based compensation— — 6,135 — 6,135 
Cash dividends, $1.3625 per share
— — — (117,151)(117,151)
Net income— — — 468,821 468,821 
Balances, June 30, 2022
85,031,963 $4,917 $4,197,790 $789,843 $4,992,550 

Balances, December 31, 2020
20,839,227 $4,282 $707,209 $333,761 $1,045,252 
Restricted common stock issued109 — — — — 
Stock used for tax withholdings(38)— — — — 
Exercise of stock options429 — 15 — 15 
Stock-based compensation— — 1,612 — 1,612 
Net loss— — — (119)(119)
Balances, March 31, 202120,839,727 4,282 708,836 333,642 1,046,760 
Issuance pursuant to acquisition9,802,166 98 374,835 — 374,933 
Restricted common stock issued261,539 — — — — 
Stock used for tax withholdings(70,330)(2)(2,814)— (2,816)
Exercise of stock options11,523 — 394 — 394 
Stock-based compensation— — 2,195 — 2,195 
Dividends declared, $0.3500 per share
— — — (11,033)(11,033)
Net loss— — — (25,319)(25,319)
Balances, June 30, 2021
30,844,625 $4,378 $1,083,446 $297,290 $1,385,114 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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CIVITAS RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
 Six Months Ended June 30,
 20222021
Cash flows from operating activities:
Net income (loss)$560,460 $(25,438)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion, and amortization389,379 53,829 
Deferred income tax expense (benefit)125,440 (10,228)
Abandonment and impairment of unproved properties17,975 2,215 
Stock-based compensation14,225 3,807 
Amortization of deferred financing costs2,180 526 
Derivative loss368,143 97,389 
Derivative cash settlements loss(348,209)(23,990)
Gain on property transactions, net(16,797)— 
Other155 (35)
Changes in current assets and liabilities:
Accounts receivable, net(32,776)(14,686)
Prepaid expenses and other assets(6,579)2,500 
Accounts payable and accrued liabilities192,839 (3,428)
Settlement of asset retirement obligations(11,667)(2,902)
Net cash provided by operating activities1,254,768 79,559 
Cash flows from investing activities:
Acquisition of oil and natural gas properties(303,602)(549)
Cash acquired44,310 49,827 
Exploration and development of oil and natural gas properties(467,186)(57,269)
Purchases of carbon offsets(7,196)— 
Proceeds from (additions to) other property and equipment66 (38)
Other117 — 
Net cash used in investing activities(733,491)(8,029)
Cash flows from financing activities:
Proceeds from credit facility100,000 155,000 
Payments to credit facility(100,000)(210,000)
Redemption of senior notes(100,000)— 
Proceeds from exercise of stock options202 409 
Dividends paid(219,768)(10,789)
Payment of employee tax withholdings in exchange for the return of common stock(15,740)(2,816)
Deferred financing costs(1,174)(3,653)
Other— (21)
Net cash used in financing activities(336,480)(71,870)
Net change in cash, cash equivalents, and restricted cash184,797 (340)
Cash, cash equivalents, and restricted cash:
Beginning of period254,556 24,845 
End of period(1)
$439,353 $24,505 
Supplemental cash flow disclosure:
Cash paid for interest$(15,821)$(87)
Cash paid for income taxes$(6,300)$— 
Changes in working capital related to drilling expenditures$(2,666)$(16,285)
(1) Includes $0.1 million of restricted cash and consists of funds for road maintenance and repairs that is presented in other noncurrent assets within the accompanying unaudited condensed consolidated balance sheets (“balance sheets”) as of June 30, 2022 and 2021.
The accompanying notes are an integral part of these condensed consolidated financial statements.
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CIVITAS RESOURCES, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 
Description of Operations
When we use the terms “Civitas,” the “Company,” “we,” “us,” or “our,” we are referring to Civitas Resources, Inc. and its consolidated subsidiaries unless the context otherwise requires. Effective November 1, 2021, Bonanza Creek Energy, Inc. changed its name to Civitas Resources, Inc. Civitas is an independent Denver-based exploration and production company focused on the acquisition, development, and production of oil and associated liquids-rich natural gas in the Rocky Mountain region, primarily in the Wattenberg Field of the Denver-Julesburg Basin (“DJ Basin”).
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, the instructions to Quarterly Report on Form 10-Q, and Regulation S-X. Accordingly, pursuant to such rules and regulations, certain notes and other financial information included in audited financial statements have been condensed or omitted. In the opinion of management, all adjustments, consisting of normal recurring adjustments considered necessary for a fair presentation of interim financial information, have been included. All significant intercompany balances and transactions have been eliminated in consolidation.
The December 31, 2021 unaudited condensed consolidated balance sheet data has been derived from the audited consolidated financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (“2021 Form 10-K”), but does not include all disclosures, including notes required by GAAP. As such, this quarterly report should be read in conjunction with the audited consolidated financial statements and related notes included in our 2021 Form 10-K. In connection with the preparation of the unaudited condensed consolidated financial statements, the Company evaluated subsequent events after the balance sheet date of June 30, 2022, through the filing date of this report. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the full year or any other future period.
Significant Accounting Policies
The significant accounting policies followed by the Company are set forth in Note 1 - Summary of Significant Accounting Policies in the 2021 Form 10-K and are supplemented by the notes to the unaudited condensed consolidated financial statements included in this report.
Recently Issued and Adopted Accounting Standards
In March 2020, the FASB issued Update No. 2020-04, Reference Rate Reform (Topic 848), which provides temporary optional guidance to companies impacted by the transition away from the LIBOR. The amendment provides certain expedients and exceptions to applying GAAP in order to lessen the potential accounting burden when contracts, hedging relationships, and other transactions that reference LIBOR as a benchmark rate are modified. Further, in January 2021, the FASB issued Update No. 2021-01, Reference Rate Reform (Topic 848), which clarifies the scope of Topic 848 so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. These amendments are effective upon issuance and expire on December 31, 2022. We do not anticipate a material impact on the Company’s consolidated financial statements or related disclosures.
There are no other accounting standards applicable to the Company that would have a material effect on the Company’s financial statements and disclosures that have been issued but not yet adopted by the Company as of June 30, 2022, and through the filing date of this report.
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NOTE 2 - ACQUISITIONS AND DIVESTITURES
All mergers and acquisitions disclosed were accounted for under the acquisition method of accounting for business combinations. Accordingly, we conducted assessments of the net assets acquired and recognized amounts for identifiable assets acquired and liabilities assumed at their estimated acquisition date fair values, while transaction and integration costs associated with the acquisition were expensed as incurred. The fair value measurements of assets acquired and liabilities assumed were based on inputs that are not observable in the market, and therefore represent Level 3 inputs. The fair values of crude oil and natural gas properties and asset retirement obligations were measured using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation of proved oil properties include estimates of reserves, future operating and development costs, future commodity prices, estimated future cash flows, and a market-based weighted-average cost of capital. These inputs required significant judgments and estimates by management at the time of the valuation.
HighPoint Merger
On April 1, 2021, Civitas acquired HighPoint Resources Corporation (“HighPoint”), pursuant to the terms of HighPoint’s prepackaged plan of reorganization under Chapter 11 of the United States Bankruptcy Code (the “Prepackaged Plan”), which was confirmed by the U.S. Bankruptcy Court for the District of Delaware (the “HighPoint Merger”). Each eligible share of common stock of HighPoint issued and outstanding was automatically converted into the right to receive 0.11464 shares of common stock of Civitas (“Civitas Common Stock”). As a result, Civitas issued 487,952 shares of Civitas Common Stock to former HighPoint stockholders.
Concurrently with the HighPoint Merger and pursuant to the Prepackaged Plan, in exchange for the aggregate principal amount outstanding of HighPoint Operating Corporation's senior notes, Civitas issued an aggregate of (i) 9,314,214 shares of Civitas Common Stock and (ii) $100.0 million aggregate principal amount of 7.5% Senior Notes due 2026 (“7.5% Senior Notes”). Please refer to Note 5 - Long-Term Debt for further discussion of the 7.5% Senior Notes.
Total merger consideration transferred under the HighPoint Merger was $474.9 million.
Extraction Merger
On November 1, 2021, Civitas completed its merger with Extraction Oil & Gas, Inc. (“Extraction”), pursuant to the terms of the related Agreement and Plan of Merger (the “Extraction Merger Agreement”) (the “Extraction Merger”). Pursuant to the Extraction Merger Agreement, each share of common stock of Extraction (the “Extraction Common Stock”) issued and outstanding was converted into the right to receive 1.1711 shares of Civitas Common Stock for each share of Extraction Common Stock (the “Extraction Exchange Ratio”).
Additionally, each unvested award of restricted stock units issued pursuant to Extraction’s 2021 Long Term Incentive Plan (the “Extraction Equity Plan”) was assumed by Civitas and converted into a number of restricted stock units with respect to shares of Civitas Common Stock (such restricted stock unit, a “Converted RSU”) using the Extraction Exchange Ratio. Each Converted RSU continued to be governed by the same terms and conditions that were applicable immediately prior to the Extraction Merger closing date. In addition, Converted RSUs subject to performance-based vesting conditions held by certain Extraction executives provided certain accelerated vesting clauses in the event that such individual’s employment is terminated on or within twelve months following November 1, 2021.
Further, Civitas executed warrant agreements to replace the warrants previously issued by Extraction consisting of (i) 3.4 million Tranche A warrants to purchase Civitas Common Stock at an exercise price of $91.91 in whole or in part, at any time or from time to time on or before January 20, 2025, issued pursuant to a warrant agreement by and between Civitas and Broadridge Corporate Issuer Solutions, Inc., as warrant agent (“Broadridge”), dated as of November 1, 2021 (the “Tranche A Warrants”), and (ii) 1.7 million Tranche B warrants to purchase Civitas Common Stock at an exercise price of $104.45 in whole or in part, at any time or from time to time on or before (i) January 20, 2026, issued pursuant to a warrant agreement by and between Civitas and Broadridge, as warrant agent, dated as of November 1, 2021 (the “Tranche B Warrants,” and, together with the Tranche A Warrants, the “Warrants”)). A holder of a warrant, in its capacity as such, is not entitled to any rights whatsoever as a stockholder of Civitas, except to the extent expressly provided in the applicable warrant agreement. Please refer to Note 8 - Fair Value Measurements for further discussion.
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Total merger consideration transferred under the Extraction Merger was $1.8 billion. The following table presents the preliminary purchase price allocation of the assets acquired and the liabilities assumed in the Extraction Merger:
Preliminary Purchase Price Allocation (in thousands)
Assets Acquired
Cash and cash equivalents$106,360 
Accounts receivable - oil and natural gas sales119,585 
Accounts receivable - joint interest and other33,054 
Prepaid expenses and other3,044 
Inventory of oilfield equipment9,291 
Derivative assets5,834 
Proved properties1,876,014 
Unproved properties193,400 
Other property and equipment, net of accumulated depreciation40,068 
Right-of-use assets6,883 
Deferred income tax assets49,194 
Other noncurrent assets4,248 
Total assets acquired$2,446,975 
Liabilities Assumed
Accounts payable and accrued expenses$90,353 
Production taxes payable63,572 
Oil and natural gas revenue distribution payable170,002 
Income tax payable14,000 
Lease liability6,883 
Derivative liability100,474 
Ad valorem taxes87,071 
Asset retirement obligations68,741 
Other noncurrent liabilities1,750 
Total liabilities assumed602,846 
Net assets acquired$1,844,129 
The valuation of proved properties for the Extraction Merger applied a market-based weighted-average cost of capital rate of approximately 10%. The purchase price allocation is preliminary, and Civitas is continuing to assess the fair values of certain of the assets acquired and liabilities assumed in the Extraction Merger as adjustments may be made to these measurements in subsequent periods (up to one year from the acquisition date). In particular, assets and liabilities subject to potential adjustment, in amounts that could be material to the pro forma financial statements, include, but are not limited to, proved properties, unproved properties, and accounts payable and accrued expenses related to our continued assessment over the application of lease contracts and related deductions. We cannot reasonably estimate the impact of such conclusions as there is still a high level of uncertainty regarding the potential outcomes of the assessment.
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Crestone Peak Merger
On November 1, 2021, Civitas completed its merger with CPPIB Crestone Peak Resources America Inc. (“Crestone Peak”), pursuant to the terms of the related Agreement and Plan of Merger (the “Crestone Merger Agreement”) (the “Crestone Peak Merger”). Pursuant to the Crestone Merger Agreement, the shares of Crestone Peak common stock were converted into the right to collectively receive 22.5 million shares of Civitas Common Stock, representing total merger consideration of $1.3 billion.
The following table presents the preliminary purchase price allocation of the assets acquired and the liabilities assumed in the Crestone Peak Merger:
Preliminary Purchase Price Allocation (in thousands)
Assets Acquired
Cash and cash equivalents$67,505 
Accounts receivable - oil and natural gas sales81,340 
Accounts receivable - joint interest and other9,917 
Prepaid expenses and other2,929 
Inventory of oilfield equipment11,951 
Proved properties1,797,814 
Unproved properties453,321 
Other property and equipment, net of accumulated depreciation7,980 
Right-of-use assets7,934 
Total assets acquired$2,440,691 
Liabilities Assumed
Accounts payable and accrued expenses$134,791 
Production taxes payable52,435 
Oil and natural gas revenue distribution payable83,950 
Lease liability7,934 
Derivative liability338,383 
Credit facility280,000 
Ad valorem taxes66,913 
Deferred income tax liabilities125,086 
Asset retirement obligations88,949 
Total liabilities assumed1,178,441 
Net assets acquired$1,262,250 
The valuation of proved properties for the Crestone Peak Merger applied a market-based weighted-average cost of capital rate of approximately 10%. The purchase price allocation is preliminary, and Civitas is continuing to assess the fair values of certain of the assets acquired and liabilities assumed in the Crestone Peak Merger as adjustments may be made to these measurements in subsequent periods (up to one year from the acquisition date). In particular, assets and liabilities subject to potential adjustment, in amounts that could be material to the pro forma financial statements, include, but are not limited to, proved properties, unproved properties, and accounts payable and accrued expenses related to our continued assessment over the application of lease contracts and related deductions. We cannot reasonably estimate the impact of such conclusions as there is still a high level of uncertainty regarding the potential outcomes of the assessment.
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Revenue and earnings of the acquiree
The amount of revenue of HighPoint included in our statement of operations during the three and six months ended June 30, 2021 was $74.7 million for both periods as the HighPoint Merger was completed on April 1, 2021. There was no revenue included in our statement of operations during the three and six months ended June 30, 2021 related to the Extraction and Crestone Peak mergers as both mergers were completed after June 30, 2021. We determined that disclosing the amount of HighPoint, Extraction, and Crestone Peak related earnings included in the unaudited condensed consolidated statements of operations and comprehensive income (“statements of operations”) is impracticable, as the operations from these mergers were integrated into the operations of the Company from the dates of each acquisition.
Supplemental pro forma financial information
The following unaudited pro forma financial information (in thousands, except per share amounts) represents a summary of the condensed consolidated results of operations for the three and six months ended June 30, 2021, assuming the HighPoint, Extraction, and Crestone Peak mergers had been completed as of January 1, 2020. The pro forma financial information is not necessarily indicative of the results of operations that would have been achieved if the mergers had been effective as of this date, or of future results, and includes certain non-recurring pro forma adjustments that were directly attributable to the business combinations (in thousands, except per share amounts).
Three Months Ended June 30, 2021Six Months Ended June 30, 2021
Total revenue$527,794 $1,093,110 
Net income (loss)(101,825)756,271 
Net income (loss) per common share - basic$(1.21)$8.98 
Net income (loss) per common share - diluted$(1.21)$8.94 
Bison Acquisition
On March 1, 2022, the Company completed the acquisition of privately held DJ Basin operator Bison Oil & Gas II, LLC (“Bison”) for merger consideration of approximately $279.7 million (the “Bison Acquisition”). Net assets acquired under the preliminary purchase price allocation were $294.2 million and consequently resulted in a bargain purchase gain of $14.5 million. Because of the immateriality of the Bison Acquisition, the related revenue and earnings, supplemental pro forma financial information, and detailed purchase price allocation are not disclosed.
Merger transaction costs
Merger transaction costs related to the aforementioned mergers and acquisitions are accounted for separately from the assets acquired and liabilities assumed and are included in merger transaction costs in the statements of operations. The Company incurred merger transaction costs of $1.4 million and $18.2 million during the three months ended June 30, 2022 and 2021, respectively, and $22.0 million and $21.5 million during the six months ended June 30, 2022 and 2021, respectively. Merger transaction costs include zero and $1.1 million of severance payments for the three months ended June 30, 2022 and 2021, respectively, and $7.6 million and $1.1 million of severance payments for the six months ended June 30, 2022 and 2021, respectively.
NOTE 3 - REVENUE RECOGNITION
Oil, natural gas, and natural gas liquid (“NGL”) sales revenue presented within the accompanying statements of operations is reflective of the revenue generated from contracts with customers. Revenue attributable to each identified revenue stream is disaggregated below (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Operating net revenues:
Oil sales$778,258 $116,091 $1,327,760 $166,155 
Natural gas sales205,840 15,168 319,001 28,300 
NGL sales167,266 24,776 322,413 35,739 
Oil, natural gas, and NGL sales$1,151,364 $156,035 $1,969,174 $230,194 
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The Company recognizes revenue from the sale of produced oil, natural gas, and NGL at the point in time when control of produced oil, natural gas, or NGL volumes transfer to the purchaser, which may differ depending on the applicable contractual terms. The Company considers the transfer of control to have occurred when the purchaser has the ability to direct the use of, and obtain substantially all of the remaining benefits from, the oil, natural gas, or NGL production. Transfer of control dictates the presentation of gathering, transportation, and processing expenses within the accompanying statements of operations. Gathering, transportation, and processing expenses incurred by the Company prior to the transfer of control are recorded gross within the gathering, transportation, and processing line item on the accompanying statements of operations. Conversely, gathering, transportation, and processing expenses incurred by the Company subsequent to the transfer of control are recorded net within the oil, natural gas, and NGL sales line item on the accompanying statements of operations. Please refer to Note 1 - Summary of Significant Accounting Policies in the 2021 Form 10-K for more information regarding the types of contracts under which oil, gas, and NGL sales revenue is generated.
The Company records revenue in the month production is delivered and control is transferred to the purchaser. However, settlement statements and payment may not be received for 30 to 60 days after the date production is delivered and control is transferred. Until such time settlement statements and payment are received, the Company records a revenue accrual based on, amongst other factors, an estimate of the volumes delivered at estimated prices as determined by the applicable contractual terms. The Company records the differences between its estimates and the actual amounts received for product sales in the month in which payment is received from the purchaser. For the three and six months ended June 30, 2022 and 2021, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods was insignificant. At June 30, 2022 and December 31, 2021, the Company's receivables from contracts with customers were $432.7 million and $362.3 million, respectively.
NOTE 4 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses contain the following as of the dates indicated (in thousands):
 June 30, 2022December 31, 2021
Accounts payable trade$12,166 $19,623 
Accrued drilling and completion costs132,096 129,430 
Accrued lease operating expense and gathering, transportation, and processing80,834 19,077 
Accrued general and administrative expense13,973 21,163 
Accrued merger transaction costs2,199 1,475 
Accrued oil and NGL hedging44,730 26,601 
Accrued interest expense5,484 6,303 
Accrued settlement10,291 20,791 
Other accrued expenses4,497 1,725 
Total accounts payable and accrued expenses$306,270 $246,188 
NOTE 5 - LONG-TERM DEBT
5.0% Senior Notes
On October 13, 2021, the Company issued $400.0 million aggregate principal amount of 5.0% Senior Notes due 2026 (the “5.0% Senior Notes”) pursuant to an indenture (the “5.0% Indenture”), among Civitas Resources, Wells Fargo Bank, National Association, as trustee, and the guarantors party thereto. The Company used the net proceeds and cash on hand to repay all borrowings under the Credit Facility (as defined below), all borrowings outstanding under the Crestone Peak credit facility, and for general corporate purposes. Interest accrues at the rate of 5.0% per annum and is payable semiannually in arrears on April 15 and October 15 of each year. Payments commenced on April 15, 2022.
The 5.0% Indenture contains covenants that limit, among other things, the Company’s ability to: (i) incur or guarantee additional indebtedness; (ii) create liens securing indebtedness; (iii) pay dividends on or redeem or repurchase stock or subordinated debt; (iv) make specified types of investments and acquisitions; (v) enter into or permit to exist contractual limits on the ability of the Company’s subsidiaries to pay dividends to Civitas Resources; (vi) enter into transactions with affiliates; and (vii) sell assets or merge with other companies. These covenants are subject to a number of important limitations and exceptions. The Company was in compliance with all covenants under the 5.0% Indenture as of June 30, 2022, and through the filing of this report. In addition, certain of these covenants will be terminated before the 5.0% Senior Notes mature if at any time no default or event of default exists under the 5.0% Indenture and the 5.0% Senior Notes receive an investment-grade rating from at least two ratings agencies. The 5.0% Indenture also contains customary events of default.
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At any time prior to October 15, 2023, the Company may redeem the 5.0% Senior Notes, in whole or in part, at a redemption price equal to the sum of (i) the principal amount thereof, plus (ii) the “make-whole” premium at the redemption date, plus (iii) accrued and unpaid interest, if any. On or after October 15, 2023, the Company may redeem all or part of the 5.0% Senior Notes at redemption prices (expressed as percentages of the principal amount redeemed) equal to (i) 102.5% for the twelve-month period beginning on October 15, 2023; (ii) 101.25% for the twelve-month period beginning on October 15, 2024; and (iii) 100.0% for the twelve-month period beginning October 15, 2025 and at any time thereafter, plus accrued and unpaid interest, if any.
The Company may redeem up to 35% of the aggregate principal amount of the 5.0% Senior Notes at any time prior to October 15, 2023 with an amount not to exceed the net cash proceeds from certain equity offerings at a redemption price equal to 105.0% of the principal amount of the 5.0% Senior Notes redeemed, plus accrued and unpaid interest, if any, provided, however, that (i) at least 65.0% of the aggregate principal amount of the 5.0% Senior Notes originally issued on the issue date (but excluding 5.0% Senior Notes held by the Company) remains outstanding immediately after the occurrence of such redemption (unless all such 5.0% Senior Notes are redeemed substantially concurrently) and (ii) the redemption occurs within 180 days after the date of the closing of such equity offering.
The 5.0% Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by all of Civitas' existing subsidiaries.
7.5% Senior Notes
In conjunction with the HighPoint Merger, the Company issued $100.0 million aggregate principal amount of 7.5% Senior Notes due 2026 (the “7.5% Senior Notes”) pursuant to an indenture, dated April 1, 2021 , by and among Civitas Resources, U.S. Bank National Association, as trustee, and the guarantors party thereto. Interest accrued at the rate of 7.5% per annum and was payable semiannually in arrears on April 30 and October 31 of each year.
On May 1, 2022, the Company redeemed all of the issued and outstanding 7.5% Senior Notes at 100.0% of their aggregate principal amount, plus accrued and unpaid interest thereon to the redemption date.
The 7.5% Senior Notes and 5.0% Senior Notes are recorded net of unamortized deferred financing costs within the Senior notes line item on the accompanying balance sheets. There were no discounts or premiums associated with either issuance. The tables below present the related carrying values as of June 30, 2022 and December 31, 2021 (in thousands):
As of June 30, 2022
Principal AmountUnamortized Deferred Financing CostsNet Amount
5.0% Senior Notes
$400,000 $7,492 $392,508 
As of December 31, 2021
Principal AmountUnamortized Deferred Financing CostsNet Amount
7.5% Senior Notes
$100,000 $— $100,000 
5.0% Senior Notes
$400,000 $8,290 $391,710 
Credit Facility
The Company is party to a reserve-based revolving facility, as the borrower, with JPMorgan Chase Bank, N.A. (“JPMorgan”), as the administrative agent, and a syndicate of financial institutions (the “Lender Syndicate”), as lenders, that mature on November 1, 2025 (with all subsequent amendments as defined below, the “Credit Facility”).
The Credit Facility contains customary representations and affirmative covenants. The Credit Facility also contains customary negative covenants, which, among other things, and subject to certain exceptions, include restrictions on (i) liens, (ii) indebtedness, guarantees and other obligations, (iii) restrictions in agreements on liens and distributions, (iv) mergers or consolidations, (v) asset sales, (vi) restricted payments, (vii) investments, (viii) affiliate transactions, (ix) change of business, (x) foreign operations or subsidiaries, (xi) name changes, (xii) use of proceeds, letters of credit, (xiii) gas imbalances, (xiv) hedging transactions, (xv) additional subsidiaries, (xvi) changes in fiscal year or fiscal quarter, (xvii) operating leases, (xviii) prepayments of certain debt and other obligations, (xix) sales or discounts of receivables, (xx) dividend payment thresholds, and (xi) cash balances. 
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In addition, the Company is subject to certain financial covenants under the Credit Facility, as tested on the last day of each fiscal quarter, including, without limitation, (a) a maximum ratio of the Company's consolidated indebtedness (subject to certain exclusions) to earnings before interest, income taxes, depreciation, depletion, and amortization, exploration expense, and other non-cash charges (“permitted net leverage ratio”) of 3.00 to 1 and (b) a current ratio, as defined in the agreement, inclusive of the unused commitments then available to be borrowed, to not be less than 1.00 to 1. The Company was in compliance with all covenants under the Credit Facility as of June 30, 2022, and through the filing of this report.
On November 1, 2021, the Company, JPMorgan, and the Lender Syndicate entered into an Amended and Restated Credit Agreement (the “A&R Credit Agreement”), having an aggregate maximum commitment amount of $2.0 billion. The A&R Credit Agreement, among other things, amended the borrowing base adjustment provisions such that, between borrowing base determinations, downward adjustments related to the incurrence of certain permitted indebtedness will only occur if either (A) such indebtedness exceeds $500.0 million and the Company’s pro-forma leverage ratio is less than or equal to 1.50 to 1, or (B) the Company's pro-forma leverage ratio is greater than 1.50 to 1.
Under the A&R Credit Agreement, the Credit Facility is guaranteed by all restricted domestic subsidiaries of the Company, and is secured by first priority security interests on substantially all assets, including a mortgage on at least 90% of the total value of the proved properties evaluated in the most recently delivered reserve reports prior to the amendment effective date, including any engineering reports relating to the oil and natural gas properties of the restricted domestic subsidiaries of the Company, subject to customary exceptions.
On December 21, 2021, the Company entered into a First Amendment to the A&R Credit Agreement that stipulates that the minimum hedging covenant with respect to projected oil and gas production will not apply if the Company’s leverage ratio is less than 1.00 to 1 as of the applicable quarterly test date, until the next such test date.
On April 20, 2022, and as part of the regularly scheduled, semi-annual borrowing base redetermination, the Company entered into a Second Amendment to the A&R Credit Agreement that increased the Company's borrowing base from $1.0 billion to $1.7 billion and increased the aggregate elected commitments from $800.0 million to $1.0 billion. These increases were primarily driven by the increased value of the Company’s estimated proved reserves at December 31, 2021. The next scheduled borrowing base redetermination date is set to occur in October 2022.
In addition, the Second Amendment to the A&R Credit Agreement resulted in the removal and replacement of LIBOR with the Secured Overnight Financing Rate (“SOFR”) as a mechanism to determine interest for borrowings made under the Credit Facility using a term-specific SOFR. As a result, borrowings under the Credit Facility bear interest at a per annum rate equal to, at the option of the Company, either (i) the Alternate Base Rate (“ABR”, for ABR Revolving Credit Loans) plus the applicable margin, or (ii) the term-specific SOFR plus the applicable margin. ABR is established as a rate per annum equal to the greatest of (a) the rate of interest publicly announced by JPMorgan as its prime rate, (b) the applicable rate of interest published by the Federal Reserve Bank of New York (“NYFRB”) plus 0.5%, or (c) the term-specific SOFR plus 1.0%, subject to a 1.50% floor plus the applicable margin of 1.00% to 2.00%, based on the utilization of the Credit Facility. Term-specific SOFR is based on one-, three-, or six-month terms as selected by the Company and is subject to a 0.50% floor plus the applicable margin of 2.00% to 3.00%, based on the utilization of the Credit Facility. Interest on borrowings that bear interest at the SOFR shall be payable on the last day of the applicable interest period selected by the Company, and interest on borrowings that bear interest at the ABR shall be payable quarterly in arrears. 
The following table presents the outstanding balance, total amount of letters of credit outstanding, and available borrowing capacity under the Credit Facility as of the dates indicated (in thousands):
August 3, 2022June 30, 2022December 31, 2021
Revolving credit facility
$— $— $— 
Letters of credit12,393 12,393 21,656 
Available borrowing capacity987,607 987,607 778,344 
Total aggregate elected commitments
$1,000,000 $1,000,000 $800,000 
In connection with the amendments to the Credit Facility, the Company capitalized a total of approximately $11.9 million in deferred financing costs. Of the total post-amortization net capitalized amounts, (i) $7.0 million and $7.5 million are presented within the other noncurrent assets line item on the accompanying balance sheets as of June 30, 2022 and December 31, 2021, respectively, and (ii) $3.0 million and $2.7 million is presented within the prepaid expenses and other line item on the accompanying balance sheets as of June 30, 2022 and December 31, 2021, respectively.
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Interest Expense
For the three months ended June 30, 2022 and 2021, the Company incurred interest expense of $8.1 million and $3.8 million and capitalized zero and $0.6 million, respectively.
For the six months ended June 30, 2022 and 2021, the Company incurred interest expense of $17.2 million and $4.3 million and capitalized zero and $0.6 million, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Legal Proceedings 
From time to time, the Company is involved in various commercial and regulatory claims, litigation, and other legal proceedings that arise in the ordinary course of its business. The Company assesses these claims in an effort to determine the degree of probability and range of possible loss for potential accrual in its consolidated financial statements. In accordance with authoritative accounting guidance, an accrual is recorded for a loss contingency when its occurrence is probable and damages can be reasonably estimated based on the most likely anticipated outcome or the minimum amount within a range of possible outcomes. Because legal proceedings are inherently unpredictable and unfavorable resolutions could occur, assessing contingencies is highly subjective and requires judgments about uncertain future events. When evaluating contingencies, the Company may be unable to provide a meaningful estimate due to a number of factors, including the procedural status of the matter in question, the presence of complex or novel legal theories, and/or the ongoing discovery and development of information important to the matters. The Company regularly reviews contingencies to determine the adequacy of its accruals and related disclosures. No claims have been made, nor is the Company aware of any material uninsured liability which the Company may have, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations.
Upon closing of the HighPoint, Extraction, and Crestone Peak mergers and Bison Acquisition, the Company assumed all obligations, whether asserted or unasserted, of HighPoint, Extraction, Crestone Peak, and Bison. As of the filing date of this report, there were no probable, material pending, or overtly threatened legal actions against the Company of which it was aware, other than the following:
Boulder County. In prior periods, there was ongoing litigation between Boulder County and Extraction which has been previously disclosed as having the potential to prevent oil and gas operations for the development of minerals contained within Boulder County, Colorado. Boulder County had initiated suit in District Court for Boulder County that was primarily a contract case, where the relevant contracts were the conservation easement over the Blue Paintbrush location, Extraction’s Surface Use Agreement for the Blue Paintbrush location, and the leases that Boulder owns within the Blue Paintbrush drilling and spacing unit. Boulder sought invalidation of these leases in the litigation. This litigation has been resolved as to all substantive issues, and the Company is awaiting final dismissal of the matter by the trial court.
In May, 2022, the Company became aware that Boulder County is alleging new legal theories and requesting termination of the leases previously at issue in the Blue Paintbrush litigation. No formal action has been initiated, but the Company intends to vigorously defend against all claims alleged by Boulder County. If an action is brought by Boulder County, an adverse outcome in any such litigation could result in the Company failing to meet its development objectives in Blue Paintbrush.
Enforcement. Disclosure of certain environmental matters is required when a governmental authority is a party to the proceedings and the proceedings involve potential monetary sanctions that the Company believes could exceed $0.3 million. The Company has received Notices of Alleged Violations (“NOAV”) from the COGCC alleging violations of various Colorado statutes and COGCC regulations governing oil and gas operations. The Company has further received notices from the Colorado Air Pollution Control Division. The Company continues to engage in discussions regarding resolution of the alleged violations. As of June 30, 2022 and December 31, 2021, the Company has accrued approximately $1.0 million associated with the NOAVs and Colorado Air Pollution Control Division notices, as they are probable and reasonably estimable.
Commitments
Firm Transportation Agreements. The Company is party to one firm pipeline transportation contract to provide a guaranteed outlet for production on an oil pipeline system. The contract requires the Company to pay minimum volume transportation charges on 12,500 barrels (“Bbl”) per day through April 2025, regardless of the amount of pipeline capacity utilized by the Company. The aggregate financial commitment fee over the remaining term was $41.4 million as of June 30, 2022. The Company expects to utilize most, if not all, of the firm capacity on the oil pipeline system.
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Minimum Volume Agreement - Oil. The Company is party to a purchase agreement to deliver fixed and determinable quantities of crude oil. Under the terms of the agreement, the Company is required to make periodic deficiency payments for any shortfalls in delivering the minimum gross volume commitment of 16,000 Bbls per day over a term ending in 2023. The aggregate financial commitment fee over the remaining term is $20.0 million as of June 30, 2022. Upon notifying the purchaser at least twelve months prior to the expiration date of the agreement, the Company may elect to extend the term of the agreement for up to three additional years. The Company has not, and does not, expect to incur any deficiency payments.
Minimum Volume Agreement - Gas and Other. The Company is party to a long-term gas gathering and processing agreement (the “Gathering Agreement”) with a third-party midstream provider over a term ending in 2029 with an annual minimum volume commitment of 13.0 billion cubic feet of natural gas. The Gathering Agreement also includes a commitment to sell take-in-kind NGLs from other processing agreements of 7,500 Bbls a day through 2026 with the ability to roll forward up to a 10% shortfall in a given month to the subsequent month. The aggregate financial commitment over the remaining term is $160.2 million as of June 30, 2022, which fluctuates with commodity prices as this is a value-based percentage of proceeds sales contract. Based on current projections, the Company may incur approximately $73.8 million of shortfall payments under the Gathering Agreement during the remaining term of approximately seven years; however, the Company is actively engaging alternative strategies to reduce any potential contract deficiencies incurred in future periods.
Additionally, the Company is also party to a gas gathering and processing agreement with several third-party producers and a third-party midstream provider to deliver to two different plants over terms that end in August 2025 and July 2026. The Company’s share of these commitments requires an incremental 51.5 and 20.6 million cubic feet of natural gas (“MMcf”) per day, respectively, over a baseline volume of 65 MMcf per day for a period of seven years following the in-service dates of the plants. The Company may be required to pay a shortfall fee for any incremental volume deficiencies under these commitments. These contractual obligations can be reduced by the Company’s proportionate share of the collective volumes delivered to the plants by other incremental third-party volumes available to the midstream provider that are in excess of the total commitments. Because of the third-party producer reduction provision, we believe that the aggregate financial commitment fee over the remaining term is zero as of June 30, 2022. The Company has not, and does not, expect to incur any deficiency payments.
The Company is also party to additional individually immaterial agreements that require the Company to pay a fee associated with the minimum volumes regardless of the amount delivered. The aggregate financial commitment fee over the remaining term for these contracts was $11.7 million as of June 30, 2022.
The minimum annual payments under the these agreements for the next five years as of June 30, 2022 are presented below (in thousands):
Firm Transportation
Minimum Volume(1)
Remainder of 2022
$7,360 $30,785 
202314,600 34,533 
202414,640 25,818 
20254,800 22,610 
2026— 20,987 
2027 and thereafter— 57,200 
Total$41,400 $191,933 
___________________________
(1)The above calculation is based on the minimum volume commitment schedule (as defined in the relevant agreement) and applicable differential fees.
Other commitments. The Company is party to a drilling commitment agreement with a third-party midstream provider such that the Company is required to drill a total of 106 horizontal wells, whereby a minimum number of wells out of the total must be drilled by a deadline occurring every two years over a period ending December 31, 2026. The drilling commitment agreement provides for, among other things, a number of specifications such as minimum consecutive days of production, well performance, and lateral length. Wells operated by others can satisfy this commitment, subject to limitations. If the Company were to fail to complete the wells by the applicable deadline, it would be in breach of the agreement and the third-party midstream provider could attempt to assert damages against Civitas and its affiliates. As of the date of filing, the Company cannot reasonably estimate how much, if any, damages will be paid.
Refer to Note 13 - Leases for lease commitments.
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NOTE 7 - STOCK-BASED COMPENSATION
Long Term Incentive Plans
In April 2017, the Company adopted the 2017 Long Term Incentive Plan (“2017 LTIP”), which provides for the issuance of restricted stock units, performance stock units, and stock options, and reserved 2,467,430 shares of common stock. In June 2021, the Company adopted the 2021 Long Term Incentive Plan (“2021 LTIP”), which reserved an incremental 700,000 shares of common stock to those previously reserved under the 2017 LTIP. Finally, pursuant to the Extraction Merger Agreement, Civitas assumed the Extraction Equity Plan, which reserved 3,305,080 shares of common stock now issuable by Civitas. The 2017 LTIP, 2021 LTIP, and Extraction Equity Plan are collectively referred to herein as the “LTIP”.
In November 2021, the Company adopted a non-employee director compensation program (the “Director Compensation Program”), which provides that non-employee directors will receive grants of deferred stock units (“DSUs”). In connection with the adoption of the Director Compensation Program, the Company adopted a First Amendment to the 2021 LTIP that, among other things, allows the Company to determine whether dividend rights granted pursuant to the LTIP should be reinvested, paid currently or paid in accordance with the terms of an associated award.
The Company records compensation expense associated with the issuance of awards under the LTIP based on the fair value of the awards as of the date of grant within general and administrative expense. The following table outlines the compensation expense recorded by type of award (in thousands):
Three Months Ended June 30,
Six Months Ended June 30,
2022202120222021
Restricted and deferred stock units$3,917 $1,746 $9,182 $3,067 
Performance stock units2,218 449 5,043 740 
Total stock-based compensation$6,135 $2,195 $14,225 $3,807 
As of June 30, 2022, unrecognized compensation expense related to the awards granted under the LTIP will be amortized through the relevant periods as follows (in thousands):
Unrecognized Compensation ExpenseFinal Year of Recognition
Restricted and deferred stock units$23,595 2025
Performance stock units18,951 2024
Total unrecognized stock-based compensation$42,546 
Restricted Stock Units (“RSUs”) and Deferred Stock Units
The Company typically grants RSUs to officers, directors, and employees and DSUs to directors as part of its LTIP. Each RSU and DSU represents a right to receive one share of the Company's common stock upon settlement of the award at the end of the specified vesting period.
RSUs generally vest and settle either over a (i) one-year vesting period, with the entire grant vesting and settling on the anniversary date or (ii) three-year vesting period, with one-third of the total grant vesting and settling on each anniversary date. DSUs generally vest in quarterly installments over a one-year period following the grant date. DSUs are settled in shares of the Company's common stock upon the director’s separation of service from the Board. The Company records compensation expense associated with the issuance of RSUs and DSUs on a straight-line basis over the vesting period based on the fair value of the awards as of the date of grant within general and administrative expense. The fair value of RSUs and DSUs is equal to the closing price of the Company’s common stock on the date of the grant.
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A summary of the status and activity of non-vested RSUs and DSUs for the six months ended June 30, 2022 is presented below:
 RSUs and DSUsWeighted-Average Grant-Date Fair Value
Non-vested, beginning of year815,062 $42.18 
Granted492,002 50.24 
Vested(574,865)42.80 
Forfeited(30,399)41.15 
Non-vested, end of year701,800 $47.36 
The fair value of the RSUs and DSUs granted under the LTIP during the six months ended June 30, 2022 was $24.7 million.
Performance Stock Units (“PSUs”)
The Company grants PSUs to officers as part of its LTIP. The number of shares of the Company’s common stock issued to settle PSUs ranges from zero to two times the number of PSUs granted and is determined based on performance achievement against certain criteria over a three-year performance period. PSUs generally vest and settle on the third anniversary of the date of the grant.
Performance achievement is determined based on one to two criteria. The first criterion is based on either, or a combination of, the Company’s absolute and relative total shareholder return (“TSR”) over the performance period. Absolute TSR is determined based upon the performance of the Company's common stock over the performance period relative to the price of the Company's common stock at the grant date. For awards with a relative TSR component, the Company's absolute TSR is compared with the absolute TSRs of a group of peer companies over the performance period. The absolute TSR for the Company and each of the peer companies is determined by dividing (A) (i) the volume-weighted average share price for the last 30 trading days of the performance period, minus (ii) the volume-weighted average share price for the 30 trading days preceding the beginning of the performance period, plus (iii) dividends paid by (B) the volume-weighted average share price for the 30 trading days preceding the beginning of the performance period. The second criterion, if applicable, is based on the Company's annual return on average capital employed (“ROCE”) for each year during the three-year performance period.
The total number of PSUs granted under the LTIP was split as follows for the relevant grant years:
202220212020
TSR100 %100 %67 %
ROCE— %— %33 %
As the 2020 PSUs depend on a performance-based settlement criterion, compensation expense may be adjusted in future periods as the number of units expected to vest increases or decreases based on the Company’s expected ROCE performance.
Of the grant-date fair value, the portion of the PSUs tied to TSR performance required a stochastic process method using a Brownian Motion simulation. A stochastic process is a mathematically defined equation that can create a series of outcomes over time. These outcomes are not deterministic in nature, which means that by iterating the equations multiple times, different results will be obtained for those iterations. In the case of the PSUs tied to TSR performance, the Company could not predict with certainty the path its stock price or the stock prices of its peers would take over the performance period. By using a stochastic simulation, the Company created multiple prospective stock pathways, statistically analyzed these simulations, and ultimately made inferences regarding the most likely path the stock price would take. As such, because future stock prices are stochastic, or probabilistic with some direction in nature, the stochastic method, specifically the Brownian Motion Model, was deemed an appropriate method by which to determine the fair value of the portion of the PSUs tied to TSR performance. Significant assumptions used in this simulation include the Company’s expected volatility, risk-free interest rate based on U.S. Treasury yield curve rates with maturities consistent with the performance period, as well as the volatilities for each of the Company’s peers.
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A summary of the status and activity of non-vested PSUs for the six months ended June 30, 2022 is presented below:
 
PSUs (1)
Weighted-Average Grant-Date Fair Value
Non-vested, beginning of year319,367 $57.58 
Granted199,317 64.23 
Vested(91,523)32.49 
Expired(41,955)22.77 
Non-vested, end of year385,206 $70.77 
___________________________
(1)The number of awards assumes that the associated performance condition is met at the target amount (multiplier of one). The final number of shares of the Company’s common stock issued may vary depending on the performance multiplier, which ranges from zero to two, depending on the level of satisfaction of the performance condition.
The fair value of the PSUs granted under the LTIP during the six months ended June 30, 2022 was $12.8 million.
The PSUs tied to TSR performance granted in 2019 vested as of December 31, 2021 and were released during the three months ended March 31, 2022 with a 200% distribution of shares to the recipients. The PSUs tied to ROCE performance granted in 2019 expired, with zero distribution of shares to the recipients.
Stock Options
The LTIP allows for the issuance of stock options to the Company's employees at the sole discretion of the Board. Options expire ten years from the grant date unless otherwise determined by the Board. Compensation expense on the stock options is recognized as general and administrative expense over the vesting period of the award.
Stock options are valued using a Black-Scholes Model where expected volatility is based on an average historical volatility of a peer group selected by management over a period consistent with the expected life assumption on the grant date, the risk-free rate of return is based on the U.S. Treasury constant maturity yield on the grant date with a remaining term equal to the expected term of the awards, and the Company’s expected life of stock option awards is derived from the midpoint of the average vesting time and contractual term of the awards.
A summary of the status and activity of non-vested stock options for the six months ended June 30, 2022 is presented below:
 Stock OptionsWeighted-
Average
Exercise Price
Weighted-Average Remaining Contractual Term (in years)Aggregate Intrinsic Value (in thousands)
Outstanding, beginning of year25,549 $34.36 
Exercised(6,036)34.36 
Forfeited(111)34.36 
Outstanding, end of year19,402 $34.36 4.5$348 
Options outstanding and exercisable19,402 $34.36 4.5$348 
The aggregate intrinsic value of options exercised during the six months ended June 30, 2022 was $0.1 million.
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NOTE 8 - FAIR VALUE MEASUREMENTS
The Company follows authoritative accounting guidance for measuring the fair value of assets and liabilities in its financial statements. This guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Further, this guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.
The fair value hierarchy is broken down into three levels based on the reliability of the inputs as follows:
Level 1: Quoted prices in active markets for identical assets or liabilities 
Level 2: Quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations whose inputs are observable or whose significant value drivers are observable
Level 3: Significant inputs to the valuation model are unobservable
Financial and non-financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy.
Derivatives
The Company uses Level 2 inputs to measure the fair value of oil, gas, and NGL commodity price derivatives. The fair value of the Company's commodity price derivatives is estimated using industry-standard models that contemplate various inputs including, but not limited to, the contractual price of the underlying position, current market prices, forward commodity price curves, volatility factors, time value of money, and the credit risk of both the Company and its counterparties. We validate our fair value estimate by corroborating the original source of inputs, monitoring changes in valuation methods and assumptions, and reviewing counterparty mark-to-market statements and other supporting documentation. Refer to Note 9 - Derivatives for more information regarding the Company’s derivative instruments.
The following tables present the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2022 and December 31, 2021 and their classification within the fair value hierarchy (in thousands):
 As of June 30, 2022
Level 1Level 2Level 3
Derivative assets$— $— $— 
Derivative liabilities$— $321,825 $— 
 As of December 31, 2021
 Level 1Level 2Level 3
Derivative assets$— $3,393 $— 
Derivative liabilities$— $239,763 $— 
Long-Term Debt
The 5.0% Senior Notes are recorded at cost, net of any unamortized deferred financing costs. As of June 30, 2022, the fair value of the 5.0% Senior Notes was $358.4 million. This fair value is based on quoted market prices, and as such, is designated as Level 1 within the fair value hierarchy. The recorded value of the Credit Facility approximates its fair value as it bears interest at a floating rate that approximates a current market rate. Please refer to Note 5 - Long-Term Debt for additional information.
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Warrants
As discussed in Note 2 - Acquisitions and Divestitures, the Company issued warrants in connection with the Extraction Merger. The warrants issued are indexed to the Company’s common stock and are required to be net share settled via a cashless exercise. The Company evaluated the warrants under authoritative accounting guidance and determined that they should be classified as equity instruments. The Company's share price traded below the exercise price of the warrants and therefore were not exercisable during the three and six months ended June 30, 2022.
The fair value of the warrants on the issuance date was determined using Level 3 inputs including, but not limited to, volatility, risk-free rate, and dividend yield under the Cox-Ross-Rubinstein binomial option pricing model. The warrants were included as a component of merger consideration and are recorded within additional paid-in capital on the accompanying balance sheets at a fair value of $77.5 million, with no recurring fair value measurement required. There have been no changes to the initial carrying amount of the warrants since issuance.
Acquisitions and Impairments of Proved Properties
We utilize the acquisition method to account for acquisitions of businesses. Pursuant to this method, we allocate the cost of the acquisition, or purchase price, to assets acquired and liabilities assumed based on fair values as of the acquisition date. Proved and unproved properties are valued based on a discounted cash flow approach utilizing Level 3 inputs, including, amongst other things, reserve quantities and classification, pace of drilling plans, future commodity prices, future development and lease operating costs, and discount rates using a market-based weighted average cost of capital determined at the time of the acquisition. When estimating the fair value of unproved properties, additional risk-weighting adjustments are applied to probable and possible reserves. Net derivative liabilities assumed are valued based on Level 2 inputs similar to the Company's other commodity price derivatives.
Whenever events or circumstances indicate that the carrying value of proved properties may not be recoverable, the Company uses Level 3 inputs to measure and record impairment at fair value. There were no proved property impairments during the three and six months ended June 30, 2022 and 2021.
Impairments of Unproved Properties
Unproved properties are routinely evaluated for continued capitalization or impairment. On a quarterly basis, management assesses undeveloped leasehold costs for impairment by considering, among other things, remaining lease terms, future drilling plans and capital availability to execute such plans, commodity price outlooks, recent operational results, reservoir performance and geology, and estimated acreage value based on prices received for similar, recent acreage transactions by the Company or other market participants. During the three months ended June 30, 2022 and 2021, the Company incurred abandonment and impairment of unproved properties expense of zero and $2.2 million, respectively. During the six months ended June 30, 2022 and 2021, the Company incurred abandonment and impairment of unproved properties expense of $18.0 million and $2.2 million, respectively.
NOTE 9 - DERIVATIVES
The Company periodically enters into commodity derivative contracts to mitigate a portion of its exposure to potentially adverse market changes in commodity prices for its expected future oil, natural gas, and NGL production and the associated impact on cash flows. The Company's commodity derivative contracts consist of swap and collar arrangements as well as roll differential swaps. As of June 30, 2022, all derivative counterparties were members of the Credit Facility lender group and all commodity derivative contracts are entered into for other-than-trading purposes. The Company does not designate its commodity derivative contracts as hedging instruments.
In a typical swap arrangement, if the agreed upon published third-party index price (“index price”) is lower than the fixed contract price at the time of settlement, the Company receives the difference between the index price and the fixed contract price. If the index price is higher than the fixed contact price at the time of settlement, the Company pays the difference between the index price and the fixed contract price.
A typical collar arrangement effectively establishes a floor and ceiling price on contracted volumes through the use of a short call and a long put (“two-way collar”). When the index price is above the ceiling price at the time of settlement, the Company pays the difference between the index price and the ceiling price. When the index price is below the floor price at the time of settlement, the Company receives the difference between the index price and floor price. When the index price is between the floor price and ceiling price, no payment or receipt occurs. A minority of our collar arrangements combine a two-way collar with a short put that holds an exercise price below the floor price (“three-way collar”). In these arrangements, when the index price is below the floor price at the time of settlement, the Company receives the difference between the index price and the floor price, capped at the difference between the floor price and the exercise price of the short put.
The Company has also entered into crude oil swap contracts to fix the differential in pricing between the NYMEX calendar month average and the physical crude oil delivery month (“Roll Differential”) in which the Company pays the periodic variable Roll Differential and receives a weighted-average fixed price differential. The weighted-average differential represents the amount of reduction to NYMEX West Texas Intermediate (“WTI”) prices for the notional volumes covered by the swap contracts.
As of June 30, 2022, the Company had entered into the following commodity price derivative contracts:
Contract Period
Q3 2022Q4 2022Q1 2023Q2 2023Q3 - Q4 20232024
Oil Derivatives (volumes in Bbl/day and prices in $/Bbls)
Swaps
NYMEX WTI Volumes10,5079,538457448364479
Weighted-Average Contract Price$47.00 $46.84 $45.42 $46.29 $46.77 $53.96 
Two-Way Collars
NYMEX WTI Volumes8,2967,3931,054
Weighted-Average Ceiling Price$68.43 $69.63 $72.70 $— $— $— 
Weighted-Average Floor Price$40.66 $40.97 $40.00 $— $— $— 
Three-Way Collars
NYMEX WTI Volumes2,2411,7381,7211,4361,237143
Weighted-Average Ceiling Price$58.03 $57.78 $58.75 $57.69 $57.01 $56.25 
Weighted-Average Floor Price$48.59 $48.42 $49.31 $48.10 $48.45 $45.00 
Weighted-Average Sold Put Price$38.59 $38.42 $39.25 $37.70 $38.18 $35.00 
Roll Differential Swaps (1)
NYMEX WTI Volumes2,0002,000
Weighted-Average Contract Price$0.22 $0.22 $— $— $— $— 
Natural Gas Derivatives (volumes in MMBtu/day and prices in $/million British thermal units (“MMBtu”))
Swaps
NYMEX HH Volumes54,95254,78344,64143,91143,86822,309
Weighted-Average Contract Price$2.76 $2.76 $2.51 $2.51 $2.51 $2.57 
CIG Volumes10,00010,000
Weighted-Average Contract Price$2.13 $2.13 $— $— $— $— 
Two-Way Collars
NYMEX HH Volumes81,01879,1489,5581,5631,8221,033
Weighted-Average Ceiling Price$3.68 $3.69 $3.23 $2.78 $2.96 $3.05 
Weighted-Average Floor Price$2.59 $2.60 $2.03 $2.21 $2.36 $2.38 
Three-Way Collars
NYMEX HH Volumes136127899505303
Weighted-Average Ceiling Price$2.74 $2.74 $3.19 $3.33 $— $3.49 
Weighted-Average Floor Price$2.50 $2.50 $2.50 $2.50 $— $2.50 
Weighted-Average Sold Put Price$2.00 $2.00 $2.00 $2.00 $— $2.00 
NGL Derivatives (volumes in Bbls/day and prices in $/Bbl)
Swaps
OPIS Basket Volumes4,0004,000
Weighted-Average Contract Price$20.22 $20.22 $— $— $— $— 
______________________________
(1) The weighted-average differential represents the amount of reduction to NYMEX WTI prices for the notional volumes covered by the swap contracts.

Derivative Assets and Liabilities Fair Value 
The Company’s commodity price derivatives are measured at fair value and are included in the accompanying balance sheets as derivative assets and liabilities. The following table contains a summary of all the Company’s derivative positions reported on the accompanying balance sheets as well as a reconciliation between the gross assets and liabilities and the potential effects of master netting arrangements on the fair value of the Company’s commodity derivative contracts as of June 30, 2022 and December 31, 2021 (in thousands):
June 30, 2022December 31, 2021
Derivative Assets: 
Commodity contracts - current$— $3,393 
Commodity contracts - noncurrent— — 
Total derivative assets— 3,393 
Amounts not offset in the accompanying balance sheets— (3,393)
Total derivative assets, net$— $— 
Derivative Liabilities:  
Commodity contracts - current$(278,600)$(219,804)
Commodity contracts - long-term(43,225)(19,959)
Total derivative liabilities(321,825)(239,763)
Amounts not offset in the accompanying balance sheets— 3,393 
Total derivative liabilities, net$(321,825)$(236,370)
The following table summarizes the components of the derivative loss presented on the accompanying statements of operations for the periods below (in thousands):
 Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Derivative cash settlement loss:
Oil contracts$(114,778)$(18,794)$(239,940)$(21,616)
Gas contracts(54,091)(1,405)(82,875)(2,374)
NGL contracts(12,762)— (25,394)— 
Total derivative cash settlement loss(181,631)(20,199)(348,209)(23,990)
Change in fair value gain (loss)108,981 (53,771)(19,934)(73,399)
Total derivative loss$(72,650)$(73,970)$(368,143)$(97,389)

NOTE 10 - ASSET RETIREMENT OBLIGATIONS
The Company recognizes an estimated liability for future costs associated with the abandonment of its oil and gas properties, including facilities requiring decommissioning. A liability for the fair value of an asset retirement obligation and corresponding increase to the carrying value of the related long-lived asset are recorded at the time a well is drilled or acquired, or a facility is constructed. The increase in carrying value is included in the proved properties line item in the accompanying balance sheets. The Company depletes the amount added to proved properties and recognizes expense in connection with the accretion of the discounted liability over the remaining estimated economic lives of the respective long-lived assets. Cash paid to settle asset retirement obligations is included in the cash flows from operating activities section of the accompanying statements of cash flows.
The Company’s estimated asset retirement obligation liability is based on historical experience plugging and abandoning wells, estimated economic lives, estimated plugging and abandonment cost, and regulatory requirements. The liability is discounted using the credit-adjusted risk-free rate estimated at the time the liability is incurred or revised.
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A roll-forward of the Company's asset retirement obligation is as follows (in thousands):
Amount
Balance as of December 31, 2021
$225,315 
Additional liabilities incurred2,072 
Accretion expense8,102 
Liabilities settled(8,385)
Balance as of June 30, 2022
$227,104 
Current portion24,000 
Long-term portion$203,104 
NOTE 11 - EARNINGS PER SHARE
Earnings per basic and diluted share are calculated under the treasury stock method. Basic net income (loss) per common share is calculated by dividing net income (loss) by the basic weighted-average common shares outstanding for the respective period. Diluted net income (loss) per common share is calculated by dividing net income (loss) by the diluted weighted-average common shares outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities consist of unvested RSUs, DSUs, PSUs as well as outstanding in-the-money stock options and warrants. When the Company recognizes a loss from continuing operations, all potentially dilutive shares are anti-dilutive and are consequently excluded from the calculation of diluted earnings per share.
The Company issues RSUs and DSUs, which represent the right to receive, upon vesting, one share of the Company's common stock. The number of potentially dilutive shares related to unvested RSUs and DSUs is based on the number of shares, if any, that would be issuable at the end of the respective reporting period, assuming that date was the end of the vesting period. The Company issues PSUs, which represent the right to receive, upon settlement of the PSUs, a number of shares of the Company's common stock that ranges from zero to two times the number of PSUs granted on the award date. The number of potentially dilutive shares related to PSUs is based on the number of shares, if any, that would be issuable at the end of the respective reporting period, assuming that date was the end of the performance period applicable to such PSUs. The Company has also issued stock options and warrants, which both represent the right to purchase the Company's common stock at a specified exercise price. The number of potentially dilutive shares related to the stock options and warrants is based on the number of shares, if any, that would be exercisable at the end of the respective reporting period, assuming the date was the end of such stock options' or warrants' term. Stock options and warrants are only dilutive when the average price of the common stock during the period exceeds the exercise price. Please refer to Note 7 - Stock-Based Compensation for additional discussion.
The following table sets forth the calculations of basic and diluted net income (loss) per common share (in thousands, except per share amounts):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Net income (loss)$468,821 $(25,319)$560,460 $(25,438)
Basic net income (loss) per common share$5.52 $(0.83)$6.60 $(0.99)
Diluted net income (loss) per common share$5.48 $(0.83)$6.56 $(0.99)
Weighted-average shares outstanding - basic84,993 30,655 84,917 25,774 
Add: dilutive effect of contingent stock awards561 — 536 — 
Weighted-average shares outstanding - diluted85,554 30,655 85,453 25,774 
There were 59,161 and 747,678 shares that were anti-dilutive for the three months ended June 30, 2022 and 2021, respectively. There were 30,822 and 777,564 shares that were anti-dilutive for the six months ended June 30, 2022 and 2021, respectively.
The exercise price of the Company's warrants was in excess of the Company's stock price during the three and six months ended June 30, 2022; therefore, they were excluded from the earnings per share calculation.
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NOTE 12 - INCOME TAXES
Deferred tax assets and liabilities are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years related to cumulative temporary differences between the tax basis of assets and liabilities and amounts reported in the accompanying balance sheets. The tax effect of the net change in the cumulative temporary differences during each period in the deferred tax assets and liabilities determines the periodic provision for deferred taxes.
The following table outlines the Federal net operating loss (“NOL”) carryforwards acquired and deferred tax assets and liabilities recorded as a result of the mergers that closed in 2021 (in millions):
HighPoint MergerExtraction MergerCrestone Peak Merger
Federal NOL carryforwards$219.0 $479.9 $555.7 
Deferred tax asset (liability)$110.5 $49.2 $(125.1)
Valuation allowance(48.1)— — 
Net$62.4 $49.2 $(125.1)
The Company assesses the recoverability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will be realized. In making such determination, the Company considers all available (both positive and negative) evidence, including future reversals of temporary differences, tax-planning strategies, projected future taxable income, and results of operations. As a result of the HighPoint Merger, the Company recorded a valuation allowance of $48.1 million during 2021 against certain acquired net operating losses and other tax attributes due to the limitation on realizability caused by the change of ownership provisions of Section 382 of the Code. The net deferred tax liability as of June 30, 2022 was $107.9 million, and the net deferred tax asset as of December 31, 2021 was $22.3 million. Additionally, income tax payable under current liabilities as of June 30, 2022 was $50.4 million. The Company will continue to monitor facts and circumstances in the reassessment of the likelihood that the deferred tax assets will be realized.
Federal income tax expense differs from the amount that would be provided by applying the statutory United States federal income tax rate of 21% to income before income taxes primarily due to the effect of state income taxes, equity-based compensation, and other permanent differences including bargain purchase gain. During the three months ended June 30, 2022 and 2021, the Company recorded income tax expense of $152.5 million and income tax benefit of $10.4 million, respectively. During the six months ended June 30, 2022 and 2021, the Company recorded income tax expense of $175.8 million and income tax benefit of $10.4 million, respectively.
The Company had no unrecognized tax benefits as of June 30, 2022 and December 31, 2021. The Company's management does not believe that there are any new items or changes in facts or judgments that would impact the Company's tax position taken thus far in 2022.
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NOTE 13 - LEASES
The Company’s right-of-use assets and lease liabilities are recognized on the accompanying balance sheets based on the present value of the expected lease payments over the lease term. The following table summarizes the asset classes of the Company's operating leases (in thousands):
June 30, 2022December 31, 2021
Operating Leases
Field equipment(1)
$22,608 $29,312 
Corporate leases8,024 9,484 
Vehicles 855 1,089 
Total right-of-use asset$31,487 $39,885 
Field equipment(1)
$22,608 $29,312 
Corporate leases8,565 9,870 
Vehicles855 1,089 
Total lease liability$32,028 $40,271 
____________________________
(1) Includes compressors, certain natural gas processing equipment, and other field equipment.

The Company incurred gross short-term lease costs of $11.3 million and $0.2 million for the three months ended June 30, 2022 and 2021, respectively. The Company incurred gross short-term lease costs of $20.4 million and $0.2 million for the six months ended June 30, 2022 and 2021, respectively. A portion of these costs may have been or will be billed to other working interest owners, and the Company's net share of these costs, once paid, are capitalized to property and equipment or recognized as expense.
Future commitments by year for the Company's leases with a lease term of one year or more as of June 30, 2022 are presented in the table below. Such commitments are reflected at undiscounted values and are reconciled to the discounted present value recognized on the accompanying balance sheets as follows (in thousands):
Operating Leases
Remainder of 2022$10,210 
202313,523 
20245,414 
20251,742 
20261,207 
Thereafter1,587 
Total lease payments33,683 
Less: imputed interest(1,655)
Total lease liability$32,028 

NOTE 14 - SUBSEQUENT EVENTS
On July 5, 2022, the Company entered into and closed on Purchase and Sale Agreements to acquire non-operating interests in certain of the Company's operated wells for cash consideration of $81.6 million, subject to customary purchase price adjustments.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our 2021 Form 10-K, as well as the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.
Executive Summary
We are an independent Denver-based exploration and production company focused on the acquisition, development, and production of oil and associated liquids-rich natural gas in the Rocky Mountain region, primarily in the Wattenberg Field of the DJ Basin of Colorado. We believe our acreage in the DJ Basin has been significantly delineated by our own drilling success and by the success of offset operators, providing confidence that our inventory is repeatable and will continue to generate economic returns. The majority of our revenues are generated through the sale of oil, natural gas, and natural gas liquids production.
The Company’s primary objective is to maximize shareholder returns by responsibly developing our oil and natural gas resources. Key aspects of our strategy include multi-well pad development across our leasehold, continuous safety improvement, strict adherence to health and safety regulations, environmental stewardship, disciplined approach to acquisitions and divestitures and capital allocation, and prudent risk management.
Financial and Operating Results
Our financial and operational results include:
Crude oil equivalent sales volumes increased 314% for the three months ended June 30, 2022 when compared to the same period during 2021 primarily due to the Extraction and Crestone Peak mergers as well as the Bison Acquisition;
General and administrative expense per barrel of oil equivalent (“Boe”) decreased by 41% for the three months ended June 30, 2022 when compared to the same period during 2021 due to the synergies achieved through the Extraction and Crestone Peak mergers as well as the Bison Acquisition;
Lease operating expense per Boe decreased by 11% for the three months ended June 30, 2022 when compared to the same period during 2021;
Total liquidity was $1.4 billion at June 30, 2022, consisting of cash on hand plus funds available under our Credit Facility, after giving effect to an aggregate of $12.4 million of undrawn letters of credit. Please refer to Liquidity and Capital Resources below for additional discussion;
Cash dividends of $116.2 million, or $1.3625 per share, declared and paid during the three months ended June 30, 2022;
Cash flows provided by operating activities for the six months ended June 30, 2022 were $1.3 billion, as compared to $79.6 million during the six months ended June 30, 2021. Please refer to Liquidity and Capital Resources below for additional discussion; and
Capital expenditures, inclusive of accruals, were $473.1 million during the six months ended June 30, 2022, of which $39.8 million represents land and midstream capital expenditures.
Midstream Assets
The Company's midstream assets provide reliable gathering, treating, and storage for the Company’s operated production while reducing facility site footprints, leading to more cost-efficient operations and reduced emissions and surface disturbance per Boe produced. Additionally, this infrastructure helps ensure that the Company's production is not constrained by any single midstream service provider.
The net book value of the Company's midstream assets was $303.9 million as of June 30, 2022.
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Table of Contents
Current Events and Outlook
Oil and natural gas prices continue to be impacted by the efforts to contain COVID-19, uncertainty regarding the continued pace of economic recovery, and changes to OPEC+ production levels. In addition, Russia’s invasion of Ukraine has led to regional instability, Although Russian export volumes of oil and gas have been only modestly impacted so far, uncertainty regarding potential future impacts of sanctions and buyer aversion to Russian hydrocarbons presents significant risk to future supply and demand balances. The foregoing destabilizing factors have caused dramatic fluctuations in global financial markets and uncertainty about world-wide oil supply and demand, which in turn has increased the volatility of oil, natural gas, and NGL prices. WTI oil prices have recovered to pre-pandemic levels, averaging approximately $101 per Bbl during the first half of 2022. With the current shortage of other sources of energy, and the economic growth associated with what appears to be a global emergence from the pandemic, the demand for and price of oil has increased. Although this demand outlook is expected to underpin oil prices, in light of uncertainty associated with recovering oil demand, future monetary policy, and governmental policies aimed at transitions toward lower carbon energy, we cannot predict any future volatility in or levels of commodity prices or demand for crude oil.
On April 1, 2021, we acquired HighPoint, and on November 1, 2021, we merged with Extraction and Crestone Peak. Additionally, on March 1, 2022, we acquired Bison. The Company believes it has successfully integrated the operations, production, and accounting databases derived from each of these mergers and acquisitions.
The Company's original 2022 capital budget included drilling and completion activities of $825 million to $950 million and $70 million to $90 million in land, midstream, and other capital activity that will support our acreage positions and overall infrastructure. We have since updated 2022 guidance to refine our drilling and completion capital budget to $890 million to $940 million which contemplates running an average of 3 operated rigs and 3 operated crews that will drill approximately 190 and complete approximately 160 gross operated wells. Additionally, our land, midstream, and other capital activity budget was updated to $80 million to $100 million.

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Table of Contents
Results of Operations
The following table summarizes our product revenues, sales volumes, and average sales prices for the periods indicated:
Three Months Ended June 30,
 20222021ChangePercent Change
Revenues (in thousands): 
Crude oil sales(1)
$778,218 $115,923 $662,295 571 %
Natural gas sales(2)
205,298 14,778 190,520 1,289 %
NGL sales167,266 24,777 142,489 575 %
Product revenue$1,150,782 $155,478 $995,304 640 %
Sales Volumes:
Crude oil (MBbls)7,308.4 1,905.2 5,403.2 284 %
Natural gas (MMcf)28,903.5 6,405.6 22,497.9 351 %
NGL (MBbls)3,819.6 878.6 2,941.0 335 %
Crude oil equivalent (MBoe)(3)
15,945.3 3,851.4 12,093.9 314 %
Average Sales Prices (before derivatives)(4):
 
Crude oil (per Bbl)$106.48 $60.85 $45.63 75 %
Natural gas (per Mcf)$7.10 $2.31 $4.79 207 %
NGL (per Bbl)$43.79 $28.20 $15.59 55 %
Crude oil equivalent (per Boe)(3)
$72.17 $40.37 $31.80 79 %
Average Sales Prices (after derivatives)(4):
Crude oil (per Bbl)$90.78 $50.98 $39.80 78 %
Natural gas (per Mcf)$5.23 $2.09 $3.14 150 %
NGL (per Bbl)$40.45 $28.20 $12.25 43 %
Crude oil equivalent (per Boe)(3)
$60.78 $35.12 $25.66 73 %
_____________________________
(1)Crude oil sales excludes $0.1 million and $0.2 million of oil transportation revenues from third parties, which do not have associated sales volumes, for the three months ended June 30, 2022 and 2021, respectively.
(2)Natural gas sales excludes $0.5 million and $0.4 million of gas gathering revenues from third parties, which do not have associated sales volumes, for the three months ended June 30, 2022 and 2021, respectively.
(3)Determined using the ratio of 6 thousand cubic feet (“Mcf”) of natural gas to 1 Bbl of crude oil.
(4)Derivatives economically hedge the price we receive for oil, natural gas, and NGL. For the three months ended June 30, 2022, the derivative cash settlement loss for oil, natural gas, and NGLs was $114.8 million, $54.1 million, $12.8 million, respectively. For the three months ended June 30, 2021, the derivative cash settlement loss for oil and natural gas was $18.8 million and $1.4 million, respectively. Please refer to Note 9 - Derivatives under Part I, Item 1 of this report for additional disclosures.
Product revenues increased by 640% to $1.2 billion for the three months ended June 30, 2022 compared to $155.5 million for the three months ended June 30, 2021. The increase was largely due to a 314% increase in sales volumes and a $31.80, or 79%, increase in oil equivalent pricing, excluding the impact of derivatives. The increase in sales volumes is due to the Extraction and Crestone Peak mergers that closed on November 1, 2021, and the Bison Acquisition that closed on March 1, 2022. Additionally, we turned 126 gross wells to sales during the twelve-month period ending June 30, 2022.
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Table of Contents
The following table summarizes our operating expenses for the periods indicated (in thousands, except per Boe amounts):
Three Months Ended June 30,
 20222021ChangePercent Change
Operating Expenses: 
Lease operating expense$41,877 $11,358 $30,519 269 %
Midstream operating expense7,469 4,246 3,223 76 %
Gathering, transportation, and processing79,519 13,721 65,798 480 %
Severance and ad valorem taxes85,870 9,813 76,057 775 %
Exploration1,553 3,547 (1,994)(56)%
Depreciation, depletion, and amortization204,519 35,006 169,513 484 %
Abandonment and impairment of unproved properties— 2,215 (2,215)(100)%
Unused commitments1,731 4,328 (2,597)(60)%
Bad debt expense— 100 %
Merger transaction costs1,418 18,246 (16,828)(92)%
General and administrative expense29,666 12,144 17,522 144 %
Operating expenses$453,626 $114,624 $339,002 296 %
Selected Costs ($ per Boe): 
Lease operating expense$2.63 $2.95 $(0.32)(11)%
Midstream operating expense0.47 1.10 (0.63)(57)%
Gathering, transportation, and processing4.99 3.56 1.43 40 %
Severance and ad valorem taxes5.39 2.55 2.84 111 %
Exploration0.10 0.92 (0.82)(89)%
Depreciation, depletion, and amortization12.83 9.09 3.74 41 %
Abandonment and impairment of unproved properties— 0.58 (0.58)(100)%
Unused commitments0.11 1.12 (1.01)(90)%
Bad debt expense— — — — %
Merger transaction costs0.09 4.74 (4.65)(98)%
General and administrative expense1.86 3.15 (1.29)(41)%
Operating expenses$28.47 $29.76 $(1.29)(4)%
Lease operating expense.  Our lease operating expense increased $30.5 million, or 269%, to $41.9 million for the three months ended June 30, 2022 from $11.4 million for the three months ended June 30, 2021, and decreased 11% on an equivalent basis per Boe. Lease operating expense increased on an aggregate basis as a result of the Extraction and Crestone Peak mergers as well as the Bison Acquisition. Lease operating expense per Boe decreased as a result of the synergies achieved through the aforementioned mergers.
Midstream operating expense. Our midstream operating expense increased $3.2 million, or 76%, to $7.5 million for the three months ended June 30, 2022 from $4.2 million for the three months ended June 30, 2021, and decreased 57% on an equivalent basis per Boe. Midstream operating expense increased on an aggregate basis due to the acquisition of certain midstream assets through the Crestone Peak Merger. Conversely, while certain midstream operating expenses correlate to sales volumes, the majority of the costs, such as compression, are fixed and thereby result in a decrease in midstream operating expense per Boe period over period.
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Gathering, transportation, and processing. Gathering, transportation, and processing expense increased $65.8 million, or 480%, to $79.5 million for the three months ended June 30, 2022 from $13.7 million for the three months ended June 30, 2021, and increased 40% on an equivalent basis per Boe. Sales volumes have a direct correlation to gathering, transportation, and processing expense and increased 314% during the comparable periods. Additionally, we are party to a number of value-based percentage of proceeds sales contracts, which track solely with natural gas and NGL pricing and thereby have further contributed to the increase in gathering, transportation, and processing expense. Finally, the Company continually monitors for the best sales volumes outlet and thereby incurred increased gathering, transportation, and processing expense during the three months ended June 30, 2022 relative to oil differentials (that would otherwise be recorded as a direct reduction of revenue) in order to receive a net improvement on in margins.
Severance and ad valorem taxes.  Our severance and ad valorem taxes increased $76.1 million, or 775%, to $85.9 million for the three months ended June 30, 2022 from $9.8 million for the three months ended June 30, 2021, and increased 111% on an equivalent basis per Boe. Severance and ad valorem taxes primarily correlate to revenues, which increased by 640% for the three months ended June 30, 2022 when compared to the same period in 2021. Additionally, through the Extraction and Crestone Peak mergers, we now operate in certain taxing districts with incrementally higher severance and ad valorem tax rates that are thereby contributing to the aggregate increase in severance and ad valorem taxes.
Depreciation, depletion, and amortization.  Our depreciation, depletion, and amortization expense increased $169.5 million, or 484%, to $204.5 million for the three months ended June 30, 2022 from $35.0 million for the three months ended June 30, 2021, and increased 41% on an equivalent basis per Boe. The increase in depreciation, depletion, and amortization expense is the result of (i) a $4.5 billion increase in the depletable property base primarily due to the Extraction and Crestone Peak mergers as well as the Bison Acquisition and (ii) a 314% increase in production between the comparable periods.
Abandonment and impairment of unproved properties. During the three months ended June 30, 2022 and 2021, we incurred zero and $2.2 million, respectively, in abandonment and impairment of unproved properties due to, during the three months ended June 30, 2021, the reassessment of estimated probable and possible reserve locations based primarily upon economic viability and the expiration of non-core leases.
Unused commitments. During the three months ended June 30, 2022, we incurred $1.7 million in unused commitments primarily due to certain deficiency payments incurred under a minimum volume crude oil and a minimum volume water commitment. During the three months ended June 30, 2021, we incurred $4.3 million in unused commitments primarily due to the assumption of two firm natural gas pipeline transportation contracts in the HighPoint Merger to provide a guaranteed outlet for production from properties HighPoint had previously sold. Both firm transportation contracts, which expired on July 31, 2021, required us to pay transportation charges regardless of the amount of pipeline capacity utilized.
Merger transaction costs. During the three months ended June 30, 2022, we incurred $1.4 million in legal, advisor, and other costs associated with the Extraction and Crestone Peak mergers as well as the Bison Acquisition. During the three months ended June 30, 2021, we incurred $18.2 million in legal, advisor, and other costs associated with the HighPoint Merger.
General and administrative expense. Our general and administrative expense increased $17.6 million, or 144%, to $29.7 million for the three months ended June 30, 2022 from $12.1 million for the three months ended June 30, 2021, and decreased 41% on an equivalent basis per Boe. The primary drivers of the aggregate increase relate to an increase in salaries, benefits, and stock compensation expense associated with the Extraction and Crestone Peak mergers. General and administrative expense per Boe decreased due to oil equivalent sales volumes being 314% higher during the three months ended June 30, 2022 as compared to the same period in 2021.
Derivative loss.  Our derivative loss for the three months ended June 30, 2022 was $72.7 million as compared to a loss of $74.0 million for the three months ended June 30, 2021. Our derivative loss is due to settlements and fair market value adjustments caused by market prices being higher than our contracted hedge prices. Please refer to Note 9 - Derivatives under Part I, Item 1 of this report for additional discussion.
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Interest expense.  Our interest expense for the three months ended June 30, 2022 and 2021 was $8.1 million and $3.2 million, respectively. Average debt outstanding for the three months ended June 30, 2022 and 2021 was $443.4 million and $123.2 million, respectively. The components of interest expense for the periods presented are as follows (in thousands):
Three Months Ended June 30,
20222021
Senior Notes$5,646 $1,875 
Credit Facility116 1,160 
Commitment fees under the Credit Facility1,179 329 
Letter of credit fees under the Credit Facility73 — 
Amortization of deferred financing costs1,102 433 
Capitalized interest— (556)
Total interest expense$8,116 $3,241 
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The following table summarizes our product revenues, sales volumes, and average sales prices for the periods indicated:
Six Months Ended June 30,
 20222021ChangePercent Change
Revenues (in thousands): 
Crude oil sales(1)
$1,327,184 $165,723 $1,161,461 701 %
Natural gas sales(2)
317,728 27,064 290,664 1,074 %
NGL sales322,413 35,740 286,673 802 %
Product revenue$1,967,325 $228,527 $1,738,798 761 %
Sales Volumes:
Crude oil (MBbls)13,431.9 2,847.9 10,584.0 372 %
Natural gas (MMcf)55,689.9 9,619.5 46,070.4 479 %
NGL (MBbls)7,542.3 1,276.7 6,265.6 491 %
Crude oil equivalent (MBoe)(3)
30,255.9 5,727.9 24,528.0 428 %
Average Sales Prices (before derivatives)(4):
 
Crude oil (per Bbl)$98.81 $58.19 $40.62 70 %
Natural gas (per Mcf)$5.71 $2.81 $2.90 103 %
NGL(per Bbl)$42.75 $27.99 $14.76 53 %
Crude oil equivalent (per Boe)(3)
$65.02 $39.90 $25.12 63 %
Average Sales Prices (after derivatives)(4):
Crude oil (per Bbl)$80.94 $50.60 $30.34 60 %
Natural gas (per Mcf)$4.22 $2.57 $1.65 64 %
NGL (per Bbl)$39.38 $27.99 $11.39 41 %
Crude oil equivalent (per Boe)(3)
$53.51 $35.71 $17.80 50 %
_____________________________
(1)Crude oil sales excludes $0.6 million and $0.5 million of oil transportation revenues from third parties, which do not have associated sales volumes, for the six months ended June 30, 2022 and 2021, respectively.
(2)Natural gas sales excludes $1.3 million and $1.2 million of gas gathering revenues from third parties, which do not have associated sales volumes, for the six months ended June 30, 2022 and 2021, respectively.
(3)Determined using the ratio of 6 Mcf of natural gas to 1 Bbl of crude oil.
(4)Derivatives economically hedge the price we receive for oil, natural gas, and NGL. For the six months ended June 30, 2022, the derivative cash settlement loss for oil, natural gas, and NGLs was $239.9 million, $82.9 million, $25.4 million, respectively. For the six months ended June 30, 2021, the derivative cash settlement loss for oil and natural gas was $21.6 million and $2.4 million, respectively. Please refer to Note 9 - Derivatives under Part I, Item 1 of this report for additional disclosures.
Product revenues increased by 761% to $1,967.3 million for the six months ended June 30, 2022 compared to $228.5 million for the six months ended June 30, 2021. The increase was largely due to a 428% increase in sales volumes and a $25.12, or 63%, increase in oil equivalent pricing, excluding the impact of derivatives. The increase in sales volumes is due to the HighPoint Merger that closed on April 1, 2021, the Extraction and Crestone Peak mergers that closed on November 1, 2021, and the Bison Acquisition that closed on March 1, 2022. Additionally, we turned 126 gross wells to sales during the twelve-month period ending June 30, 2022.
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The following table summarizes our operating expenses for the periods indicated (in thousands, except per Boe amounts):
Six Months Ended June 30,
 20222021ChangePercent Change
Operating Expenses: 
Lease operating expense$77,896 $17,089 $60,807 356 %
Midstream operating expense13,181 8,151 5,030 62 %
Gathering, transportation, and processing129,922 18,688 111,234 595 %
Severance and ad valorem taxes149,174 14,417 134,757 935 %
Exploration2,081 3,643 (1,562)(43)%
Depreciation, depletion, and amortization389,379 53,829 335,550 623 %
Abandonment and impairment of unproved properties17,975 2,215 15,760 712 %
Unused commitments2,507 4,328 (1,821)(42)%
Bad debt expense— 100 %
Merger transaction costs21,952 21,541 411 %
General and administrative expense65,386 21,395 43,991 206 %
Operating expenses$869,457 $165,296 $704,161 426 %
Selected Costs ($ per Boe): 
Lease operating expense$2.57 $2.98 $(0.41)(14)%
Midstream operating expense0.44 1.42 (0.98)(69)%
Gathering, transportation, and processing4.29 3.26 1.03 32 %
Severance and ad valorem taxes4.93 2.52 2.41 96 %
Exploration0.07 0.64 (0.57)(89)%
Depreciation, depletion, and amortization12.87 9.40 3.47 37 %
Abandonment and impairment of unproved properties0.59 0.39 0.20 51 %
Unused commitments0.08 0.76 (0.68)(89)%
Bad debt expense— — — — %
Merger transaction costs0.73 3.76 (3.03)(81)%
General and administrative expense2.16 3.74 (1.58)(42)%
Operating expenses$28.73 $28.87 $(0.14)— %
Lease operating expense.  Our lease operating expense increased $60.8 million, or 356%, to $77.9 million for the six months ended June 30, 2022 from $17.1 million for the six months ended June 30, 2021, and decreased 14% on an equivalent basis per Boe. Lease operating expense increased on an aggregate basis as a result of the HighPoint, Extraction, and Crestone Peak mergers as well as the Bison Acquisition. Lease operating expense per Boe decreased as a result of the synergies achieved through the aforementioned mergers.
Midstream operating expense. Our midstream operating expense increased $5.0 million, or 62%, to $13.2 million for the six months ended June 30, 2022 from $8.2 million for the six months ended June 30, 2021, and decreased 69% on an equivalent basis per Boe. Midstream operating expense increased on an aggregate basis due to the acquisition of certain midstream assets through the HighPoint and Crestone Peak mergers. Conversely, while certain midstream operating expenses correlate to sales volumes, the majority of the costs, such as compression, are fixed and thereby result in a decrease in midstream operating expense per Boe period over period.
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Gathering, transportation, and processing. Gathering, transportation, and processing expense increased $111.2 million, or 595%, to $129.9 million for the six months ended June 30, 2022 from $18.7 million for the six months ended June 30, 2021, and increased 32% on an equivalent basis per Boe. Sales volumes have a direct correlation to gathering, transportation, and processing expense and increased 428% during the comparable periods. Additionally, we are party to a number of value-based percentage of proceeds sales contracts, which track solely with natural gas and NGL pricing and thereby have further contributed to the increase in gathering, transportation, and processing expense. Finally, the Company continually monitors for the best sales volumes outlet and thereby incurred increased gathering, transportation, and processing expense during the six months ended June 30, 2022 relative to oil differentials (that would otherwise be recorded as a direct reduction of revenue) in order to receive a net improvement on in margins.
Severance and ad valorem taxes.  Our severance and ad valorem taxes increased $134.8 million, or 935%, to $149.2 million for the six months ended June 30, 2022 from $14.4 million for the six months ended June 30, 2021, and increased 96% on an equivalent basis per Boe. Severance and ad valorem taxes primarily correlate to revenues, which increased by 761% for the six months ended June 30, 2022 when compared to the same period in 2021. Additionally, through the Extraction and Crestone Peak mergers, we now operate in certain taxing districts with incrementally higher severance and ad valorem tax rates that are thereby contributing to the aggregate increase in severance and ad valorem taxes.
Depreciation, depletion, and amortization.  Our depreciation, depletion, and amortization expense increased $335.6 million, or 623%, to $389.4 million for the six months ended June 30, 2022 from $53.8 million for the six months ended June 30, 2021, and increased 37% on an equivalent basis per Boe. The increase in depreciation, depletion, and amortization expense is the result of (i) a $4.5 billion increase in the depletable property base primarily due to the Extraction and Crestone Peak mergers as well as the Bison Acquisition and (ii) a 428% increase in production between the comparable periods.
Abandonment and impairment of unproved properties. During the six months ended June 30, 2022, we incurred $18.0 million in abandonment and impairment of unproved properties due the Company's assessment of its locations and replacement of non-core legacy locations with newly acquired locations. During the six months ended June 30, 2021, we incurred $2.2 million in abandonment and impairment of unproved properties due to the reassessment of estimated probable and possible reserve locations based primarily upon economic viability and the expiration of non-core leases.
Unused commitments. During the six months ended June 30, 2022, we incurred $2.5 million in unused commitments primarily due to certain deficiency payments incurred under a minimum volume crude oil and a minimum volume water commitment. During the six months ended June 30, 2021, we incurred $4.3 million in unused commitments primarily due to the assumption of two firm natural gas pipeline transportation contracts in the HighPoint Merger to provide a guaranteed outlet for production from properties HighPoint had previously sold. Both firm transportation contracts, which expired on July 31, 2021, required us to pay transportation charges regardless of the amount of pipeline capacity utilized.
Merger transaction costs. During the six months ended June 30, 2022 and 2021, we incurred $22.0 million and $21.5 million, respectively, in legal, advisor, and other costs associated with the HighPoint, Extraction, and Crestone Peak mergers as well as the Bison Acquisition. Merger transaction costs include $7.6 million and $1.1 million of severance payments for the six months ended June 30, 2022 and 2021, respectively.
General and administrative expense. Our general and administrative expense increased $44.0 million, or 206%, to $65.4 million for the six months ended June 30, 2022 from $21.4 million for the six months ended June 30, 2021, and decreased 42% on an equivalent basis per Boe. The primary drivers of the aggregate increase relate to an increase in salaries, benefits, and stock compensation expense associated with the HighPoint, Extraction, and Crestone Peak mergers. General and administrative expense per Boe decreased due to oil equivalent sales volumes being 428% higher during the six months ended June 30, 2022 as compared to the same period in 2021.
Derivative loss.  Our derivative loss for the six months ended June 30, 2022 was $368.1 million as compared to a loss of $97.4 million for the six months ended June 30, 2021. Our derivative loss is due to settlements and fair market value adjustments caused by market prices being higher than our contracted hedge prices. Please refer to Note 9 - Derivatives under Part I, Item 1 of this report for additional discussion.
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Interest expense.  Our interest expense for the six months ended June 30, 2022 and 2021 was $17.2 million and $3.7 million, respectively. Average debt outstanding for the six months ended June 30, 2022 and 2021 was $471.5 million and $61.9 million, respectively. The components of interest expense for the periods presented are as follows (in thousands):
Six Months Ended June 30,
20222021
Senior Notes$12,521 $1,875 
Credit Facility116 1,160 
Commitment fees under the Credit Facility2,161 655 
Letter of credit fees under the Credit Facility204 — 
Amortization of deferred financing costs2,180 526 
Capitalized interest— (556)
Total interest expense$17,182 $3,660 
Liquidity and Capital Resources
The Company's anticipated sources of liquidity include cash from operating activities, borrowings under the Credit Facility, potential proceeds from sales of assets, and potential proceeds from equity and/or debt capital markets transactions. Our cash flows from operating activities are subject to significant volatility due to changes in commodity prices, as well as variations in our production. The prices for these commodities are driven by a number of factors beyond our control, including global and regional product supply and demand, weather, product distribution, refining and processing capacity, regulatory constraints, and other supply chain dynamics, among other factors.
Although we cannot provide any assurance, we believe cash flows from operating activities and availability under our Credit Facility should be sufficient to meet our cash requirements inclusive of, but not limited to, normal operating needs, debt service obligations, planned capital expenditures and commitments for at least the next twelve months and, based on current expectations, for the long term.
As of June 30, 2022, our liquidity was $1.4 billion, consisting of cash on hand of $439.3 million and $1.0 billion of available borrowing capacity on our Credit Facility, after giving effect to an aggregate of $12.4 million of undrawn letters of credit. Please refer to Note 5 - Long-Term Debt under Part I, Item 1 of this report for additional discussion.
Our weighted-average interest rate on borrowings from the Credit Facility was 3.6% for the three months ended June 30, 2022. As of June 30, 2022 and as of the date of filing, we had zero outstanding on our Credit Facility.
On April 20, 2022, we entered into the Second Amendment to the A&R Credit Facility to increase our borrowing base from $1.0 billion to $1.7 billion and the aggregate elected commitment amount from $800.0 million to $1.0 billion. Additionally, on May 1, 2022, we exercised an optional redemption on the 7.5% Senior Notes to redeem the full amount outstanding of $100.0 million. Please refer to Note 5 - Long-Term Debt under Part I, Item 1 of this report for additional information.
The following table summarizes our cash flows and other financial measures for the periods indicated (in thousands):
Six Months Ended June 30,
 20222021
Net cash provided by operating activities$1,254,768 $79,559 
Net cash used in investing activities(733,491)(8,029)
Net cash used in financing activities(336,480)(71,870)
Cash, cash equivalents, and restricted cash439,353 24,505 
Acquisition of oil and gas properties(303,602)(549)
Exploration and development of oil and gas properties(467,186)(57,269)
Cash flows provided by operating activities
For the six months ended June 30, 2022 and 2021, the cash receipts and disbursements were attributable to our normal operating cycle. See Results of Operations above for more information on the factors driving these changes.
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Cash flows provided by (used in) investing activities
Net cash used in investing activities for the six months ended June 30, 2022 was primarily driven by $303.6 million of acquisitions of oil and gas properties, partially offset by cash acquired of $44.3 million. Additionally, we spent $467.2 million and $57.3 million on the exploration and development of oil and gas properties during the six months ended June 30, 2022 and 2021, respectively.
Cash flows used in financing activities
Net cash used in financing activities for the six months ended June 30, 2022 and 2021 was $336.5 million and $71.9 million, respectively. The change was primarily due to increased dividends paid of $209.0 million, the optional redemption of the 7.5% Senior Notes principal of $100.0 million, and increased payments of employee tax withholdings in exchange for the return of common stock of $12.9 million, partially offset by a decrease in net payments on the Credit Facility of $55.0 million.
Non-GAAP Financial Measures
Adjusted EBITDAX represents earnings before interest, income taxes, depreciation, depletion, and amortization, exploration expense, and other non-cash and non-recurring charges. Adjusted EBITDAX excludes certain items that we believe affect the comparability of operating results and can exclude items that are generally non-recurring in nature or whose timing and/or amount cannot be reasonably estimated. Adjusted EBITDAX is a non-GAAP measure that we present because we believe it provides useful additional information to investors and analysts, as a performance measure, for analysis of our ability to internally generate funds for exploration, development, acquisitions, and to service debt. We are also subject to financial covenants under our Credit Facility based on adjusted EBITDAX ratios. See Liquidity and Capital Resources above for more information about financial covenants under our Credit Facility. In addition, adjusted EBITDAX is widely used by professional research analysts and others in the valuation, comparison, and investment recommendations of companies in the oil and gas exploration and production industry. Adjusted EBITDAX should not be considered in isolation or as a substitute for net income, net cash provided by operating activities, or other profitability or liquidity measures prepared under GAAP. Because adjusted EBITDAX excludes some, but not all items that affect net income and may vary among companies, the adjusted EBITDAX amounts presented may not be comparable to similar metrics of other companies.

The following table presents a reconciliation of the GAAP financial measure of net income to the non-GAAP financial measure of adjusted EBITDAX (in thousands):
Three Months Ended June 30,Six Months Ended June 30,
2022202120222021
Net income (loss)$468,821 $(25,319)$560,460 $(25,438)
Exploration1,553 3,547 2,081 3,643 
Depreciation, depletion, and amortization204,519 35,006 389,379 53,829 
Abandonment and impairment of unproved properties— 2,215 17,975 2,215 
Stock-based compensation(1)
6,135 2,195 14,225 3,807 
Non-recurring general and administrative expense(1)
3,449 1,294 6,335 1,294 
Merger transaction costs1,418 18,246 21,952 21,541 
Unused commitments1,731 4,328 2,507 4,328 
Gain on property transactions, net— — (16,797)— 
Interest expense8,116 3,241 17,182 3,660 
Derivative loss72,650 73,970 368,143 97,389 
Derivative cash settlements loss(181,631)(20,199)(348,209)(23,990)
Income tax (benefit) expense152,464 (10,392)175,825 (10,436)
Adjusted EBITDAX$739,225 $88,132 $1,211,058 $131,842 
_______________________________
(1) Included as a portion of general and administrative expense in the accompanying statements of operations.

New Accounting Pronouncements 
Please refer to Note 1 - Summary of Significant Accounting Policies, Basis of Presentation under Part I, Item 1 of this report and Note 2 - Basis of Presentation in the 2021 Form 10-K for any recently issued or adopted accounting standards.
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Critical Accounting Estimates
Information regarding our critical accounting estimates is contained in Part II, Item 7 of our 2021 Form 10-K. During the three months ended June 30, 2022, there were no significant changes in the application of critical accounting policies.
Material Commitments
There have been no significant changes from our 2021 Form 10-K in our obligations and commitments, other than what is disclosed within Note 6 - Commitments and Contingencies and Note 13 - Leases under Part I, Item 1 of this report.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Oil, Natural Gas, and NGL Price Risk
Our financial condition, results of operations, and capital resources are highly dependent upon the prevailing market prices of oil, natural gas, and NGL. These commodity prices are subject to wide fluctuations and market uncertainties due to a variety of factors that are beyond our control. Factors influencing oil, natural gas, and NGL prices include the level of global demand for oil, natural gas, and NGL, the global supply of oil, natural gas, the establishment of and compliance with production quotas by oil exporting countries, weather conditions which determine the demand for natural gas, the price and availability of alternative fuels, local and global politics, and overall economic conditions. It is impossible to predict future oil, natural gas, and NGL prices with any degree of certainty. Sustained weakness in oil, natural gas, and NGL prices may adversely affect our financial condition and results of operations, and may also reduce the amount of oil and natural gas reserves that we can produce economically. Any reduction in our oil and natural gas reserves, including reductions due to price fluctuations, can have an adverse effect on our ability to obtain capital for our exploration and development activities. Similarly, any improvements in oil, natural gas, and NGL prices can have a favorable impact on our financial condition, results of operations, and capital resources.
Commodity Price Derivative Contracts
Our primary commodity risk management objective is to protect the Company’s balance sheet via the reduction in cash flow volatility. We enter into derivative contracts for oil, natural gas, and NGL using NYMEX futures or over-the-counter derivative financial instruments. The types of derivative instruments that we use include swaps, collars, and puts.
Upon settlement of a derivative contract, if the relevant market commodity price exceeds our contracted swap price, or the collar’s ceiling strike price, we are required to pay our counterparty the difference for the volume of production associated with the contract. Generally, this payment is made up to 15 business days prior to the receipt of cash payments from our customers. This could have an adverse impact on our cash flows for the period between derivative settlements and payments for revenue earned.
While we may reduce the potential negative impact of lower commodity prices, we may also be prevented from realizing the benefits of favorable price changes in the physical market.
Presently, our derivative contracts have been executed with 10 counterparties, all of which are members of our Credit Facility syndicate. We enter into contracts with counterparties whom we believe are well capitalized. However, if our counterparties fail to perform their obligations under the contracts, we could suffer financial loss. Please refer to the Note 9 - Derivatives under Part I, Item 1 of this report for summary derivative activity tables.
Interest Rates
At June 30, 2022 and on the filing date of this report, we had a zero balance on our Credit Facility. Borrowings under our Credit Facility bear interest at a fluctuating rate that is tied to an Alternate Base Rate or Secured Overnight Financing Rate, at our option. Any increases in these interest rates can have an adverse impact on our results of operations and cash flows. As of June 30, 2022 and through the filing date of this report, the Company was in compliance with all financial and non-financial covenants under the Credit Facility.
Counterparty and Customer Credit Risk
In connection with our derivatives activity, we have exposure to financial institutions in the form of derivative transactions. Presently, our derivative contracts have been executed with 10 counterparties, all of which are members of our Credit Facility syndicate. All counterparties on our derivative instruments currently in place have investment grade credit ratings.
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We are also subject to credit risk due to concentration of our oil, natural gas, and NGL receivables with certain significant customers. The inability or failure of our significant customers to meet their obligations to us or their insolvency or liquidation may adversely affect our financial results. We review the credit rating, payment history, and financial resources of our customers, but we do not require our customers to post collateral.
Marketability of Our Production
The marketability of our production depends in part upon the availability, proximity, and capacity of third-party refineries, access to regional trucking, pipeline and rail infrastructure, natural gas gathering systems, and processing facilities. We deliver crude oil, natural gas, and NGL produced through trucking services, pipelines, and rail facilities that we do not own. The lack of availability or capacity on these systems and facilities could reduce the price offered for our production or result in the shut-in of producing wells or the delay or discontinuance of development plans for properties.
A portion of our production may also be interrupted, or shut in, from time to time for numerous other reasons, including as a result of accidents, weather, field labor issues or strikes, or we might voluntarily curtail production in response to market conditions. If a substantial amount of our production is interrupted at the same time, it could adversely affect our cash flow.
Currently, there are no pipeline systems that service wells in our French Lake area of the Wattenberg Field. If neither we nor a third-party constructs the required pipeline system, we may not be able to fully test or develop our resources in French Lake.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures 
Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in SEC rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers and internal audit function, as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation of our disclosure controls and procedures as of June 30, 2022, our principal executive officer and principal financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. 
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. To assist management, we have established an internal audit function to verify and monitor our internal controls and procedures. The Company’s internal control system is supported by written policies and procedures, contains self-monitoring mechanisms, and is audited by the internal audit function. Appropriate actions are taken by management to correct deficiencies as they are identified.
Changes in Internal Control over Financial Reporting 
There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the quarter ended June 30, 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Information regarding our legal proceedings can be found in Note 6 - Commitments and Contingencies under Part I, Item 1 of this report.

40

Table of Contents
Item 1A. Risk Factors.
Our business faces many risks. Any of the risk factors discussed in this report or our other SEC filings could have a material impact on our business, financial position, or results of operations. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operation. For a discussion of our potential risks and uncertainties, see the risk factors in Part I, Item 1A in our 2021 Form 10-K, together with other information in this report and other reports and materials we file with the SEC. We have identified these risk factors as important factors that could cause our actual results to differ materially from those contained in any written or oral forward-looking statements made by us or on our behalf.
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered sales of securities. There were no sales of unregistered equity securities during the three month period ended June 30, 2022.
Issuer Purchases of Equity Securities. The following table contains information about our acquisition of equity securities during the three months ended June 30, 2022.
Total Number of SharesMaximum Number of
Total NumberPurchased as Part ofShares that May Be
of SharesAverage PricePublicly AnnouncedPurchased Under Plans
Purchased(1)
Paid per SharePlans or Programsor Programs
April 1, 2022 - April 30, 202220,408 $59.37 — — 
May 1, 2022 - May 31, 202214,912 $64.23 — — 
June 1, 2022 - June 30, 20225,326 $71.28 — — 
Total40,646 $61.18 — — 
_________________________
(1)Represent shares that employees surrendered back to us that equaled in value the amount of taxes needed for payroll tax withholding obligations upon the vesting of restricted stock awards. These repurchases were not part of a publicly announced plan or program to repurchase shares of our common stock, nor do we have a publicly announced plan or program to repurchase shares of our common stock.
Dividend Policy. On May 3, 2021, we announced the initiation of an annual cash dividend in the amount of $1.40 per share of our common stock payable quarterly, which began on July 14, 2021. Beginning with the fourth quarter of 2021, the annual cash dividend was increased to $1.85 per share of our common stock.
In March 2022, the Board approved the initiation of a quarterly variable cash dividend, equal to 50% of free cash flow after the fixed cash dividend for the preceding twelve-month period and pro forma for all acquisition and divestiture activity, assuming pro forma compliance with certain leverage targets. The Company’s inaugural quarterly variable cash dividend was declared at $0.75 per share and paid in combination with the fixed cash dividend on March 30, 2022 to shareholders of record on March 18, 2022, resulting a total quarterly dividend of $1.2125 per share. In May 2022, the Company declared another variable dividend $0.90 per share and paid in combination with the fixed dividend on June 29, 2022 to shareholders of record as of June 15, 2022, resulting in a total quarterly dividend of $1.3625 per share.
The decision to pay any future dividends is solely within the discretion of, and subject to approval by, the Board. The Board's’ determination with respect to any such dividends, including the record date, the payment date, and the actual amount of the dividend, will depend upon our profitability and financial condition, contractual restrictions, restrictions imposed by applicable law, and other factors that the Board deems relevant at the time of such determination. Additionally, covenants contained in our Credit Facility and the indentures governing our senior notes restrict the payment of cash dividends on our common stock, as discussed further in Note 5 - Long-Term Debt under Part I, Item 1 of this report.
Item 3.  Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
41

Table of Contents
Item 6. Exhibits.
Exhibit
Number
Description
42

Table of Contents
101.INS†
XBRL Instance Document
101.SCH†
XBRL Taxonomy Extension Schema
101.CAL†
XBRL Taxonomy Extension Calculation Linkbase
101.DEF†
XBRL Taxonomy Extension Definition Linkbase
101.LAB†
XBRL Taxonomy Extension Label Linkbase
101.PRE†
XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
_________________________
*            Management Contract or Compensatory Plan or Arrangement
†            Filed or furnished herewith
43

Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
   CIVITAS RESOURCES, INC.
    
Date:August 3, 2022    By:/s/ Chris Doyle
    Chris Doyle
    
President and Chief Executive Officer (principal executive officer)
     
   By:/s/ Marianella Foschi
    Marianella Foschi
    
Chief Financial Officer (principal financial officer)
By:/s/ Sandi K. Garbiso
 Sandi K. Garbiso
 
Chief Accounting Officer and Treasurer (chief accounting officer)
44
Exhibit 10.8
image.jpg

June 29, 2022

PRIVATE & CONFIDENTIAL

Mr. Travis L. Counts
1203 Community Lane
Midland, Texas 79701
via email – travis.l.counts@gmail.com

Re:    Employment Terms and Conditions – Chief Legal Officer and Secretary

Dear Travis:

Civitas Resources, Inc. (the “Company”) is pleased to offer you an employment position as Chief Legal Officer and Secretary (“CLO”), reporting to the Company’s President and Chief Executive Officer, effective as of August 1, 2022. In summary, as CLO, your compensation will be:

An annualized base salary of $682,500, subject to annual review and periodic increases at the discretion of the Company’s Board of Directors (the “Board”), to be paid in accordance with the Company’s payroll practices in effect from time to time, subject to all applicable withholdings and deductions;
Participation in the Company’s 2021 Long Term Incentive Plan (“LTIP”), subject to the terms and conditions of the LTIP and the award agreement(s) to be entered into thereunder, at the discretion of the Board and its Compensation Committee as further discussed below. The LTIP is administered by the Board and its Compensation Committee. Your annual “target” LTIP award will be equal to $1,365,000 per year. For 2022, you will receive your LTIP awards on the first day of your employment (the “Grant Date”), and the total number of Restricted Stock Units (“RSUs”) and Performance Stock Units (“PSUs”) included in your 2022 LTIP awards will be equal to the quotient of (i) $1,365,000 divided by (ii) the volume-weighted average price of the Company’s common stock for the 30 trading days immediately preceding the Grant Date (the “Grant Date Price”). Your 2022 LTIP awards will consist of the following mix of award vehicles (each of which will be subject to award agreements consistent with the 2022 grants that have been made to other executive officers of the Company):
o25% of total target value in RSUs, subject to three-year ratable time vesting from the Grant Date;
o50% of total target value in PSUs based on the Company’s absolute total shareholder return relative to pre-established goals during the measurement period 11/1/2021 to 12/31/2024; and
o25% of total target value in PSUs based on the Company’s relative total shareholder return versus a selected comparator group of companies during the measurement period 11/1/2021 to 12/31/2024;
In connection with your agreement to purchase, subject to compliance with applicable law and the Company’s policies and procedures, an aggregate of $700,000 of the Company’s common stock in open market transactions by December 31, 2022 at the fair market value on the purchase date(s), a one-time grant to you on the Grant Date of RSUs, using the form of award agreement consistent with the 2022 RSUs that have been granted to other executive officers of the Company, equal in number to the quotient of (i) $700,000 divided by (ii) the Grant Date Price. The RSUs will vest ratably over a three-year period, one-third on each of the first three anniversaries of the Grant Date;
Eligibility to participate in the Company’s 401(k) Plan;
Eligibility to participate in the Company’s health insurance plans upon your election;
Eligibility to participate in the Company’s flexible benefit plan (Section 125 Plan);
    CORPORATE OFFICE            555 17th Street, Suite 3700
    Denver, CO 80202
    Office: 303.293.9100



Participation in the Company’s Executive Change in Control and Severance Plan (the “Severance Plan”) as a Tier 2 Executive (as such term is defined in the Severance Plan); and
Reimbursement of up to $150,000 in substantiated relocation expenses, incurred during the 18-month period commencing on August 1, 2022, that are reasonably required to relocate you and your family from your current home to a new home in the Denver area, which expenses may include moving expenses, temporary housing costs, travel costs, and full closing costs (including broker fees) associated with the sale of your existing home and the purchase of your new home.
Your participation in all Company compensation and benefit plans will be subject to the terms and conditions of such plans. The Company may modify compensation and benefits from time to time as it deems necessary in accordance with the terms and conditions of the plans set forth above and the Company’s policies. All forms of compensation paid to you as an employee of the Company will be paid less all applicable taxes and withholdings.

The terms and conditions of employment set forth in this Employment Letter are contingent upon your signing the Company’s Employee Restrictive Covenants, Proprietary Information and Inventions Agreement (the “PIIA”) attached hereto as Exhibit A.

You will be expected to abide by the Company’s rules and regulations, as such may be modified by the Company from time to time. This offer is contingent upon there not being any contractual impediments or obligations that would restrict your acceptance of this offer.

Notwithstanding anything to the contrary, your employment with the Company is AT WILL. You may terminate your employment with the Company at any time and for any reason whatsoever simply by notifying the Company, subject only to any rights or obligations that may be required by the Severance Plan or the PIIA, each as may be amended from time to time. Likewise, the Company may terminate your employment at any time and for any reason whatsoever, with or without cause or advance notice, subject only to any rights and obligations that may be required by the Severance Plan or the PIIA, as each may be amended from time to time.

In consideration for the benefits to be provided to you under this Employment Letter to which you are not currently entitled, by executing this Employment Letter, you hereby (i) accept the terms of employment outlined in this Employment Letter and (ii) acknowledge and agree that this Employment Letter constitutes the entire agreement between you and the Company concerning your employment (except as otherwise may be set forth in the LTIP and any agreements entered into thereunder, the Severance Plan, the PIIA or any Indemnification Agreement entered into between you and the Company (collectively, the “Additional Agreements”)), and supersedes and terminates all prior and contemporaneous agreements and understandings, both written and oral, between the parties with respect to its subject matters, except for the Additional Agreements. You agree that the Company has not made any promise or representation to you concerning this Employment Letter not expressed in this Employment Letter, and that, in signing this Employment Letter, you are not relying on any prior oral or written statement or representation by the Company, but are instead relying solely on your own judgment and the judgment of your legal and tax advisors, if any.


Page 2




If you have any questions or need additional information, please feel free to contact me.

Sincerely,

/s/ Chris Doyle
M. Christopher Doyle



Accepted and agreed:

/s/ Travis L. Counts
Travis L. Counts
Date: June 29, 2022
Page 3

Exhibit 10.9
CIVITAS RESOURCES, INC.
EMPLOYEE RESTRICTIVE COVENANTS, PROPRIETARY INFORMATION
AND INVENTIONS AGREEMENT
In consideration of my employment or continued employment by Civitas Resources, Inc., a Delaware corporation (collectively with its subsidiaries and affiliates, including without limitation, Bonanza Creek Energy Operating Company, LLC, HighPoint Operating Corporation, Extraction Oil & Gas, Inc., Crestone Peak Resources, Civitas North, LLC, Holmes Eastern Company, LLC, and Rocky Mountain Infrastructure, LLC, the “Company”), and the compensation now and hereafter paid to me, I hereby agree to the following terms and conditions of this Employee Proprietary Information and Inventions Agreement (this “Agreement”):
1.Nondisclosure.
1.1Proprietary Information.
(a)I understand and agree that, during the course of my employment with the Company, I will have access to and learn about confidential, secret, and/or proprietary documents, information, and other materials, in tangible and intangible form, of and relating to the Company and its existing and prospective customers, suppliers, investors, and other associated third parties, which may include without limitation, information relating directly or indirectly to: (a) drilling and completion optimization techniques, procedures, drilling reports, maps, well logs, mud logs, seismic data, geological data and analyses, geophysical data and analyses, and other trade secrets, unpatented inventions, ideas, methods, discoveries, know-how, unpublished patent applications, data, databases, analyses, reports, scientific and technical information, designs, processes, specifications, source code, and object code, and depictions, in whole or in part, of any of the foregoing, (collectively, “Inventions”) of the Company; (b) information concerning the Company’s past, present, and future business affairs, including without limitation, finances, customer information, supplier information, vendor information, products, services, organizational structure and internal practices, forecasts, sales and other financial results, records and budgets, agreements and their terms, transactions, negotiations, and business, marketing, development, sales and other commercial strategies; (c) any confidential, secret, and/or proprietary documents, materials, or other information Company has received or will receive from third parties from time to time; and (d) notes, compilations, studies, summaries, interpretations, and other materials prepared by or for the Company that contain, are based on, or otherwise reflect or are derived, in whole or in part, from any of the foregoing, (collectively, “Proprietary Information”).
(b)I understand and agree that the above list of Proprietary Information is not exhaustive, and that Proprietary Information also includes other information that is marked or otherwise identified as confidential or proprietary or that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used. Proprietary Information shall not include information that is generally available to and known by the public, provided that such disclosure to the public is not, directly or indirectly, through any fault or mine or any fault of a person(s) acting on my behalf.
(c)I further understand and agree that any and all Proprietary Information developed by me in the course of my employment by the Company shall be subject to the terms and conditions of this Agreement as if the Company furnished the same Proprietary Information to me in the first instance.
1.2Nondisclosure.
(d)At all times during my employment and thereafter, I will hold in strictest confidence and will not, directly or indirectly, communicate, make available, or disclose any Proprietary Information, in whole or in part, to any person or entity, except those persons or entities under proper written confidentiality obligations having a need to know such Proprietary Information and as may be required in connection with the performance of my authorized employment duties for the Company, or unless an officer of the Company expressly authorizes such disclosure in writing. I will obtain the Company’s prior written approval before lecturing upon, publishing, or submitting for publication any material (written, verbal, or otherwise) that incorporates any Proprietary Information. I further agree not to access or use any Proprietary Information, and not to copy any documents, records, files, media, or other resources containing any Proprietary Information, or remove any such materials from the premises
1



or control of the Company, except as required in the performance of my authorized employment duties or with the prior written consent of an authorized officer.
(e)Notwithstanding anything contained herein to the contrary, nothing in this Agreement is intended to prohibit me from discussing the terms and conditions of my employment with coworkers, exercising any protected rights to the extent such rights cannot be waived by this Agreement, or otherwise disclosing information if and to the extent required by applicable law or valid court order.
(f)I understand and agree that my obligations under this Agreement regarding Proprietary Information begin immediately and shall continue during and after my employment with the Company until the Proprietary Information has become public knowledge other than as a result of any breach of this Agreement by me or by those acting in concert with me or on my behalf.
1.3No Improper Use of Information of Prior Employers and Others. During my employment by the Company, I will not improperly use or disclose any confidential or proprietary information of any former employer or any other person to whom I have an obligation of confidentiality, and I will not bring onto the premises of the Company any unpublished documents or any property belonging to any former employer or any other person to whom I have an obligation of confidentiality unless consented to in writing by that former employer or person. I will use in the performance of my duties only information which is generally known and used by persons with training and experience comparable to my own, which is common knowledge in the industry or otherwise legally in the public domain, or which is otherwise provided or developed by the Company.
2.Work Product; Proprietary rights.
2.1Work Product. I acknowledge and agree that all Inventions that I create, prepare, produce, author, edit, amend, conceive, or reduce to practice, individually or jointly with others, during the period of my employment and relating in any way to the business or contemplated business, research, or development of the Company (regardless of when or where the Work Product is prepared or whose equipment or other resources are used in preparing the same) and all printed, physical, and electronic copies, all improvements, rights, and claims related to the foregoing, and other tangible embodiments thereof (collectively, “Work Product”), as well as any and all rights in and to copyrights, trade secrets, trademarks (and related goodwill), mask works, patents, and other intellectual property rights therein arising in any jurisdiction throughout the world and all related rights of priority under international conventions with respect thereto, including all pending and future applications and registrations therefor, and continuations, divisions, continuations-in-part, reissues, extensions, and renewals thereof (collectively, “Intellectual Property Rights”), shall be the sole and exclusive property of the Company.
2.2Works for Hire; Assignment. I acknowledge and agree that, by reason of being employed by the Company at the relevant times, to the extent permitted by law, all of the Work Product consisting of copyrightable subject matter is “work made for hire” as defined in the Copyright Act of 1976 (17 U.S.C. § 101), and such copyrights are therefore owned by the Company. To the extent that the foregoing does not apply, I hereby irrevocably assign to the Company, for no additional consideration, my entire right, title, and interest in and to all Work Product and Intellectual Property Rights therein, including the right to sue, counterclaim, and recover for all past, present, and future infringement, misappropriation, or dilution thereof, and all rights corresponding thereto throughout the world. Nothing contained in this Agreement shall be construed to reduce or limit my rights, title, or interest in any Work Product or Intellectual Property Rights so as to be less in any respect than that the Company would have had in the absence of this Agreement.
2.3Previous Inventions. Any Inventions, whether or not patented, copyrightable, or registerable, that relate to the subject matter of my employment with Company and which I, alone or jointly with others, conceived, developed, or reduced to practice, or caused to be conceived, developed, or reduced to practice, prior to the commencement of my employment with the Company, which I consider to be my property or the property of a third party, and that I wish to have excluded from the scope of this Agreement (“Previous Inventions”) are excluded from the scope of this Agreement. To preclude any possible uncertainty, within two (2) business days following my signing of this Agreement, I will provide to the Company a complete written list of all Previous Inventions. Notwithstanding anything to the contrary herein, if I do not timely provide the Company with the foregoing written list of Previous Inventions, I represent that there are no Previous Inventions. If, in the course of my employment with the Company, I incorporate a Previous Invention into any Work Product, I hereby grant the Company such
2



rights and licenses with respect to such Previous Invention that will allow the Company to use and otherwise exploit it perpetually throughout the universe for all or any purposes whatsoever to the same extent as if the Company owned the Previous Invention, and without incurring any fees or costs to me or any other person. Without limiting the foregoing, the foregoing license shall be: (a) irrevocable, perpetual, fully paid-up, worldwide, royalty-free, and freely assignable and sublicensable; and (b) include the rights to use, reproduce, perform (publicly or otherwise), display (publicly or otherwise), modify, improve, create derivative works of, distribute, import, make, have made, sell, and offer to sell the Previous Invention, including all such modifications, improvements, and derivative works thereof. Notwithstanding the foregoing, I agree that I will not incorporate, or permit to be incorporated, any Previous Invention in any Work Product without the Company’s prior written consent.
2.4Further Assurances; Power of Attorney. During and after my employment, I agree to reasonably cooperate with the Company to: (a) apply for, obtain, perfect, and transfer to the Company the Work Product and Intellectual Property Rights therein in any jurisdiction in the world; and (b) maintain, protect, and enforce the same, including without limitation, executing and delivering to the Company any and all applications, oaths, declarations, affidavits, waivers, assignments, and other documents and instruments as shall be requested by the Company. I hereby irrevocably grant the Company power of attorney to execute and deliver any such documents on my behalf in my name and to do all other lawfully permitted acts to transfer the Work Product to the Company and further the transfer, issuance, prosecution, and maintenance of all Intellectual Property Rights therein, to the full extent permitted by law, if I do not promptly cooperate with the Company’s request (without limiting the rights the Company shall have in such circumstances by operation of law). The power of attorney is coupled with an interest and shall not be impacted by my subsequent incapacity.
2.5Obligation to Keep Company Informed. During the period of my employment and for one (1) year thereafter, I will promptly disclose to the Company fully and in writing: (a) all Inventions relating to the subject matter of my employment with Company that are authored, conceived, or reduced to practice by me, either alone or jointly with others; and (b) all patent applications relating to the subject matter of my employment with Company filed by me or on my behalf, or in which I am named as an inventor or co-inventor, in each case to the extent permitted by applicable law.
2.6Government or Third Party. Notwithstanding anything to the contrary herein, I also agree to assign all my right, title, and interest in and to any particular Work Product to a third party, including without limitation the United States government, as directed by the Company.
2.7Presumption of Ownership. Due to the difficulty of establishing when Work Product is first conceived or developed, whether it results from access to the Company’s Proprietary Information or its actual or anticipated business, research, or development, or whether it is a direct or indirect result or derivation of any work I perform for the Company, I hereby acknowledge and agree that all right, title, and interest in and to any and all Work Product conceived, developed, suggested, or reduced to practice by me during my employment, whether alone or jointly with others, shall be presumed to solely and exclusively belong to the Company and I shall have the burden of proof to prove otherwise.
2.8Moral Rights. To the extent any copyrights are assigned under this Agreement, I hereby irrevocably waive, to the extent permitted by applicable law, any and all claims I may now or hereafter have in any jurisdiction to all rights of paternity, integrity, disclosure, and withdrawal and any other rights that may be known as “moral rights” with respect to all Work Product and all Intellectual Property Rights therein.
2.9No License. I understand and agree this Agreement does not, and shall not be construed to, grant me any license or right of any nature with respect to any Work Product, Intellectual Property Rights, or any Proprietary Information or other materials or resources made available to me by the Company.
3.Security. I agree and covenant: (a) to comply with all Company security policies and procedures in force from time to time, including without limitation, those regarding data security and the Company’s facilities and information technology resources; (b) not to access or use any such facilities or information technology resources except as authorized by the Company; and (c) not to access or use any facilities or information technology resources in any manner after the termination of my employment with the Company, whether termination is voluntary or involuntary.
3



4.Records. Unless otherwise directed or requested by the Company, I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that may be required by the Company) of all Proprietary Information and Work Product developed by me during the period of my employment with the Company, which such records will be available to and remain the sole property of the Company at all times.
5.Restrictive Covenants.
5.1Acknowledgement. I understand and agree that the nature of my position gives me access to and knowledge of Proprietary Information and places me in a position of trust and confidence with the Company. I understand and acknowledge that the services I provide to the Company are unique, special, or extraordinary. I further understand and acknowledge that the Company’s ability to reserve these for the exclusive knowledge and use of the Company is of great competitive importance and commercial value to the Company and that improper use or disclosure by me is likely to result in unfair or unlawful competitive activity.
5.2Non-Competition During Employment.
(a)Because of the Company’s legitimate business interest as described herein and the good and valuable consideration offered to me, during my employment with the Company, I agree and covenant not to engage in any activity: (i) in which I contribute my knowledge, directly or indirectly, in whole or in part, whether for my benefit, through a family member, or as an employee, employer, owner, operator, manager, advisor, consultant, agent, partner, director, stockholder, officer, volunteer, intern or other similar capacity, to an entity engaged in the same or similar business as the Company, including any business in which the Company devoted material resources into entering during my employment, including those engaged in (A) the acquisition, exploration, development, and/or production of onshore oil, natural gas, and/or associated liquids in the United States of America; or (B) the leasing, acquiring, exploring, developing, or producing of hydrocarbons or related products; or (ii) that may require or inevitably requires disclosure of trade secrets or other Proprietary Information, (collectively, the “Business”).
(b)Because of the Company’s legitimate business interest as described herein and the good and valuable consideration offered to me, during my employment with the Company, I agree and covenant not to, directly or indirectly: (i) invest or otherwise participate alongside the Company in connection with any business ideas, prospects, proposals, or other opportunities pertaining to the Business that are or were developed by me during my employment with the Company or originated by any third party and brought to my attention during my employment with the Company and in such capacity (“Business Opportunity”); or (ii) invest or otherwise participate in any business or activity relating to a Business Opportunity, regardless of whether the Company ultimately participates in such Business Opportunity.
(c)Notwithstanding anything to the contrary herein, the restrictions set forth in Section 5.2(a) and 5.2(b) shall not apply to any: (i) existing personal oil and gas investments owned by me or my family members as of the date of this Agreement, as set forth on Exhibit A hereto (the “Existing Personal Investments”); (ii) future expenditures made by me or my family members, provided that such future expenditures do not go beyond the limited allowed for Permitted Investments (as defined below); (iii) Permitted Investments (as defined below); or (iv) opportunity that is first offered to, and subsequently declined by, the Company (acting through the Company’s board of directors of the Company or its designee), if and to the extent that such opportunities are outside the Geographic Scope (as defined below). For purposes of this Agreement, “Permitted Investments” means passive investments in securities or other ownership interests of businesses made by me or my family members, provided that the aggregate amount owned by me or my family members does not exceed 5% of the outstanding securities or other ownership interests of any such business, and provided that neither myself nor my family members control, or are members of a group that controls, such business.
5.1Non-Competition After Employment.
(d)I hereby acknowledge and agree that the purpose of this Section 5.3 is to protect the Company from unfair loss of goodwill and business advantage, to shield me from the pressure to use or disclose Proprietary Information or to trade on the goodwill belonging to the Company, for the
4



protection of the Company’s trade secrets and other Proprietary Information, and because of the knowledge I have acquired or will acquire as an executive, management personnel, officer, or professional staff to an executive or management personnel. Accordingly, during the Severance Obligation Period (as that term is defined in the Executive Change in Control and Severance Plan, as amended) (the “Post-Termination Non-Compete Term”), I agree and covenant not to engage in any activity in which I contribute my knowledge, directly or indirectly, in whole or in part, whether for my benefit, through a family member, or as an employee, employer, owner, operator, manager, advisor, consultant, agent, employee, partner, director, stockholder, officer, volunteer, intern or other similar capacity (other than as an employee of a chartered commercial bank with assets of $500 million or greater), to any business engaged in leasing, acquiring, exploring, developing, or producing hydrocarbons and related products within the boundaries of, or within a twenty-five (25) mile radius of the boundaries of, any mineral property interest of the Company (including, without limitation, a mineral lease, overriding royalty interest, production payment, net profits interest, mineral fee interest, or option or right to acquire any of the foregoing, or an area of mutual interest as designated pursuant to contractual agreement between the Company and any third party) or any other property on which the Company has a right, license, or authority to conduct or direct exploratory activities, such as three dimensional seismic acquisitions or other seismic, geophysical, and geochemical activities as of the date my employment with the Company is terminated (the “Geographic Scope”).
(e)Notwithstanding anything to the contrary herein, the restrictions in Section 5.3(a) shall not be construed to preclude me from: (a) holding any Existing Personal Investments; (b) making future expenditures made by me or my family members in the Existing Personal Investments, provided that such future expenditures do not go beyond the limited allowed for Permitted Investments; (c) making Permitted Investments; or (d) investing in any opportunity that is first offered to, and subsequently declined by, the Company (acting through the board of directors of the Company or its designee), if and to the extent that such opportunities are outside the Geographic Scope.
5.3Non-Solicitation of Employees and Third Parties. I agree and covenant, during my employment with the Company and during the Post-Termination Non-Compete Term, not to directly or indirectly solicit, hire, recruit, attempt to hire or recruit, or induce the termination of any contract with any employee, independent contractor, consultant, advertiser, supplier, broker, vendor, agent, sales representative, or licensee of the Company, or otherwise encourage the foregoing to discontinue or curtail his, her, or its business relationships with the Company.
5.4Non-Solicitation of Customers. I understand and acknowledge that because of my experience with and relationship to the Company, I will have access to and learn about much or all of the Company’s client and customer information which may include, without limitation, names, phone numbers, addresses, email addresses, order history, order preferences, chain of command, decisionmakers, pricing information, and other information identifying facts and circumstances specific to the customer or client. I understand and acknowledge that loss of this customer relationship and/or goodwill will cause significant and irreparable harm to the Company. I agree and covenant, during my employment with the Company and during the Post-Termination Non-Compete Term, not to directly or indirectly solicit, contact, attempt to contact, or meet with the Company's current, former or prospective customers for purposes of offering or accepting goods or services similar to or competitive with those offered by the Company.
5.5Non-Disparagement. I agree and covenant that I will not at any time make, publish, or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments, or statements concerning the Company or its businesses, or any of its employees or officers. This Section 5.6 does not, in any way, restrict or impede me from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or valid court order.
5.6Practice of Law. Notwithstanding the foregoing, none of the restrictions set forth in this Section 5 shall be interpreted or applied in a manner to prevent or restrict me from practicing law, as it is the intent of this Section 5 to create certain limitations on my business activities only, and not to create limitations that would restrict me from practicing law. For the avoidance of doubt, and without limiting the foregoing, nothing in this Section 5 shall prohibit me from engaging in the private practice of law as a sole practitioner or member of a law firm, irrespective of whether members of a law firm with whom I am
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affiliated or whether I, in such capacity, represent businesses that are engaged in the Business. I acknowledge and agree that, both before and after the date that I am no longer employed by the Company, I shall be bound by all ethical and professional obligations (including those with respect to conflicts and confidentiality) that arise from my provision of legal services to, and acting as legal counsel for, the Company.
6.No Conflicting Obligation. I represent that my performance of all the terms of this Agreement and as an employee of the Company does not and will not breach any non-compete agreement or any agreement to keep in confidence information acquired by me in confidence or in trust prior to my employment by the Company. I have not entered into, and I agree I will not enter into, any agreement either written or oral in conflict with this Agreement.
7.Exit Obligations. I acknowledge and agree that, upon the voluntary or involuntary termination of my employment with the Company, or otherwise upon the Company’s request at any time during my employment, I will: (a) provide or return to the Company any and all Company property, including any keys, access cards, identification cards, security devices, employer credit cards, computers, mobile phones, and other devices and equipment, manuals, files, work product, disks, thumb drives and other removable information storage devices, hard drives, and all documents and materials belonging to the Company and stored in any fashion, including but not limited to those that constitute or contain any Proprietary Information or Work Product, that are in my possession or control, whether they were provided to me by the Company or any of its business associates, or created by me in connection with my employment with the Company; and (b) delete or destroy all copies of any such documents and materials not returned to the Company that remain in my possession or control, including those stored on any non-Company devices, networks, storage locations, and media in my possession or control. I understand and agree that compliance with this paragraph may require that data be removed from my personal computer equipment or other electronic storage devices or media. Consequently, upon reasonable prior notice, I agree to permit Company personnel and/or its contractors access to such computer equipment or other electronic storage devices or media for that purpose. Prior to my last day of employment with the Company, I will cooperate with the Company in completing and signing the Company’s termination statement.
8.Notification Of New Employer. In the event that I leave the employ of the Company, I hereby consent to the notification of my new employer of my rights and obligations under this Agreement.
9.General Provisions.
9.1 Remedies. I acknowledge and agree that the Company's Proprietary Information and the Company's ability to reserve it for the exclusive knowledge and use of the Company is of great competitive importance and commercial value to the Company, and that improper use or disclosure of the Proprietary Information by me will cause irreparable harm to the Company, for which remedies at law will not be adequate. In the event of a breach or threatened breach by me of any of the provisions of this Agreement, I hereby consent and agree that the Company shall be entitled to, in addition to other available remedies, a temporary or permanent injunction, or other equitable relief against such breach or threatened breach from any court of competent jurisdiction, without the necessity of showing any actual damages or that monetary damages would not afford an adequate remedy, and without the necessity of posting any bond or other security. The aforementioned equitable relief shall be in addition to, not in lieu of, legal remedies, monetary damages, or other available forms of relief.
9.2Notices. Any notices required or permitted hereunder will be given to the appropriate party at the address specified below or at such other address as the party may specify in writing. Such notice will be deemed given upon personal delivery to the appropriate address or if sent by certified or registered mail, three (3) days after the date of mailing.
9.3Governing Law; Consent to Personal Jurisdiction. This Agreement will be governed by and construed according to the laws of the State of Colorado, without regard for its conflicts of law principles that would require application of the laws of a different state. I hereby expressly consent to the personal jurisdiction of the state and federal courts located in Denver, Colorado for any lawsuit filed there against me by Company arising from or related to this Agreement.
9.4Severability. In case any one or more of the provisions contained in this Agreement is, for any reason, held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or
6



unenforceability will not affect the other provisions of this Agreement, and this Agreement will be construed as if such invalid, illegal or unenforceable provision had never been contained herein. Notwithstanding the foregoing, if any one or more of the provisions contained in this Agreement is held to be excessively broad as to duration, geographical scope, activity or subject, for any reason, it will be construed by limiting and reducing it, so as to be enforceable to the extent compatible with the applicable law as it then appears.
9.5Successors and Assigns. The Company may assign this Agreement to any subsidiary or corporate affiliate, or to any successor or assign (whether direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business or assets of the Company. This Agreement shall inure to the benefit of the Company and permitted successors and assigns. I understand and agree that I may not assign this Agreement or any part hereof, and that any purported assignment by me shall be null and void from the initial date of purported assignment.
9.6Survival. The provisions of this Agreement will survive the termination of my employment and the assignment of this Agreement by the Company to any successor in interest or other assignee.
9.7Acknowledgement. I acknowledge and agree that my relationship with the Company is “AT-WILL”, and that both the Company and I may terminate my employment relationship at any time, with or without cause or advance notice. I further agree and understand that nothing in this Agreement will confer any right with respect to continuation of employment by the Company, nor will it interfere in any way with my right or the Company’s right to terminate my employment at any time, with or without cause or advance notice. I further acknowledge and agree that the services to be rendered by me to the Company are of a special and unique character; that I will obtain knowledge and skill relevant to the Company's industry, methods of doing business, and marketing strategies by virtue of my employment; and that the terms and conditions of this Agreement are reasonable under these circumstances. I further acknowledge that the amount of my compensation reflects, in part, my obligations and the Company's rights under this Agreement; that I have no expectation of any additional compensation, royalties, or other payment of any kind not otherwise referenced herein in connection herewith; that I will not be subject to undue hardship by reason of my full compliance with the terms and conditions of this Agreement or the Company's enforcement thereof; and that this Agreement is not a contract of employment and shall not be construed as a commitment by either me or the Company to continue an employment relationship for any certain period of time.
9.8Modification and Waiver. No provision of this Agreement may be amended or modified unless such amendment or modification is agreed to in writing and signed by a duly authorized employee of the Company (other than me). No waiver by either me or the Company of any breach by the other party of any condition or provision of this Agreement to be performed by the other party shall be deemed a waiver of any similar or dissimilar provision or condition at the same or any prior or subsequent time, nor shall the failure of or delay by either me or the Company in exercising any right, power, or privilege hereunder operate as a waiver thereof to preclude any other or further exercise thereof or the exercise of any other such right, power, or privilege.
9.9Entire Agreement. The obligations pursuant to Sections 1 and 2 of this Agreement will apply to any time during which I was previously employed, or am in the future employed, by the Company as a consultant if no other agreement governs nondisclosure and assignment of inventions during such period. Unless specifically provided herein, this Agreement contains all the understandings and representations between me and the Company pertaining to the subject matter hereof and supersedes all prior and contemporaneous understandings, agreements, representations, and warranties, both written and oral, with respect to such subject matter. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing and signed by the party to be charged. Any subsequent change or changes in my duties, salary or compensation will not affect the validity or scope of this Agreement.
9.10Advice of Counsel. I ACKNOWLEDGE AND AGREE THAT, IN EXECUTING THIS AGREEMENT, I HAVE HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT LEGAL COUNSEL, AND I HAVE READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF THIS AGREEMENT. THIS AGREEMENT MAY NOT BE CONSTRUED AGAINST ANY PARTY BY REASON OF THE DRAFTING OR PREPARATION HEREOF.
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9.11Export. The export of technical data or products utilizing technical data to countries outside the United States could violate United States export laws or regulations. I agree that I will not export such data, directly or indirectly, unless I have specific authorization from the Company.
[Signatures on Following Page]
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This Agreement is effective as of June 29, 2022 (the “Effective Date”).

I HAVE READ THIS AGREEMENT CAREFULLY AND UNDERSTAND ITS TERMS.
/s/ Travis L. Counts
Signature
Travis L. Counts
Print Name
June 29, 2022
Date

Accepted And Agreed:
CIVITAS RESOURCES, INC.
/s/ Cyrus D. Marter IV
Signature
Cyrus D. Marter IV
Print Name
General Counsel & Secretary
Title
June 29, 2022
Date
9


Exhibit 31.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO RULE 13a‑ 14(a)
I, Chris Doyle, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2022 of Civitas Resources, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:  August 3, 2022
 /s/ Chris Doyle
Chris Doyle
President and Chief Executive Officer
(principal executive officer)



Exhibit 31.2
CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a‑ 14(a)
I, Marianella Foschi, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2022 of Civitas Resources, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
1)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
2)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
3)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
4)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
1)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
2)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date:  August 3, 2022
 /s/ Marianella Foschi
Marianella Foschi
Chief Financial Officer (principal financial officer)



Exhibit 32.1
Certification of the Chief Executive Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Civitas Resources, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chris Doyle, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1)          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date:  August 3, 2022
/s/ Chris Doyle
Chris Doyle
 
President and Chief Executive Officer
(principal executive officer)



Exhibit 32.2
Certification of the Principle Financial Officer
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report of Civitas Resources, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Marianella Foschi, Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1)          The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: August 3, 2022
 /s/ Marianella Foschi
Marianella Foschi
Chief Financial Officer (principal financial officer)