Recent Quotes View Full List My Watchlist Create Watchlist Indicators DJI Nasdaq Composite SPX Gold Crude Oil EL&P Market Index Markets Stocks ETFs Tools Overview News Currencies International Treasuries Sitio Royalties Reports Third Quarter 2023 Operational and Financial Results By: Sitio Royalties Corp. via Business Wire November 08, 2023 at 16:05 PM EST Pro Forma In-Period Average Quarterly Production Volume of 36,654 Boe/d (50% Oil)(1) Declared $0.49 Dividend Per Share of Class A Common Stock for Third Quarter 2023 Record High 50.9 Net Line-of-Sight Wells as of September 30, 2023, of Which 82% Are in the Permian Basin Recapitalized Balance Sheet With New $600 Million 7.875% Senior Notes Due 2028, Lowering Expected Cash Interest by More Than $11 Million Per Year and Enhancing Liquidity by More Than $170 Million Announces Definitive Agreement to Sell Appalachia and Anadarko Basin Assets for $117.5 Million, Subject to Customary Closing Adjustments Sitio Royalties Corp. (NYSE: STR) (“Sitio,” “STR” or the “Company”) today announced operational and financial results for the quarter ended September 30, 2023. Unless the context clearly indicates otherwise, references to “we,” “our,” “us” or similar terms refer to Sitio and its subsidiaries. THIRD QUARTER 2023 OPERATIONAL AND FINANCIAL HIGHLIGHTS Pro forma 3Q 2023 average daily in-period production volume of 36,654 barrels of oil equivalent per day (“Boe/d”) (50% oil)(1), comparable to pro forma 2Q 2023 average daily in-period production volume of 36,587 Boe/d (52% oil)(2) 3Q 2023 average daily production volume of 36,900 Boe/d (48% oil)(3), including total prior period adjustments of positive 546 Boe/d Declared 3Q 2023 dividend of $0.49 per share of Class A Common Stock, an increase of $0.09 per share, or approximately 23% relative to 2Q 2023 Net income of $0.3 million, up $3.2 million relative to 2Q 2023 net loss, primarily driven by a $2.04 per Boe increase in realized hedged commodity prices 3Q 2023 Adjusted EBITDA(4) of $142.4 million, up by 12% sequentially from 2Q 2023 Adjusted EBITDA, primarily due to increased average production volumes and a 5% increase in realized hedged prices per Boe 3Q 2023 Pro forma Adjusted EBITDA(5) of $143.6 million, including contribution from the Cash Acquisitions(6) for the entire quarter, up by 11% sequentially from 2Q 2023 Pro forma Adjusted EBITDA(7) Record high net line-of-sight (“LOS”) wells of 50.9 net wells as of September 30, 2023, comprised of 29.9 net spuds and 21.0 net permits Closed on four previously announced Permian Basin Cash Acquisitions for total aggregate purchase price of $181.3 million On September 26, 2023, priced $600 million aggregate principal amount of senior unsecured notes due 2028 (the “2028 Senior Notes”), which accrue interest at a rate of 7.875% per annum, 3.4 percentage points lower than the 4Q 2023 interest rate on the Company's prior senior unsecured notes due 2026 (the “2026 Senior Notes”); Transaction closed on October 3, 2023(8) 3Q 2023 RESULTS RELATIVE TO 2H 2023 GUIDANCE The table below shows third quarter 2023 results relative to financial and operational guidance for the second half of 2023 that was issued on August 8, 2023. 2H 2023 Guidance Metric 3Q 2023 Results 2H 2023 Guidance (August 8, 2023) Average daily production (Boe/d) – Reported / In-period(11) 36,900 / 36,354 35,000 – 37,000 Oil % – Reported / In-period(11) 48% / 50% 49% – 51% Gathering and transportation ($/Boe) $ 1.36 $1.25 – $1.50 Cash G&A ($ in millions) $ 7.4 $25.0–$27.0 (annual) Production taxes (% of royalty revenue) 7.9 % 6% – 8% Reported cash tax rate (% of pre-tax income)(12) 69.5 % 2% – 4% Pro forma cash tax rate (% of pro forma pre-tax income)(13) 1.5 % 2% – 4% (1) Pro forma in-period average quarterly production volume includes production from the Cash Acquisitions(6) as if they were owned on July 1, 2023; In-period production represents production that is estimated to have occurred during the period specified and does not include production from prior period adjustments (2) Pro forma 2Q 2023 average daily in-period production volume represents production that was estimated to have occurred during the three months ended June 30, 2023, including production from the Stock & Cash Acquisitions(9) as if they were owned on April 1, 2023 (3) 3Q 2023 average daily production volume includes both in-period average daily production and prior period adjustments (4) For definitions of non-GAAP financial measures and reconciliations to their most directly comparable GAAP financial measures, please see “Non-GAAP financial measures” (5) 3Q 2023 Pro Forma Adjusted EBITDA represents 3Q 2023 Adjusted EBITDA plus Cash Acquisitions(6) EBITDA, which reflects as if Sitio had owned the Cash Acquisitions since July 1, 2023 (6) Cash Acquisitions, a subset of the Stock & Cash Acquisitions(9), is defined as the four acquisitions that closed in July and August of 2023; Total consideration for the Cash Acquisitions was approximately $181 million funded with a mix of retained cash and borrowings under Sitio's revolving credit facility (7) 2Q 2023 Pro forma Adjusted EBITDA represents 2Q 2023 Adjusted EBITDA plus Stock Acquisition(10) EBITDA from April 1, 2023 to June 13, 2023 (8) On October 3, 2023, subsidiaries of Sitio issued and sold (the “Notes Offering”) $600.0 million aggregate principal amount of their 2028 Senior Notes. Net proceeds of the Notes Offering were used to (i) fund the redemption of all of the outstanding aggregate principal amount of the Company's 2026 Senior Notes, which occurred concurrently with the consummation of the Notes Offering and (ii) repay a portion of the outstanding borrowings under the Company's revolving credit facility (9) Stock & Cash Acquisitions is defined as five separate mineral and royalty interest acquisitions that closed between March 31, 2023 and August 7, 2023, containing 13,862 NRAs in aggregate, of which 99% are in the Permian Basin (10) Stock Acquisition, a subset of the Stock & Cash Acquisitions, is defined as the one acquisition that closed on June 14, 2023 (11) In-period production represents production that is estimated to have occurred during the period specified, excluding production from prior period adjustments; Reported production includes both in-period production and adjustments to production from prior periods (12) Calculated as cash taxes paid of $0.5 million divided by net income before taxes of $0.7 million for the three months ended September 30, 2023 (13) Calculated as cash taxes paid of $0.5 million divided by pro forma pre-tax income of $29.9 million; Pro forma pre-tax income is defined as net income before taxes plus $29.2 million of unrealized commodity derivative losses Chris Conoscenti, Chief Executive Officer of Sitio, commented, “In the third quarter, our assets delivered another steady performance that reflected operator trends in Permian and broader US drilling and completion activity. We continue to pursue multiple consolidation opportunities and are optimistic about improving competitive dynamics heading into 2024. During the third quarter, we completed the four previously announced cash acquisitions of high-quality Permian minerals and royalties totaling approximately $181 million and on November 3, 2023, we agreed to sell our lower-margin Appalachia and Anadarko assets for $117.5 million. Our inaugural senior unsecured notes offering that closed on October 3, 2023, allowed us to refinance our existing unsecured notes and achieve more than $11 million in expected annual interest expense savings. Our team continued to innovate by building new customized automation tools to improve the efficiency with which we manage such a large amount of new data each month. This streamlines processing and tracking royalty payments, monitoring ongoing operator activity on our acreage and positions Sitio to smoothly integrate additional data from future acquisitions. I'm proud of our team for executing well on such a broad range of strategic, financing and operational initiatives throughout the quarter.” ASSET ACTIVITY UPDATE The following table summarizes Sitio's net average daily production, net wells online, net line-of-sight wells and net royalty acres by area. All pro forma metrics assume that Sitio owned the Stock & Cash Acquisitions as of June 30, 2023. Delaware Midland DJ Eagle Ford Appalachia Anadarko Williston Total Average Daily Production (Boe/d) for the three months ended September 30, 2023 As reported 19,050 8,363 2,998 3,730 1,099 996 664 36,900 % Oil 47 % 61 % 32 % 51 % 3 % 27 % 62 % 48 % Net Well Activity (normalized to 5,000' laterals) Pro forma net wells online as of June 30, 2023(14) 121.8 60.1 35.6 35.3 3.7 9.9 9.2 275.6 Net wells online as of September 30, 2023 127.1 62.2 37.1 35.7 3.8 9.9 9.4 285.2 Net wells online increase since June 30, 2023 5.3 2.1 1.5 0.4 0.1 - 0.2 9.6 Net spuds 16.3 7.9 2.7 1.9 0.3 0.2 0.6 29.9 Net permits 10.6 7.0 1.1 1.5 0.2 0.1 0.5 21.0 Net LOS wells as of September 30, 2023 26.9 14.9 3.8 3.4 0.5 0.3 1.1 50.9 Net Royalty Acres (normalized to 1/8th royalty equivalent) Pro forma June 30, 2023(15) 152,234 45,339 24,978 21,752 12,669 9,872 8,203 275,047 September 30, 2023 152,268 45,366 24,973 21,783 12,676 9,872 8,202 275,140 NRA increase (decrease) since June 30, 2023 34 27 (5 ) 31 7 — (1 ) 93 (14) Includes net wells from the Stock & Cash Acquisitions (15) Includes NRAs from the Stock & Cash Acquisitions FINANCIAL UPDATE Sitio's third quarter 2023 average unhedged realized prices including all expected quality, transportation and demand adjustments were $80.21 per barrel of oil, $1.54 per Mcf of natural gas and $18.14 per barrel of natural gas liquids, for a total equivalent price of $45.00 per barrel of oil equivalent. During the third quarter of 2023, the Company received $5.1 million in net cash settlements for commodity derivative contracts and as a result, average hedged realized prices were $82.21 per barrel of oil, $1.84 per Mcf of natural gas and $18.14 per barrel of natural gas liquids, for a total equivalent price of $46.49 per barrel of oil equivalent. This represents a $2.04 per barrel of oil equivalent, or a 5% increase relative to hedged realized prices for the three months ended June 30, 2023. Consolidated net income for the third quarter of 2023 was $0.3 million, which is $3.2 million more than consolidated net income in the second quarter of 2023. This increase was driven primarily by increased commodity prices and offset by net commodity derivatives losses of $24.1 million, which was comprised of a $29.2 million non-cash unrealized loss and a $5.1 million realized gain. For the three months ended September 30, 2023, Adjusted EBITDA was $142.4 million, up 12% sequentially from second quarter 2023 Adjusted EBITDA, primarily due to increased production volumes and commodity prices. As of September 30, 2023, the Company had $1,006.0 million principal value of total debt outstanding (comprised of $601.0 million drawn on Sitio's revolving credit facility and $405.0 million of senior unsecured notes) and liquidity of $250.3 million, including $1.3 million of cash and $249.0 million of remaining availability under its $850.0 million credit facility. In September 2023, Sitio made its fourth consecutive quarterly amortization payment of $11.3 million at par value on its senior unsecured notes, reducing the principal from $416.3 million to $405.0 million as of the end of the third quarter 2023. 2H 2023 FINANCIAL AND OPERATIONAL GUIDANCE Sitio is revising its guidance for Cash G&A for the full year 2023 to a range of $27.0 million to $28.0 million based on results to date and expectations for 4Q 2023, which includes incremental G&A for expected new employees. The midpoint of Sitio's new Cash G&A guidance range for full year 2023 is $27.5 million, an approximate 6% increase from the midpoint of prior guidance. There are no other changes to prior 2H 2023 guidance, but for convenience all guidance metrics are shown in the table below. 2H 2023 Guidance Low High Average daily production (Boe/d) 35,000 37,000 Oil % 49 % 51 % Revenue Deductions, Expenses and Taxes Gathering and transportation ($/Boe) $ 1.25 $ 1.50 Full Year 2023 Cash G&A ($ in millions) $ 27.0 $ 28.0 Production taxes (% of royalty revenue) 6 % 8 % Cash tax rate (% of pre-tax income) 2 % 4 % SENIOR UNSECURED NOTES REFINANCING On October 3, 2023, the Company issued and sold $600.0 million aggregate principal amount of its 2028 Senior Notes. The net proceeds of the Notes Offering were used to (i) fund the redemption of all of the outstanding aggregate principal amount of the 2026 Senior Notes, which occurred concurrently with the consummation of the Notes Offering and (ii) repay a portion of the outstanding borrowings under the Company's revolving credit facility. As of November 3, 2023, the Company had $981.0 million principal value of total debt outstanding (comprised of $381.0 million drawn on Sitio's revolving credit facility and $600.0 million of senior unsecured notes due 2028) and liquidity of $470.9 million, including $1.9 million of cash and $469.0 million of remaining availability under its $850.0 million credit facility. DIVESTITURE OF APPALACHIA AND ANADARKO ASSETS On November 3, 2023, the Company entered into a definitive purchase and sale agreement to sell all of its mineral and royalty interests in the Appalachia and Anadarko Basins to an undisclosed third party for $117.5 million of cash consideration, subject to customary closing adjustments. In aggregate for the three months ended September 30, 2023, production associated with these assets was 2,095 Boe/d (14% oil) and revenues were $3.8 million from oil, natural gas and natural gas liquids. As of September 30, 2023, there were approximately 0.7 net LOS wells underlying these assets, comprised of approximately 0.5 net spuds and 0.3 net permits. Sitio plans to use the net proceeds to repay borrowings on its revolving credit facility and build additional liquidity to pursue acquisitions of assets that are more comparable to the growth and returns profile of Sitio’s recent Permian Basin acquisitions. The transaction has an effective date of September 1, 2023 and is expected to close in the fourth quarter of 2023. Sitio did not add to or extinguish any of its commodity swaps or collars during the third quarter of 2023. A summary of the Company's existing commodity derivative contracts as of September 30, 2023 is included in the table below. Oil (NYMEX WTI) 2023 2024 1H25 Swaps Bbl per day 3,050 3,300 1,100 Average price ($/Bbl) $ 93.71 $ 82.66 $ 74.65 Collars Bbl per day — — 2,000 Average call ($/Bbl) — — $ 93.20 Average put ($/Bbl) — — $ 60.00 Gas (NYMEX Henry Hub) 2023 2024 1H25 Swaps MMBtu per day 500 500 — Average price ($/MMBtu) $ 3.83 $ 3.41 — Collars MMBtu per day 8,500 11,400 11,600 Average call ($/MMBtu) $ 7.93 $ 7.24 $ 10.34 Average put ($/MMBtu) $ 4.82 $ 4.00 $ 3.31 THIRD QUARTER 2023 CASH DIVIDEND The Company's Board of Directors declared a cash dividend of $0.49 per share of Class A Common Stock with respect to the third quarter of 2023. The dividend is payable on November 30, 2023 to the stockholders of record at the close of business on November 21, 2023. Based on a 65% payout ratio of third quarter 2023 Discretionary Cash Flow and not including the pro forma impacts from the Cash Acquisitions, Sitio's quarterly dividend would have been approximately $0.48 per Class A common share; however, the Company's Board of Directors approved a third quarter 2023 dividend of $0.49 per Class A common share, which equates to a 65% payout ratio including pro forma Discretionary Cash Flow for the full three months ended September 30, 2023 for the Cash Acquisitions that closed during the third quarter 2023. THIRD QUARTER 2023 EARNINGS CONFERENCE CALL Sitio will host a conference call at 8:30 a.m. Eastern on Thursday, November 9, 2023, to discuss its third quarter 2023 operating and financial results. Participants can access the call by dialing 1-833-470-1428 in the United States or 1-404-975-4839 in other locations with access code 971184 or via webcast at https://events.q4inc.com/attendee/965924226. Participants can also pre-register for the event by going to the following link: https://www.netroadshow.com/events/login?show=ca67bd6c&confId=56269. The conference call, live webcast and archive of the call can also be accessed through the Investor Relations section of Sitio’s website at www.sitio.com. UPCOMING INVESTOR CONFERENCES Members of Sitio's management team will be attending the Stephens Annual Investment Conference on November 14, 2023; BofA Securities Global Energy Conference on November 14, 2023; and BofA Securities Leveraged Finance Conference from November 27-29, 2023. Presentation materials associated with these events will be accessible through the Investor Relations section of Sitio's website at www.sitio.com. FINANCIAL RESULTS Production Data Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Production Data: Crude oil (MBbls) 1,617 846 4,786 1,969 Natural gas (MMcf) 6,203 2,916 17,214 6,481 NGLs (MBbls) 744 323 1,996 760 Total (MBoe)(6:1) 3,395 1,655 9,651 3,809 Average daily production (Boe/d)(6:1) 36,900 17,990 35,349 13,950 Average Realized Prices: Crude oil (per Bbl) $ 80.21 $ 93.81 $ 75.11 $ 98.12 Natural gas (per Mcf) $ 1.54 $ 6.55 $ 1.90 $ 6.05 NGLs (per Bbl) $ 18.14 $ 31.98 $ 19.39 $ 36.68 Combined (per Boe) $ 45.00 $ 65.71 $ 44.65 $ 68.33 Average Realized Prices After Effects of Derivative Settlements: Crude oil (per Bbl) $ 82.21 $ 97.32 $ 77.95 $ 99.48 Natural gas (per Mcf) $ 1.84 $ 6.46 $ 2.20 $ 5.99 NGLs (per Bbl) $ 18.14 $ 31.98 $ 19.39 $ 36.68 Combined (per Boe) $ 46.49 $ 67.36 $ 46.59 $ 68.93 Selected Expense Metrics Three Months Ended September 30, 2023 2022 Severance and ad valorem taxes 7.9 % 6.6 % Depreciation, depletion and amortization ($/Boe) $ 23.78 $ 19.34 General and administrative ($/Boe) $ 3.55 $ 8.08 Cash G&A ($/Boe) $ 2.19 $ 2.80 Interest expense, net ($/Boe) $ 7.77 $ 9.05 Condensed Consolidated Balance Sheets (In thousands except par and share amounts) September 30, December 31, 2023 2022 . (Unaudited) ASSETS Current assets Cash and cash equivalents $ 1,339 $ 18,818 Accrued revenue and accounts receivable 116,088 142,010 Prepaid assets 13,800 12,489 Derivative asset 7,521 18,874 Total current assets 138,748 192,191 Property and equipment Oil and natural gas properties, successful efforts method: Unproved properties 3,009,429 3,244,436 Proved properties 2,431,742 1,926,214 Other property and equipment 3,440 3,421 Accumulated depreciation, depletion, amortization, and impairment (471,549 ) (223,214 ) Total property and equipment, net 4,973,062 4,950,857 Long-term assets Long-term derivative asset 2,805 13,379 Deferred financing costs 11,849 7,082 Operating lease right-of-use asset 4,150 5,679 Other long-term assets 504 1,714 Total long-term assets 19,308 27,854 TOTAL ASSETS $ 5,131,118 $ 5,170,902 LIABILITIES AND EQUITY Current liabilities Accounts payable and accrued expenses $ 21,939 $ 21,899 Warrant liability — 2,950 Operating lease liability 1,350 1,563 Total current liabilities 23,289 26,412 Long-term liabilities Long-term debt 996,460 938,896 Deferred tax liability 333,467 313,607 Non-current operating lease liability 3,907 5,303 Other long-term liabilities 1,189 89 Total long-term liabilities 1,335,023 1,257,895 Total liabilities 1,358,312 1,284,307 Equity Class A Common Stock, par value $0.0001 per share; 240,000,000 shares authorized; 81,763,078 and 80,804,956 shares issued and 81,763,078 and 80,171,951 outstanding at September 30, 2023 and December 31, 2022, respectively 8 8 Class C Common Stock, par value $0.0001 per share; 120,000,000 shares authorized; 75,440,851 and 74,347,005 shares issued and 75,414,714 and 74,347,005 outstanding at September 30, 2023 and December 31, 2022, respectively 8 7 Additional paid-in capital 1,790,492 1,750,640 Accumulated deficit (109,596 ) (9,203 ) Class A Treasury Shares, 0 and 633,005 shares at September 30, 2023 and December 31, 2022, respectively — (19,085 ) Class C Treasury Shares, 26,137 and 0 shares at September 30, 2023 and December 31, 2022, respectively (677 ) — Noncontrolling interest 2,092,571 2,164,228 Total equity 3,772,806 3,886,595 TOTAL LIABILITIES AND EQUITY $ 5,131,118 $ 5,170,902 Unaudited Condensed Consolidated Statements of Income (In thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Oil, natural gas and natural gas liquids revenues $ 152,766 $ 108,761 $ 430,887 $ 260,219 Lease bonus and other income 3,944 6,736 13,115 9,445 Total revenues 156,710 115,497 444,002 269,664 Operating expenses: Management fees to affiliates — — — 3,241 Depreciation, depletion and amortization 80,716 32,005 222,718 67,302 General and administrative 12,044 13,381 37,786 24,117 Severance and ad valorem taxes 12,124 7,215 32,927 18,019 Impairment of oil and natural gas properties — — 25,617 — Total operating expenses 104,884 52,601 319,048 112,679 Net income from operations 51,826 62,896 124,954 156,985 Other income (expense): Interest expense, net (26,373 ) (14,986 ) (71,735 ) (18,096 ) Change in fair value of warrant liability 8 536 2,950 3,842 Loss on extinguishment of debt (687 ) (11,487 ) (1,470 ) (11,487 ) Commodity derivatives gains (losses) (24,125 ) 34,613 (3,250 ) 53,508 Interest rate derivatives gains 9 — 456 — Net income before taxes 658 71,572 51,905 184,752 Income tax expense (383 ) (2,561 ) (6,884 ) (5,206 ) Net income 275 69,011 45,021 179,546 Net income attributable to Predecessor — — — (78,104 ) Net income attributable to temporary equity — (59,872 ) — (86,143 ) Net (income) loss attributable to noncontrolling interest 12 — (22,877 ) — Net income attributable to Class A stockholders $ 287 $ 9,139 $ 22,144 $ 15,299 Net income per Class A common share Basic $ 0.00 $ 0.70 $ 0.26 $ 1.19 Diluted $ 0.00 $ 0.70 $ 0.26 $ 1.19 Weighted average Class A common shares outstanding Basic 81,712 12,703 80,984 12,665 Diluted 157,260 12,703 80,984 12,665 Unaudited Condensed Consolidated Statements of Cash Flow (In thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 45,021 $ 179,546 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 222,718 67,302 Amortization of deferred financing costs and long-term debt discount 4,275 5,419 Share-based compensation 14,474 4,947 Change in fair value of warrant liability (2,950 ) (3,842 ) Loss on extinguishment of debt 1,470 11,487 Impairment of oil and natural gas properties 25,617 — Commodity derivative (gains) losses 3,250 (53,508 ) Net cash received for commodity derivative settlements 18,730 2,239 Interest rate derivative gains (456 ) — Net cash received for interest rate derivative settlements 403 — Deferred tax expense (benefit) (15,107 ) 2,645 Change in operating assets and liabilities: Accrued revenue and accounts receivable 26,188 (29,785 ) Prepaid assets 13,187 (1,903 ) Other long-term assets 1,866 (115 ) Accounts payable and accrued expenses (3,131 ) (12,986 ) Due to affiliates — (380 ) Operating lease liabilities and other long-term liabilities (737 ) 9 Net cash provided by operating activities 354,818 171,075 Cash flows from investing activities: Acquisition of Falcon, net of cash — 4,484 Predecessor cash not contributed in the Falcon Merger — (15,229 ) Purchases of oil and gas properties, net of post-close adjustments (172,070 ) (558,062 ) Purchases of other property and equipment (19 ) (819 ) Net cash used in investing activities (172,089 ) (569,626 ) Cash flows from financing activities: Borrowings on credit facilities 588,500 196,895 Repayments on credit facilities (497,500 ) (147,000 ) Borrowings on Bridge Loan Facility — 425,000 Repayments on Bridge Loan Facility — (425,000 ) Bridge Loan Facility issuance costs — (14,909 ) Borrowings on 2026 Senior Notes — 444,500 Repayments on 2026 Senior Notes (33,750 ) — 2026 Senior Notes issuance costs (351 ) (4,169 ) Distribution paid to Temporary Equity — (50,510 ) Distributions to noncontrolling interest (121,924 ) (13,318 ) Dividends paid to Class A stockholders (121,555 ) (9,017 ) Dividend equivalent rights paid (982 ) (283 ) Cash paid for taxes related to net settlement of share-based compensation awards (3,432 ) — Payments of deferred financing costs (9,214 ) (3,964 ) Other — (1,241 ) Net cash (used in) provided by financing activities (200,208 ) 396,984 Net change in cash and cash equivalents (17,479 ) (1,567 ) Cash and cash equivalents, beginning of period 18,818 12,379 Cash and cash equivalents, end of period $ 1,339 $ 10,812 Non-GAAP financial measures Adjusted EBITDA, Pro Forma Adjusted EBITDA, Discretionary Cash Flow, Pro Forma Discretionary Cash Flow and Cash G&A are non-GAAP supplemental financial measures used by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets and their ability to sustain dividends over the long term without regard to financing methods, capital structure or historical cost basis. Sitio believes that these non-GAAP financial measures provide useful information to Sitio's management and external users because they allow for a comparison of operating performance on a consistent basis across periods. We define Adjusted EBITDA as net income plus (a) interest expense, (b) provisions for taxes, (c) depreciation, depletion and amortization, (d) non-cash share-based compensation expense, (e) impairment of oil and natural gas properties, (f) gains or losses on unsettled derivative instruments, (g) change in fair value of the warrant liability, (h) management fee to affiliates, (i) loss on debt extinguishment, (j) merger-related transaction costs and (k) write off of financing costs. We define Pro Forma Adjusted EBITDA as Adjusted EBITDA plus Cash Acquisitions EBITDA from July 1, 2023 to September 30, 2023 that is not included in Adjusted EBITDA for the three months ended September 30, 2023. We define Discretionary Cash Flow as Adjusted EBITDA, less cash interest expense and cash taxes. We define Pro Forma Discretionary Cash Flow as Discretionary Cash Flow plus Cash Acquisitions Discretionary Cash Flow from July 1, 2023 to September 30, 2023 that is not included in Discretionary Cash Flow for the three months ended September 30, 2023. We define Cash G&A as general and administrative expense less (a) non-cash share-based compensation expense, (b) merger-related transaction costs and (c) rental income. These non-GAAP financial measures do not represent and should not be considered an alternative to, or more meaningful than, their most directly comparable GAAP financial measures or any other measure of financial performance presented in accordance with GAAP as measures of our financial performance. Non-GAAP financial measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measure. Our computations of Adjusted EBITDA, Pro Forma Adjusted EBITDA, Discretionary Cash Flow, Pro Forma Discretionary Cash Flow and Cash G&A may differ from computations of similarly titled measures of other companies. The following table presents a reconciliation of Adjusted EBITDA and Pro Forma Adjusted EBITDA to the most directly comparable GAAP financial measure for the period indicated (in thousands). Three Months Ended September 30, 2023 2022 Net income $ 275 $ 69,011 Interest expense, net 26,373 14,986 Income tax expense 383 2,561 Depreciation, depletion and amortization 80,716 32,005 EBITDA $ 107,747 $ 118,563 Non-cash share-based compensation expense 4,368 3,969 Losses (gains) on unsettled derivative instruments 29,497 (31,954 ) Change in fair value of warrant liability (8 ) (536 ) Loss on debt extinguishment 687 11,487 Merger-related transaction costs 123 3,599 Write off of financing costs — 1,180 Adjusted EBITDA $ 142,414 $ 106,308 Cash Acquisitions EBITDA 1,144 — Pro Forma Adjusted EBITDA $ 143,558 $ 106,308 The following table presents a reconciliation of Discretionary Cash Flow and Pro Forma Discretionary Cash Flow to the most directly comparable GAAP financial measure for the period indicated (in thousands). Three Months Ended September 30, 2023 2022 Cash flow from operations $ 122,141 $ 82,644 Interest expense, net 26,373 14,986 Income tax expense 383 2,561 Deferred tax expense 7,686 (2,512 ) Changes in operating assets and liabilities (12,810 ) 8,692 Amortization of deferred financing costs and long-term debt discount (1,482 ) (3,662 ) Merger-related transaction costs 123 3,599 Adjusted EBITDA $ 142,414 $ 106,308 Less: Cash interest expense 24,694 11,516 Cash taxes 457 1,389 Discretionary Cash Flow $ 117,263 $ 93,403 Cash Acquisitions Discretionary Cash Flow $ 1,144 — Pro Forma Discretionary Cash Flow $ 118,407 $ 93,403 The following table presents a reconciliation of Cash G&A to the most directly comparable GAAP financial measure for the period indicated (in thousands). Three Months Ended September 30, 2023 2022 General and administrative expense $ 12,044 $ 13,381 Less: Non-cash share-based compensation expense 4,368 3,969 Merger-related transaction costs 123 3,599 Rental income 136 — Write off of financing costs — 1,180 Cash G&A $ 7,417 $ 4,633 About Sitio Royalties Corp. Sitio is a shareholder returns-driven company focused on large-scale consolidation of high-quality oil & gas mineral and royalty interests across premium basins, with a diversified set of top-tier operators. With a clear objective of generating cash flow from operations that can be returned to stockholders and reinvested, Sitio has accumulated over 270,000 NRAs through the consummation of over 190 acquisitions to date. More information about Sitio is available at www.sitio.com. Forward-Looking Statements This news release contains statements that may constitute “forward-looking statements” for purposes of federal securities laws. Forward-looking statements include, but are not limited to, statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “seeks,” “possible,” “potential,” “predict,” “project,” “prospects,” “guidance,” “outlook,” “should,” “would,” “will,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements include, but are not limited to, statements about certain future plans, expectations and objectives for the Company’s operations, including statements about any share repurchase programs, the implementation thereof and the intended benefits, financial and operational guidance, strategy, synergies, certain levels of production, future operations, financial position, prospects, and plans. While forward-looking statements are based on assumptions and analyses made by us that we believe to be reasonable under the circumstances, whether actual results and developments will meet our expectations and predictions depend on a number of risks and uncertainties that could cause our actual results, performance, and financial condition to differ materially from our expectations and predictions. Factors that could materially impact such forward-looking statements include, but are not limited to: commodity price volatility, the global economic uncertainty related to the large-scale invasion of Ukraine by Russia, the collapse of certain financial institutions and associated liquidity risks, announcements of voluntary production cuts by OPEC+ and others, and those other factors discussed or referenced in the "Risk Factors" section of Sitio’s Annual Report on Form 10-K, for the year ended December 31, 2022 and other publicly filed documents with the SEC. Any forward-looking statement made in this news release speaks only as of the date on which it is made. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible to predict all of them. Sitio undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future development, or otherwise, except as may be required by law. View source version on businesswire.com: https://www.businesswire.com/news/home/20231108382654/en/Contacts IR contact: Ross Wong (720) 640–7647 IR@sitio.com Data & News supplied by www.cloudquote.io Stock quotes supplied by Barchart Quotes delayed at least 20 minutes. By accessing this page, you agree to the following Privacy Policy and Terms and Conditions.
Sitio Royalties Reports Third Quarter 2023 Operational and Financial Results By: Sitio Royalties Corp. via Business Wire November 08, 2023 at 16:05 PM EST Pro Forma In-Period Average Quarterly Production Volume of 36,654 Boe/d (50% Oil)(1) Declared $0.49 Dividend Per Share of Class A Common Stock for Third Quarter 2023 Record High 50.9 Net Line-of-Sight Wells as of September 30, 2023, of Which 82% Are in the Permian Basin Recapitalized Balance Sheet With New $600 Million 7.875% Senior Notes Due 2028, Lowering Expected Cash Interest by More Than $11 Million Per Year and Enhancing Liquidity by More Than $170 Million Announces Definitive Agreement to Sell Appalachia and Anadarko Basin Assets for $117.5 Million, Subject to Customary Closing Adjustments Sitio Royalties Corp. (NYSE: STR) (“Sitio,” “STR” or the “Company”) today announced operational and financial results for the quarter ended September 30, 2023. Unless the context clearly indicates otherwise, references to “we,” “our,” “us” or similar terms refer to Sitio and its subsidiaries. THIRD QUARTER 2023 OPERATIONAL AND FINANCIAL HIGHLIGHTS Pro forma 3Q 2023 average daily in-period production volume of 36,654 barrels of oil equivalent per day (“Boe/d”) (50% oil)(1), comparable to pro forma 2Q 2023 average daily in-period production volume of 36,587 Boe/d (52% oil)(2) 3Q 2023 average daily production volume of 36,900 Boe/d (48% oil)(3), including total prior period adjustments of positive 546 Boe/d Declared 3Q 2023 dividend of $0.49 per share of Class A Common Stock, an increase of $0.09 per share, or approximately 23% relative to 2Q 2023 Net income of $0.3 million, up $3.2 million relative to 2Q 2023 net loss, primarily driven by a $2.04 per Boe increase in realized hedged commodity prices 3Q 2023 Adjusted EBITDA(4) of $142.4 million, up by 12% sequentially from 2Q 2023 Adjusted EBITDA, primarily due to increased average production volumes and a 5% increase in realized hedged prices per Boe 3Q 2023 Pro forma Adjusted EBITDA(5) of $143.6 million, including contribution from the Cash Acquisitions(6) for the entire quarter, up by 11% sequentially from 2Q 2023 Pro forma Adjusted EBITDA(7) Record high net line-of-sight (“LOS”) wells of 50.9 net wells as of September 30, 2023, comprised of 29.9 net spuds and 21.0 net permits Closed on four previously announced Permian Basin Cash Acquisitions for total aggregate purchase price of $181.3 million On September 26, 2023, priced $600 million aggregate principal amount of senior unsecured notes due 2028 (the “2028 Senior Notes”), which accrue interest at a rate of 7.875% per annum, 3.4 percentage points lower than the 4Q 2023 interest rate on the Company's prior senior unsecured notes due 2026 (the “2026 Senior Notes”); Transaction closed on October 3, 2023(8) 3Q 2023 RESULTS RELATIVE TO 2H 2023 GUIDANCE The table below shows third quarter 2023 results relative to financial and operational guidance for the second half of 2023 that was issued on August 8, 2023. 2H 2023 Guidance Metric 3Q 2023 Results 2H 2023 Guidance (August 8, 2023) Average daily production (Boe/d) – Reported / In-period(11) 36,900 / 36,354 35,000 – 37,000 Oil % – Reported / In-period(11) 48% / 50% 49% – 51% Gathering and transportation ($/Boe) $ 1.36 $1.25 – $1.50 Cash G&A ($ in millions) $ 7.4 $25.0–$27.0 (annual) Production taxes (% of royalty revenue) 7.9 % 6% – 8% Reported cash tax rate (% of pre-tax income)(12) 69.5 % 2% – 4% Pro forma cash tax rate (% of pro forma pre-tax income)(13) 1.5 % 2% – 4% (1) Pro forma in-period average quarterly production volume includes production from the Cash Acquisitions(6) as if they were owned on July 1, 2023; In-period production represents production that is estimated to have occurred during the period specified and does not include production from prior period adjustments (2) Pro forma 2Q 2023 average daily in-period production volume represents production that was estimated to have occurred during the three months ended June 30, 2023, including production from the Stock & Cash Acquisitions(9) as if they were owned on April 1, 2023 (3) 3Q 2023 average daily production volume includes both in-period average daily production and prior period adjustments (4) For definitions of non-GAAP financial measures and reconciliations to their most directly comparable GAAP financial measures, please see “Non-GAAP financial measures” (5) 3Q 2023 Pro Forma Adjusted EBITDA represents 3Q 2023 Adjusted EBITDA plus Cash Acquisitions(6) EBITDA, which reflects as if Sitio had owned the Cash Acquisitions since July 1, 2023 (6) Cash Acquisitions, a subset of the Stock & Cash Acquisitions(9), is defined as the four acquisitions that closed in July and August of 2023; Total consideration for the Cash Acquisitions was approximately $181 million funded with a mix of retained cash and borrowings under Sitio's revolving credit facility (7) 2Q 2023 Pro forma Adjusted EBITDA represents 2Q 2023 Adjusted EBITDA plus Stock Acquisition(10) EBITDA from April 1, 2023 to June 13, 2023 (8) On October 3, 2023, subsidiaries of Sitio issued and sold (the “Notes Offering”) $600.0 million aggregate principal amount of their 2028 Senior Notes. Net proceeds of the Notes Offering were used to (i) fund the redemption of all of the outstanding aggregate principal amount of the Company's 2026 Senior Notes, which occurred concurrently with the consummation of the Notes Offering and (ii) repay a portion of the outstanding borrowings under the Company's revolving credit facility (9) Stock & Cash Acquisitions is defined as five separate mineral and royalty interest acquisitions that closed between March 31, 2023 and August 7, 2023, containing 13,862 NRAs in aggregate, of which 99% are in the Permian Basin (10) Stock Acquisition, a subset of the Stock & Cash Acquisitions, is defined as the one acquisition that closed on June 14, 2023 (11) In-period production represents production that is estimated to have occurred during the period specified, excluding production from prior period adjustments; Reported production includes both in-period production and adjustments to production from prior periods (12) Calculated as cash taxes paid of $0.5 million divided by net income before taxes of $0.7 million for the three months ended September 30, 2023 (13) Calculated as cash taxes paid of $0.5 million divided by pro forma pre-tax income of $29.9 million; Pro forma pre-tax income is defined as net income before taxes plus $29.2 million of unrealized commodity derivative losses Chris Conoscenti, Chief Executive Officer of Sitio, commented, “In the third quarter, our assets delivered another steady performance that reflected operator trends in Permian and broader US drilling and completion activity. We continue to pursue multiple consolidation opportunities and are optimistic about improving competitive dynamics heading into 2024. During the third quarter, we completed the four previously announced cash acquisitions of high-quality Permian minerals and royalties totaling approximately $181 million and on November 3, 2023, we agreed to sell our lower-margin Appalachia and Anadarko assets for $117.5 million. Our inaugural senior unsecured notes offering that closed on October 3, 2023, allowed us to refinance our existing unsecured notes and achieve more than $11 million in expected annual interest expense savings. Our team continued to innovate by building new customized automation tools to improve the efficiency with which we manage such a large amount of new data each month. This streamlines processing and tracking royalty payments, monitoring ongoing operator activity on our acreage and positions Sitio to smoothly integrate additional data from future acquisitions. I'm proud of our team for executing well on such a broad range of strategic, financing and operational initiatives throughout the quarter.” ASSET ACTIVITY UPDATE The following table summarizes Sitio's net average daily production, net wells online, net line-of-sight wells and net royalty acres by area. All pro forma metrics assume that Sitio owned the Stock & Cash Acquisitions as of June 30, 2023. Delaware Midland DJ Eagle Ford Appalachia Anadarko Williston Total Average Daily Production (Boe/d) for the three months ended September 30, 2023 As reported 19,050 8,363 2,998 3,730 1,099 996 664 36,900 % Oil 47 % 61 % 32 % 51 % 3 % 27 % 62 % 48 % Net Well Activity (normalized to 5,000' laterals) Pro forma net wells online as of June 30, 2023(14) 121.8 60.1 35.6 35.3 3.7 9.9 9.2 275.6 Net wells online as of September 30, 2023 127.1 62.2 37.1 35.7 3.8 9.9 9.4 285.2 Net wells online increase since June 30, 2023 5.3 2.1 1.5 0.4 0.1 - 0.2 9.6 Net spuds 16.3 7.9 2.7 1.9 0.3 0.2 0.6 29.9 Net permits 10.6 7.0 1.1 1.5 0.2 0.1 0.5 21.0 Net LOS wells as of September 30, 2023 26.9 14.9 3.8 3.4 0.5 0.3 1.1 50.9 Net Royalty Acres (normalized to 1/8th royalty equivalent) Pro forma June 30, 2023(15) 152,234 45,339 24,978 21,752 12,669 9,872 8,203 275,047 September 30, 2023 152,268 45,366 24,973 21,783 12,676 9,872 8,202 275,140 NRA increase (decrease) since June 30, 2023 34 27 (5 ) 31 7 — (1 ) 93 (14) Includes net wells from the Stock & Cash Acquisitions (15) Includes NRAs from the Stock & Cash Acquisitions FINANCIAL UPDATE Sitio's third quarter 2023 average unhedged realized prices including all expected quality, transportation and demand adjustments were $80.21 per barrel of oil, $1.54 per Mcf of natural gas and $18.14 per barrel of natural gas liquids, for a total equivalent price of $45.00 per barrel of oil equivalent. During the third quarter of 2023, the Company received $5.1 million in net cash settlements for commodity derivative contracts and as a result, average hedged realized prices were $82.21 per barrel of oil, $1.84 per Mcf of natural gas and $18.14 per barrel of natural gas liquids, for a total equivalent price of $46.49 per barrel of oil equivalent. This represents a $2.04 per barrel of oil equivalent, or a 5% increase relative to hedged realized prices for the three months ended June 30, 2023. Consolidated net income for the third quarter of 2023 was $0.3 million, which is $3.2 million more than consolidated net income in the second quarter of 2023. This increase was driven primarily by increased commodity prices and offset by net commodity derivatives losses of $24.1 million, which was comprised of a $29.2 million non-cash unrealized loss and a $5.1 million realized gain. For the three months ended September 30, 2023, Adjusted EBITDA was $142.4 million, up 12% sequentially from second quarter 2023 Adjusted EBITDA, primarily due to increased production volumes and commodity prices. As of September 30, 2023, the Company had $1,006.0 million principal value of total debt outstanding (comprised of $601.0 million drawn on Sitio's revolving credit facility and $405.0 million of senior unsecured notes) and liquidity of $250.3 million, including $1.3 million of cash and $249.0 million of remaining availability under its $850.0 million credit facility. In September 2023, Sitio made its fourth consecutive quarterly amortization payment of $11.3 million at par value on its senior unsecured notes, reducing the principal from $416.3 million to $405.0 million as of the end of the third quarter 2023. 2H 2023 FINANCIAL AND OPERATIONAL GUIDANCE Sitio is revising its guidance for Cash G&A for the full year 2023 to a range of $27.0 million to $28.0 million based on results to date and expectations for 4Q 2023, which includes incremental G&A for expected new employees. The midpoint of Sitio's new Cash G&A guidance range for full year 2023 is $27.5 million, an approximate 6% increase from the midpoint of prior guidance. There are no other changes to prior 2H 2023 guidance, but for convenience all guidance metrics are shown in the table below. 2H 2023 Guidance Low High Average daily production (Boe/d) 35,000 37,000 Oil % 49 % 51 % Revenue Deductions, Expenses and Taxes Gathering and transportation ($/Boe) $ 1.25 $ 1.50 Full Year 2023 Cash G&A ($ in millions) $ 27.0 $ 28.0 Production taxes (% of royalty revenue) 6 % 8 % Cash tax rate (% of pre-tax income) 2 % 4 % SENIOR UNSECURED NOTES REFINANCING On October 3, 2023, the Company issued and sold $600.0 million aggregate principal amount of its 2028 Senior Notes. The net proceeds of the Notes Offering were used to (i) fund the redemption of all of the outstanding aggregate principal amount of the 2026 Senior Notes, which occurred concurrently with the consummation of the Notes Offering and (ii) repay a portion of the outstanding borrowings under the Company's revolving credit facility. As of November 3, 2023, the Company had $981.0 million principal value of total debt outstanding (comprised of $381.0 million drawn on Sitio's revolving credit facility and $600.0 million of senior unsecured notes due 2028) and liquidity of $470.9 million, including $1.9 million of cash and $469.0 million of remaining availability under its $850.0 million credit facility. DIVESTITURE OF APPALACHIA AND ANADARKO ASSETS On November 3, 2023, the Company entered into a definitive purchase and sale agreement to sell all of its mineral and royalty interests in the Appalachia and Anadarko Basins to an undisclosed third party for $117.5 million of cash consideration, subject to customary closing adjustments. In aggregate for the three months ended September 30, 2023, production associated with these assets was 2,095 Boe/d (14% oil) and revenues were $3.8 million from oil, natural gas and natural gas liquids. As of September 30, 2023, there were approximately 0.7 net LOS wells underlying these assets, comprised of approximately 0.5 net spuds and 0.3 net permits. Sitio plans to use the net proceeds to repay borrowings on its revolving credit facility and build additional liquidity to pursue acquisitions of assets that are more comparable to the growth and returns profile of Sitio’s recent Permian Basin acquisitions. The transaction has an effective date of September 1, 2023 and is expected to close in the fourth quarter of 2023. Sitio did not add to or extinguish any of its commodity swaps or collars during the third quarter of 2023. A summary of the Company's existing commodity derivative contracts as of September 30, 2023 is included in the table below. Oil (NYMEX WTI) 2023 2024 1H25 Swaps Bbl per day 3,050 3,300 1,100 Average price ($/Bbl) $ 93.71 $ 82.66 $ 74.65 Collars Bbl per day — — 2,000 Average call ($/Bbl) — — $ 93.20 Average put ($/Bbl) — — $ 60.00 Gas (NYMEX Henry Hub) 2023 2024 1H25 Swaps MMBtu per day 500 500 — Average price ($/MMBtu) $ 3.83 $ 3.41 — Collars MMBtu per day 8,500 11,400 11,600 Average call ($/MMBtu) $ 7.93 $ 7.24 $ 10.34 Average put ($/MMBtu) $ 4.82 $ 4.00 $ 3.31 THIRD QUARTER 2023 CASH DIVIDEND The Company's Board of Directors declared a cash dividend of $0.49 per share of Class A Common Stock with respect to the third quarter of 2023. The dividend is payable on November 30, 2023 to the stockholders of record at the close of business on November 21, 2023. Based on a 65% payout ratio of third quarter 2023 Discretionary Cash Flow and not including the pro forma impacts from the Cash Acquisitions, Sitio's quarterly dividend would have been approximately $0.48 per Class A common share; however, the Company's Board of Directors approved a third quarter 2023 dividend of $0.49 per Class A common share, which equates to a 65% payout ratio including pro forma Discretionary Cash Flow for the full three months ended September 30, 2023 for the Cash Acquisitions that closed during the third quarter 2023. THIRD QUARTER 2023 EARNINGS CONFERENCE CALL Sitio will host a conference call at 8:30 a.m. Eastern on Thursday, November 9, 2023, to discuss its third quarter 2023 operating and financial results. Participants can access the call by dialing 1-833-470-1428 in the United States or 1-404-975-4839 in other locations with access code 971184 or via webcast at https://events.q4inc.com/attendee/965924226. Participants can also pre-register for the event by going to the following link: https://www.netroadshow.com/events/login?show=ca67bd6c&confId=56269. The conference call, live webcast and archive of the call can also be accessed through the Investor Relations section of Sitio’s website at www.sitio.com. UPCOMING INVESTOR CONFERENCES Members of Sitio's management team will be attending the Stephens Annual Investment Conference on November 14, 2023; BofA Securities Global Energy Conference on November 14, 2023; and BofA Securities Leveraged Finance Conference from November 27-29, 2023. Presentation materials associated with these events will be accessible through the Investor Relations section of Sitio's website at www.sitio.com. FINANCIAL RESULTS Production Data Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Production Data: Crude oil (MBbls) 1,617 846 4,786 1,969 Natural gas (MMcf) 6,203 2,916 17,214 6,481 NGLs (MBbls) 744 323 1,996 760 Total (MBoe)(6:1) 3,395 1,655 9,651 3,809 Average daily production (Boe/d)(6:1) 36,900 17,990 35,349 13,950 Average Realized Prices: Crude oil (per Bbl) $ 80.21 $ 93.81 $ 75.11 $ 98.12 Natural gas (per Mcf) $ 1.54 $ 6.55 $ 1.90 $ 6.05 NGLs (per Bbl) $ 18.14 $ 31.98 $ 19.39 $ 36.68 Combined (per Boe) $ 45.00 $ 65.71 $ 44.65 $ 68.33 Average Realized Prices After Effects of Derivative Settlements: Crude oil (per Bbl) $ 82.21 $ 97.32 $ 77.95 $ 99.48 Natural gas (per Mcf) $ 1.84 $ 6.46 $ 2.20 $ 5.99 NGLs (per Bbl) $ 18.14 $ 31.98 $ 19.39 $ 36.68 Combined (per Boe) $ 46.49 $ 67.36 $ 46.59 $ 68.93 Selected Expense Metrics Three Months Ended September 30, 2023 2022 Severance and ad valorem taxes 7.9 % 6.6 % Depreciation, depletion and amortization ($/Boe) $ 23.78 $ 19.34 General and administrative ($/Boe) $ 3.55 $ 8.08 Cash G&A ($/Boe) $ 2.19 $ 2.80 Interest expense, net ($/Boe) $ 7.77 $ 9.05 Condensed Consolidated Balance Sheets (In thousands except par and share amounts) September 30, December 31, 2023 2022 . (Unaudited) ASSETS Current assets Cash and cash equivalents $ 1,339 $ 18,818 Accrued revenue and accounts receivable 116,088 142,010 Prepaid assets 13,800 12,489 Derivative asset 7,521 18,874 Total current assets 138,748 192,191 Property and equipment Oil and natural gas properties, successful efforts method: Unproved properties 3,009,429 3,244,436 Proved properties 2,431,742 1,926,214 Other property and equipment 3,440 3,421 Accumulated depreciation, depletion, amortization, and impairment (471,549 ) (223,214 ) Total property and equipment, net 4,973,062 4,950,857 Long-term assets Long-term derivative asset 2,805 13,379 Deferred financing costs 11,849 7,082 Operating lease right-of-use asset 4,150 5,679 Other long-term assets 504 1,714 Total long-term assets 19,308 27,854 TOTAL ASSETS $ 5,131,118 $ 5,170,902 LIABILITIES AND EQUITY Current liabilities Accounts payable and accrued expenses $ 21,939 $ 21,899 Warrant liability — 2,950 Operating lease liability 1,350 1,563 Total current liabilities 23,289 26,412 Long-term liabilities Long-term debt 996,460 938,896 Deferred tax liability 333,467 313,607 Non-current operating lease liability 3,907 5,303 Other long-term liabilities 1,189 89 Total long-term liabilities 1,335,023 1,257,895 Total liabilities 1,358,312 1,284,307 Equity Class A Common Stock, par value $0.0001 per share; 240,000,000 shares authorized; 81,763,078 and 80,804,956 shares issued and 81,763,078 and 80,171,951 outstanding at September 30, 2023 and December 31, 2022, respectively 8 8 Class C Common Stock, par value $0.0001 per share; 120,000,000 shares authorized; 75,440,851 and 74,347,005 shares issued and 75,414,714 and 74,347,005 outstanding at September 30, 2023 and December 31, 2022, respectively 8 7 Additional paid-in capital 1,790,492 1,750,640 Accumulated deficit (109,596 ) (9,203 ) Class A Treasury Shares, 0 and 633,005 shares at September 30, 2023 and December 31, 2022, respectively — (19,085 ) Class C Treasury Shares, 26,137 and 0 shares at September 30, 2023 and December 31, 2022, respectively (677 ) — Noncontrolling interest 2,092,571 2,164,228 Total equity 3,772,806 3,886,595 TOTAL LIABILITIES AND EQUITY $ 5,131,118 $ 5,170,902 Unaudited Condensed Consolidated Statements of Income (In thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Oil, natural gas and natural gas liquids revenues $ 152,766 $ 108,761 $ 430,887 $ 260,219 Lease bonus and other income 3,944 6,736 13,115 9,445 Total revenues 156,710 115,497 444,002 269,664 Operating expenses: Management fees to affiliates — — — 3,241 Depreciation, depletion and amortization 80,716 32,005 222,718 67,302 General and administrative 12,044 13,381 37,786 24,117 Severance and ad valorem taxes 12,124 7,215 32,927 18,019 Impairment of oil and natural gas properties — — 25,617 — Total operating expenses 104,884 52,601 319,048 112,679 Net income from operations 51,826 62,896 124,954 156,985 Other income (expense): Interest expense, net (26,373 ) (14,986 ) (71,735 ) (18,096 ) Change in fair value of warrant liability 8 536 2,950 3,842 Loss on extinguishment of debt (687 ) (11,487 ) (1,470 ) (11,487 ) Commodity derivatives gains (losses) (24,125 ) 34,613 (3,250 ) 53,508 Interest rate derivatives gains 9 — 456 — Net income before taxes 658 71,572 51,905 184,752 Income tax expense (383 ) (2,561 ) (6,884 ) (5,206 ) Net income 275 69,011 45,021 179,546 Net income attributable to Predecessor — — — (78,104 ) Net income attributable to temporary equity — (59,872 ) — (86,143 ) Net (income) loss attributable to noncontrolling interest 12 — (22,877 ) — Net income attributable to Class A stockholders $ 287 $ 9,139 $ 22,144 $ 15,299 Net income per Class A common share Basic $ 0.00 $ 0.70 $ 0.26 $ 1.19 Diluted $ 0.00 $ 0.70 $ 0.26 $ 1.19 Weighted average Class A common shares outstanding Basic 81,712 12,703 80,984 12,665 Diluted 157,260 12,703 80,984 12,665 Unaudited Condensed Consolidated Statements of Cash Flow (In thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 45,021 $ 179,546 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 222,718 67,302 Amortization of deferred financing costs and long-term debt discount 4,275 5,419 Share-based compensation 14,474 4,947 Change in fair value of warrant liability (2,950 ) (3,842 ) Loss on extinguishment of debt 1,470 11,487 Impairment of oil and natural gas properties 25,617 — Commodity derivative (gains) losses 3,250 (53,508 ) Net cash received for commodity derivative settlements 18,730 2,239 Interest rate derivative gains (456 ) — Net cash received for interest rate derivative settlements 403 — Deferred tax expense (benefit) (15,107 ) 2,645 Change in operating assets and liabilities: Accrued revenue and accounts receivable 26,188 (29,785 ) Prepaid assets 13,187 (1,903 ) Other long-term assets 1,866 (115 ) Accounts payable and accrued expenses (3,131 ) (12,986 ) Due to affiliates — (380 ) Operating lease liabilities and other long-term liabilities (737 ) 9 Net cash provided by operating activities 354,818 171,075 Cash flows from investing activities: Acquisition of Falcon, net of cash — 4,484 Predecessor cash not contributed in the Falcon Merger — (15,229 ) Purchases of oil and gas properties, net of post-close adjustments (172,070 ) (558,062 ) Purchases of other property and equipment (19 ) (819 ) Net cash used in investing activities (172,089 ) (569,626 ) Cash flows from financing activities: Borrowings on credit facilities 588,500 196,895 Repayments on credit facilities (497,500 ) (147,000 ) Borrowings on Bridge Loan Facility — 425,000 Repayments on Bridge Loan Facility — (425,000 ) Bridge Loan Facility issuance costs — (14,909 ) Borrowings on 2026 Senior Notes — 444,500 Repayments on 2026 Senior Notes (33,750 ) — 2026 Senior Notes issuance costs (351 ) (4,169 ) Distribution paid to Temporary Equity — (50,510 ) Distributions to noncontrolling interest (121,924 ) (13,318 ) Dividends paid to Class A stockholders (121,555 ) (9,017 ) Dividend equivalent rights paid (982 ) (283 ) Cash paid for taxes related to net settlement of share-based compensation awards (3,432 ) — Payments of deferred financing costs (9,214 ) (3,964 ) Other — (1,241 ) Net cash (used in) provided by financing activities (200,208 ) 396,984 Net change in cash and cash equivalents (17,479 ) (1,567 ) Cash and cash equivalents, beginning of period 18,818 12,379 Cash and cash equivalents, end of period $ 1,339 $ 10,812 Non-GAAP financial measures Adjusted EBITDA, Pro Forma Adjusted EBITDA, Discretionary Cash Flow, Pro Forma Discretionary Cash Flow and Cash G&A are non-GAAP supplemental financial measures used by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets and their ability to sustain dividends over the long term without regard to financing methods, capital structure or historical cost basis. Sitio believes that these non-GAAP financial measures provide useful information to Sitio's management and external users because they allow for a comparison of operating performance on a consistent basis across periods. We define Adjusted EBITDA as net income plus (a) interest expense, (b) provisions for taxes, (c) depreciation, depletion and amortization, (d) non-cash share-based compensation expense, (e) impairment of oil and natural gas properties, (f) gains or losses on unsettled derivative instruments, (g) change in fair value of the warrant liability, (h) management fee to affiliates, (i) loss on debt extinguishment, (j) merger-related transaction costs and (k) write off of financing costs. We define Pro Forma Adjusted EBITDA as Adjusted EBITDA plus Cash Acquisitions EBITDA from July 1, 2023 to September 30, 2023 that is not included in Adjusted EBITDA for the three months ended September 30, 2023. We define Discretionary Cash Flow as Adjusted EBITDA, less cash interest expense and cash taxes. We define Pro Forma Discretionary Cash Flow as Discretionary Cash Flow plus Cash Acquisitions Discretionary Cash Flow from July 1, 2023 to September 30, 2023 that is not included in Discretionary Cash Flow for the three months ended September 30, 2023. We define Cash G&A as general and administrative expense less (a) non-cash share-based compensation expense, (b) merger-related transaction costs and (c) rental income. These non-GAAP financial measures do not represent and should not be considered an alternative to, or more meaningful than, their most directly comparable GAAP financial measures or any other measure of financial performance presented in accordance with GAAP as measures of our financial performance. Non-GAAP financial measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measure. Our computations of Adjusted EBITDA, Pro Forma Adjusted EBITDA, Discretionary Cash Flow, Pro Forma Discretionary Cash Flow and Cash G&A may differ from computations of similarly titled measures of other companies. The following table presents a reconciliation of Adjusted EBITDA and Pro Forma Adjusted EBITDA to the most directly comparable GAAP financial measure for the period indicated (in thousands). Three Months Ended September 30, 2023 2022 Net income $ 275 $ 69,011 Interest expense, net 26,373 14,986 Income tax expense 383 2,561 Depreciation, depletion and amortization 80,716 32,005 EBITDA $ 107,747 $ 118,563 Non-cash share-based compensation expense 4,368 3,969 Losses (gains) on unsettled derivative instruments 29,497 (31,954 ) Change in fair value of warrant liability (8 ) (536 ) Loss on debt extinguishment 687 11,487 Merger-related transaction costs 123 3,599 Write off of financing costs — 1,180 Adjusted EBITDA $ 142,414 $ 106,308 Cash Acquisitions EBITDA 1,144 — Pro Forma Adjusted EBITDA $ 143,558 $ 106,308 The following table presents a reconciliation of Discretionary Cash Flow and Pro Forma Discretionary Cash Flow to the most directly comparable GAAP financial measure for the period indicated (in thousands). Three Months Ended September 30, 2023 2022 Cash flow from operations $ 122,141 $ 82,644 Interest expense, net 26,373 14,986 Income tax expense 383 2,561 Deferred tax expense 7,686 (2,512 ) Changes in operating assets and liabilities (12,810 ) 8,692 Amortization of deferred financing costs and long-term debt discount (1,482 ) (3,662 ) Merger-related transaction costs 123 3,599 Adjusted EBITDA $ 142,414 $ 106,308 Less: Cash interest expense 24,694 11,516 Cash taxes 457 1,389 Discretionary Cash Flow $ 117,263 $ 93,403 Cash Acquisitions Discretionary Cash Flow $ 1,144 — Pro Forma Discretionary Cash Flow $ 118,407 $ 93,403 The following table presents a reconciliation of Cash G&A to the most directly comparable GAAP financial measure for the period indicated (in thousands). Three Months Ended September 30, 2023 2022 General and administrative expense $ 12,044 $ 13,381 Less: Non-cash share-based compensation expense 4,368 3,969 Merger-related transaction costs 123 3,599 Rental income 136 — Write off of financing costs — 1,180 Cash G&A $ 7,417 $ 4,633 About Sitio Royalties Corp. Sitio is a shareholder returns-driven company focused on large-scale consolidation of high-quality oil & gas mineral and royalty interests across premium basins, with a diversified set of top-tier operators. With a clear objective of generating cash flow from operations that can be returned to stockholders and reinvested, Sitio has accumulated over 270,000 NRAs through the consummation of over 190 acquisitions to date. More information about Sitio is available at www.sitio.com. Forward-Looking Statements This news release contains statements that may constitute “forward-looking statements” for purposes of federal securities laws. Forward-looking statements include, but are not limited to, statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “seeks,” “possible,” “potential,” “predict,” “project,” “prospects,” “guidance,” “outlook,” “should,” “would,” “will,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements include, but are not limited to, statements about certain future plans, expectations and objectives for the Company’s operations, including statements about any share repurchase programs, the implementation thereof and the intended benefits, financial and operational guidance, strategy, synergies, certain levels of production, future operations, financial position, prospects, and plans. While forward-looking statements are based on assumptions and analyses made by us that we believe to be reasonable under the circumstances, whether actual results and developments will meet our expectations and predictions depend on a number of risks and uncertainties that could cause our actual results, performance, and financial condition to differ materially from our expectations and predictions. Factors that could materially impact such forward-looking statements include, but are not limited to: commodity price volatility, the global economic uncertainty related to the large-scale invasion of Ukraine by Russia, the collapse of certain financial institutions and associated liquidity risks, announcements of voluntary production cuts by OPEC+ and others, and those other factors discussed or referenced in the "Risk Factors" section of Sitio’s Annual Report on Form 10-K, for the year ended December 31, 2022 and other publicly filed documents with the SEC. Any forward-looking statement made in this news release speaks only as of the date on which it is made. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible to predict all of them. Sitio undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future development, or otherwise, except as may be required by law. View source version on businesswire.com: https://www.businesswire.com/news/home/20231108382654/en/Contacts IR contact: Ross Wong (720) 640–7647 IR@sitio.com
Pro Forma In-Period Average Quarterly Production Volume of 36,654 Boe/d (50% Oil)(1) Declared $0.49 Dividend Per Share of Class A Common Stock for Third Quarter 2023 Record High 50.9 Net Line-of-Sight Wells as of September 30, 2023, of Which 82% Are in the Permian Basin Recapitalized Balance Sheet With New $600 Million 7.875% Senior Notes Due 2028, Lowering Expected Cash Interest by More Than $11 Million Per Year and Enhancing Liquidity by More Than $170 Million Announces Definitive Agreement to Sell Appalachia and Anadarko Basin Assets for $117.5 Million, Subject to Customary Closing Adjustments
Sitio Royalties Corp. (NYSE: STR) (“Sitio,” “STR” or the “Company”) today announced operational and financial results for the quarter ended September 30, 2023. Unless the context clearly indicates otherwise, references to “we,” “our,” “us” or similar terms refer to Sitio and its subsidiaries. THIRD QUARTER 2023 OPERATIONAL AND FINANCIAL HIGHLIGHTS Pro forma 3Q 2023 average daily in-period production volume of 36,654 barrels of oil equivalent per day (“Boe/d”) (50% oil)(1), comparable to pro forma 2Q 2023 average daily in-period production volume of 36,587 Boe/d (52% oil)(2) 3Q 2023 average daily production volume of 36,900 Boe/d (48% oil)(3), including total prior period adjustments of positive 546 Boe/d Declared 3Q 2023 dividend of $0.49 per share of Class A Common Stock, an increase of $0.09 per share, or approximately 23% relative to 2Q 2023 Net income of $0.3 million, up $3.2 million relative to 2Q 2023 net loss, primarily driven by a $2.04 per Boe increase in realized hedged commodity prices 3Q 2023 Adjusted EBITDA(4) of $142.4 million, up by 12% sequentially from 2Q 2023 Adjusted EBITDA, primarily due to increased average production volumes and a 5% increase in realized hedged prices per Boe 3Q 2023 Pro forma Adjusted EBITDA(5) of $143.6 million, including contribution from the Cash Acquisitions(6) for the entire quarter, up by 11% sequentially from 2Q 2023 Pro forma Adjusted EBITDA(7) Record high net line-of-sight (“LOS”) wells of 50.9 net wells as of September 30, 2023, comprised of 29.9 net spuds and 21.0 net permits Closed on four previously announced Permian Basin Cash Acquisitions for total aggregate purchase price of $181.3 million On September 26, 2023, priced $600 million aggregate principal amount of senior unsecured notes due 2028 (the “2028 Senior Notes”), which accrue interest at a rate of 7.875% per annum, 3.4 percentage points lower than the 4Q 2023 interest rate on the Company's prior senior unsecured notes due 2026 (the “2026 Senior Notes”); Transaction closed on October 3, 2023(8) 3Q 2023 RESULTS RELATIVE TO 2H 2023 GUIDANCE The table below shows third quarter 2023 results relative to financial and operational guidance for the second half of 2023 that was issued on August 8, 2023. 2H 2023 Guidance Metric 3Q 2023 Results 2H 2023 Guidance (August 8, 2023) Average daily production (Boe/d) – Reported / In-period(11) 36,900 / 36,354 35,000 – 37,000 Oil % – Reported / In-period(11) 48% / 50% 49% – 51% Gathering and transportation ($/Boe) $ 1.36 $1.25 – $1.50 Cash G&A ($ in millions) $ 7.4 $25.0–$27.0 (annual) Production taxes (% of royalty revenue) 7.9 % 6% – 8% Reported cash tax rate (% of pre-tax income)(12) 69.5 % 2% – 4% Pro forma cash tax rate (% of pro forma pre-tax income)(13) 1.5 % 2% – 4% (1) Pro forma in-period average quarterly production volume includes production from the Cash Acquisitions(6) as if they were owned on July 1, 2023; In-period production represents production that is estimated to have occurred during the period specified and does not include production from prior period adjustments (2) Pro forma 2Q 2023 average daily in-period production volume represents production that was estimated to have occurred during the three months ended June 30, 2023, including production from the Stock & Cash Acquisitions(9) as if they were owned on April 1, 2023 (3) 3Q 2023 average daily production volume includes both in-period average daily production and prior period adjustments (4) For definitions of non-GAAP financial measures and reconciliations to their most directly comparable GAAP financial measures, please see “Non-GAAP financial measures” (5) 3Q 2023 Pro Forma Adjusted EBITDA represents 3Q 2023 Adjusted EBITDA plus Cash Acquisitions(6) EBITDA, which reflects as if Sitio had owned the Cash Acquisitions since July 1, 2023 (6) Cash Acquisitions, a subset of the Stock & Cash Acquisitions(9), is defined as the four acquisitions that closed in July and August of 2023; Total consideration for the Cash Acquisitions was approximately $181 million funded with a mix of retained cash and borrowings under Sitio's revolving credit facility (7) 2Q 2023 Pro forma Adjusted EBITDA represents 2Q 2023 Adjusted EBITDA plus Stock Acquisition(10) EBITDA from April 1, 2023 to June 13, 2023 (8) On October 3, 2023, subsidiaries of Sitio issued and sold (the “Notes Offering”) $600.0 million aggregate principal amount of their 2028 Senior Notes. Net proceeds of the Notes Offering were used to (i) fund the redemption of all of the outstanding aggregate principal amount of the Company's 2026 Senior Notes, which occurred concurrently with the consummation of the Notes Offering and (ii) repay a portion of the outstanding borrowings under the Company's revolving credit facility (9) Stock & Cash Acquisitions is defined as five separate mineral and royalty interest acquisitions that closed between March 31, 2023 and August 7, 2023, containing 13,862 NRAs in aggregate, of which 99% are in the Permian Basin (10) Stock Acquisition, a subset of the Stock & Cash Acquisitions, is defined as the one acquisition that closed on June 14, 2023 (11) In-period production represents production that is estimated to have occurred during the period specified, excluding production from prior period adjustments; Reported production includes both in-period production and adjustments to production from prior periods (12) Calculated as cash taxes paid of $0.5 million divided by net income before taxes of $0.7 million for the three months ended September 30, 2023 (13) Calculated as cash taxes paid of $0.5 million divided by pro forma pre-tax income of $29.9 million; Pro forma pre-tax income is defined as net income before taxes plus $29.2 million of unrealized commodity derivative losses Chris Conoscenti, Chief Executive Officer of Sitio, commented, “In the third quarter, our assets delivered another steady performance that reflected operator trends in Permian and broader US drilling and completion activity. We continue to pursue multiple consolidation opportunities and are optimistic about improving competitive dynamics heading into 2024. During the third quarter, we completed the four previously announced cash acquisitions of high-quality Permian minerals and royalties totaling approximately $181 million and on November 3, 2023, we agreed to sell our lower-margin Appalachia and Anadarko assets for $117.5 million. Our inaugural senior unsecured notes offering that closed on October 3, 2023, allowed us to refinance our existing unsecured notes and achieve more than $11 million in expected annual interest expense savings. Our team continued to innovate by building new customized automation tools to improve the efficiency with which we manage such a large amount of new data each month. This streamlines processing and tracking royalty payments, monitoring ongoing operator activity on our acreage and positions Sitio to smoothly integrate additional data from future acquisitions. I'm proud of our team for executing well on such a broad range of strategic, financing and operational initiatives throughout the quarter.” ASSET ACTIVITY UPDATE The following table summarizes Sitio's net average daily production, net wells online, net line-of-sight wells and net royalty acres by area. All pro forma metrics assume that Sitio owned the Stock & Cash Acquisitions as of June 30, 2023. Delaware Midland DJ Eagle Ford Appalachia Anadarko Williston Total Average Daily Production (Boe/d) for the three months ended September 30, 2023 As reported 19,050 8,363 2,998 3,730 1,099 996 664 36,900 % Oil 47 % 61 % 32 % 51 % 3 % 27 % 62 % 48 % Net Well Activity (normalized to 5,000' laterals) Pro forma net wells online as of June 30, 2023(14) 121.8 60.1 35.6 35.3 3.7 9.9 9.2 275.6 Net wells online as of September 30, 2023 127.1 62.2 37.1 35.7 3.8 9.9 9.4 285.2 Net wells online increase since June 30, 2023 5.3 2.1 1.5 0.4 0.1 - 0.2 9.6 Net spuds 16.3 7.9 2.7 1.9 0.3 0.2 0.6 29.9 Net permits 10.6 7.0 1.1 1.5 0.2 0.1 0.5 21.0 Net LOS wells as of September 30, 2023 26.9 14.9 3.8 3.4 0.5 0.3 1.1 50.9 Net Royalty Acres (normalized to 1/8th royalty equivalent) Pro forma June 30, 2023(15) 152,234 45,339 24,978 21,752 12,669 9,872 8,203 275,047 September 30, 2023 152,268 45,366 24,973 21,783 12,676 9,872 8,202 275,140 NRA increase (decrease) since June 30, 2023 34 27 (5 ) 31 7 — (1 ) 93 (14) Includes net wells from the Stock & Cash Acquisitions (15) Includes NRAs from the Stock & Cash Acquisitions FINANCIAL UPDATE Sitio's third quarter 2023 average unhedged realized prices including all expected quality, transportation and demand adjustments were $80.21 per barrel of oil, $1.54 per Mcf of natural gas and $18.14 per barrel of natural gas liquids, for a total equivalent price of $45.00 per barrel of oil equivalent. During the third quarter of 2023, the Company received $5.1 million in net cash settlements for commodity derivative contracts and as a result, average hedged realized prices were $82.21 per barrel of oil, $1.84 per Mcf of natural gas and $18.14 per barrel of natural gas liquids, for a total equivalent price of $46.49 per barrel of oil equivalent. This represents a $2.04 per barrel of oil equivalent, or a 5% increase relative to hedged realized prices for the three months ended June 30, 2023. Consolidated net income for the third quarter of 2023 was $0.3 million, which is $3.2 million more than consolidated net income in the second quarter of 2023. This increase was driven primarily by increased commodity prices and offset by net commodity derivatives losses of $24.1 million, which was comprised of a $29.2 million non-cash unrealized loss and a $5.1 million realized gain. For the three months ended September 30, 2023, Adjusted EBITDA was $142.4 million, up 12% sequentially from second quarter 2023 Adjusted EBITDA, primarily due to increased production volumes and commodity prices. As of September 30, 2023, the Company had $1,006.0 million principal value of total debt outstanding (comprised of $601.0 million drawn on Sitio's revolving credit facility and $405.0 million of senior unsecured notes) and liquidity of $250.3 million, including $1.3 million of cash and $249.0 million of remaining availability under its $850.0 million credit facility. In September 2023, Sitio made its fourth consecutive quarterly amortization payment of $11.3 million at par value on its senior unsecured notes, reducing the principal from $416.3 million to $405.0 million as of the end of the third quarter 2023. 2H 2023 FINANCIAL AND OPERATIONAL GUIDANCE Sitio is revising its guidance for Cash G&A for the full year 2023 to a range of $27.0 million to $28.0 million based on results to date and expectations for 4Q 2023, which includes incremental G&A for expected new employees. The midpoint of Sitio's new Cash G&A guidance range for full year 2023 is $27.5 million, an approximate 6% increase from the midpoint of prior guidance. There are no other changes to prior 2H 2023 guidance, but for convenience all guidance metrics are shown in the table below. 2H 2023 Guidance Low High Average daily production (Boe/d) 35,000 37,000 Oil % 49 % 51 % Revenue Deductions, Expenses and Taxes Gathering and transportation ($/Boe) $ 1.25 $ 1.50 Full Year 2023 Cash G&A ($ in millions) $ 27.0 $ 28.0 Production taxes (% of royalty revenue) 6 % 8 % Cash tax rate (% of pre-tax income) 2 % 4 % SENIOR UNSECURED NOTES REFINANCING On October 3, 2023, the Company issued and sold $600.0 million aggregate principal amount of its 2028 Senior Notes. The net proceeds of the Notes Offering were used to (i) fund the redemption of all of the outstanding aggregate principal amount of the 2026 Senior Notes, which occurred concurrently with the consummation of the Notes Offering and (ii) repay a portion of the outstanding borrowings under the Company's revolving credit facility. As of November 3, 2023, the Company had $981.0 million principal value of total debt outstanding (comprised of $381.0 million drawn on Sitio's revolving credit facility and $600.0 million of senior unsecured notes due 2028) and liquidity of $470.9 million, including $1.9 million of cash and $469.0 million of remaining availability under its $850.0 million credit facility. DIVESTITURE OF APPALACHIA AND ANADARKO ASSETS On November 3, 2023, the Company entered into a definitive purchase and sale agreement to sell all of its mineral and royalty interests in the Appalachia and Anadarko Basins to an undisclosed third party for $117.5 million of cash consideration, subject to customary closing adjustments. In aggregate for the three months ended September 30, 2023, production associated with these assets was 2,095 Boe/d (14% oil) and revenues were $3.8 million from oil, natural gas and natural gas liquids. As of September 30, 2023, there were approximately 0.7 net LOS wells underlying these assets, comprised of approximately 0.5 net spuds and 0.3 net permits. Sitio plans to use the net proceeds to repay borrowings on its revolving credit facility and build additional liquidity to pursue acquisitions of assets that are more comparable to the growth and returns profile of Sitio’s recent Permian Basin acquisitions. The transaction has an effective date of September 1, 2023 and is expected to close in the fourth quarter of 2023. Sitio did not add to or extinguish any of its commodity swaps or collars during the third quarter of 2023. A summary of the Company's existing commodity derivative contracts as of September 30, 2023 is included in the table below. Oil (NYMEX WTI) 2023 2024 1H25 Swaps Bbl per day 3,050 3,300 1,100 Average price ($/Bbl) $ 93.71 $ 82.66 $ 74.65 Collars Bbl per day — — 2,000 Average call ($/Bbl) — — $ 93.20 Average put ($/Bbl) — — $ 60.00 Gas (NYMEX Henry Hub) 2023 2024 1H25 Swaps MMBtu per day 500 500 — Average price ($/MMBtu) $ 3.83 $ 3.41 — Collars MMBtu per day 8,500 11,400 11,600 Average call ($/MMBtu) $ 7.93 $ 7.24 $ 10.34 Average put ($/MMBtu) $ 4.82 $ 4.00 $ 3.31 THIRD QUARTER 2023 CASH DIVIDEND The Company's Board of Directors declared a cash dividend of $0.49 per share of Class A Common Stock with respect to the third quarter of 2023. The dividend is payable on November 30, 2023 to the stockholders of record at the close of business on November 21, 2023. Based on a 65% payout ratio of third quarter 2023 Discretionary Cash Flow and not including the pro forma impacts from the Cash Acquisitions, Sitio's quarterly dividend would have been approximately $0.48 per Class A common share; however, the Company's Board of Directors approved a third quarter 2023 dividend of $0.49 per Class A common share, which equates to a 65% payout ratio including pro forma Discretionary Cash Flow for the full three months ended September 30, 2023 for the Cash Acquisitions that closed during the third quarter 2023. THIRD QUARTER 2023 EARNINGS CONFERENCE CALL Sitio will host a conference call at 8:30 a.m. Eastern on Thursday, November 9, 2023, to discuss its third quarter 2023 operating and financial results. Participants can access the call by dialing 1-833-470-1428 in the United States or 1-404-975-4839 in other locations with access code 971184 or via webcast at https://events.q4inc.com/attendee/965924226. Participants can also pre-register for the event by going to the following link: https://www.netroadshow.com/events/login?show=ca67bd6c&confId=56269. The conference call, live webcast and archive of the call can also be accessed through the Investor Relations section of Sitio’s website at www.sitio.com. UPCOMING INVESTOR CONFERENCES Members of Sitio's management team will be attending the Stephens Annual Investment Conference on November 14, 2023; BofA Securities Global Energy Conference on November 14, 2023; and BofA Securities Leveraged Finance Conference from November 27-29, 2023. Presentation materials associated with these events will be accessible through the Investor Relations section of Sitio's website at www.sitio.com. FINANCIAL RESULTS Production Data Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Production Data: Crude oil (MBbls) 1,617 846 4,786 1,969 Natural gas (MMcf) 6,203 2,916 17,214 6,481 NGLs (MBbls) 744 323 1,996 760 Total (MBoe)(6:1) 3,395 1,655 9,651 3,809 Average daily production (Boe/d)(6:1) 36,900 17,990 35,349 13,950 Average Realized Prices: Crude oil (per Bbl) $ 80.21 $ 93.81 $ 75.11 $ 98.12 Natural gas (per Mcf) $ 1.54 $ 6.55 $ 1.90 $ 6.05 NGLs (per Bbl) $ 18.14 $ 31.98 $ 19.39 $ 36.68 Combined (per Boe) $ 45.00 $ 65.71 $ 44.65 $ 68.33 Average Realized Prices After Effects of Derivative Settlements: Crude oil (per Bbl) $ 82.21 $ 97.32 $ 77.95 $ 99.48 Natural gas (per Mcf) $ 1.84 $ 6.46 $ 2.20 $ 5.99 NGLs (per Bbl) $ 18.14 $ 31.98 $ 19.39 $ 36.68 Combined (per Boe) $ 46.49 $ 67.36 $ 46.59 $ 68.93 Selected Expense Metrics Three Months Ended September 30, 2023 2022 Severance and ad valorem taxes 7.9 % 6.6 % Depreciation, depletion and amortization ($/Boe) $ 23.78 $ 19.34 General and administrative ($/Boe) $ 3.55 $ 8.08 Cash G&A ($/Boe) $ 2.19 $ 2.80 Interest expense, net ($/Boe) $ 7.77 $ 9.05 Condensed Consolidated Balance Sheets (In thousands except par and share amounts) September 30, December 31, 2023 2022 . (Unaudited) ASSETS Current assets Cash and cash equivalents $ 1,339 $ 18,818 Accrued revenue and accounts receivable 116,088 142,010 Prepaid assets 13,800 12,489 Derivative asset 7,521 18,874 Total current assets 138,748 192,191 Property and equipment Oil and natural gas properties, successful efforts method: Unproved properties 3,009,429 3,244,436 Proved properties 2,431,742 1,926,214 Other property and equipment 3,440 3,421 Accumulated depreciation, depletion, amortization, and impairment (471,549 ) (223,214 ) Total property and equipment, net 4,973,062 4,950,857 Long-term assets Long-term derivative asset 2,805 13,379 Deferred financing costs 11,849 7,082 Operating lease right-of-use asset 4,150 5,679 Other long-term assets 504 1,714 Total long-term assets 19,308 27,854 TOTAL ASSETS $ 5,131,118 $ 5,170,902 LIABILITIES AND EQUITY Current liabilities Accounts payable and accrued expenses $ 21,939 $ 21,899 Warrant liability — 2,950 Operating lease liability 1,350 1,563 Total current liabilities 23,289 26,412 Long-term liabilities Long-term debt 996,460 938,896 Deferred tax liability 333,467 313,607 Non-current operating lease liability 3,907 5,303 Other long-term liabilities 1,189 89 Total long-term liabilities 1,335,023 1,257,895 Total liabilities 1,358,312 1,284,307 Equity Class A Common Stock, par value $0.0001 per share; 240,000,000 shares authorized; 81,763,078 and 80,804,956 shares issued and 81,763,078 and 80,171,951 outstanding at September 30, 2023 and December 31, 2022, respectively 8 8 Class C Common Stock, par value $0.0001 per share; 120,000,000 shares authorized; 75,440,851 and 74,347,005 shares issued and 75,414,714 and 74,347,005 outstanding at September 30, 2023 and December 31, 2022, respectively 8 7 Additional paid-in capital 1,790,492 1,750,640 Accumulated deficit (109,596 ) (9,203 ) Class A Treasury Shares, 0 and 633,005 shares at September 30, 2023 and December 31, 2022, respectively — (19,085 ) Class C Treasury Shares, 26,137 and 0 shares at September 30, 2023 and December 31, 2022, respectively (677 ) — Noncontrolling interest 2,092,571 2,164,228 Total equity 3,772,806 3,886,595 TOTAL LIABILITIES AND EQUITY $ 5,131,118 $ 5,170,902 Unaudited Condensed Consolidated Statements of Income (In thousands, except per share amounts) Three Months Ended September 30, Nine Months Ended September 30, 2023 2022 2023 2022 Revenues: Oil, natural gas and natural gas liquids revenues $ 152,766 $ 108,761 $ 430,887 $ 260,219 Lease bonus and other income 3,944 6,736 13,115 9,445 Total revenues 156,710 115,497 444,002 269,664 Operating expenses: Management fees to affiliates — — — 3,241 Depreciation, depletion and amortization 80,716 32,005 222,718 67,302 General and administrative 12,044 13,381 37,786 24,117 Severance and ad valorem taxes 12,124 7,215 32,927 18,019 Impairment of oil and natural gas properties — — 25,617 — Total operating expenses 104,884 52,601 319,048 112,679 Net income from operations 51,826 62,896 124,954 156,985 Other income (expense): Interest expense, net (26,373 ) (14,986 ) (71,735 ) (18,096 ) Change in fair value of warrant liability 8 536 2,950 3,842 Loss on extinguishment of debt (687 ) (11,487 ) (1,470 ) (11,487 ) Commodity derivatives gains (losses) (24,125 ) 34,613 (3,250 ) 53,508 Interest rate derivatives gains 9 — 456 — Net income before taxes 658 71,572 51,905 184,752 Income tax expense (383 ) (2,561 ) (6,884 ) (5,206 ) Net income 275 69,011 45,021 179,546 Net income attributable to Predecessor — — — (78,104 ) Net income attributable to temporary equity — (59,872 ) — (86,143 ) Net (income) loss attributable to noncontrolling interest 12 — (22,877 ) — Net income attributable to Class A stockholders $ 287 $ 9,139 $ 22,144 $ 15,299 Net income per Class A common share Basic $ 0.00 $ 0.70 $ 0.26 $ 1.19 Diluted $ 0.00 $ 0.70 $ 0.26 $ 1.19 Weighted average Class A common shares outstanding Basic 81,712 12,703 80,984 12,665 Diluted 157,260 12,703 80,984 12,665 Unaudited Condensed Consolidated Statements of Cash Flow (In thousands) Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income $ 45,021 $ 179,546 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 222,718 67,302 Amortization of deferred financing costs and long-term debt discount 4,275 5,419 Share-based compensation 14,474 4,947 Change in fair value of warrant liability (2,950 ) (3,842 ) Loss on extinguishment of debt 1,470 11,487 Impairment of oil and natural gas properties 25,617 — Commodity derivative (gains) losses 3,250 (53,508 ) Net cash received for commodity derivative settlements 18,730 2,239 Interest rate derivative gains (456 ) — Net cash received for interest rate derivative settlements 403 — Deferred tax expense (benefit) (15,107 ) 2,645 Change in operating assets and liabilities: Accrued revenue and accounts receivable 26,188 (29,785 ) Prepaid assets 13,187 (1,903 ) Other long-term assets 1,866 (115 ) Accounts payable and accrued expenses (3,131 ) (12,986 ) Due to affiliates — (380 ) Operating lease liabilities and other long-term liabilities (737 ) 9 Net cash provided by operating activities 354,818 171,075 Cash flows from investing activities: Acquisition of Falcon, net of cash — 4,484 Predecessor cash not contributed in the Falcon Merger — (15,229 ) Purchases of oil and gas properties, net of post-close adjustments (172,070 ) (558,062 ) Purchases of other property and equipment (19 ) (819 ) Net cash used in investing activities (172,089 ) (569,626 ) Cash flows from financing activities: Borrowings on credit facilities 588,500 196,895 Repayments on credit facilities (497,500 ) (147,000 ) Borrowings on Bridge Loan Facility — 425,000 Repayments on Bridge Loan Facility — (425,000 ) Bridge Loan Facility issuance costs — (14,909 ) Borrowings on 2026 Senior Notes — 444,500 Repayments on 2026 Senior Notes (33,750 ) — 2026 Senior Notes issuance costs (351 ) (4,169 ) Distribution paid to Temporary Equity — (50,510 ) Distributions to noncontrolling interest (121,924 ) (13,318 ) Dividends paid to Class A stockholders (121,555 ) (9,017 ) Dividend equivalent rights paid (982 ) (283 ) Cash paid for taxes related to net settlement of share-based compensation awards (3,432 ) — Payments of deferred financing costs (9,214 ) (3,964 ) Other — (1,241 ) Net cash (used in) provided by financing activities (200,208 ) 396,984 Net change in cash and cash equivalents (17,479 ) (1,567 ) Cash and cash equivalents, beginning of period 18,818 12,379 Cash and cash equivalents, end of period $ 1,339 $ 10,812 Non-GAAP financial measures Adjusted EBITDA, Pro Forma Adjusted EBITDA, Discretionary Cash Flow, Pro Forma Discretionary Cash Flow and Cash G&A are non-GAAP supplemental financial measures used by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets and their ability to sustain dividends over the long term without regard to financing methods, capital structure or historical cost basis. Sitio believes that these non-GAAP financial measures provide useful information to Sitio's management and external users because they allow for a comparison of operating performance on a consistent basis across periods. We define Adjusted EBITDA as net income plus (a) interest expense, (b) provisions for taxes, (c) depreciation, depletion and amortization, (d) non-cash share-based compensation expense, (e) impairment of oil and natural gas properties, (f) gains or losses on unsettled derivative instruments, (g) change in fair value of the warrant liability, (h) management fee to affiliates, (i) loss on debt extinguishment, (j) merger-related transaction costs and (k) write off of financing costs. We define Pro Forma Adjusted EBITDA as Adjusted EBITDA plus Cash Acquisitions EBITDA from July 1, 2023 to September 30, 2023 that is not included in Adjusted EBITDA for the three months ended September 30, 2023. We define Discretionary Cash Flow as Adjusted EBITDA, less cash interest expense and cash taxes. We define Pro Forma Discretionary Cash Flow as Discretionary Cash Flow plus Cash Acquisitions Discretionary Cash Flow from July 1, 2023 to September 30, 2023 that is not included in Discretionary Cash Flow for the three months ended September 30, 2023. We define Cash G&A as general and administrative expense less (a) non-cash share-based compensation expense, (b) merger-related transaction costs and (c) rental income. These non-GAAP financial measures do not represent and should not be considered an alternative to, or more meaningful than, their most directly comparable GAAP financial measures or any other measure of financial performance presented in accordance with GAAP as measures of our financial performance. Non-GAAP financial measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measure. Our computations of Adjusted EBITDA, Pro Forma Adjusted EBITDA, Discretionary Cash Flow, Pro Forma Discretionary Cash Flow and Cash G&A may differ from computations of similarly titled measures of other companies. The following table presents a reconciliation of Adjusted EBITDA and Pro Forma Adjusted EBITDA to the most directly comparable GAAP financial measure for the period indicated (in thousands). Three Months Ended September 30, 2023 2022 Net income $ 275 $ 69,011 Interest expense, net 26,373 14,986 Income tax expense 383 2,561 Depreciation, depletion and amortization 80,716 32,005 EBITDA $ 107,747 $ 118,563 Non-cash share-based compensation expense 4,368 3,969 Losses (gains) on unsettled derivative instruments 29,497 (31,954 ) Change in fair value of warrant liability (8 ) (536 ) Loss on debt extinguishment 687 11,487 Merger-related transaction costs 123 3,599 Write off of financing costs — 1,180 Adjusted EBITDA $ 142,414 $ 106,308 Cash Acquisitions EBITDA 1,144 — Pro Forma Adjusted EBITDA $ 143,558 $ 106,308 The following table presents a reconciliation of Discretionary Cash Flow and Pro Forma Discretionary Cash Flow to the most directly comparable GAAP financial measure for the period indicated (in thousands). Three Months Ended September 30, 2023 2022 Cash flow from operations $ 122,141 $ 82,644 Interest expense, net 26,373 14,986 Income tax expense 383 2,561 Deferred tax expense 7,686 (2,512 ) Changes in operating assets and liabilities (12,810 ) 8,692 Amortization of deferred financing costs and long-term debt discount (1,482 ) (3,662 ) Merger-related transaction costs 123 3,599 Adjusted EBITDA $ 142,414 $ 106,308 Less: Cash interest expense 24,694 11,516 Cash taxes 457 1,389 Discretionary Cash Flow $ 117,263 $ 93,403 Cash Acquisitions Discretionary Cash Flow $ 1,144 — Pro Forma Discretionary Cash Flow $ 118,407 $ 93,403 The following table presents a reconciliation of Cash G&A to the most directly comparable GAAP financial measure for the period indicated (in thousands). Three Months Ended September 30, 2023 2022 General and administrative expense $ 12,044 $ 13,381 Less: Non-cash share-based compensation expense 4,368 3,969 Merger-related transaction costs 123 3,599 Rental income 136 — Write off of financing costs — 1,180 Cash G&A $ 7,417 $ 4,633 About Sitio Royalties Corp. Sitio is a shareholder returns-driven company focused on large-scale consolidation of high-quality oil & gas mineral and royalty interests across premium basins, with a diversified set of top-tier operators. With a clear objective of generating cash flow from operations that can be returned to stockholders and reinvested, Sitio has accumulated over 270,000 NRAs through the consummation of over 190 acquisitions to date. More information about Sitio is available at www.sitio.com. Forward-Looking Statements This news release contains statements that may constitute “forward-looking statements” for purposes of federal securities laws. Forward-looking statements include, but are not limited to, statements that refer to projections, forecasts, or other characterizations of future events or circumstances, including any underlying assumptions. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “seeks,” “possible,” “potential,” “predict,” “project,” “prospects,” “guidance,” “outlook,” “should,” “would,” “will,” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. These statements include, but are not limited to, statements about certain future plans, expectations and objectives for the Company’s operations, including statements about any share repurchase programs, the implementation thereof and the intended benefits, financial and operational guidance, strategy, synergies, certain levels of production, future operations, financial position, prospects, and plans. While forward-looking statements are based on assumptions and analyses made by us that we believe to be reasonable under the circumstances, whether actual results and developments will meet our expectations and predictions depend on a number of risks and uncertainties that could cause our actual results, performance, and financial condition to differ materially from our expectations and predictions. Factors that could materially impact such forward-looking statements include, but are not limited to: commodity price volatility, the global economic uncertainty related to the large-scale invasion of Ukraine by Russia, the collapse of certain financial institutions and associated liquidity risks, announcements of voluntary production cuts by OPEC+ and others, and those other factors discussed or referenced in the "Risk Factors" section of Sitio’s Annual Report on Form 10-K, for the year ended December 31, 2022 and other publicly filed documents with the SEC. Any forward-looking statement made in this news release speaks only as of the date on which it is made. Factors or events that could cause actual results to differ may emerge from time to time, and it is not possible to predict all of them. Sitio undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future development, or otherwise, except as may be required by law. View source version on businesswire.com: https://www.businesswire.com/news/home/20231108382654/en/