Chord Energy Corp: Form 10-Q for the period ended Sep 30, 2023

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”), as well as the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control. All statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, regarding our strategic tactics, future operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report on Form 10-Q, the words “aim,” “mission,” “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “may,” “continue,” “predict,” “potential,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. In particular, the factors discussed below and detailed under “Part II, Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q could affect our actual results and cause our actual results to differ materially from expectations, estimates, or assumptions expressed in, forecasted in, or implied in such forward-looking statements.

These forward-looking statements are based on management’s current belief, based on currently available information, as to the outcome and timing of future events. Without limiting the generality of the foregoing, certain statements incorporated by reference or included in this Quarterly Report on Form 10-Q constitute forward-looking statements.

Forward-looking statements may include statements about:

• crude oil, natural gas liquids (“NGL”) and natural gas realized prices;
• uncertainty regarding the future actions of foreign oil producers and the related impacts such actions have on the balance between the supply of and demand for crude oil, NGLs and natural gas;
• war between Russia and Ukraine and the potential for escalation of hostilities between Israel and Hamas and surrounding countries in the Middle East and their effect on commodity prices;
• general economic conditions;
• inflation rates and the impact of associated monetary policy responses, including increased interest rates;
• logistical challenges and supply chain disruptions;
• our business strategy;
• the geographic concentration of our operations;
• estimated future net reserves and present value thereof;
• timing and amount of future production of crude oil, NGLs and natural gas;
• drilling and completion of wells;
• estimated inventory of wells remaining to be drilled and completed;
• costs of exploiting and developing our properties and conducting other operations;
• availability of drilling, completion and production equipment and materials;
• availability of qualified personnel;
• infrastructure for produced and flowback water gathering and disposal;
• gathering, transportation and marketing of crude oil, NGLs and natural gas in the Williston Basin and other regions in the United States;
• the possible shutdown of the Dakota Access Pipeline;
• property acquisitions and divestitures;
• integration and benefits of property acquisitions or the effects of such acquisitions on our cash position and levels of indebtedness;
• failing to realize the anticipated benefits or synergies from the Merger (as defined below) in the timeframe expected or at all;
• the results of integrating the operations of Oasis Petroleum Inc. (“Oasis”) and Whiting Petroleum Corporation (“Whiting”);
• any litigation relating to the Merger;
• the amount, nature and timing of capital expenditures;
• availability and terms of capital;
• our financial strategic tactics, budget, projections, execution of business plan and operating results;
• cash flows and liquidity;
• our ability to return capital to shareholders;
• our ability to utilize net operating loss carryforwards or other tax attributes in future periods;
• our ability to comply with the covenants under our credit agreement and other indebtedness;
• operating hazards, natural disasters, weather-related delays, casualty losses and other matters beyond our control;
• interruptions in service and fluctuations in tariff provisions of third-party connecting pipelines;
• potential effects arising from cyber threats, terrorist attacks and any consequential or other hostilities;
• compliance with, and, changes in environmental, safety and other laws and regulations, including the Inflation Reduction Act of 2022;
• execution of our environmental, social and governance (“ESG”) initiatives;
• effectiveness of risk management activities;
• competition in the oil and gas industry;
• counterparty credit risk;
• incurring environmental liabilities;
• developments in the global economy as well as any public health crisis similar to or caused by a recurrence of the novel coronavirus 2019 pandemic and resulting demand and supply for crude oil, NGLs and natural gas;
• governmental regulation and the taxation of the oil and gas industry;
• developments in crude oil-producing and natural gas-producing countries;
• technology;
• the effects of accounting pronouncements issued periodically during the periods covered by forward-looking statements;
• uncertainty regarding future operating results;
• our ability to successfully forecast future operating results and manage activity levels with ongoing macroeconomic uncertainty;
• the impact of disruptions in the financial markets, including bank failures, a rising interest rate environment and the potential for a government shutdown in the absence of Congressional approval of an appropriations bill following the expiration of the October 2023 stopgap spending bill;
• plans, objectives, expectations and intentions contained in this Quarterly Report on Form 10-Q that are not historical; and
• certain factors discussed elsewhere in this Quarterly Report on Form 10-Q, in our 2022 Annual Report and in our other filings with the U.S. Securities and Exchange Commission (the “SEC”).

All forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. You should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report on Form 10-Q are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. Some of the key factors which could cause actual results to vary from our expectations include changes in crude oil, NGL and natural gas prices, climatic and environmental conditions, the timing of planned capital expenditures, availability of acquisitions, uncertainties in estimating proved reserves and forecasting production results, operational factors affecting the commencement or maintenance of producing wells, the condition of the capital markets generally, as well as our ability to access them, inflation, the proximity to and capacity of transportation facilities and uncertainties regarding environmental regulations or litigation and other legal or regulatory developments affecting our business, as well as those factors discussed below and elsewhere in this Quarterly Report on Form 10-Q, all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

Overview

Chord Energy Corporation (together with its consolidated subsidiaries, the “Company,” “Chord,” “we,” “us,” or “our”) is an independent exploration and production (“E&P”) company with quality and sustainable long-lived assets in the Williston Basin. Our mission is to responsibly produce hydrocarbons while exercising capital discipline, operating efficiently, improving continuously and providing a rewarding environment for our employees. We aim to enhance return on capital and generate strong free cash flow, while striving to be responsible stewards of the communities and environment where we operate.

Merger

On July 1, 2022, we completed a merger of equals transaction with Whiting (the “Merger”). Whiting was an independent oil and gas company engaged in the development, production and acquisition of crude oil, NGLs and natural gas primarily in the Rocky Mountains region of the United States. The Merger impacts the comparability of our financial statements. See “Results of Operations—Comparability of Financial Statements” below for additional information.

Market Conditions and Commodity Prices

Our revenue, profitability and ability to return cash to shareholders depend substantially on factors beyond our control, such as economic, political and regulatory developments as well as competition from other sources of energy. Prices for crude oil, NGLs and natural gas have experienced significant fluctuations in recent years and may continue to fluctuate widely in the future due to a combination of macro-economic factors that impact the supply and demand for crude oil, NGLs and natural gas.

While we are unable to predict future commodity prices, we do not believe that an impairment of our oil and gas properties is reasonably likely to occur in the near future at current price levels; however, we would evaluate the recoverability of the carrying value of our oil and gas properties as a result of a future material or extended decline in the price of crude oil, NGLs or natural gas or a material increase in the costs of labor, materials or services.

In an effort to improve price realizations from the sale of our crude oil, NGLs and natural gas, we manage our commodities marketing activities in-house, which enables us to market and sell our crude oil, NGLs and natural gas to a broader array of potential purchasers. We enter into crude oil, NGL and natural gas sales contracts with purchasers who have access to transportation capacity, utilize derivative financial instruments to manage our commodity price risk and enter into physical delivery contracts to manage our price differentials. Due to the availability of other markets and pipeline connections, we do not believe that the loss of any single customer would have a material adverse effect on our results of operations or cash flows. During the third quarter of 2023, our realized crude oil price was a $0.69 premium to New York Mercantile Exchange (“NYMEX”) West Texas Intermediate crude oil price index (“NYMEX WTI”).

Additionally, we sell a significant amount of our crude oil production through gathering systems connected to multiple pipeline and rail facilities. These gathering systems, which originate at the wellhead, reduce the need to transport barrels by truck from the wellhead, helping remove trucks from local highways and reduce greenhouse gas emissions. As of September 30, 2023, substantially all of our gross operated crude oil and natural gas production were connected to gathering systems.

Recent Developments

Williston Basin Acquisition

On May 22, 2023, we announced that one of our wholly-owned subsidiaries had entered into a definitive agreement to acquire approximately 62,000 net acres in the Williston Basin from XTO Energy Inc. and affiliates, subsidiaries of Exxon Mobil Corporation (collectively, “XTO”), for total cash consideration of $375.0 million, subject to customary purchase price adjustments (the “2023 Williston Basin Acquisition”). The effective date of the 2023 Williston Basin Acquisition was April 1, 2023.

On June 30, 2023, we completed the 2023 Williston Basin Acquisition for total cash consideration of $361.6 million, including a deposit of $37.5 million paid to XTO upon execution of the purchase and sale agreement and $324.1 million paid to XTO at closing (including customary purchase price adjustments). We funded the 2023 Williston Basin Acquisition with cash on hand.

Divestitures

During the second and third quarters of 2023, we entered into separate agreements with multiple buyers to sell a majority of our non-core properties located outside of the Williston Basin for total estimated cash proceeds (including purchase price adjustments) of $38.7 million. As of September 30, 2023, we completed certain of these divestitures and received total cash proceeds (including purchase price adjustments) of $33.1 million, subject to customary post-closing adjustments. The remainder of these non-core property divestitures are expected to close in the fourth quarter of 2023 for estimated net cash proceeds (including purchase price adjustments) of $5.6 million.

On October 13, 2023, we completed the sale of certain of our non-core properties that were classified as assets held for sale as of September 30, 2023, for total net cash proceeds (including purchase price adjustments) of $4.1 million.

In addition, during the nine months ended September 30, 2023, we completed certain non-operated wellbore divestitures in the Williston Basin for total net cash proceeds of $19.8 million.

Results of Operations

Comparability of Financial Statements

The results of operations presented below relate to the period ended September 30, 2023. Certain financial and operational information set forth herein does not include the activity of Whiting for periods prior to the closing of the Merger on July 1, 2022. The results reported for the three and nine months ended September 30, 2023 and the three months ended June 30, 2023 reflect the consolidated results of Chord, while the results reported for the nine months ended September 30, 2022 reflect the consolidated results of legacy Oasis for the period from January 1 to June 30, 2022 and the consolidated results of Chord from July 1 to September 30, 2022, unless otherwise noted.

As of July 1, 2022, we elected to report crude oil, NGLs and natural gas separately on a three-stream basis. For the periods prior to July 1, 2022, we reported crude oil and natural gas, which included NGLs, on a two-stream basis. This change impacts the comparability with prior periods.

In addition, the merger of Oasis Midstream Partners LP (“OMP”) and OMP GP LLC with and into a subsidiary of Crestwood Equity Partners LP (“Crestwood”) on February 1, 2022 (the “OMP Merger”) qualified for reporting as a discontinued operation. Accordingly, the results of operations of OMP have been classified as discontinued operations in the Condensed Consolidated Statement of Operations for the period from January 1, 2022 to the closing of the OMP Merger on February 1, 2022.

Operational and Financial Highlights

• Production volumes averaged 176,003 barrels of oil equivalent per day (“Boepd”) (58% oil), including crude oil volumes of 101,356 barrels of oil per day (“Bopd”) in the third quarter of 2023.
• E&P and other capital expenditures (excluding capitalized interest) were $254.2 million in the third quarter of 2023.
• Lease operating expenses (“LOE”) were $10.94 per barrel of oil equivalent (“Boe”) in the third quarter of 2023.
• Net cash provided by operating activities was $399.5 million and net income was $209.1 million in the third quarter of 2023.

Shareholder Return Highlights

• Paid $1.36 per share base-plus-variable cash dividend on August 29, 2023.
• Repurchased $112.3 million of common stock in the third quarter of 2023 with $114.8 million remaining under our $300 million share repurchase program.
• In October 2023, the Board of Directors authorized a new $750.0 million share repurchase program.
• Declared a base-plus-variable cash dividend of $2.50 per share of common stock. The dividend will be payable on November 28, 2023 to shareholders of record as of November 14, 2023.

Revenues

Our crude oil, NGL and natural gas revenues are derived from the sale of crude oil, NGL and natural gas production. These revenues do not include the effects of derivative instruments and may vary significantly from period to period as a result of changes in volumes of production sold or changes in commodity prices. Our revenues for the nine months ended September 30, 2023 increased when compared to the nine months ended September 30, 2022 due to the Merger, which significantly expanded our operations in the Williston Basin. Our purchased oil and gas sales are derived from the sale of crude oil and natural gas purchased through our marketing activities primarily to optimize transportation costs, for blending to meet pipeline specifications or to cover production shortfalls. Revenues and expenses from crude oil and natural gas sales and purchases are generally recorded on a gross basis, as we act as a principal in these transactions by assuming control of the purchased crude oil or natural gas before it is transferred to the counterparty. In certain cases, we enter into sales and purchases with the same counterparty in contemplation of one another, and these transactions are recorded on a net basis.

The following table summarizes our revenues, production and average realized prices for the periods presented:

(1) For periods prior to July 1, 2022, we reported crude oil and natural gas on a two-stream basis, and NGLs were combined with the natural gas stream when reporting revenues, production data and average sales prices. As of July 1, 2022, NGLs were reported separately from the natural gas stream on a three-stream basis. This prospective change impacts the comparability of the periods presented.

(2) The effect of derivative settlements includes the gains or losses on commodity derivatives for contracts ending in the periods presented. Our commodity derivatives do not qualify for or were not designated as hedging instruments for accounting purposes.

Three months ended September 30, 2023 as compared to three months ended June 30, 2023

Crude oil revenues. Our crude oil revenues increased $128.1 million to $776.0 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. Our crude oil revenues increased $81.8 million due to higher crude oil realized prices and $46.3 million due to higher crude oil production volumes sold quarter over quarter due to more wells turned-in-line (“TIL”). Average crude oil sales prices, without derivative settlements, increased by $9.33 per barrel quarter over quarter to an average of $83.22 per barrel for the three months ended September 30, 2023.

NGL revenues. Our NGL revenues increased $12.5 million to $41.0 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. Our NGL revenues increased $12.1 million due to higher NGL realized prices and $0.4 million due to higher volumes due to more TILs. Average NGL sales prices, without derivative settlements, increased by $3.68 per barrel quarter over quarter to an average of $12.38 per barrel for the three months ended September 30, 2023 due primarily to higher index prices at the Conway hub in Kansas.

Natural gas revenues. Our natural gas revenues increased $4.6 million to $23.6 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. Our natural gas revenues increased $3.2 million due to higher realized natural gas prices and $1.4 million due to increased volumes driven by more TILs. Average natural gas sales prices, without derivative settlements, increased by $0.16 per one thousand cubic feet (“Mcf”) quarter over quarter to $1.11 per Mcf for the three months ended September 30, 2023 due primarily to higher index prices.

Purchased oil and gas sales. Purchased oil and gas sales increased $66.1 million to $282.7 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. This increase was primarily due to an increase in volumes of crude oil purchased and subsequently sold and higher crude oil prices quarter over quarter.

Nine months ended September 30, 2023 as compared to nine months ended September 30, 2022

Crude oil revenues. Our crude oil revenues increased $445.7 million to $2,074.7 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. This increase was primarily driven by a $683.2 million increase due to our expanded operations after the Merger. Excluding the impacts attributable to the Merger, our crude oil revenues decreased $237.5 million. This decrease is primarily driven by a decrease of $307.4 million due to lower crude oil realized prices, partially offset by an increase of $69.9 million due to higher crude oil production volumes sold period over period. Average crude oil sales prices, without derivative settlements, decreased by $20.03 per barrel period over period to an average of $77.84 per barrel for the nine months ended September 30, 2023.

NGL and natural gas revenues. Our NGL and natural gas revenues decreased $231.7 million to $227.5 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. Excluding the impacts attributable to the Merger, our NGL and natural gas revenues decreased $298.7 million due to a decrease of $318.3 million driven by lower NGL and natural gas realized prices, partially offset by an increase of $19.6 million due to higher NGL and natural gas production volumes sold period over period. This decrease was partially offset by a $67.0 million increase due to our expanded operations after the Merger.

Average natural gas sales prices, without derivative settlements, were $1.56 per Mcf, and average NGL sales prices, without derivative settlements, were $13.82 per barrel for the nine months ended September 30, 2023. Average natural gas sales prices, without derivative settlements, were $7.58 per Mcf for the nine months ended September 30, 2022 and were reported on a two-stream basis that included the impact of NGL sales in the natural gas stream. The conversion to three-stream reporting did not impact our total reported revenues. The decrease in the average NGL and natural gas sales prices, without derivative settlements, period over period was primarily due to lower index prices, coupled with the impact of incurring a fixed-fee for the majority of our NGL and natural gas marketing contracts.

Purchased oil and gas sales. Purchased oil and gas sales increased $87.1 million to $629.7 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. This increase was primarily due to an increase in the volume of crude oil purchased and subsequently sold and higher crude oil prices period over period.

Expenses and other income (expense)

The following table summarizes our operating expenses and other income (expense) for the periods presented:

(In thousands, except per Boe of production data)

34

Three months ended September 30, 2023 as compared to three months ended June 30, 2023

Lease operating expenses. LOE increased $18.6 million to $177.1 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023 primarily due to higher fixed and variable costs driven by an increase in well count and production volumes. LOE per Boe increased $0.63 per Boe to $10.94 per Boe for the three months ended September 30, 2023 primarily due to higher costs quarter over quarter.

Gathering, processing and transportation expenses. Gathering, processing and transportation (“GPT”) expenses increased $8.9 million to $52.3 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. GPT increased primarily due to an $8.6 million higher loss attributable to the change in fair value of certain derivative transportation contracts quarter over quarter. GPT expenses per Boe increased $0.41 per Boe to $3.23 per Boe for the three months ended September 30, 2023 due to the increase described above.

Purchased oil and gas expenses. Purchased oil and gas expenses increased $65.4 million to $281.6 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. This increase was primarily due to an increase in the volume of crude oil purchased quarter over quarter and higher crude oil prices quarter over quarter.

Production taxes. Production taxes increased $14.0 million to $72.5 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023 primarily due to higher crude oil, NGL and natural gas sales quarter over quarter. The production tax rate as a percentage of crude oil, NGL and natural gas sales was 8.6% for the three months ended September 30, 2023 compared to 8.4% for the three months ended June 30, 2023.

Depreciation, depletion and amortization. DD&A expenses increased $23.2 million to $160.3 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. This increase was primarily due to an increase in depletion expense of $23.9 million, primarily including an increase of $16.8 million due to a higher depletion rate quarter over quarter and an increase of $7.1 million due to higher production volumes quarter over quarter. The depletion rate increased $1.04 per Boe quarter over quarter to $9.66 per Boe for the three months ended September 30, 2023 primarily as a result of a decrease in reserves due to lower commodity prices, coupled with higher costs attributable to the oil and gas properties acquired in the 2023 Williston Basin Acquisition.

General and administrative expenses. General and administrative (“G&A”) expenses decreased $16.1 million to $26.1 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. This decrease was primarily due to lower merger-related costs quarter over quarter of $6.9 million driven by a decrease in severance costs and employee relocation costs. Additionally, stock-based compensation costs decreased by $5.2 million quarter over quarter due to the acceleration of the vesting period for certain equity-based compensation awards during the three months ended June 30, 2023.

Exploration and impairment. Exploration and impairment expenses decreased $5.2 million to $1.6 million for the three months ended September 30, 2023 as compared to the three months ended June 30, 2023. There were no impairment charges recorded during the three months ended September 30, 2023. During the three months ended June 30, 2023, we recorded impairment charges of $5.6 million to adjust the carrying value of non-core properties held for sale to their estimated fair value less costs to sell.

Derivative instruments. We recorded an $85.2 million net loss on derivative instruments for the three months ended September 30, 2023, which was comprised of a net loss of $91.5 million associated with our contracts to manage commodity price risk, offset by an unrealized gain of $6.3 million associated with a contract that includes contingent consideration. The net loss of $91.5 million included a realized loss on settled contracts of $63.1 million, coupled with an unrealized loss of $28.4 million. During the three months ended June 30, 2023, we recorded a $29.5 million net gain on derivative instruments, which primarily included an unrealized gain of $80.8 million, partially offset by a loss on settled contracts of $51.2 million.

Investment in unconsolidated affiliate. We recorded a $13.5 million gain related to our investment in Crestwood for the three months ended September 30, 2023, primarily due to an unrealized gain of $9.7 million as a result of an increase in the fair value of the investment during the three months ended September 30, 2023, coupled with a gain of $2.5 million for a cash distribution received from Crestwood during the three months ended September 30, 2023. During the three months ended June 30, 2023, we recorded a $10.1 million gain on our investment in Crestwood primarily due to an unrealized gain of $6.8 million as a result of an increase in the fair value of the investment, coupled with a gain of $3.0 million for a cash distribution received from Crestwood during the three months ended June 30, 2023.

Income tax expense. Our effective tax rate for the three months ended September 30, 2023 was approximately consistent with the effective tax rate for the three months ended June 30, 2023. Our income tax expense was recorded at 23.9% and 24.4% of pre-tax income from continuing operations for the three months ended September 30, 2023 and for the three months ended June 30, 2023, respectively.

Nine months ended September 30, 2023 as compared to nine months ended September 30, 2022

Lease operating expenses. LOE increased $201.8 million to $489.1 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. This increase was primarily due to a $169.2 million increase from our expanded operations after the Merger. Excluding the effects of the Merger, LOE increased $32.6 million primarily due to higher workover and fixed costs driven by an increase in well count and production volumes. LOE per Boe increased $0.27 per Boe period over period to $10.54 per Boe for the nine months ended September 30, 2023 primarily due to higher costs.

Gathering, processing and transportation expenses. GPT expenses increased $32.9 million to $132.7 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to a $12.5 million increase from our expanded operations after the Merger. Excluding the effects of the Merger, GPT expenses increased primarily due to $9.6 million driven by higher production period over period and $8.4 million due to the change in fair value of certain derivative transportation contracts. GPT expenses per Boe decreased $0.71 per Boe period over period to $2.86 per Boe for the nine months ended September 30, 2023 primarily due to higher production volumes due to our expanded operations after the Merger.

Purchased oil and gas expenses. Purchased oil and gas expenses increased $81.1 million to $627.4 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to an increase in the volume of crude oil purchased, partially offset by lower crude oil and natural gas prices.

Production taxes. Production taxes increased $32.0 million to $191.5 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 primarily due to $60.8 million from our expanded operations after the Merger. Excluding the effects of the Merger, production taxes decreased $28.8 million primarily due to a decrease in crude oil revenues period over period. The production tax rate as a percentage of crude oil, NGL and natural gas sales increased to 8.3% for the nine months ended September 30, 2023 as compared to 7.6% for the nine months ended September 30, 2022. This rate increase period over period was primarily due to an increase in natural gas production volumes, coupled with lower average natural gas sales prices.

Depreciation, depletion and amortization. DD&A expenses increased $203.3 million to $431.1 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. The increase was primarily due to a $143.2 million increase in DD&A expenses attributable to our expanded operations after the Merger. Excluding the effects of the Merger, DD&A expenses increased $60.1 million primarily driven by an increase in depletion expenses, comprised of an increase of $41.5 million due to a higher depletion rate period over period and $19.2 million due to higher production volumes.

General and administrative expenses. G&A expenses decreased $50.6 million to $100.8 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. This decrease is primarily attributable to a decrease in merger-related costs, partially offset by an increase in compensation and other costs associated with a larger organization after the Merger.

Exploration and impairment. Exploration and impairment expenses increased $31.6 million to $33.3 million for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022. This increase was primarily due to impairment expenses of $29.0 million recorded during the nine months ended September 30, 2023, which primarily included $17.5 million associated with the write-down of the right-of-use asset for our Denver office lease, $5.8 million associated with a lower of cost or market write down of oil-in-tank inventory and $5.6 million to adjust the carrying value of certain non-core properties held for sale to their estimated fair value less costs to sell.

Derivative instruments. During the nine months ended September 30, 2023, we recorded an $11.2 million net gain on derivative instruments, which was primarily comprised of a net gain of $7.2 million associated with a contract that includes contingent consideration and a net gain of $4.1 million associated with commodity derivatives contracts. The net gain of $4.1 million included an unrealized gain of $210.3 million on our commodity derivative contracts, offset by a realized commodity derivatives contracts loss of $206.2 million. During the nine months ended September 30, 2022, we recorded a $128.8 million net loss on derivative instruments, which was primarily comprised of a realized commodity derivative contract loss of $431.3 million, partially offset by an unrealized gain of $295.3 million on commodity derivatives contracts and a $7.3 million gain associated with a contract that includes contingent consideration.

Investment in unconsolidated affiliate. We recorded a $21.4 million gain related to our investment in Crestwood for the nine months ended September 30, 2023, which primarily included an unrealized gain of $10.8 million as a result of an increase in the fair value of the investment during the nine months ended September 30, 2023 and a gain of $8.5 million for cash distributions received from Crestwood during the nine months ended September 30, 2023. During the nine months ended September 30, 2022, we recorded a net gain of $39.0 million related to our investment in Crestwood, including a gain of $43.0 million attributable to our sale of 16,000,000 common units during the third quarter of 2022 and a realized gain of $40.6 million due to cash distributions received from Crestwood during the period, offset by an unrealized loss of $44.6 million due to a decrease in the fair value of the investment.

Income tax (expense) benefit. Our income tax expense was recorded at 23.9% of pre-tax income from continuing operations for the nine months ended September 30, 2023. Our income tax benefit was recorded at (0.3)% of pre-tax loss from continuing operations for the nine months ended September 30, 2022. Our effective tax rate for the nine months ended September 30, 2023 was higher than the effective tax rate for the nine months ended September 30, 2022 primarily due to the impact of releasing substantially all of the remaining valuation allowance on our net deferred tax assets in the third and fourth quarters of 2022, coupled with the impacts of equity-based compensation windfalls.

Income from discontinued operations attributable to Chord, net of income tax. Income from discontinued operations attributable to Chord, net of income tax of $425.7 million for the nine months ended September 30, 2022 represents income from OMP for the period prior to the completion of the OMP Merger. This was primarily comprised of a gain on sale of $518.9 million and midstream revenues of $23.3 million, offset by income tax expense of $101.1 million, midstream expenses of $13.2 million and interest expense of $3.7 million.

Liquidity and Capital Resources

As of September 30, 2023, we had $1.3 billion of liquidity available, including $265.0 million in cash and cash equivalents and $993.6 million of aggregate unused borrowing capacity available under our senior secured revolving credit facility (the “Credit Facility”). Our primary sources of liquidity are from cash on hand, cash flows from operations and available borrowing capacity under our Credit Facility. Our primary liquidity requirements are for capital expenditures for the development of oil and gas properties, dividend payments, share repurchases and working capital requirements. In addition, we completed the 2023 Williston Basin Acquisition on June 30, 2023 for total cash consideration of $361.6 million with cash on hand.

Capital availability will be affected by prevailing conditions in our industry, the global economy, the global banking and financial markets, stakeholder scrutiny of ESG matters and other factors, many of which are beyond our control. In this regard, the effect of the U.S. bank failures in March 2023 resulted in disruptions to the banking and financial markets. In addition, the Federal Reserve’s recent increases in interest rates and the potential for such rates to increase further or to remain elevated for an extended period of time have created additional economic uncertainty. Although we do not currently have a business relationship with these failed banking institutions and are unable to predict future interest rates, these disruptions to the broader economy and financial markets may reduce our ability to access capital or result in such capital being available on less favorable terms, which could in the future negatively affect our liquidity. We believe, however, we have adequate liquidity to fund our capital expenditures and meet our contractual obligations during the next 12 months and the foreseeable future.

In connection with the Merger, we incurred certain costs for advisory, legal, severance and other third-party fees which were recorded to G&A expenses on the Condensed Consolidated Statements of Operations. During the nine months ended September 30, 2023, we incurred Merger-related costs of $9.7 million, primarily related to employee relocation costs and post-employment benefit costs.

Our material cash requirements from known obligations include repayment of outstanding borrowings and interest payment obligations related to our long-term debt, obligations to plug, abandon and remediate our oil and gas properties at the end of their productive lives, payment of income taxes, obligations associated with outstanding commodity derivative contracts that settle in a loss position, obligations to pay dividends on vested equity awards that include dividend equivalent rights and obligations associated with our leases. In addition, we have announced a return of capital plan pursuant to which we intend to return capital to stockholders through a mix of base and variable dividend payouts, supplemented by opportunistic share repurchases.

We also have contracts which include provisions for the delivery, transport or purchase of a minimum volume of crude oil, NGLs, natural gas and water within specified time frames, the majority of which are ten years or less. Under the terms of these contracts, if we fail to deliver, transport or purchase the committed volumes we will be required to pay a deficiency payment for the volumes not tendered over the duration of the contract. We believe that for the substantial majority of these agreements our future production will be adequate to meet our delivery commitments or that we will be able to purchase sufficient volumes of crude oil, NGLs and natural gas to satisfy our minimum volume commitments. See “Item 1. Financial Statements (Unaudited)—Note 19—Commitments and Contingencies” for additional information on our volume delivery commitments.

Revolving credit facility. We have a Credit Facility with a borrowing base of $2.5 billion and elected commitments of $1.0 billion that is due July 1, 2027. As of September 30, 2023, we had no borrowings outstanding and $6.4 million of outstanding letters of credit, resulting in an unused borrowing capacity of $993.6 million. We were in compliance with the financial covenants under the Credit Facility as of September 30, 2023. See “Item 1. Financial Statements (Unaudited)—Note 13—Long-Term Debt” for additional information.

On October 31, 2023, the semi-annual redetermination was completed which reaffirmed the borrowing base of $2.5 billion and maintained the aggregate amount of elected commitments of $1.0 billion. The next scheduled redetermination is expected to occur in or around April 2024.

Senior unsecured notes. As of September 30, 2023, we have $400.0 million of 6.375% senior unsecured notes outstanding that mature on June 1, 2026 (the “Senior Notes”). Interest on the Senior Notes is payable semi-annually on June 1 and December 1 of each year. See “Item 1. Financial Statements (Unaudited)—Note 13—Long-Term Debt” for additional information.

Cash Flows

The Condensed Consolidated Statements of Cash Flows have not been recast for discontinued operations, therefore the discussion below concerning cash flows from operating activities, investing activities and financing activities includes the results of both continuing operations and discontinued operations.

Our cash flows for the nine months ended September 30, 2023 and 2022 are presented below:

(In thousands)

Cash flows provided by operating activities

Our net cash flows from operating activities are primarily impacted by commodity prices, production volumes, operating costs and G&A expenses. Net cash provided by operating activities was $1,276.5 million for the nine months ended September 30, 2023. The decrease in net cash provided by operating activities of $169.1 million as compared to the nine months ended September 30, 2022 was primarily due to a decrease in our working capital. See “Results of Operations” above for additional information on the impact of volumes and prices on revenues and for additional information on increases and decreases in certain expenses between periods.

Working Capital. Our working capital is primarily impacted due to the factors discussed above, coupled with the timing of cash receipts and disbursements. Changes in working capital (as reflected in the Condensed Consolidated Statements of Cash Flows) decreased net cash flows from operating activities by $84.3 million during the nine months ended September 30, 2023 and increased net cash flows from operating activities by $59.2 million during the nine months ended September 30, 2022. Changes in working capital associated with our capital expenditure activities and settlement of outstanding commodity derivative instruments impact our cash flows from investing activities.

Our Credit Facility includes a requirement that we maintain a Current Ratio (as defined in the Credit Facility) of no less than 1.0 to 1.0 as of the last day of any fiscal quarter. For purposes of the Current Ratio, the Credit Facility’s definition of total current assets includes unused commitments under the Credit Facility, which were $993.6 million as of September 30, 2023, and excludes current hedge assets, which were $26.8 million as of September 30, 2023. For purposes of the Current Ratio, the Credit Facility’s definition of total current liabilities excludes current hedge liabilities, which were $114.6 million as of September 30, 2023.

Cash flows used in investing activities

Net cash used in investing activities was $1,112.3 million for the nine months ended September 30, 2023. The increase in net cash used in investing activities of $786.6 million as compared to the nine months ended September 30, 2022 was primarily due to the 2023 Williston Basin Acquisition that was completed on June 30, 2023 for total cash consideration of $361.6 million and an increase of $339.4 million of capital expenditures incurred to develop our oil and gas properties, primarily related to our expanded operations following the Merger. These increases were partially offset by a decrease of $284.2 million to settle outstanding commodity derivative contracts during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022.

Cash flows used in financing activities

For the nine months ended September 30, 2023, net cash used in financing activities of $492.4 million was primarily attributable to dividends paid to shareholders of $394.7 million and payments to repurchase our common stock of $157.1 million, partially offset by proceeds of $74.6 million from the exercise of outstanding warrants. Net cash used in financing activities for the nine months ended September 30, 2022 of $635.9 million was primarily attributable to dividends paid to shareholders of $500.1 million, coupled with payments of $124.8 million to repurchase our common stock.

Capital Expenditures

Our capital expenditures are summarized in the following table:

(In thousands)

(1) Other capital expenditures includes items such as infrastructure capital, administrative capital and capitalized interest. Capitalized interest totaled $0.9 million and $3.6 million for the three and nine months ended September 30, 2023, respectively.

(2) Total E&P and other capital expenditures for the nine months ended September 30, 2023 includes $10.9 million related to divested non-operated assets that will be reimbursed.

(3) Total capital expenditures reflected in the table above differs from the amounts shown in the statements of cash flows in our unaudited condensed consolidated financial statements because amounts reflected in the table include changes in accrued liabilities from the previous reporting period for capital expenditures, while the amounts presented in the statements of cash flows are presented on a cash basis.

Dividends

On November 1, 2023, we declared a base-plus-variable cash dividend of $2.50 per share of common stock. The dividend will be payable on November 28, 2023 to shareholders of record as of November 14, 2023. See “Item 1. Financial Statements (Unaudited)—Note 17—Stockholders’ Equity” for additional information.

See “Part II. Item 7.—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments—Return of Capital Plan” in our 2022 Annual Report for additional information regarding our strategy on future dividend payments. Future dividend payments will depend on the Company’s earnings, financial condition, capital requirements, level of indebtedness, statutory and contractual restrictions applicable to the payment of dividends and other considerations that the Board of Directors deems relevant.

Share Repurchase Program

During the nine months ended September 30, 2023, we repurchased 1,023,320 shares of common stock at a weighted average price of $154.52 per common share for a total cost of $158.1 million under our share repurchase program, excluding accrued excise tax of $0.2 million. In October 2023, our Board of Directors authorized a new share repurchase program of $750.0 million, which replaces the existing $300.0 million program. As of September 30, 2023, we had $114.8 million of capacity remaining under the previous $300.0 million program.

We repurchased 1,174,756 shares of common stock during the nine months ended September 30, 2022.

Fair Value of Financial Instruments

See “Item 1. Financial Statements (Unaudited)—Note 6—Fair Value Measurements” for additional information on our derivative instruments and their related fair value measurements. See also “Item 3. Quantitative and Qualitative Disclosures about Market Risk” below.

Critical Accounting Policies and Estimates

There have been no material changes in our critical accounting policies and estimates from those disclosed in our 2022 Annual Report.

We are exposed to a variety of market risks, including commodity price risk, interest rate risk, counterparty and customer risk and inflation risk. We address these risks through a program of risk management, including the use of derivative instruments.

The primary objective of the following information is to provide forward-looking quantitative and qualitative information about our potential exposure to market risk. The term “market risk” refers to the risk of loss arising from adverse changes in crude oil, NGL and natural gas prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk-sensitive instruments were entered into for hedging purposes, rather than for speculative trading. The following market risk disclosures should be read in conjunction with the quantitative and qualitative disclosures about market risk contained in our 2022 Annual Report, as well as with the unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q.

Commodity price exposure risk. We are exposed to market risk as the prices of crude oil, NGLs and natural gas fluctuate as a result of a variety of factors, including changes in supply and demand and the macroeconomic environment, all of which are typically beyond our control. The markets for crude oil, NGLs and natural gas have been volatile, especially over the last several years, and these prices will likely continue to be volatile in the future. To partially reduce price risk caused by these market fluctuations, we have entered into derivative instruments in the past and expect to enter into derivative instruments in the future to cover a portion of our future production. In addition, entering into derivative instruments could limit the benefit we would receive from increases in the prices for crude oil, NGLs and natural gas. We recognize all derivative instruments at fair value. The credit standing of our counterparties is analyzed and factored into the fair value amounts recognized on our unaudited condensed consolidated balance sheets. Derivative assets and liabilities arising from our derivative contracts with the same counterparty are also reported on a net basis, as all counterparty contracts provide for net settlement. See “Item 1. Financial Statements (Unaudited)—Note 6—Fair Value Measurements” and “Note 7—Derivative Instruments” for additional information regarding our derivative instruments.

The fair value of our unrealized crude oil derivative positions at September 30, 2023 was a net liability position of $94.8 million. A 10% increase in crude oil prices would increase the fair value of this unrealized derivative liability position by approximately $56.2 million, while a 10% decrease in crude oil prices would decrease the fair value of this unrealized derivative liability position by approximately $50.4 million. The fair value of our unrealized natural gas derivative positions at September 30, 2023 was immaterial. A 10% increase in natural gas prices would increase the fair value of this unrealized derivative liability position by approximately $0.2 million, while a 10% decrease in natural gas prices would decrease the fair value of this unrealized derivative liability position by approximately $0.2 million. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Market Conditions and Commodity Prices,” for further discussion on the commodity price environment. See “Item 1. Financial Statements (Unaudited)—Note 7—Derivative Instruments” for additional information regarding our derivative instruments.

In addition, in connection with the 2021 Permian Basin divestiture, we are entitled to receive up to three earn-out payments of $25.0 million per year for each of 2023, 2024 and 2025 if the average daily settlement price of NYMEX WTI crude oil exceeds $60 per barrel for such year. If the NYMEX WTI crude oil price for calendar year 2023 or 2024 is less than $45 per barrel, then each calendar year thereafter our right to receive any remaining earn-out payments is terminated. As of September 30, 2023, the fair value of this contingent consideration was $68.1 million. We expect to receive approximately $25.0 million in the first quarter of 2024 related to the 2023 contingent payment. See “Item 1. Financial Statements (Unaudited)—Note 7—Derivative Instruments” for additional information.

Interest rate risk. At September 30, 2023, we had $400.0 million of senior unsecured notes at a fixed interest rate of 6.375% per annum. At September 30, 2023, we had no borrowings and $6.4 million of outstanding letters of credit issued under our Credit Facility. Borrowings under the revolving Credit Facility are subject to varying rates of interest based on (i) the total outstanding borrowings (including the value of all outstanding letters of credit) in relation to the borrowing base and (ii) whether the loan is a Term SOFR Loan or an ABR Loan (each as defined in the amended and restated credit agreement). See “Item 1. Financial Statements (Unaudited)—Note 13—Long-Term Debt” for additional information on the interest incurred on our Credit Facility.

We do not currently, but may in the future, utilize interest rate derivatives to mitigate interest rate exposure in an attempt to reduce interest rate expense related to debt issued under our Credit Facility. Interest rate derivatives would be used solely to modify interest rate exposure and not to modify the overall leverage of the debt portfolio.

Counterparty and customer credit risk. Joint interest receivables arise from billing entities which own partial interest in the wells we operate. These entities participate in our wells primarily based on their ownership in leases on which we choose to drill. We have limited ability to control participation in our wells. For the three and nine months ended September 30, 2023, our credit losses on joint interest receivables were immaterial. We are also subject to credit risk due to concentration of our crude oil, NGL and natural gas receivables with several significant customers. The inability or failure of our significant customers to meet their obligations to us, or their insolvency or liquidation, may adversely affect our financial position and related financial results.

We monitor our exposure to counterparties on crude oil, NGL and natural gas sales primarily by reviewing credit ratings, financial statements and payment history. We extend credit terms based on our evaluation of each counterparty’s credit worthiness. We have not generally required our counterparties to provide collateral to secure crude oil, NGL and natural gas sales receivables owed to us. Historically, our credit losses on crude oil, NGL and natural gas sales receivables have been immaterial.

In addition, our commodity derivative contracts expose us to credit risk in the event of nonperformance by counterparties. However, in order to mitigate the risk of nonperformance, we only enter into derivative contracts with counterparties that are high credit-quality financial institutions. All of the counterparties on our derivative instruments currently in place are lenders under our Credit Facility with investment grade ratings. We are likely to enter into any future derivative instruments with these or other lenders under our Credit Facility, which also carry investment grade ratings. This risk is also managed by spreading our derivative exposure across several institutions and limiting the volumes placed under individual contracts. Furthermore, the agreements with each of the counterparties on our derivative instruments contain netting provisions. As a result of these netting provisions, our maximum amount of loss due to credit risk is limited to the net amounts due to and from the counterparties under the derivative contracts.

Inflation risks. Similar to other companies in our industry, we have experienced an increase in the costs of labor, materials and services due to a combination of factors, including: (i) global supply chain disruptions resulting in limited availability of certain materials and equipment (including drill pipe, casing and tubing), (ii) increased demand for fuel and steel, (iii) increased demand for services coupled with a limited availability of service providers and (iv) labor shortages. We seek to mitigate these inflationary impacts by reviewing our pricing agreements on a regular basis and entering into agreements with our service providers to manage costs and availability of certain services that are utilized in our operations. It is difficult to predict whether such inflationary pressures will have a materially negative impact to our overall financial and operating results in the future; however, such inflationary pressures are not expected to materially impact our overall liquidity position, cash requirements or financial position, or the ability to conduct our day-to-day drilling, completion and production activities. See “Part I. Item 1A. Risk Factors—Our profitability may be negatively impacted by inflation in the cost of labor, materials and services and general economic, business or industry conditions” in our 2022 Annual Report for additional information.

Evaluation of disclosure controls and procedures

As required by Rule 13a-15(b) of the Exchange Act, management, under the supervision and with the participation of our Chief Executive Officer (“CEO”), our principal executive officer, and our Chief Financial Officer (“CFO”), our principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2023. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our CEO and CFO as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2023.

Changes in internal control over financial reporting

On July 1, 2022, we completed the Merger. As part of the ongoing integration, we are in the process of incorporating the controls and related procedures of Whiting. Other than incorporating Whiting’s controls, there were no changes in internal control over financial reporting that occurred during the third quarter of 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Our business faces many risks. Any of the risks discussed elsewhere in this Form 10-Q and our other SEC filings could have a material impact on our business, financial position, results of operations or cash flows. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also impair our business operations.

For a discussion of our potential risks and uncertainties, see the information in “Part I. Item 1A. Risk Factors” in our 2022 Annual Report. There have been no material changes in our risk factors from those described in our 2022 Annual Report, except as described below.

Adverse developments affecting the financial markets, such as the bank failures, the Federal Reserve’s recent decision to increase interest rates and the potential for further increases or an extended period of elevated interest rates, as well as the potential for a U.S. government shutdown following the expiration of the October 2023 stopgap spending bill, could adversely affect our current and projected business operations, financial condition, results of operations and liquidity.

Events involving limited liquidity, defaults, non-performance or other adverse developments that affect financial institutions, transactional counterparties or other companies in the financial services industry or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, have in the past and may in the future lead to market-wide liquidity problems. On March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, on March 8, 2023, Silvergate Capital Corporation announced its intent to wind down and liquidate Silvergate Bank, and on March 12, 2023, Signature Bank was swept into receivership. Although we do not have any funds deposited with these banks, we regularly maintain domestic cash deposits in FDIC insured banks, which exceed the FDIC insurance limits. The failure of a bank, or events involving limited liquidity, defaults, non-performance or other adverse conditions in the financial markets impacting the financial institutions with which we conduct business, or concerns or rumors about such events, may lead to disruptions in access to our bank deposits, impair the ability of the banks participating in our current or future credit agreements from honoring their commitments to us or otherwise adversely impact our liquidity and financial performance. There can be no assurance that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S. or applicable foreign government, or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions or by acquisition in the event of a failure or liquidity crisis.

Disruptions to the broader economy and financial markets, including the Federal Reserve’s recent decision to increase interest rates and the potential for further increases or an extended period of elevated interest rates, as well as the potential for a U.S. government shutdown following the expiration of the October 2023 stopgap spending bill, may also reduce our ability to access capital or result in such capital being available on less favorable terms. Higher interest rates or costs and tighter financial and operating covenants, may make it more difficult to acquire financing on acceptable terms or at all. Any of these impacts, or any other impacts resulting from the factors described above or other related or similar factors, could have material adverse impacts on our liquidity, financial condition, results of operations and cash flows.

Global geopolitical tensions may create heightened volatility in oil, gas and NGL prices and could adversely affect our business, financial condition and results of operations.

On February 24, 2022, Russian military forces commenced a military operation in Ukraine and the sustained conflict and disruption in the region that has occurred since this date is expected to continue. Additionally, on October 7, 2023, Hamas, a U.S. designated terrorist organization, launched a series of coordinated attacks from the Gaza Strip onto Israel. On October 8, 2023, Israel formally declared war on Hamas, and the armed conflict is ongoing as of the date of this filing. Hostilities between Israel and Hamas could escalate and involve surrounding countries in the Middle East. Although the length, impact and outcome of the military conflicts between Ukraine and Russia and between Israel and Hamas are highly unpredictable, these conflicts could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability and other material and adverse effects on macroeconomic conditions. It is not possible at this time to predict or determine the ultimate consequence of these regional conflicts. These conflicts and their broader impacts could have a lasting impact on the short- and long-term operations and financial condition of our business and the global economy.