UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, ~~2021~~2022

☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 001-37697

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

(Exact Name of Registrant as Specified in its Charter)


Delaware						47-5381253
(State of Incorporation)						(I.R.S. Employer Identification No.)

~~1001 Seventeenth Street,~~300 N. Marienfeld St., Suite ~~1800~~1000

~~Denver, Colorado 80202~~Midland, Texas 79701

(Registrant’s telephone number, including area code): ~~(720) 499-1400~~(432) 695-4222

Centennial Resource Development, Inc.

1001 Seventeenth Street, Suite 1800

Denver, Colorado 80202

(Former name or former address, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading ~~Symbol(s)~~Symbol

Name of each exchange on which registered

Class A Common Stock, par value $0.0001 per share

~~CDEV~~PR

~~The NASDAQ~~New York Stock ~~Market LLC~~Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

☐

☒

☐

☒☐

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 31, ~~2021,~~2022, there were ~~284,091,997~~288,500,539 shares of Class A Common Stock, par value $0.0001 per share and 269,300,000 shares of Class C Common Stock, par value $0.0001 per share, outstanding.

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		Page
Glossary of Units of Measurements and Industry Terms		3

Cautionary Statement Concerning Forward-Looking Statements		5

Part I—FINANCIAL INFORMATION		7

Item 1.	Financial Statements (Unaudited)	7

	Consolidated Balance Sheets as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021	7

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021	8

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021	9

	Consolidated Statements of Shareholders’ Equity for the Three and Nine Months Ended September 30, ~~2021~~2022 and ~~2020~~2021	11

	Notes to Consolidated Financial Statements	13

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3436

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5053

Item 4.	Controls and Procedures	5357

Part II—OTHER INFORMATION		5357

Item 1.	Legal Proceedings	5357

Item 1A.	Risk Factors	5357

Item 6.	Exhibits	5460

Signatures		5561

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GLOSSARY OF UNITS OF MEASUREMENTS AND INDUSTRY TERMS

The following are abbreviations and definitions of certain terms used in this Quarterly Report on Form 10-Q, which are commonly used in the oil and natural gas industry:

Bbl. One stock tank barrel of 42 U.S. gallons liquid volume used herein in reference to crude oil, condensate or NGLs.

Bbl/d. One Bbl per day.

Boe. One barrel of oil equivalent, calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Bbl of oil. This is an energy content correlation and does not reflect a value or price relationship between the commodities.

Boe/d. One Boe per day.

Btu. One British thermal unit, which is the quantity of heat required to raise the temperature of a one-pound mass of water by one-degree Fahrenheit.

Completion. The process of preparing an oil and gas wellbore for production through the installation of permanent production equipment, as well as perforation and fracture stimulation to initiate production.

Development well. A well drilled within the proved area of an oil or natural gas reservoir to the depth of a stratigraphic horizon known to be productive.

Differential. An adjustment to the price of oil or natural gas from an established spot market price to reflect differences in the quality and/or location of oil or natural gas.

Exploratory well. A well drilled to find a new field or to find a new reservoir in a field previously found to be productive of oil or natural gas in another reservoir.

Extension Well. A well drilled to extend the limits of a known reservoir.

FERC. The Federal Energy Regulatory Commission.

Field. An area consisting of a single reservoir or multiple reservoirs all grouped on, or related to, the same individual geological structural feature or stratigraphic condition. The field name refers to the surface area, although it may refer to both the surface and the underground productive formations.

Formation. A layer of rock which has distinct characteristics that differs from nearby rock.

Horizontal drilling. A drilling technique used in certain formations where a well is drilled vertically to a certain depth and then drilled at a right angle within a specified interval.

~~ICE Brent.~~ ~~Brent crude oil traded on the Intercontinental Exchange, Inc. (ICE).~~

~~LIBOR.~~ ~~London Interbank Offered Rate.~~

MBbl. One thousand barrels of crude oil, condensate or NGLs.

MBoe. One thousand Boe.

Mcf. One thousand cubic feet of natural gas.

Mcf/d. One Mcf per day.

MMBtu. One million British thermal units.

MMcf. One million cubic feet of natural gas.

NEOs. Named executive officers, which term refers to the principal executive officer, the principal financial officer, and the next three most highly paid executive officers of a company as of the end of the most recently completed fiscal year, based on total compensation as determined under Rule 402 of Regulation S-K.

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NGL. Natural gas liquids. These are naturally occurring substances found in natural gas, including ethane, butane, isobutane, propane and natural gasoline, that can be collectively removed from produced natural gas, separated into these substances and sold.

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NYMEX. The New York Mercantile Exchange.

Operator. The individual or company responsible for the development and/or production of an oil or natural gas well or lease.

Proved developed reserves. Reserves that can be expected to be recovered through existing wells with existing equipment and operating methods or in which the cost of the required equipment is relatively minor compared with the cost of a new well.

Proved reserves. The estimated quantities of oil, NGLs and natural gas that geological and engineering data demonstrate with reasonable certainty to be commercially recoverable in future years from known reservoirs under existing economic and operating conditions.

Proved undeveloped reserves or PUD. Proved reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for completion.

Realized price. The cash market price less differentials.

Reserves. Estimated remaining quantities of oil and natural gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and natural gas or related substances to market and all permits and financing required to implement the project.

Reservoir. A porous and permeable underground formation containing a natural accumulation of producible oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

Royalty interest. An interest in an oil or gas property entitling the owner to shares of the production free of costs of exploration, development and production operations.

SOFR. Secured Overnight Funding Rate.

Spot market price. The cash market price without reduction for expected quality, location, transportation and demand adjustments.

Unproved reserves. Reserves attributable to unproved properties with no proved reserves.

Wellbore. The hole drilled by a drill bit that is equipped for oil and natural gas production once the well has been completed. Also called well or borehole.

Working interest. The interest in an oil and gas property (typically a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and to a share of production, subject to all royalties and other burdens and to all costs of exploration, development and operations and all risks in connection therewith.

Workover. Operations on a producing well to restore or increase production.

WTI. West Texas Intermediate is a grade of crude oil used as a benchmark in oil pricing.

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (“Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this Quarterly Report, regarding our strategy, 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, the words “could,” “may,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project,” “goal,” “plan,” “target” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under ~~“Item~~ Item 1A. Risk ~~Factors”~~Factors in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 (the ~~“2020~~“2021 Annual Report”) and the risk factors and other cautionary statements contained in our other filings with the United States Securities and Exchange Commission (“SEC”).

Forward-looking statements may include statements about:

•volatility of oil, natural gas and NGL prices or a prolonged period of low oil, natural gas or NGL prices and the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries (“OPEC”), such as Saudi Arabia, and other oil and natural gas producing countries, such as Russia, with respect to production levels or other matters related to the price of oil;

•the effects of excess supply of oil and natural gas resulting from the reduced demand caused by the Coronavirus Disease 2019 (“COVID-19”) pandemic and the actions by certain oil and natural gas producing countries;

•political and economic conditions in or affecting other producing regions or countries, including the Middle East, Russia, Eastern Europe, Africa and South America;

•our ability to realize the anticipated benefits and synergies from the Merger and effectively integrate the assets of CRP and Colgate (as such capitalized terms are defined in Note 1—Basis of Presentation and Summary of Significant Accounting Policies);

•our business strategy and future drilling plans;

•our reserves and our ability to replace the reserves we produce through drilling and property acquisitions;

•our drilling prospects, inventories, projects and programs;

•our financial strategy, return of capital program, leverage, liquidity and capital required for our development program;

•our realized oil, natural gas and NGL prices;

•the timing and amount of our future production of oil, natural gas and NGLs;

•our ability to identify, complete and effectively integrate acquisitions of properties or businesses;

•our hedging strategy and results;

•our competition and government regulations;

•our ability to obtain permits and governmental approvals;

•our pending legal or environmental matters;

•the marketing and transportation of our oil, natural gas and NGLs;

•our leasehold or business acquisitions;

•cost of developing or operating our properties;

•our anticipated rate of return;

•general economic conditions;

•weather conditions in the areas where we operate;

•credit markets;

•uncertainty regarding our future operating results; and

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•our plans, objectives, expectations and intentions contained in this Quarterly Report that are not historical.

We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the development, production, gathering and sale of oil and natural gas. These risks include, but are not limited to commodity price volatility, inflation, lack of availability of drilling and production equipment and services, risks relating to the Merger, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures and the other risks described in “Item 1A. Risk Factors” in this Quarterly Report and our ~~2020~~2021 Annual Report.

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Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reserve engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

Should one or more of the risks or uncertainties described in this Quarterly Report or our ~~2020~~2021 Annual Report occur, or underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.

All forward-looking statements, expressed or implied, included in this Quarterly Report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statement in this section, to reflect events or circumstances after the date of this Quarterly Report.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

CONSOLIDATED BALANCE SHEETS (unaudited)

(in thousands, except share and per share amounts)


		September 30, 2021		December 31, 2020			September 30, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets	Current assets					Current assets
Cash and cash equivalents	Cash and cash equivalents	$	4,985	$	5,800	Cash and cash equivalents	$	45,514	$	9,380
Accounts receivable, net	Accounts receivable, net	99,851		54,557		Accounts receivable, net	238,090		71,295

Derivative instruments						Derivative instruments	146,476		—
Prepaid and other current assets	Prepaid and other current assets	4,710		5,229		Prepaid and other current assets	15,684		5,860
Total current assets	Total current assets	109,546		65,586		Total current assets	445,764		86,535
Property and Equipment	Property and Equipment					Property and Equipment
Oil and natural gas properties, successful efforts method	Oil and natural gas properties, successful efforts method					Oil and natural gas properties, successful efforts method
Unproved properties	Unproved properties	1,151,552		1,209,205		Unproved properties	1,649,413		1,040,386
Proved properties	Proved properties	4,662,364		4,395,473		Proved properties	8,554,383		4,623,726
Accumulated depreciation, depletion and amortization	Accumulated depreciation, depletion and amortization	(2,088,128)		(1,877,832)		Accumulated depreciation, depletion and amortization	(2,238,906)		(1,989,489)
Total oil and natural gas properties, net	Total oil and natural gas properties, net	3,725,788		3,726,846		Total oil and natural gas properties, net	7,964,890		3,674,623
Other property and equipment, net	Other property and equipment, net	11,544		12,650		Other property and equipment, net	14,837		11,197
Total property and equipment, net	Total property and equipment, net	3,737,332		3,739,496		Total property and equipment, net	7,979,727		3,685,820
Noncurrent assets	Noncurrent assets					Noncurrent assets
Operating lease right-of-use assets	Operating lease right-of-use assets	17,656		3,176		Operating lease right-of-use assets	72,244		16,385

Other noncurrent assets	Other noncurrent assets	17,807		19,167		Other noncurrent assets	111,897		15,854
TOTAL ASSETS	TOTAL ASSETS	$	3,882,341	$	3,827,425	TOTAL ASSETS	$	8,609,632	$	3,804,594
LIABILITIES AND EQUITY	LIABILITIES AND EQUITY					LIABILITIES AND EQUITY
Current liabilities	Current liabilities					Current liabilities
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	150,611	$	110,439	Accounts payable and accrued expenses	$	560,583	$	130,256

Operating lease liabilities	Operating lease liabilities	1,522		3,155		Operating lease liabilities	30,140		1,413
Derivative instruments						Derivative instruments	12,118		35,150
Other current liabilities	Other current liabilities	76,403		18,274		Other current liabilities	12,925		1,080
Total current liabilities	Total current liabilities	228,536		131,868		Total current liabilities	615,766		167,899
Noncurrent liabilities	Noncurrent liabilities					Noncurrent liabilities
Long-term debt, net	Long-term debt, net	1,004,937		1,068,624		Long-term debt, net	2,303,670		825,565
Asset retirement obligations	Asset retirement obligations	17,710		17,009		Asset retirement obligations	40,142		17,240
Deferred income taxes	Deferred income taxes	2,589		2,589		Deferred income taxes	80,696		2,589

Operating lease liabilities	Operating lease liabilities	16,689		422		Operating lease liabilities	48,475		16,002
Other noncurrent liabilities	Other noncurrent liabilities	27,232		2,952		Other noncurrent liabilities	357		24,579
Total liabilities	Total liabilities	1,297,693		1,223,464		Total liabilities	3,089,106		1,053,874
Commitments and contingencies (Note 11)		0		0
Commitments and contingencies (Note 12)						Commitments and contingencies (Note 12)
Shareholders’ equity	Shareholders’ equity					Shareholders’ equity

Common stock, $0.0001 par value, 620,000,000 shares authorized:
Class A: 294,280,467 shares issued and 284,084,602 shares outstanding at September 30, 2021 and 290,645,623 shares issued and 278,551,901 shares outstanding at December 31, 2020		29		29

Common stock, $0.0001 par value, 1,500,000,000 shares authorized:						Common stock, $0.0001 par value, 1,500,000,000 shares authorized:
Class A: 298,196,091 shares issued and 288,482,677 shares outstanding at September 30, 2022 and 294,260,623 shares issued and 284,696,972 shares outstanding at December 31, 2021						Class A: 298,196,091 shares issued and 288,482,677 shares outstanding at September 30, 2022 and 294,260,623 shares issued and 284,696,972 shares outstanding at December 31, 2021	30		29
Class C (Convertible): 269,300,000 shares issued and outstanding at September 30, 2022 and no shares issued or outstanding at December 31, 2021						Class C (Convertible): 269,300,000 shares issued and outstanding at September 30, 2022 and no shares issued or outstanding at December 31, 2021	27		—
Additional paid-in capital	Additional paid-in capital	3,007,696		3,004,433		Additional paid-in capital	2,654,774		3,013,017
Retained earnings (accumulated deficit)	Retained earnings (accumulated deficit)	(423,077)		(400,501)		Retained earnings (accumulated deficit)	169,661		(262,326)
Total shareholders’ equity		2,584,648		2,603,961
Total shareholders' equity						Total shareholders' equity	2,824,492		2,750,720
Noncontrolling interest	Noncontrolling interest	—		—		Noncontrolling interest	2,696,034		—
Total equity	Total equity	2,584,648		2,603,961		Total equity	5,520,526		2,750,720
TOTAL LIABILITIES AND EQUITY	TOTAL LIABILITIES AND EQUITY	$	3,882,341	$	3,827,425	TOTAL LIABILITIES AND EQUITY	$	8,609,632	$	3,804,594

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands, except per share data)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Operating revenues	Operating revenues									Operating revenues
Oil and gas sales	Oil and gas sales	$	288,505	$	149,101	$	713,473	$	432,379	Oil and gas sales	$	549,778	$	288,505	$	1,369,709	$	713,473
Operating expenses	Operating expenses									Operating expenses
Lease operating expenses	Lease operating expenses	28,685		24,543		77,522		83,021		Lease operating expenses	40,944		28,685		98,578		77,522
Severance and ad valorem taxes	Severance and ad valorem taxes	17,800		7,839		46,167		30,108		Severance and ad valorem taxes	41,745		17,800		101,491		46,167
Gathering, processing and transportation expenses	Gathering, processing and transportation expenses	24,164		19,130		64,283		53,353		Gathering, processing and transportation expenses	30,022		24,164		77,669		64,283
Depreciation, depletion and amortization	Depreciation, depletion and amortization	76,047		89,444		213,259		283,722		Depreciation, depletion and amortization	109,500		76,047		262,626		213,259
General and administrative expenses										General and administrative expenses	43,387		35,748		83,937		89,811
Merger and integration expense										Merger and integration expense	59,270		—		64,955		—
Impairment and abandonment expense	Impairment and abandonment expense	7,712		19,904		26,111		650,629		Impairment and abandonment expense	498		7,712		3,631		26,111
Exploration and other expenses	Exploration and other expenses	1,839		2,670		4,698		10,730		Exploration and other expenses	2,352		1,839		6,613		4,698
General and administrative expenses		35,748		17,582		89,811		54,446
Total operating expenses	Total operating expenses	191,995		181,112		521,851		1,166,009		Total operating expenses	327,718		191,995		699,500		521,851
Net gain (loss) on sale of long-lived assets	Net gain (loss) on sale of long-lived assets	(290)		145		(254)		388		Net gain (loss) on sale of long-lived assets	(3)		(290)		(1,327)		(254)
Proceeds from terminated sale of assets	Proceeds from terminated sale of assets	—		—		5,983		—		Proceeds from terminated sale of assets	—		—		—		5,983
Income (loss) from operations	Income (loss) from operations	96,220		(31,866)		197,351		(733,242)		Income (loss) from operations	222,057		96,220		668,882		197,351

Other income (expense)	Other income (expense)									Other income (expense)
Interest expense	Interest expense	(14,690)		(17,718)		(47,357)		(51,510)		Interest expense	(28,807)		(14,690)		(56,287)		(47,357)
Gain (loss) on extinguishment of debt	Gain (loss) on extinguishment of debt	—		—		(22,156)		143,443		Gain (loss) on extinguishment of debt	—		—		—		(22,156)
Net gain (loss) on derivative instruments	Net gain (loss) on derivative instruments	(44,527)		(1,968)		(150,685)		(40,330)		Net gain (loss) on derivative instruments	181,308		(44,527)		17,651		(150,685)
Other income (expense)	Other income (expense)	121		23		271		(29)		Other income (expense)	115		121		318		271
Total other income (expense)	Total other income (expense)	(59,096)		(19,663)		(219,927)		51,574		Total other income (expense)	152,616		(59,096)		(38,318)		(219,927)

Income (loss) before income taxes	Income (loss) before income taxes	37,124		(51,529)		(22,576)		(681,668)		Income (loss) before income taxes	374,673		37,124		630,564		(22,576)
Income tax (expense) benefit	Income tax (expense) benefit	—		—		—		85,124		Income tax (expense) benefit	(31,169)		—		(79,432)		—
Net income (loss)	Net income (loss)	37,124		(51,529)		(22,576)		(596,544)		Net income (loss)	343,504		37,124		551,132		(22,576)
Less: Net (income) loss attributable to noncontrolling interest	Less: Net (income) loss attributable to noncontrolling interest	—		—		—		2,362		Less: Net (income) loss attributable to noncontrolling interest	(119,145)		—		(119,145)		—
Net income (loss) attributable to Class A Common Stock	Net income (loss) attributable to Class A Common Stock	$	37,124	$	(51,529)	$	(22,576)	$	(594,182)	Net income (loss) attributable to Class A Common Stock	$	224,359	$	37,124	$	431,987	$	(22,576)

Income (loss) per share of Class A Common Stock:	Income (loss) per share of Class A Common Stock:									Income (loss) per share of Class A Common Stock:
Basic	Basic	$	0.13	$	(0.19)	$	(0.08)	$	(2.14)	Basic	$	0.78	$	0.13	$	1.51	$	(0.08)
Diluted	Diluted	$	0.12	$	(0.19)	$	(0.08)	$	(2.14)	Diluted	$	0.70	$	0.12	$	1.36	$	(0.08)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	(22,576)	$	(596,544)	Net income (loss)	$	551,132	$	(22,576)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:	Adjustments to reconcile net income (loss) to net cash provided by operating activities:					Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization	Depreciation, depletion and amortization	213,259		283,722		Depreciation, depletion and amortization	262,626		213,259
Stock-based compensation expense - equity awards	Stock-based compensation expense - equity awards	32,299		16,164		Stock-based compensation expense - equity awards	60,971		32,299
Stock-based compensation expense - liability awards	Stock-based compensation expense - liability awards	19,950		—		Stock-based compensation expense - liability awards	(24,174)		19,950
Impairment and abandonment expense	Impairment and abandonment expense	26,111		650,629		Impairment and abandonment expense	3,631		26,111
Deferred tax expense (benefit)	Deferred tax expense (benefit)	—		(85,124)		Deferred tax expense (benefit)	78,832		—
Net (gain) loss on sale of long-lived assets	Net (gain) loss on sale of long-lived assets	254		(388)		Net (gain) loss on sale of long-lived assets	1,327		254
Non-cash portion of derivative (gain) loss	Non-cash portion of derivative (gain) loss	61,490		(1,103)		Non-cash portion of derivative (gain) loss	(166,372)		61,490
Amortization of debt issuance costs and debt discount	Amortization of debt issuance costs and debt discount	3,935		4,112		Amortization of debt issuance costs and debt discount	12,555		3,935
(Gain) loss on extinguishment of debt	(Gain) loss on extinguishment of debt	22,156		(143,443)		(Gain) loss on extinguishment of debt	—		22,156
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable	(Increase) decrease in accounts receivable	(42,998)		48,139		(Increase) decrease in accounts receivable	(6,753)		(42,998)
(Increase) decrease in prepaid and other assets	(Increase) decrease in prepaid and other assets	1,803		(2,825)		(Increase) decrease in prepaid and other assets	(38)		1,803
Increase (decrease) in accounts payable and other liabilities	Increase (decrease) in accounts payable and other liabilities	17,449		(43,107)		Increase (decrease) in accounts payable and other liabilities	69,639		17,449
Net cash provided by operating activities	Net cash provided by operating activities	333,132		130,232		Net cash provided by operating activities	843,376		333,132
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisition of oil and natural gas properties	Acquisition of oil and natural gas properties	(4,285)		(7,689)		Acquisition of oil and natural gas properties	(4,866)		(4,285)
Drilling and development capital expenditures	Drilling and development capital expenditures	(215,358)		(300,660)		Drilling and development capital expenditures	(397,892)		(215,358)
Cash paid for business acquired in the Merger, net of cash acquired						Cash paid for business acquired in the Merger, net of cash acquired	(496,671)		—
Purchases of other property and equipment	Purchases of other property and equipment	(686)		(1,035)		Purchases of other property and equipment	(3,199)		(686)
Proceeds from sales of oil and natural gas properties	Proceeds from sales of oil and natural gas properties	4,011		1,375		Proceeds from sales of oil and natural gas properties	6,190		4,011
Net cash used in investing activities	Net cash used in investing activities	(216,318)		(308,009)		Net cash used in investing activities	(896,438)		(216,318)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds from borrowings under revolving credit facility	Proceeds from borrowings under revolving credit facility	450,000		490,000		Proceeds from borrowings under revolving credit facility	970,000		450,000
Repayment of borrowings under revolving credit facility	Repayment of borrowings under revolving credit facility	(575,000)		(310,000)		Repayment of borrowings under revolving credit facility	(445,000)		(575,000)
Proceeds from issuance of convertible senior notes		170,000		—
Repayment of credit facility acquired in the Merger						Repayment of credit facility acquired in the Merger	(400,000)		—
Proceeds from issuance of senior notes						Proceeds from issuance of senior notes	—		170,000
Debt issuance costs	Debt issuance costs	(6,421)		(6,650)		Debt issuance costs	(19,611)		(6,421)
Premiums paid on capped call transactions	Premiums paid on capped call transactions	(14,688)		—		Premiums paid on capped call transactions	—		(14,688)
Redemption of senior secured notes	Redemption of senior secured notes	(127,073)		—		Redemption of senior secured notes	—		(127,073)
Proceeds from exercise of stock options	Proceeds from exercise of stock options	15		—		Proceeds from exercise of stock options	46		15
Restricted stock used for tax withholdings		(14,459)		(598)
Net cash (used in) provided by financing activities		(117,626)		172,752
Class A Common Stock repurchased from employees for taxes due upon share vestings						Class A Common Stock repurchased from employees for taxes due upon share vestings	(16,241)		(14,459)
Net cash provided by (used in) financing activities						Net cash provided by (used in) financing activities	89,194		(117,626)
Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	(812)		(5,025)		Net increase (decrease) in cash, cash equivalents and restricted cash	36,132		(812)
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	8,339		15,543		Cash, cash equivalents and restricted cash, beginning of period	9,935		8,339
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	7,527	$	10,518	Cash, cash equivalents and restricted cash, end of period	$	46,067	$	7,527

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
(in thousands)


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Supplemental cash flow information	Supplemental cash flow information					Supplemental cash flow information
Cash paid for interest	Cash paid for interest	$	40,548	$	48,331	Cash paid for interest	$	36,653	$	40,548

Cash paid for income taxes						Cash paid for income taxes	600		—
Supplemental non-cash activity	Supplemental non-cash activity					Supplemental non-cash activity
Equity issued and long-term debt assumed to acquire oil and gas properties via the Merger						Equity issued and long-term debt assumed to acquire oil and gas properties via the Merger	$	3,526,688	$	—
Accrued capital expenditures included in accounts payable and accrued expenses	Accrued capital expenditures included in accounts payable and accrued expenses	$	44,591	$	13,593	Accrued capital expenditures included in accounts payable and accrued expenses	95,149		44,591
Asset retirement obligations incurred, including revisions to estimates	Asset retirement obligations incurred, including revisions to estimates	110		579		Asset retirement obligations incurred, including revisions to estimates	22,068		110
Change in Senior Notes from debt exchange
Senior Secured Notes issued in the debt exchange, net of debt discount		—		106,030
2026 Senior Notes extinguished in the debt exchange, net of unamortized debt issue costs		—		(108,632)
2027 Senior Notes extinguished in the debt exchange, net of unamortized discount and debt issue costs		—		(140,840)

Reconciliation of cash, cash equivalents and restricted cash presented on the consolidated statements of cash flows for the periods presented:


		Nine Months Ended September 30,					Nine Months Ended September 30,
		2021		2020			2022		2021
Cash and cash equivalents	Cash and cash equivalents	$	4,985	$	5,177	Cash and cash equivalents	$	45,514	$	4,985
Restricted cash(1)	Restricted cash(1)	2,542		5,341		Restricted cash(1)	553		2,542
Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	7,527	$	10,518	Total cash, cash equivalents and restricted cash	$	46,067	$	7,527

(1) Included in Prepaid and other current assets ~~and~~ ~~Other noncurrent assets~~ ~~line items~~ in the consolidated balance ~~sheets.~~

sheet as of September 30, 2022.

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited)

(in thousands)

Common Stock
Class A Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Total Shareholders’ Equity Non-controlling Interest Total Equity
Shares Amount
Balance at December 31, 2020 290,646 $ 29 $ 3,004,433 $ (400,501) $ 2,603,961 $ — $ 2,603,961
Restricted stock forfeited (1) — — — — — —
Restricted stock used for tax withholding (128) — (477) — (477) — (477)
Issuance of Class A common stock under Employee Stock Purchase Plan 276 — 167 — 167 — 167
Stock-based compensation - equity awards — — 4,585 — 4,585 — 4,585
Capped call premiums — — (14,688) — (14,688) — (14,688)
Net income (loss) — — — (34,645) (34,645) — (34,645)
Balance at March 31, 2021 290,793 29 2,994,020 (435,146) 2,558,903 — 2,558,903
Restricted stock forfeited (7) — — — — — —
Stock option exercises 15 — 15 — 15 — 15
Stock-based compensation - equity awards — — 4,481 — 4,481 — 4,481
Net income (loss) — — — (25,055) (25,055) — (25,055)
Balance at June 30, 2021 290,801 29 2,998,516 (460,201) 2,538,344 — 2,538,344
Restricted stock issued 6,075 — — — — — —
Restricted stock forfeited (4) — — — — — —
Stock option exercises 1 — — — — — —
Restricted stock used for tax withholding (2,763) — (13,982) — (13,982) — (13,982)
Issuance of Class A common stock under Employee Stock Purchase Plan 170 — (71) — (71) — (71)
Stock-based compensation - equity awards — — 23,233 — 23,233 — 23,233
Net income (loss) — — — 37,124 37,124 — 37,124
Balance at September 30, 2021 294,280 $ 29 $ 3,007,696 $ (423,077) $ 2,584,648 $ — $ 2,584,648


	Common Stock						Additional Paid-In Capital		Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity		Non-controlling Interest		Total Equity
	Class A			Class C
	Shares	Amount		Shares	Amount
Balance at December 31, 2021	294,261	$	29	—	$	—	$	3,013,017	$	(262,326)	$	2,750,720	$	—	$	2,750,720
Restricted stock issued	20	—		—	—		—		—		—		—		—
Restricted stock forfeited	(52)	—		—	—		—		—		—		—		—
Restricted stock used for tax withholding	(150)	—		—	—		(1,259)		—		(1,259)		—		(1,259)
Stock option exercises	3	—		—	—		1		—		1		—		1
Issuance of Common Stock under Employee Stock Purchase Plan	53	—		—	—		268		—		268		—		268
Stock-based compensation - equity awards	—	—		—	—		5,545		—		5,545		—		5,545
Net income (loss)	—	—		—	—		—		15,802		15,802		—		15,802
Balance at March 31, 2022	294,135	29		—	—		3,017,572		(246,524)		2,771,077		—		2,771,077
Restricted stock issued	2,998	1		—	—		—		—		1		—		1
Restricted stock forfeited	(75)	—		—	—		—		—		—		—		—
Stock option exercises	2	—		—	—		7		—		7		—		7
Stock-based compensation - equity awards	—	—		—	—		6,657		—		6,657		—		6,657
Net income (loss)	—	—		—	—		—		191,826		191,826		—		191,826
Balance at June 30, 2022	297,060	30		—	—		3,024,236		(54,698)		2,969,568		—		2,969,568
Restricted stock issued	3,141	—		—	—		—		—		—		—		—
Issuance of Class C Common Stock	—	—		269,300	27		(400,972)		—		(400,945)		2,576,889		2,175,944
Performance stock issued less stock used for tax withholding	159	—		—	—		(908)		—		(908)		—		(908)
Restricted stock forfeited	(2)	—		—	—		—		—		—		—		—
Stock option exercises	5	—		—	—		38		—		38		—		38
Restricted stock used for tax withholding	(2,234)	—		—	—		(16,725)		—		(16,725)		—		(16,725)
Issuance of Common Stock under Employee Stock Purchase Plan	67	—		—	—		336		—		336		—		336
Stock-based compensation - equity awards	—	—		—	—		48,769		—		48,769		—		48,769
Net income (loss)	—	—		—	—		—		224,359		224,359		119,145		343,504
Balance at September 30, 2022	298,196	$	30	269,300	27		$	2,654,774	$	169,661	$	2,824,492	$	2,696,034	$	5,520,526

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

PERMIAN RESOURCES CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (unaudited) (continued)

(in thousands)


		Common Stock																							Common Stock									Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)			Total Shareholders’ Equity			Non-controlling Interest			Total Equity
		Class A			Class C			Additional Paid-In Capital				Retained Earnings (Accumulated Deficit)		Total Shareholders’ Equity			Non-controlling Interest				Total Equity				Class A						Class C
		Shares	Amount		Shares	Amount										Shares								Amount			Shares			Amount
Balance at December 31, 2019		280,650	$	28	1,034	$	—			$	2,975,756			$	282,336				$	3,258,120			$	12,581		$	3,270,701
Balance at December 31, 2020																								Balance at December 31, 2020	290,646			$	29		—	$	—			$	3,004,433				$	(400,501)		$	2,603,961		$	—		$	2,603,961
Restricted stock forfeited																								Restricted stock forfeited	(1)			—			—	—				—				—			—			—			—
Restricted stock used for tax withholding																								Restricted stock used for tax withholding	(128)			—			—	—		(477)				—			(477)			—			(477)
Issuance of Common Stock under Employee Stock Purchase Plan																								Issuance of Common Stock under Employee Stock Purchase Plan	276			—			—	—		167				—			167			—			167
Stock-based compensation - equity awards																								Stock-based compensation - equity awards	—			—			—	—		4,585				—			4,585			—			4,585
Capped call premiums																								Capped call premiums	—			—			—	—		(14,688)				—			(14,688)			—			(14,688)
Net income (loss)																								Net income (loss)	—			—			—	—		—				(34,645)			(34,645)			—			(34,645)
Balance at March 31, 2021																								Balance at March 31, 2021	290,793			29			—	—		2,994,020				(435,146)			2,558,903			—			2,558,903
Restricted stock forfeited																								Restricted stock forfeited	(7)			—			—	—		—				—			—			—			—
Stock option exercises																								Stock option exercises	15			—			—	—		15				—			15			—			15
Stock-based compensation - equity awards																								Stock-based compensation - equity awards	—			—			—	—		4,481				—			4,481			—			4,481
Net income (loss)																								Net income (loss)	—			—			—	—		—				(25,055)			(25,055)			—			(25,055)
Balance at June 30, 2021																								Balance at June 30, 2021	290,801			29			—	—		2,998,516				(460,201)			2,538,344			—			2,538,344
Restricted stock issued	Restricted stock issued	1,305	—		—	—		—				—		—			—				—			Restricted stock issued	6,075			—			—	—		—				—			—			—			—
Restricted stock forfeited	Restricted stock forfeited	(406)	—		—	—		—				—		—			—				—			Restricted stock forfeited	(4)			—			—	—		—				—			—			—			—
Stock option exercises																								Stock option exercises	1			—			—	—		—				—			—			—			—
Restricted stock used for tax withholding	Restricted stock used for tax withholding	(78)	—		—	—		(208)				—		(208)			—				(208)			Restricted stock used for tax withholding	(2,763)			—			—	—		(13,982)				—			(13,982)			—			(13,982)
Issuance of Class A common stock under Employee Stock Purchase Plan		59	—		—	—		230				—		230			—				230
Issuance of Common Stock under Employee Stock Purchase Plan																								Issuance of Common Stock under Employee Stock Purchase Plan	170			—			—	—		(71)				—			(71)			—			(71)
Stock-based compensation - equity awards	Stock-based compensation - equity awards	—	—		—	—		6,409				—		6,409			—				6,409			Stock-based compensation - equity awards	—			—			—	—		23,233				—			23,233			—			23,233
Net income (loss)	Net income (loss)	—	—		—	—		—				(547,983)		(547,983)			(2,362)				(550,345)			Net income (loss)	—			—			—	—		—				37,124			37,124			—			37,124
Balance at March 31, 2020		281,530	28		1,034	—		2,982,187				(265,647)		2,716,568			10,219				2,726,787
Restricted stock issued		80	—		—	—		—				—		—			—				—
Restricted stock forfeited		(352)	—		—	—		—				—		—			—				—
Restricted stock used for tax withholding		(83)	—		—	—		(93)				—		(93)			—				(93)

Stock-based compensation - equity awards		—	—		—	—		4,727				—		4,727			—				4,727
Conversion of common stock from Class C to Class A, net of tax		1,034	—		(1,034)	—		8,011				—		8,011			(10,219)				(2,208)
Net income (loss)		—	—		—	—		—				5,330		5,330			—				5,330
Balance at June 30, 2020		282,209	28		—	—		2,994,832				(260,317)		2,734,543			—				2,734,543

Restricted stock issued		8,272	1		—	—		(1)				—		—			—				—
Restricted stock forfeited		(104)	—		—	—		—				—		—			—				—
Restricted stock used for tax withholding		(377)	—		—	—		(297)				—		(297)			—				(297)
Issuance of Class A common stock under Employee Stock Purchase Plan		104	—		—	—		78				—		78			—				78
Stock-based compensation		—	—		—	—		5,028				—		5,028			—				5,028
Net income (loss)		—	—		—	—		—				(51,529)		(51,529)			—				(51,529)
Balance at September 30, 2020		290,104	$	29	—	$	—	$	2,999,640			$	(311,846)	$	2,687,823		$	—			$	2,687,823
Balance at September 30, 2021																								Balance at September 30, 2021	294,280			$	29		—	$	—	$	3,007,696			$	(423,077)		$	2,584,648		$	—		$	2,584,648

The accompanying notes are an integral part of these unaudited consolidated financial statements.

Table of Contents

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1—Basis of Presentation and Summary of Significant Accounting Policies

Description of Business

~~Centennial Resource Development, Inc.~~Permian Resources Corporation is an independent oil and natural gas company focused on the responsible acquisition, optimization and development of ~~unconventional~~crude oil and associated liquids-rich natural gas ~~reserves in the Permian Basin.~~reserves. The Company’s assets are concentrated in the Delaware Basin, a sub-basin of the Permian Basin, and its properties consist of large, contiguous acreage blocks located in West Texas and New Mexico. Unless otherwise specified or the context otherwise requires, all references in these notes to ~~“Centennial”~~“Permian Resources” or the “Company” are to ~~Centennial Resource Development, Inc.~~Permian Resources Corporation and its consolidated subsidiary, Permian Resources Operating, LLC (“OpCo”, which was formerly Centennial Resource Production, LLC ~~(“CRP”~~or “CRP”).

On September 1, 2022, CRP completed its merger (the “Merger”) with Colgate Energy Partners III, LLC (“Colgate”). Refer to Note 2—Business Combination, for further information regarding the Merger. In connection with the closing of the Merger, the Company changed its name from “Centennial Resource Development, Inc.” to “Permian Resources Corporation” and transferred the listing of its Class A Common Stock to the New York Stock Exchange under the ticker symbol “PR”.

Principles of Consolidation and Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial reporting. Accordingly, certain disclosures normally included in an Annual Report on Form 10-K have been omitted. The consolidated financial statements and related notes included in this Quarterly Report should be read in conjunction with the Company’s consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the period ended December 31, ~~2020~~2021 (the ~~“2020~~“2021 Annual Report”). Except as disclosed herein, there have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company’s ~~2020~~2021 Annual Report.

In the opinion of management, all normal, recurring adjustments and accruals considered necessary to present fairly, in all material respects, the Company’s interim financial results have been included. Operating results for the periods presented are not necessarily indicative of expected results for the full year.

The consolidated financial statements include the accounts of the Company and its subsidiary ~~CRP,~~OpCo, and ~~CRP’s~~OpCo’s wholly-owned subsidiaries. Noncontrolling interest represents third-party ownership in ~~CRP~~OpCo and is presented as a component of equity. AsRefer to Note 9—Shareholders' Equity and Noncontrolling Interest for discussion of ~~March 31, 2020 the~~ noncontrolling interest ownership of CRP was 0.4% but was subsequently reduced to zero as all remaining CRP Common Units (and corresponding shares of the Company’s Class C common stock) were converted into shares of the Company’s Class A common stock (the “Common Stock”) and CRP has since been a wholly-owned subsidiary of Centennial.interest.

Use of Estimates

The preparation of the Company’s consolidated financial statements requires the Company’s management to make various assumptions, judgments and estimates to determine the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of commitments and contingencies. Changes in these assumptions, judgments and estimates will occur as a result of the passage of time and the occurrence of future events, and accordingly, actual results could differ from amounts previously established. Additionally, the prices received for oil, natural gas and NGL production can heavily influence the Company’s assumptions, judgments and estimates and continued volatility of oil and gas prices could have a significant impact on the Company’s estimates.

The more significant areas requiring the use of assumptions, judgments and estimates include: (i) oil and natural gas reserves; (ii) cash flow estimates used in impairment tests for long-lived assets; (iii) impairment expense of unproved properties; (iv) depreciation, depletion and amortization; (v) asset retirement obligations; (vi) determining fair value and allocating purchase price in connection with business combinations and asset acquisitions; (vii) accrued revenues and related receivables; (viii) accrued liabilities; (ix) derivative valuations; (x) deferred income taxes; and (xi) determining the fair values of certain stock-based compensation awards.

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Leases

The Company has operating leases for drilling rig contracts, office rental agreements, and other oilfield equipment. As a result of the Merger, the Company recorded an additional right-of-use (“ROU”) asset of $22.7 million and lease liability of $27.1 million. The operating leases acquired in the Merger consisted of (i) an office rental agreement that resulted in a ROU asset of $9.8 million and corresponding lease liability of $14.2 million, (ii) oilfield compressors that resulted in a ROU asset and lease liability of $10.7 million and (iii) other oilfield equipment that resulted in a ROU asset and lease liability of $2.2 million. Additional short-term lease agreements were also acquired increasing short-term lease expense for the last month of the quarter. Additionally, during the nine months ended September 30, 2022, the Company extended two drilling rig contracts each for a two-year period. A lease ROU asset and related liability have been recorded based on the present value of the future lease payments over the lease term of the drilling rigs. As of September 30, 2022, $19.5 million was recorded to current operating lease liability and $16.6 million was recorded to noncurrent operating lease liability related to these drilling rigs. There have been no other significant changes in operating leases during the nine months ended September 30, 2022. Refer to Note 15—Leases footnote in the notes to the consolidated financial statements in Item 8 of the Company’s 2021 Annual Report.

Income Taxes

The Company is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income or loss of OpCo, as well as any stand-alone income or loss generated by the Company. As of the date of the Merger, OpCo is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, OpCo is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by OpCo is passed through to and included in the taxable income or loss of its members, including the Company, on a pro rata basis. Prior to the Merger, OpCo was fully owned by the Company and all income and loss was taxable.

Income tax expense recognized during interim periods is based on applying an estimated annual effective income tax rate to the Company’s year-to-date income, plus any significant unusual or infrequently occurring items which are recorded in the interim period. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in various state jurisdictions, permanent and temporary differences and the likelihood of recovering deferred tax assets generated. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information becomes known or as the tax environment changes.

1314

Table of Contents

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 2—Business Combination

Colgate Merger

On May 19, 2022, the Company entered into a Business Combination Agreement (the “Merger Agreement”) with CRP, Colgate, and Colgate Energy Partners III MidCo, LLC (the “Colgate Unitholder”). The Merger Agreement provided for the combination of CRP and Colgate in a merger of equals transaction, with CRP (which was renamed Permian Resources Operating, LLC or “OpCo” following the Merger) continuing as the surviving legal entity in the Merger and a subsidiary of the Company. Colgate was an independent oil and gas exploration and development company with properties located in the Delaware Basin. Colgate’s assets consisted of approximately 105,000 net leasehold acres and 25,000 net royalty acres located primarily in Reeves and Ward Counties in Texas and Eddy County in New Mexico. The Merger was completed to provide increases to our operational and financial scale, drive accretion across our key financial and operating metrics, and enhance the combined company’s shareholder returns.

On September 1, 2022, the Merger was completed, and all membership interests in CRP issued and outstanding immediately prior to the closing were converted into units of Permian Resources Operating, LLC (“Common Units”) equal to the number of shares of the Company’s Class A Common Stock that were outstanding immediately prior to the closing. All of the Colgate Unitholder’s membership interests in Colgate were exchanged for 269,300,000 shares of Class C Common Stock, 269,300,000 Common Units and $525 million in cash consideration. Following the closing of the Merger, the Colgate Unitholder distributed the merger consideration to its equity holders (the “Colgate Owners”), who collectively continue to own in the aggregate 100% of the outstanding shares of Class C Common Stock of the Company and approximately 48% of the outstanding Common Units in OpCo, which represent an approximate 48% noncontrolling interest in OpCo. This ownership of all the Company’s shares of Class C Common Stock by the Colgate Owners represents approximately 48% of the Company’s total outstanding shares of Class A Common Stock and Class C Common Stock taken together (the “Common Stock”). Refer to Note 9—Shareholders' Equity and Noncontrolling Interest for additional information on the equity structure of the Company following the Merger.

Purchase Price Allocation

The Merger has been accounted for as a business combination using the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations, with the Company being identified as the accounting acquirer. Under the acquisition method of accounting, the assets acquired and liabilities assumed are recorded at their respective fair values as of the Merger closing date, which requires judgment and certain assumptions to be made. Oil and natural gas properties were valued using an income based approach which incorporates a discounted cash flow method. The fair value of Colgate’s outstanding senior notes was based on unadjusted quoted prices for these same notes in an active market. The value of derivative instruments was based on Level 2 inputs similar to the Company's other commodity price derivatives. Refer to Note 8—Fair Value Measurements for additional information on fair value measurements.

As of the date of this filing, the merger consideration and purchase price allocation are preliminary. The fair value of merger consideration, assets acquired and liabilities assumed are not complete and adjustments may be made. The Company ~~has determined that it is more-likely-than-not that a portion~~expects to complete the purchase price allocation during the 12-month period subsequent to the Merger closing date.

Table of ~~its deferred tax~~Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table represents the preliminary merger consideration and purchase price allocation of the identifiable assets ~~will not be realized. Accordingly, a valuation allowance against its deferred tax~~acquired and the liabilities assumed based on their respective fair values as of the closing date of the Merger.


(in thousands, except share and per share data)	Preliminary Merger Consideration
Share consideration
Shares of Class C Common Stock issued to Colgate Unitholder	269,300,000
Class C Common Stock per share fair value on September 1, 2022(1)	$	8.08
Fair value of noncontrolling interest that resulted from Class C Common Stock issuance	$	2,175,944
Cash consideration	$	525,000
Total Merger Consideration	$	2,700,944

Fair value of assets acquired:	Preliminary Purchase Price Allocation
Cash and cash equivalents	$	28,329
Account receivable, net	145,091
Derivative instruments	71,961
Prepaid and other assets	10,496
Unproved oil and natural gas properties	683,010
Proved oil and natural gas properties	3,421,303
Other property and equipment, net	4,175
Operating lease right-of-use assets	22,737
Total assets acquired	$	4,387,102

Fair value of liabilities assumed:
Accounts payable and accrued expenses	$	286,860
Operating lease liabilities	27,076
Derivative instruments	322
Long-term debt, net	1,350,744
Asset retirement obligations	21,156
Total liabilities assumed	$	1,686,158
Net assets acquired	$	2,700,944

(1) The preliminary fair value ascribed to the Class C Common Stock issued in connection with the Merger was ~~recognized, which caused~~based upon the stock price of the Company’s ~~provision~~Class A Common Stock as of the effective time of the Merger.

Post-Acquisition Operating Results

Since the September 1, 2022 closing date of the Merger, the results of operations for ~~income taxes for~~Colgate have been included in the Company’s consolidated financial statements. For each of the three and nine months ~~periods~~ ended September 30, ~~2021 and 2020 to differ from the amounts that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax book loss.~~

~~Recently Issued or Adopted Accounting Standards~~

~~In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06,~~ ~~Debt—Debt with Conversion and Other Options and Derivatives and Hedging— Contracts in Entity’s Own Equity~~ ~~(“ASU 2020-06”)~~, ~~which updates the accounting requirements for convertible debt instruments and contracts in an entity’s own equity under FASB’s Accounting Standard Codification (“ASC”) Topic 470,~~ ~~Debt, ASC Topic 815,~~ ~~Derivatives and Hedging,~~ and applicable earnings-per-share guidance. The amendments in ASU 2020-06 are intended to simplify the accounting for convertible instruments by removing certain separation models in the existing debt guidance allowing convertible debt to be recorded as a single liability measured at its amortized cost. Additionally, the amendments remove certain conditions and clarify the scope of and certain requirements pertaining to derivative scope exception evaluations over such contracts and instruments. ASU 2020-06 requires retrospective application and is effective for public entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted after December 15, 2020. The Company has adopted this guidance as of January 1, 2021, and there was no impact on previously reported amounts as a result of the adoption. Refer to ~~Note 4—Long-Term Debt~~ ~~for additional information regarding its convertible debt instruments.~~

~~Note 2—Property Divestiture~~

~~On February 24, 2020, the Company entered into a purchase and sale agreement (the “Agreement”) to sell certain of its water disposal assets.~~ ~~On May 15, 2020, the Agreement was terminated~~ ~~after the transaction failed to close by the outside date set forth in the Agreement.~~

~~The purchaser deposited $10.0~~2022, approximately $125.0 million of ~~cash in an escrow account~~ ~~(the “Deposit”) which, in the event~~operating revenues and $46.6 million of ~~termination, was~~direct operating expenses attributable to ~~be distributed to the Company or the purchaser in accordance with~~ ~~the remedy provisions of the Agreement.~~ ~~In May 2021, a settlement between the Company and the purchaser was reached resulting in a partial distribution of the deposit to Centennial, which was~~Colgate’s business have been included ~~net of associated legal fees~~ in the consolidated statements of operations.

In connection with the Merger, the Company incurred certain merger-related integration and transaction costs that are expensed as incurred. During the three and nine months ended September 30, 2022, the Company recognized total transaction costs of $59.3 million and $65.0 million, respectively, which are included in Merger and integration expense on the consolidated statements of operations. These costs primarily relate to bankers’ advisory fees, legal, accounting and consultancy fees, as well as severance and related benefits associated with employees that were terminated in connection with the Merger.

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PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Supplemental Unaudited Pro Forma Financial Information

The following supplemental unaudited pro forma financial information (“pro forma information”) for the three and nine months ended September 30, 2022 and 2021 has been prepared from the respective historical consolidated financial statements of the Company and Colgate and has been adjusted to reflect the Merger as if it had occurred on January 1, 2021. The pro forma information reflects transaction accounting adjustments that the Company believes are factually supportable and that are expected to have a continuing impact on the results of operations, with the exception of certain nonrecurring items incurred in connection with the Merger. The pro forma information does not include any cost savings or other synergies that may result from the Merger or any estimated costs that will be incurred by the Company to integrate the Colgate assets.

The pro forma information is not necessarily indicative of the results that might have occurred had the Merger occurred in the past and is not intended to be a projection of future results. Future results may vary significantly from the results reflected in the following pro forma information.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Total Revenue	$	859,264	$	485,760	$	2,472,119	$	1,298,182
Net Income (loss)	441,163		(21,417)		653,452		(381,073)

Earnings (loss) per share:
Basic	$	0.63	$	(0.03)	$	0.96	$	(0.66)
Diluted	0.57		(0.03)		0.87		(0.66)

Note 3—Accounts Receivable, Accounts Payable and Accrued Expenses

Accounts receivable are comprised of the following:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021
Accrued oil and gas sales receivable, net	Accrued oil and gas sales receivable, net	$	82,120	$	41,670	Accrued oil and gas sales receivable, net	$	146,398	$	57,287
Joint interest billings, net	Joint interest billings, net	16,078		12,770		Joint interest billings, net	78,430		12,449
Accrued derivative settlements receivable						Accrued derivative settlements receivable	12,093		—
Other	Other	1,653		117		Other	1,169		1,559
Accounts receivable, net	Accounts receivable, net	$	99,851	$	54,557	Accounts receivable, net	$	238,090	$	71,295

Accounts payable and accrued expenses are comprised of the following:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021
Accounts payable	Accounts payable	$	26,305	$	5,052	Accounts payable	$	119,517	$	9,736
Accrued capital expenditures	Accrued capital expenditures	29,033		21,471		Accrued capital expenditures	116,731		24,377
Revenues payable	Revenues payable	42,060		42,115		Revenues payable	200,909		40,438
Accrued employee compensation and benefits						Accrued employee compensation and benefits	13,919		17,218
Accrued interest	Accrued interest	19,233		15,138		Accrued interest	31,927		15,259
Accrued derivative settlements payable	Accrued derivative settlements payable	8,996		3,488		Accrued derivative settlements payable	5,009		8,591
Accrued employee compensation and benefits		11,192		11,516
Accrued expenses and other	Accrued expenses and other	13,792		11,659		Accrued expenses and other	72,571		14,637
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	150,611	$	110,439	Accounts payable and accrued expenses	$	560,583	$	130,256

1417

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4—Long-Term Debt

The following table provides information about the Company’s long-term debt as of the dates indicated:


(in thousands)	(in thousands)	September 30, 2021		December 31, 2020		(in thousands)	September 30, 2022		December 31, 2021
Credit Facility due 2023		$	205,000	$	330,000
Credit Facility due 2027						Credit Facility due 2027	$	550,000	$	25,000

Senior Notes	Senior Notes					Senior Notes
8.00% Senior Secured Notes due 2025		—		127,073
5.375% Senior Notes due 2026	5.375% Senior Notes due 2026	289,448		289,448		5.375% Senior Notes due 2026	289,448		289,448
7.75% Senior Notes due 2026						7.75% Senior Notes due 2026	300,000		—
6.875% Senior Notes due 2027	6.875% Senior Notes due 2027	356,351		356,351		6.875% Senior Notes due 2027	356,351		356,351
3.25% Convertible Senior Notes due 2028	3.25% Convertible Senior Notes due 2028	170,000		—		3.25% Convertible Senior Notes due 2028	170,000		170,000
5.875% Senior Notes due 2029						5.875% Senior Notes due 2029	700,000		—
Unamortized debt issuance costs on Senior Notes	Unamortized debt issuance costs on Senior Notes	(13,831)		(12,790)		Unamortized debt issuance costs on Senior Notes	(11,577)		(13,279)
Unamortized debt discount	Unamortized debt discount	(2,031)		(21,458)		Unamortized debt discount	(50,552)		(1,955)
Senior Notes, net	Senior Notes, net	799,937		738,624		Senior Notes, net	1,753,670		800,565

Total long-term debt, net	Total long-term debt, net	$	1,004,937	$	1,068,624	Total long-term debt, net	$	2,303,670	$	825,565

Credit Agreement

~~CRP,~~On February 18, 2022, OpCo, the Company’s consolidated subsidiary, ~~has a~~entered into an amended and restated five-year secured credit ~~agreement~~facility (the “Credit Agreement”) with a syndicate of banks, ~~that provides for a five-year secured revolving~~which replaced its previous credit facility ~~maturing on~~that was set to mature in May ~~4, 2023~~2023. The restated Credit Agreement extended its maturity date to February 2027.

On July 15, 2022, OpCo and the Company entered into the first amendment to its Credit Agreement (the ~~“Credit Agreement”~~“Amendment”). The Amendment, among other things, waived compliance with certain restrictive covenants and provided the lenders’ consent to a planned Pre-Merger Reorganization (as defined within the Amendment) in order to enable the Merger to occur. In addition, the Amendment increased the elected commitments under the Credit Agreement to $1.5 billion from $750 million, increased the borrowing base to $2.5 billion from $1.15 billion, and became effective as of the September 1, 2022 Merger closing date.

As of September 30, ~~2021,~~2022, the Company had ~~$205.0~~$550 million in borrowings outstanding and ~~$488.5~~$944.2 million in available borrowing capacity, ~~which was~~ net of ~~$6.5~~$5.8 million in letters of credit outstanding. From May of 2020 until April of 2021, the borrowing base had been reduced by an availability blocker of $31.8 million tied to the Senior Secured Notes. However, this availability blocker was eliminated as a result of the Senior Secured Notes redemption defined and discussed below.outstanding, under its new facility.

The amount available to be borrowed under ~~CRP’s~~the Credit Agreement is equal to the lesser of (i) the borrowing base, (ii) aggregate elected commitments, which ~~are currently~~is set at ~~$700.0 million,~~$1.5 billion, or (iii) ~~$1.5~~$3.0 billion. The borrowing base is redetermined semi-annually in the spring and fall by the lenders in their sole discretion. It also allows for 2two optional borrowing base redeterminations ~~on January 1 and July 1.~~in between the scheduled redeterminations. The borrowing base depends on, among other things, the quantities of ~~CRP’s~~OpCo’s proved oil and natural gas reserves, estimated cash flows from ~~these~~those reserves, and the Company’s commodity hedge positions. Upon a redetermination of the borrowing base, if actual borrowings outstanding exceed the revised borrowing capacity, ~~CRP~~OpCo could be required to immediately repay a portion of its debt outstanding. Borrowings under the Credit Agreement are guaranteed by certain of ~~CRP’s~~OpCo’s subsidiaries, ~~and~~including entities that became subsidiaries of OpCo through the ~~Company. In connection with the Credit Agreement’s fall 2021 semi-annual borrowing base redetermination, the borrowing base and amount of elected commitments were reaffirmed at $700.0 million.~~Merger.

Borrowings under the Credit Agreement may be base rate loans or ~~LIBOR~~Secured Overnight Financing Rate (“SOFR”) loans. Interest is payable quarterly for base rate loans and at the end of the applicable interest period for ~~LIBOR~~SOFR loans. ~~LIBOR~~SOFR loans bear interest at ~~LIBOR (adjusted for statutory reserve requirements and subject to 1% floor)~~SOFR plus an applicable margin ~~which ranged~~ranging from ~~200~~175 to ~~300~~275 basis points, ~~as of September 30, 2021,~~ depending on the percentage of ~~the borrowing base utilized.~~elected commitments utilized, plus an additional 10 basis point credit spread adjustment. Base rate loans bear interest at a rate per annum equal to the greatest of: (i) the agent bank’s prime rate; (ii) the federal funds effective rate plus 50 basis points; or (iii) the adjusted ~~LIBOR~~Term SOFR rate for a one-month interest period plus 100 basis points, plus an applicable margin, ~~which ranged~~ranging from ~~100~~75 to ~~200~~175 basis points, ~~as of September 30, 2021,~~ depending on the percentage of the borrowing base utilized. ~~CRP~~OpCo also pays a commitment fee of 37.5 to 50 basis points on unused elected commitment amounts under its facility.

~~CRP’s~~The Credit Agreement contains restrictive covenants that limit ~~its~~our ability to, among other things: (i) incur additional indebtedness; (ii) make investments and loans; (iii) enter into mergers; (iv) make restricted payments; (v) repurchase or ~~declare dividends; (v)~~redeem junior debt; (vi) enter into commodity hedges exceeding a specified percentage of ~~the Company’s~~our expected production; ~~(vi)~~(vii) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness; ~~(vii)~~(viii) incur liens; ~~(viii)~~(ix) sell assets; and ~~(ix)~~(x) engage in transactions with affiliates.

~~CRP’s~~The Credit Agreement also requires itOpCo to maintain compliance with the following financial ratios:

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PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(i) a current ratio, which is the ratio of ~~CRP’s~~OpCo’s consolidated current assets (including an add back of unused commitments under ~~its~~the revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding ~~any~~the current portion of long-term debt ~~due~~ under the Credit Agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0;

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

and

(ii) a ~~first lien~~ leverage ratio, as defined within the Credit Agreement as the ratio of first lien debt to EBITDAX for the rolling four fiscal quarter period, which may not exceed 2.75 to 1.00 beginning with the quarter ending June 30, 2020 and extending through the quarter ending December 31, 2021, after which the maximum ratio shall decrease to 2.50 to 1.00 for each of the quarters ending in 2022; and

~~(iii) a leverage ratio, as also defined in~~ the Credit Agreement as the ratio of total funded debt to consolidated EBITDAX (as defined within the Credit Agreement) for the ~~rolling~~prior four fiscal quarter period. Pursuant to amendments to the Credit Facility, the leverage ratio was suspended until March 31, 2022, at which time, the ratio may not exceed 5.0 to 1.0, with such maximum ratio declining at a ratequarters, of ~~0.25 for each succeeding quarter until March 31, 2023 when the ratio is set at~~ not greater than ~~4.0~~3.5 to 1.0.

~~CRP~~The Credit Agreement includes fall away covenants, lower interest rates and reduced collateral requirements that OpCo may elect if OpCo is assigned an Investment Grade Rating (as defined within the Credit Agreement).

OpCo was in compliance with the covenants and the applicable financial ratios described above as of September 30, ~~2021 and through the filing of this Quarterly Report.~~2022.

Convertible Senior Notes

On March 19, 2021, ~~CRP~~OpCo issued $150.0 million in aggregate principal amount of 3.25% senior unsecured convertible notes due 2028 (the “Convertible Senior Notes”). On March 26, 2021, ~~CRP~~OpCo issued an additional $20.0 million of Convertible Senior Notes pursuant to the exercise of the underwriters’ over-allotment option to purchase additional Convertible Senior Notes. These issuances resulted in aggregate net proceeds to ~~CRP~~OpCo of $163.6 million, after deducting debt issuance costs of $6.4 million. Interest is payable on the Convertible Senior Notes semi-annually in arrears on each April 1 and October 1, commencing on October 1, 2021.

The Convertible Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of ~~CRP’s~~OpCo’s current subsidiaries.

The Convertible Senior Notes will mature on April 1, 2028 unless earlier repurchased, redeemed or converted. Before January 3, 2028, noteholders have the right to convert their Convertible Senior Notes (i) upon the occurrence of certain events, (ii) if the Company’s share price exceeds 130% of the conversion price for any 20 trading days during the last 30 consecutive trading days of a calendar quarter, after June 30, 2021, or (iii) if the trading price per $1,000 principal amount of the notes is less than 98% of the Company’s share price multiplied by the conversion rate, for a 10 consecutive trading day period. In addition, after January 2, 2028, noteholders may convert their Convertible Senior Notes at any time at their election through the second scheduled trading day immediately before the April 1, 2028 maturity date.

~~CRP~~OpCo can settle conversions by paying or delivering, as applicable, cash, shares of Class A Common Stock, or a combination of cash and shares of Class A Common Stock, at ~~CRP’s~~OpCo’s election. The initial conversion rate is 159.2610 shares of Class A Common Stock per $1,000 principal amount of Convertible Senior Notes, which represents an initial conversion price of approximately $6.28 per share of Class A Common Stock. The conversion rate and conversion price are subject to customary adjustments upon the occurrence of certain events (as defined in the indenture) which, in certain circumstances, will increase the conversion rate for a specified period of time. In the context of this issuance, we refer to the notes as convertible in accordance with ASC 470 - Debt. However, per the terms of the Convertible Senior Notes’ indenture, the Convertible Senior Notes were issued by ~~CRP~~OpCo and are exchangeable into shares of ~~Centennial Resource Development, Inc.’s~~the Company’s Class A Common Stock.

~~CRP~~OpCo has the option to redeem, in whole or in part, all of the Convertible Senior Notes at any time on or after April 7, 2025, at a redemption price equal to 100% of the principal amount, plus accrued and unpaid interest to the date of redemption, but only if the last reported sale price per share of Class A Common Stock exceeds 130% of the conversion price (i) for any 20 trading days during the 30 consecutive trading days ending on the day immediately before the date ~~CRP~~OpCo sends the related redemption notice; and (ii) also on the trading day immediately before the date ~~CRP~~OpCo sends such notice.

If certain corporate events occur, including certain business combination transactions involving the Company or ~~CRP~~OpCo or a stock de-listing with respect to the Class A Common Stock, noteholders may require ~~CRP~~OpCo to repurchase their Convertible Senior Notes at a cash repurchase price equal to the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest to the repurchase date.

Upon an Event of Default (as defined in the indenture governing the Convertible Senior Notes), the trustee or the holders of at least 25% of the aggregate principal amount of then outstanding Convertible Senior Notes may declare the Convertible Senior Notes immediately due and payable. In addition, a default resulting from certain events of bankruptcy or insolvency with respect to the Company, ~~CRP~~OpCo or any of the subsidiary guarantors will automatically cause all outstanding Convertible Senior Notes to become due and payable.

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

At issuance, the Company recorded a liability equal to the face value the Convertible Senior Notes, net of unamortized debt issuance costs, in ~~the line items~~ Long-term debt, net in the consolidated balance sheets. As of September 30, ~~2021,~~2022, the net liability ~~recorded~~ related to the Convertible Senior Notes was ~~$164.0~~$164.8 million.

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PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Capped Called Transactions

In connection with the issuance of the Convertible Senior Notes in March 2021, ~~CRP~~OpCo entered into privately negotiated capped call spread transactions with option counterparties (the “Capped Call Transactions”). The Capped Call Transactions cover the aggregate number of shares of Class A Common Stock that initially underlie the Convertible Senior Notes and are expected to (i) generally reduce potential dilution to the Class A Common Stock upon a conversion of the Convertible Senior Notes, and/or (ii) offset any cash payments ~~CRP~~OpCo is required to make in excess of the principal amount of the Convertible Senior Notes, subject to a cap. The Capped Call Transactions have an initial strike price of $6.28 per share of Class A Common Stock and an initial capped price of $8.4525 per share of Class A Common Stock, each of which are subject to certain customary adjustments upon the occurrence of certain corporate events, as defined in the capped call agreements.

The cost of the Capped Call Transactions was $14.7 million, which was funded from proceeds from the Convertible Senior Note issuance. The cost to purchase the Capped Call Transactions was recorded to ~~additional~~Additional paid-in capital in the consolidated ~~balances~~balance sheets and will not be subject to remeasurement each reporting period.

~~Senior Unsecured Notes Debt Exchange~~

On ~~May 22, 2020~~, CRP completed its private exchange of debt pursuant to which a $254.2 million aggregate principal amount of Senior Unsecured Notes (defined below) was validly tendered and exchanged by certain eligible bondholders for consideration consisting of $127.1 million aggregate principal amount (the “Debt Exchange”) of newly issued 8.00% second lien senior secured notes due 2025 (the “Senior Secured Notes”). The Company’s Debt Exchange was accounted for as an extinguishment of debt in accordance with ASC Topic 470-50, ~~Modifications and Extinguishments~~. As a result, a gain on the exchange of debt of $143.4 million was recognized in the consolidated statement of operations during the second quarter of 2020, which consisted of the carrying values of the Senior Unsecured Notes exchanged less the aggregate principal amount of the new Senior Secured Notes issued, net of their associated debt discount of ~~$21.0 million,~~ ~~which was based on the Senior Secured Notes’ estimated fair value on the exchange date.~~

~~Senior Secured Notes~~

~~In connection with the Debt Exchange, on May 22, 2020, the Company issued~~ ~~$127.1 million~~ aggregate principal amount of Senior Secured Notes. The Senior Secured Notes were recorded at their fair value on the date of issuance equal to 83.44% of par (a debt discount of $21.0 million) and net of their associated debt issuance costs of $4.2 million.

~~In April 2021, the Company redeemed at par all of its $127.1 million~~ ~~aggregate principal amount of Senior Secured Notes,~~ ~~which was the intended use of proceeds from the Convertible Senior Notes offering~~. The Company paid accrued interest of $3.8 million and recorded a loss on debt extinguishment of $22.2 million related to the write-off of all unamortized debt issuance costs and discount amounts associated with the Senior Secured Notes.

Senior Unsecured Notes

On September 1, 2022, in connection with the Merger, the Company entered into supplemental indentures whereby all of Colgate’s outstanding senior notes were assumed and became the senior unsecured debt of OpCo. The senior notes assumed by OpCo included $300 million of 7.75% senior notes due 2026 (the “2026 Colgate Senior Notes”) and $700 million of 5.875% senior notes due 2029 (the “2029 Colgate Senior Notes,” and together with the 2026 Colgate Senior Notes, the “Colgate Senior Notes”). The Company recorded the Colgate Senior Notes at their fair values as of the Merger closing date, which were equal to 100% of par for the 2026 Colgate Senior Notes and 92.96% of par (a $49.3 million debt discount) for the 2029 Colgate Senior Notes. Interest on the 2026 Colgate Senior Notes is paid semi-annually each February 15 and August 15 and interest on the 2029 Colgate Senior Notes is paid semi-annually each January 1 and July 1.

On March 15, 2019, ~~CRP~~OpCo issued $500.0 million of 6.875% senior notes due 2027 (the “2027 Senior Notes”) in a 144A private placement at a price equal to 99.235% of par that resulted in net proceeds to ~~CRP~~OpCo of $489.0 million, after deducting the original issuance discount of $3.8 million and debt issuance costs of $7.2 million. Interest is payable on the 2027 Senior Notes semi-annually in arrears on each April 1 and October 1, which commenced on October 1, 2019. In May 2020 in connection with the Debt Exchange, $143.7 million aggregate principal amount of the 2027 Senior Notes was exchanged for Senior Secured Notes. As of September 30, 2021, the remaining aggregate principal amount of 2027 Senior Notes outstanding was $356.4 million.

On November 30, 2017, ~~CRP~~OpCo issued at par $400.0 million of 5.375% senior notes due 2026 (the “2026 Senior Notes” and collectively with the 2027 Senior Notes and the Colgate Senior Notes, the “Senior Unsecured Notes”) in a 144A private placement that resulted in net proceeds to ~~CRP~~OpCo of $391.0 million, after deducting $9.0 million in debt issuance costs. Interest is payable on the 2026 Senior Notes semi-annually in arrears on each January 15 and July 15, which commenced on July 15, 2018.

In May 2020, ~~in connection with the Debt Exchange,~~ $110.6 million aggregate principal amount of the 2026 Senior Notes ~~was~~and $143.7 million aggregate principal amount of the 2027 Senior Notes were validly tendered and exchanged by certain eligible bondholders for consideration consisting of $127.1 million aggregate principal amount of 8.00% second lien senior secured notes, which were fully redeemed at par in connection with the Convertible Senior ~~Secured Notes.~~Notes issuance during the second quarter of 2021. As of September 30, ~~2021,~~2022, the remaining aggregate principal amount of 2027 Senior Notes and 2026 Senior Notes outstanding was $356.4 million and $289.4 ~~million.~~million, respectively.

The Senior Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of ~~CRP’s~~OpCo’s current subsidiaries that guarantee ~~CRP’s revolving credit facility.~~

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

OpCo’s Credit Agreement.

At any time prior to January 15, 2021 (for the 2026 Senior Notes) ~~and~~, April 1, 2022 (for the 2027 Senior Notes), February 15, 2024 (for the 2026 Colgate Senior Notes), and July 1, 2024 (for the 2029 Colgate Senior Notes) (the “Optional Redemption Dates,” ~~CRP~~) OpCo may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of ~~either~~each series of Senior Unsecured Notes with an amount of cash not greater than the net cash proceeds of certain equity offerings at a redemption price equal to 105.375% (for the 2026 Senior Notes) ~~and~~, 106.875% (for the 2027 Senior Notes), 107.750% (for the 2026 Colgate Senior Notes), and 105.875% (for the 2029 Colgate Senior Notes) of the principal amount of the Senior Unsecured Notes of the applicable series redeemed, plus any accrued and unpaid interest to the date of redemption; provided that at least 65% of the aggregate principal amount of each such series of Senior Unsecured Notes remains outstanding immediately after such redemption, and the redemption occurs within 180 days of the closing date of such equity offering.

At any time prior to the Optional Redemption Dates, ~~CRP~~OpCo may, on any one or more occasions, redeem all or a part of the Senior Unsecured Notes at a redemption price equal to 100% of the principal amount of the Senior Unsecured Notes redeemed, plus a “make-whole” premium, and any accrued and unpaid interest as of the date of redemption. On and after the Optional Redemption Dates, ~~CRP~~OpCo may redeem the Senior Unsecured Notes, in whole or in part, at redemption prices expressed as percentages of principal amount plus accrued and unpaid interest to the redemption date.

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PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

If ~~CRP~~OpCo experiences certain defined changes of control (and, in some cases, followed by a ratings decline), each holder of the Senior Unsecured Notes may require ~~CRP~~OpCo to repurchase all or a portion of its Senior Unsecured Notes for cash at a price equal to 101% of the aggregate principal amount of such Senior Unsecured Notes, plus any accrued but unpaid interest to the date of repurchase.

The indentures governing the Senior Unsecured Notes contain covenants that, among other things and subject to certain exceptions and qualifications, limit ~~CRP’s~~OpCo’s ability and the ability of ~~CRP’s~~OpCo’s restricted subsidiaries to: (i) incur or guarantee additional indebtedness or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) enter into agreements that restrict dividends or other payments from their subsidiaries to them; (vii) consolidate, merge or transfer all or substantially all of their assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. ~~CRP~~OpCo was in compliance with these covenants as of September 30, ~~2021 and through the filing of this Quarterly Report.~~2022.

Upon an Event of Default (as defined in the indentures governing the Senior Unsecured Notes), the trustee or the holders of at least 25% (or in the case of the Colgate Senior Notes, 30%) of the aggregate principal amount of then outstanding Senior Unsecured Notes may declare the Senior Unsecured Notes immediately due and payable. In addition, a default resulting from certain events of bankruptcy or insolvency with respect to ~~CRP,~~OpCo, any restricted subsidiary of ~~CRP~~OpCo that is a significant subsidiary, or any group of restricted subsidiaries that, taken together, would constitute a significant subsidiary, will automatically cause all outstanding Senior Unsecured Notes to become due and payable.

Note 5—Asset Retirement Obligations

The following table summarizes changes in the Company’s asset retirement obligations (“ARO”) associated with its working interests in oil and gas properties for the nine months ended September 30, ~~2021:~~2022:


(in thousands)
Asset retirement obligations, beginning of period	$	~~17,009~~17,240
Liabilities assumed in the Merger	21,156
Liabilities incurred	~~131~~1,004

Liabilities divested and settled	~~(351)~~(103)
Accretion expense	~~942~~937
Revisions to estimated cash flows	~~(21)~~(92)
Asset retirement obligations, end of period	$	~~17,710~~40,142

ARO reflect the present value of the estimated future costs associated with the plugging and abandonment of oil and gas wells, removal of equipment and facilities from leased acreage and land restoration in accordance with applicable local, state and federal laws. Inherent in the fair value calculation of ARO are numerous estimates and assumptions, including plug and abandonment settlement amounts, inflation factors, credit adjusted discount rates and timing of settlement. To the extent future revisions to these assumptions impact the value of the existing ARO liabilities, a corresponding offsetting adjustment is made to the oil and gas property balance. Changes in the liability due to the passage of time are recognized as an increase in the carrying amount of the liability with an offsetting charge to accretion expense, which is included within depreciation, depletion and amortization.

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Note 6—Stock-Based Compensation

On ~~October 7, 2016,~~April 27, 2022, the stockholders of the Company approved the ~~Centennial Resource Development, Inc.~~second amended and restated 2016 Long Term Incentive Plan (the “LTIP”), ~~which authorized an aggregate of 16,500,000 shares of Common Stock for issuance to employees and directors. On April 29, 2020, the stockholders of the Company approved the amended and restated LTIP,~~ which, among other things, increased the number of shares of Class A Common Stock authorized for issuance ~~by 8,250,000~~to employees and directors from 24,750,000 shares to 44,250,000 shares. The LTIP provides for grants of restricted stock, stock options (including incentive stock options and nonqualified stock options), restricted stock units (including performance stock units), stock appreciation rights and other stock or cash-based awards.

Stock-based compensation expense is recognized within both General and administrative expenses and Exploration and other expenses in the consolidated statements of operations. The Company accounts for forfeitures of awards granted under the LTIP as they ~~occur in determining compensation expense.~~occur.

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PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table summarizes stock-based compensation expense recognized for the periods presented:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021
Equity Awards	Equity Awards									Equity Awards
Restricted stock	Restricted stock	$	22,064	$	3,864	$	29,206	$	11,605	Restricted stock	$	7,599	$	22,064	$	15,519	$	29,206
Stock option awards	Stock option awards	159		399		664		1,674		Stock option awards	13		159		70		664
Performance stock units	Performance stock units	929		653		2,214		2,659		Performance stock units	41,079		929		45,161		2,214
Other stock-based compensation expense(1)	Other stock-based compensation expense(1)	81		112		215		226		Other stock-based compensation expense(1)	78		81		221		215
Total stock-based compensation - equity awards	Total stock-based compensation - equity awards	23,233		5,028		32,299		16,164		Total stock-based compensation - equity awards	48,769		23,233		60,971		32,299

Liability Awards	Liability Awards									Liability Awards
Restricted stock units	Restricted stock units	(3,563)		290		4,392		290		Restricted stock units	—		(3,563)		—		4,392
Performance stock units	Performance stock units	4,619		197		21,738		197		Performance stock units	(19,916)		4,619		(14,789)		21,738
Total stock-based compensation - liability awards	Total stock-based compensation - liability awards	1,056		487		26,130		487		Total stock-based compensation - liability awards	(19,916)		1,056		(14,789)		26,130

Total stock-based compensation expense	Total stock-based compensation expense	$	24,289	$	5,515	$	58,429	$	16,651	Total stock-based compensation expense	$	28,853	$	24,289	$	46,182	$	58,429

(1) Includes expenses related to the Company’s Employee Stock Purchase Plan (the “ESPP”). In May 2019, an aggregate of 2,000,000 shares were authorized by stockholders for issuance under the ESPP, which became effective on July 1, 2019.

Equity Awards

The Company has restricted stock, stock options and performance stock units (“PSUs”) outstanding that were granted under the LTIP as discussed below. Each award has service-based and, in the case of the PSUs, market-based vesting requirements, and are expected to be settled in shares of Class A Common Stock upon vesting. As a result, these awards are classified as equity-based awards in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”).

In connection with the Merger, the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) approved a resolution to extend severance benefits under the Company’s Second Amended and Restated Severance Plan (the “Severance Plan”) to employees that experience a Qualifying Termination (as defined in the Severance Plan) following the Merger. As a result, affected employees of the Company will receive an accelerated vesting of their unvested restricted stock awards and PSUs upon termination, which will change the terms of the vesting conditions and will be treated as modifications in accordance with ASC Topic 718, Compensation-Stock Compensation (“ASC 718”). During the three months ended September 30, 2022, six employees and two non-employee directors were terminated and received accelerated vesting of their unvested stock awards and PSUs. These modifications resulted in an increase to total stock-based compensation expense of $7.0 million as a result of the change in the fair value of the modified awards. The shares and PSUs that were accelerated are included within the vested line items in the below tables.

Restricted Stock

The following table provides information about restricted stock activity during the nine months ended September 30, ~~2021:~~2022:


		Restricted Stock	Weighted Average Grant-Date Fair Value			Restricted Stock	Weighted Average Fair Value
Unvested balance as of December 31, 2020		12,093,723	$	2.33
Unvested balance as of December 31, 2021					Unvested balance as of December 31, 2021	10,143,687	$	2.85
Granted	Granted	3,091,222	5.25		Granted	5,550,308	7.70
Vested	Vested	(4,368,364)	3.21		Vested	(5,880,771)	3.11
Forfeited	Forfeited	(14,912)	7.07		Forfeited	(99,809)	5.44
Unvested balance as of September 30, 2021		10,801,669	2.80
Unvested balance as of September 30, 2022					Unvested balance as of September 30, 2022	9,713,415	5.46

The Company grants service-based restricted stock to ~~executive~~certain officers and employees, which vest ratably over a three-year service period, and to directors, which vest over a one-year service period. Compensation cost for these service-based restricted stock grants is based on the closing market price of the Company’s Class A Common Stock on the grant date, and such costs are recognized ratably over the applicable vesting period. There were 3.1 million shares of restricted stock granted during the nine months ended September 30, 2021, including 0.6 million shares of restricted stock units that can be settled in either Common Stock or cash upon vesting at the Company’s discretion. The Company intends and has the ability to settle these restricted stock units in Common Stock upon vesting and has treated them as equity-based awards accordingly. The total fair value of restricted stock that vested

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

during the nine months ended September 30, 2022 and 2021 ~~and 2020~~ was ~~$14.0~~$18.3 million and ~~$16.1~~$14.0 million, respectively. Unrecognized compensation cost related to restricted shares that were unvested as of September 30, ~~2021~~2022 was ~~$26.1~~$48.7 million, which the Company expects to recognize over a weighted average period of ~~2.3~~2.6 years.

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Stock Options

Stock options that have been granted under the LTIP expire ten years from the grant date and vest ratably over their three-year service period. The exercise price for an option granted under the LTIP is the closing market price of the Company’s Class A Common Stock on the grant date.

Compensation cost for stock options is based on the grant-date fair value of the award, which is then recognized ratably over the vesting period of three years. The Company estimates the fair value using the Black-Scholes option-pricing model. Expected volatilities are based on the weighted average historical volatilities of the Company and an identified set of comparable companies. Expected term is based on the simplified method and is estimated as the mid-point between the weighted average vesting term and the time to expiration as of the grant date. The Company uses U.S. Treasury bond rates in effect at the grant date for its risk-free interest rates.

The following table summarizes the assumptions and related information used to determine the grant-date fair value of stock option awards for the nine months ended September 30, 2020. No stock options were granted during the nine months ended September 30, 2021.


			~~Nine Months Ended September 30, 2020~~
~~Weighted average grant-date fair value per share~~			~~$1.16~~
~~Expected term (in years)~~			6
~~Expected stock volatility~~			~~86%~~
~~Dividend yield~~			—%
~~Risk-free interest rate~~			~~1.0%~~

The following table provides information about stock option awards outstanding during the nine months ended September 30, ~~2021:~~2022:


		Options	Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value (in thousands)			Options	Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 31, 2020		2,363,334	$	15.07
Outstanding as of December 31, 2021								Outstanding as of December 31, 2021	2,212,798	$	15.31
Granted	Granted	—	—					Granted	—	—
Exercised	Exercised	(16,367)	0.93			$	80	Exercised	(9,000)	5.06			$	27
Forfeited	Forfeited	(13,836)	9.00					Forfeited	(2,500)	7.58
Expired	Expired	(60,499)	17.19					Expired	(76,832)	14.86
Outstanding as of September 30, 2021		2,272,632	15.15		5.71	$	453
Exercisable as of September 30, 2021		2,092,443	15.68		5.53	$	92

Outstanding as of September 30, 2022								Outstanding as of September 30, 2022	2,124,466	15.43		4.7	$	326
Exercisable as of September 30, 2022								Exercisable as of September 30, 2022	2,095,128	15.61		4.7	$	202

The total fair value of stock options that vested during the nine months ended September 30, 2022 and 2021 ~~and 2020~~ was ~~$0.8~~$0.3 million and ~~$4.7~~$0.8 million, respectively. The intrinsic value of the stock options exercised was minimal for the nine months ended September 30, ~~2021~~2022 and ~~2020.~~September 30, 2021. As of September 30, ~~2021,~~2022, there was ~~$0.2~~less than $0.1 million of unrecognized compensation cost related to unvested stock options, which the Company expects to recognize on a pro-rata basis over a weighted-average period of ~~0.9~~0.4 years.

Performance Stock Units

The Company grants performance stock units (“PSU”) to certain ~~executive~~ officers that are subject to market-based vesting criteria as well as a ~~three-year~~ service ~~period.~~period ranging from three to five years. Vesting at the end of the ~~three-year~~ service period ~~is subject~~depends on the Company’s absolute annualized total shareholder return (“TSR”) over the service period, as well as the Company’s TSR relative to the ~~condition that the Company’s stock price increases by a greater percentage, or decreases by a lesser percentage, than the average percentage increase or decrease, respectively, of the stock prices~~TSR of a peer group of companies. These market-based conditions must be met in order for the stock awards to vest, and it is therefore possible that no shares could ultimately vest. However, the Company recognizes compensation expense for the ~~performance stock units~~PSUs subject to market conditions regardless of whether it becomes probable that these conditions will be met or not, and compensation expense is not reversed if vesting does not actually occur.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~During the nine months ended September 30, 2021, there were 1.1 million shares of~~The Company’s performance stock units ~~granted that~~currently outstanding can be settled in either Class A Common Stock or cash upon vesting at the Company’s discretion. The Company intends to settle ~~these~~all performance stock units in Class A Common Stock and has ~~treated them as equity-based awards accordingly. These performance stock units were legally granted to certain executive officers. At this time, however, the Company currently does not have~~ sufficient shares available under the LTIP to settle the units in Class A Common Stock at the potential future vesting ~~date in~~dates. Accordingly, the ~~third quarter 2024. As a result, a grant date, in accordance~~PSUs have been treated as equity-based awards with ~~ASC 718, has not yet been fully achieved, and the awards’~~their fair ~~value will be re-measured~~values determined as of ~~each balance sheet date. Stock compensation expense amounts recognized in future periods for these awards will vary until sufficient shares are available under~~ the ~~LTIP and all~~ grant or modification date, ~~criteria have been satisfied accordingly.~~as applicable. The ~~information included in the tables below reflects the~~ fair ~~value~~values of the ~~performance stock units as of September 30, 2021.~~

~~The fair value was~~awards are estimated using a Monte Carlo valuation model. The Monte Carlo valuation model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility was calculated based on the historical volatility of the Company’s Class A Common Stock, and the risk-free interest rate is based on U.S. Treasury yield curve rates with maturities consistent with the ~~three-year~~ vesting ~~period.~~periods.

The following table summarizes the key assumptions and related information used to determine the fair value of performance stock units ~~awarded~~measured during the ~~periods presented:~~nine months ended September 30, 2022:


			~~Nine Months Ended September 30, 2021~~
~~Weighted average fair value per share~~			~~$11.30~~
~~Number of simulations~~			~~10,000,000~~
~~Expected implied stock volatility~~			~~98.8%~~
~~Dividend yield~~			—%
~~Risk-free interest rate~~			~~0.5%~~


	2020 Awards(1)	2021 Awards(2)	2022 Awards (Pre-Merger)	2022 Awards (Post-Merger)
Weighted average fair value per share	$10.81	$12.79	$13.81	$14.11
Number of simulations	10,000,000	10,000,000	10,000,000	10,000,000
Expected implied stock volatility	68.5%	99.5%	96.3%	66.1%
Dividend yield	—%	—%	—%	—%
Risk-free interest rate	3.2%	2.3%	2.7%	3.4%

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(1) During the nine months ended September 30, 2022, the Company amended the 2020 PSU agreement to allow the units to be settleable in either cash or Class A Common Stock upon vesting at the Company’s discretion. The awards had previously been treated as liability based awards and following the amendment were modified and reclassified to equity as discussed below. As a result, the awards’ fair value was redetermined on the date of modification, August 18, 2022.

(2) The 2021 PSU awards’ fair value was measured on April 27, 2022, which represents the established grant date as sufficient shares become available under the LTIP to settle 2021 awards in Class A Common Stock.

The following table provides information about performance stock units outstanding during the nine months ended September 30, ~~2021:~~2022:


	Awards	Weighted Average Fair Value
Unvested balance as of December 31, 2021	1,580,980	$	8.54
Granted	5,486,710	14.08
Modified awards	4,688,707	10.81
Vested	(518,621)	5.30
Cancelled	(202,591)	6.68
Forfeited	—	—
Unvested balance as of September 30, 2022	11,035,185	12.58

Awards Weighted Average Fair Value
Unvested balance as of December 31, 2020 679,281 $ 11.13
Granted 1,094,767 11.30
Vested — —
Cancelled (193,068) 22.35
Forfeited — —
Unvested balance as of September 30, 2021 1,580,980 9.88

The total fair value of performance stock units that vested during the nine months ended September 30, 2022 was $2.7 million. As of September 30, ~~2021,~~2022, there was ~~$12.5~~$93.5 million of unrecognized compensation cost related to ~~performance stock units~~PSUs that were unvested, which the Company expects to recognize on a pro-rata basis over a weighted average period of ~~2.7~~2.3 years.

Liability Awards

The Company ~~has restricted stock units and~~had performance stock units that were granted under the LTIP, which ~~will be settled~~were settleable in cash and ~~are~~were classified as liability awards in accordance with ASC 718. The Company also had restricted stock units granted under the LTIP that were settleable in cash and that were classified as liability awards, but all such units were settled in their entirety during the third quarter of 2021. Compensation cost for ~~the~~these liability awards is based on the fair value of the units as of the balance sheet date as further discussed below, and such costs are recognized ratably over the service periods of the awards. As the fair value of liability awards is required to be re-measured each period end, stock compensation expense amounts recognized ~~in future periods~~ for these awards will vary. The estimated future cash payments ofassociated with these awards are presented as liabilities within Other long-term liabilities in the consolidated balances sheets.

Restricted Stock Units

The Company granted 5.5 million restricted stock units during the third quarter of 2020 to certain officers (non-NEOs) and employees that ~~are~~were settleable in cash upon vesting. The restricted stock units ~~vest~~vested annually in one-third increments over a three-year service period, with the first portion vesting on September 1, 2021. After one year from the grant date, however, the remaining two-thirds of unvested restricted stock units ~~can~~could vest immediately, on an accelerated basis, if they meet certain market-based vesting criteria equal to the maximum return percentage ~~discussed below~~ for at least 20 out of any 30 consecutive trading days. Additionally, the restricted stock units ~~include~~included maximum and minimum return amounts equal to 400% and 25%, respectively, of the closing market price of the Company’s Class A Common Stock on the grant date.

~~Table~~During the second quarter of ~~Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~The~~2021, the Company amended these restricted stock unit agreements to (i) allow the units to be settleable in either cash or Class A Common Stock upon vesting at the Company’s discretion and (ii) remove the maximum and minimum return amounts if the units are settled in Class A Common Stock. The amended terms were effective July 1, 2021, and at ~~this~~that time, the Company intended to settle a portion of these restricted stock units in cash. As a result, the awards continued to be classified as liabilities in accordance with ASC 718.

During the third quarter of 2021, the maximum return event (described above) occurred resulting in an immediate vesting of all the outstanding restricted stock units on September 1, 2021. The Company settled 1.8 million of the restricted stock units in cash resulting in a $6.2 million cash payment, and the remaining units were settled in Class A Common Stock. The portion of the units that were settled in Class A Common Stock were recognized as equity instruments on the vesting date, which resulted in $13.6 million of incremental stock compensation expense being recognized during the ~~third quarter~~year ended December 31, 2021. There are no remaining restricted stock units outstanding as of ~~2021.~~September 30, 2022.

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Performance Stock Units

The Company granted 5.5 million ~~performance stock units (“PSU”)~~PSUs during third quarter of 2020 to certain executive officers that ~~will be settled~~were settleable in cash and ~~are~~ subject to market-based vesting criteria as well as a three-year service condition. Vesting at the end of the ~~three-year~~ service period ~~is subject~~depends on the Company’s TSR relative to the ~~condition that the Company’s stock price increases by a greater percentage, or decreases by a lessor percentage, than the average percentage increase or decrease, respectively, of the stock price~~TSR of a peer group of companies. ~~These market-based conditions must~~

On August 18, 2022, the Compensation Committee amended the 2020 PSU agreement to allow a portion of the units to be ~~met~~settled in ~~order for~~either cash or Class A Common Stock upon vesting at the ~~PSU~~Company’s discretion. The Company has the ability and currently intends to settle the 4.7 million PSUs that were modified in shares. As a result, these units were reclassified to equity based awards ~~to vest,~~in accordance with ASC 718 and ~~it is therefore possible that no units could ultimately vest and cumulative~~$10.0 million of incremental stock compensation expense was recognized ~~for these awards would then be reduced to zero. As~~during the third quarter of ~~September 30, 2021, there was $35 million of unrecognized compensation cost that represents~~2022 associated with the ~~unvested portion of~~change in the fair value of the units.

The remaining PSUs atwere accelerated vested during the third quarter of 2022 through Compensation Committee approval and following a qualifying termination as a result of the Merger (discussed above). Both accelerations were paid out in cash and such payouts were based on the actual performance payout level on the vesting dates. As a result, 0.8 million PSUs were settled in a $9.4 million cash payment during the three months ended September 30, ~~2021 and will be recognized over a weighted average period of 1.8 years.~~

~~Liability Awards Fair Value~~

~~The fair value of the~~2022. There are no liability classified performance stock units was estimated using a Monte Carlo valuation model as of the balance sheet date. The Monte Carlo valuation model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility was calculated based on the historical volatility of the Company’s Common Stock as well as the peer companies that are specified in the PSU award agreement. The risk-free rate is based on U.S. Treasury yield curve rates with maturities consistent with the remaining vesting or performance period.

~~The following table summarizes the key assumptions and related information used to determine the fair value of the liability awards~~outstanding as of September 30, ~~2021:~~


						~~Performance stock units~~

~~Number of simulations~~						~~10,000,000~~
~~Expected implied stock volatility~~						~~70.1%~~
~~Dividend yield~~						—%
~~Risk-free interest rate~~						~~0.2%~~

2022.

Note 7—Derivative Instruments

The Company is exposed to certain risks relating to its ongoing business operations and may use derivative instruments to manage its exposure to commodity price risk from time to time.

Commodity Derivative Contracts

Historically, prices received for crude oil and natural gas production have been volatile because of supply and demand factors, worldwide political factors, general economic conditions and seasonal weather patterns. The Company may periodically use derivative instruments, such as swaps, costless collars and basis swaps, to mitigate its exposure to declines in commodity prices and to the corresponding negative impacts such declines can have on its cash flows from operations, returns on capital and other financial results. While the use of these instruments limits the downside risk of adverse price changes, their use may also limit future revenues from favorable price changes. The Company does not enter into derivative contracts for speculative or trading purposes.

Commodity Swap and Collar Contracts. The Company may use commodity derivative instruments known as fixed price swaps to realize a known price for a specific volume of production, basis swaps to hedge the difference between the index price and a local or future index price, or costless collars to establish fixed price floors and ceilings. All transactions are settled in cash with one party paying the other for the resulting difference in price multiplied by the contract volume.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The following table summarizes the approximate volumes and average contract prices of derivative contracts the Company had in place as of September 30, ~~2021:~~2022:
Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Crude Price
($/Bbl)(1)
Crude oil swaps
NYMEX WTI October 2021 - December 2021 828,000 9,000 $49.82
January 2022 - March 2022 1,080,000 12,000 65.03
April 2022 - June 2022 1,092,000 12,000 65.28
July 2022 - September 2022 690,000 7,500 63.99
October 2022 - December 2022 598,000 6,500 64.11
ICE Brent October 2021 - December 2021 322,000 3,500 $58.10
Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Collar Price Ranges
($/Bbl)(2)
Crude oil collars
NYMEX WTI October 2021 - December 2021 92,000 1,000 $42.00 - $50.10
January 2022 - March 2022 225,000 2,500 63.60 - 74.30
April 2022 - June 2022 227,500 2,500 63.20 - 72.41
ICE Brent October 2021 - December 2021 138,000 1,500 $66.67 - $74.80

Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Differential
($/Bbl)(3)
Crude oil basis differential swaps October 2021 - December 2021 644,000 7,000 $0.26
January 2022 - March 2022 360,000 4,000 0.18
April 2022 - June 2022 364,000 4,000 0.18
July 2022 - September 2022 368,000 4,000 0.18
October 2022 - December 2022 368,000 4,000 0.18

Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Differential
($/Bbl)(4)
Crude oil roll differential swaps January 2022 - March 2022 450,000 5,000 $0.60
April 2022 - June 2022 455,000 5,000 0.60
July 2022 - September 2022 460,000 5,000 0.60
October 2022 - December 2022 460,000 5,000 0.60


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Crude Price ($/Bbl)(1)
Crude oil swaps	October 2022 - December 2022	2,530,000	27,500	$89.17
	January 2023 - March 2023	1,575,000	17,500	90.58
	April 2023 - June 2023	1,592,500	17,500	87.64
	July 2023 - September 2023	1,472,000	16,000	86.36
	October 2023 - December 2023	1,472,000	16,000	84.11
	January 2024 - March 2024	1,092,000	12,000	78.46
	April 2024 - June 2024	1,092,000	12,000	77.30
	July 2024 - September 2024	1,104,000	12,000	76.21
	October 2024 - December 2024	1,104,000	12,000	75.27

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Collar Price Ranges ($/Bbl)(2)
Crude oil collars	October 2022 - December 2022	644,000	7,000	$80.00	-	$104.17
	January 2023 - March 2023	810,000	9,000	75.56	-	91.15
	April 2023 - June 2023	819,000	9,000	75.56	-	91.15
	July 2023 - September 2023	644,000	7,000	76.43	-	92.70
	October 2023 - December 2023	644,000	7,000	76.43	-	92.70


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Differential ($/Bbl)(3)
Crude oil basis differential swaps	October 2022 - December 2022	1,848,886	20,097	$0.62
	January 2023 - March 2023	729,999	8,111	0.55
	April 2023 - June 2023	739,499	8,126	0.55
	July 2023 - September 2023	749,000	8,141	0.52
	October 2023 - December 2023	749,002	8,141	0.52
	January 2024 - March 2024	637,000	7,000	0.43
	April 2024 - June 2024	637,000	7,000	0.43
	July 2024 - September 2024	644,000	7,000	0.43
	October 2024 - December 2024	644,000	7,000	0.43


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Differential ($/Bbl)(4)
Crude oil roll differential swaps	October 2022 - December 2022	2,760,000	30,000	$1.85
	January 2023 - March 2023	1,350,000	15,000	1.34
	April 2023 - June 2023	1,365,000	15,000	1.25
	July 2023 - September 2023	1,380,000	15,000	1.23
	October 2023 - December 2023	1,380,000	15,000	1.22
	January 2024 - March 2024	637,000	7,000	0.75
	April 2024 - June 2024	637,000	7,000	0.74
	July 2024 - September 2024	644,000	7,000	0.73
	October 2024 - December 2024	644,000	7,000	0.72

(1) These crude oil swap transactions are settled based on ~~either~~ the NYMEX WTI ~~or ICE Brent~~ index price ~~as applicable,~~ on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.

(2) These crude oil collars are settled based on the NYMEX WTI ~~or ICE Brent~~ index price ~~as applicable,~~ on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.

(3) These crude oil basis swap transactions are settled based on the difference between the arithmetic average of ARGUS MIDLAND WTI and ARGUS WTI CUSHING indices, during each applicable monthly settlement period.

(4) These crude oil roll swap transactions are settled based on the difference between the arithmetic average of NYMEX WTI calendar month prices and the physical crude oil delivery month price.

Period Volume (MMBtu) Volume (MMBtu/d)
Wtd. Avg. Gas Price
($/MMBtu)(1)
Natural gas swaps October 2021 - December 2021 3,680,000 40,000 $2.95
January 2022 - March 2022 2,700,000 30,000 3.00
April 2022 - June 2022 2,730,000 30,000 3.24
July 2022 - September 2022 2,760,000 30,000 3.24
October 2022 - December 2022 1,540,000 16,739 3.15

Period Volume (MMBtu) Volume (MMBtu/d)
Wtd. Avg. Differential
($/MMBtu)(2)
Natural gas basis differential swaps October 2021 - December 2021 4,290,000 46,630 $(0.24)
January 2022 - March 2022 2,700,000 30,000 (0.18)
Period Volume (MMBtu) Volume
(MMBtu/d)
Wtd. Avg. Collar Price Ranges
($/MMBtu)(3)
Natural gas collars October 2021 - December 2021 1,220,000 13,261 $3.15 - $4.65
January 2022 - March 2022 1,800,000 20,000 3.15 - 4.65
April 2022 - June 2022 910,000 10,000 3.00 - 3.68
July 2022 - September 2022 920,000 10,000 3.00 - 3.68
October 2022 - December 2022 310,000 3,370 3.00 - 3.68

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Gas Price ($/MMBtu)(1)
Natural gas swaps	October 2022 - December 2022	3,432,715	37,312	$5.86
	January 2023 - March 2023	1,670,157	18,557	7.64
	April 2023 - June 2023	1,572,752	17,283	4.70
	July 2023 - September 2023	1,486,925	16,162	4.70
	October 2023 - December 2023	1,413,628	15,366	4.90
	January 2024 - March 2024	464,919	5,109	5.01
	April 2024 - June 2024	446,321	4,905	3.93
	July 2024 - September 2024	429,388	4,667	4.01
	October 2024 - December 2024	413,899	4,499	4.32


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Differential ($/MMBtu)(2)
Natural gas basis differential swaps	October 2022 - December 2022	6,900,000	75,000	$(0.72)
	January 2023 - March 2023	6,075,000	67,500	(1.10)
	April 2023 - June 2023	6,142,500	67,500	(1.30)
	July 2023 - September 2023	6,210,000	67,500	(1.30)
	October 2023 - December 2023	6,210,000	67,500	(1.30)
	January 2024 - March 2024	1,820,000	20,000	(0.59)
	April 2024 - June 2024	1,820,000	20,000	(0.67)
	July 2024 - September 2024	1,840,000	20,000	(0.66)
	October 2024 - December 2024	1,840,000	20,000	(0.64)


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Collar Price Ranges ($/MMBtu)(3)
Natural gas collars	October 2022 - December 2022	5,617,285	61,057	$5.64	-	$9.11
	January 2023 - March 2023	7,104,843	78,943	4.67	-	10.33
	April 2023 - June 2023	6,389,748	70,217	3.64	-	7.62
	July 2023 - September 2023	6,563,075	71,338	3.64	-	7.52
	October 2023 - December 2023	6,636,372	72,134	3.66	-	8.22
	January 2024 - March 2024	3,175,081	34,891	3.36	-	9.44
	April 2024 - June 2024	1,373,679	15,095	3.00	-	6.45
	July 2024 - September 2024	1,410,612	15,333	3.00	-	6.52
	October 2024 - December 2024	1,426,101	15,501	3.25	-	7.30

(1) These natural gas swap contracts are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual swap price for the volumes stipulated.

(2) These natural gas basis swap contracts are settled based on the difference between the Inside FERC’s West Texas WAHA price and the NYMEX price of natural gas, during each applicable monthly settlement period.

(3) These natural gas collars are settled based on the NYMEX Henry Hub price on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.

Derivative Instrument Reporting. The Company’s oil and natural gas derivative instruments have not been designated as hedges for accounting purposes. Therefore, all gains and losses are recognized in the Company’s consolidated statements of operations. All derivative instruments are recorded at fair value in the consolidated balance sheets, other than derivative instruments that meet the “normal purchase normal sale” exclusion, and any fair value gains and losses are recognized in current period earnings.

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents the impact of the Company’s derivative instruments in its consolidated statements of operations for the periods presented:

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Net gain (loss) on derivative instruments $ (44,527) $ (1,968) $ (150,685) $ (40,330)

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2022		2021		2022		2021


Net gain (loss) on derivative instruments	$	181,308	$	(44,527)	$	17,651	$	(150,685)

Offsetting of Derivative Assets and Liabilities. The Company’s commodity derivatives are included in the accompanying consolidated balance sheets as derivative assets and liabilities. The Company nets its financial derivative instrument fair value amounts executed with the same counterparty pursuant to ISDA master netting agreements, which provide for net settlement over the term of the contract and in the event of default or termination of the contract. The tables below summarize the fair value amounts and the classification in the consolidated balance sheets of the Company’s derivative contracts outstanding at the respective balance dates, as well as the gross recognized derivative assets, liabilities and offset amounts:


		Balance Sheet Classification	Gross Fair Value Asset/Liability Amounts		Gross Amounts Offset(1)		Net Recognized Fair Value Assets/Liabilities			Balance Sheet Classification	Gross Fair Value Asset/Liability Amounts		Gross Amounts Offset(1)		Net Recognized Fair Value Assets/Liabilities
(in thousands)	(in thousands)		September 30, 2021						(in thousands)		September 30, 2022
Derivative Assets	Derivative Assets								Derivative Assets
Commodity contracts	Commodity contracts	Prepaid and other current assets	$	3,387	$	(3,387)	$	—	Commodity contracts	Derivative instruments	$	370,681	$	(224,205)	$	146,476
		Other noncurrent assets	49		(49)		—			Other noncurrent assets	139,146		(70,046)		69,100
Derivative Liabilities	Derivative Liabilities								Derivative Liabilities
Commodity contracts	Commodity contracts	Other current liabilities	79,759		(3,387)		76,372		Commodity contracts	Derivative instruments	236,323		(224,205)		12,118
		Other noncurrent liabilities	3,377		(49)		3,328			Other noncurrent liabilities	70,403		(70,046)		357

			December 31, 2020								December 31, 2021
Derivative Assets	Derivative Assets								Derivative Assets
Commodity contracts	Commodity contracts	Prepaid and other current assets	$	6,131	$	(6,131)	$	—	Commodity contracts	Derivative instruments	$	3,284	$	(3,284)	$	—
		Other noncurrent assets	152		$	(100)	52			Other noncurrent assets	585		$	(345)	240
Derivative Liabilities	Derivative Liabilities								Derivative Liabilities
Commodity contracts	Commodity contracts	Other current liabilities	$	24,392	$	(6,131)	$	18,261	Commodity contracts	Derivative instruments	$	38,434	$	(3,284)	$	35,150
		Other noncurrent liabilities	$	100	$	(100)	$	—		Other noncurrent liabilities	345		(345)		—

(1) The Company has agreements in place with each of its counterparties that allow for the financial right of offset for derivative assets against derivative liabilities at settlement or in the event of a default under the agreements or ~~contract termination.~~if contracts are terminated.

Contingent Features in Financial Derivative Instruments. None of the Company’s derivative instruments contain credit-risk-related contingent features. Counterparties to the Company’s financial derivative contracts are high credit-quality financial institutions that are primarily lenders under ~~CRP’s credit agreement.~~OpCo’s Credit Agreement. The Company ~~uses~~enters into new hedge arrangements only ~~credit agreement~~with participants ~~to hedge with,~~under its Credit Agreement, since these institutions are secured equally with the holders of any ~~CRP~~OpCo bank debt, which eliminates the potential need to post collateral when ~~Centennial~~Permian Resources is in a derivative liability position. As a result, the Company is not required to post letters of credit or corporate guarantees for its derivative counterparties in order to secure contract performance obligations.

In addition, the Company is exposed to credit risk associated with its derivative contracts from non-performance by its counterparties. The Company mitigates its exposure to any single counterparty by contracting with a number of financial institutions, each of which has a high credit rating and is a member under ~~CRP’s credit facility~~OpCo’s Credit Agreement as referenced above.

2428

Table of Contents

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8—Fair Value Measurements

Recurring Fair Value Measurements

The Company follows ASC Topic 820, Fair Value Measurement and Disclosure, which establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the observability of the inputs employed in the measurement. The three levels are defined as follows:

•Level 1: Quoted Prices in Active Markets for Identical Assets – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2: Significant Other Observable Inputs – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level 3: Significant Unobservable Inputs – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

The following table presents, for each applicable level within the fair value hierarchy, the Company’s net derivative assets and liabilities, including both current and noncurrent portions, measured at fair value on a recurring basis:


(in thousands)	Level 1		Level 2		Level 3
September 30, 2022
Total assets	$	—	$	215,576	$	—
Total liabilities	—		12,475		—
December 31, 2021
Total assets	$	—	$	—240	$	—
Total liabilities	—		~~79,700~~		—
~~December 31, 2020~~
~~Total assets~~	$	—	$	52	$	—
~~Total liabilities~~	—		~~18,261~~35,150		—

Both financial and non-financial assets and liabilities are categorized within the above fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The following is a description of the valuation methodologies used by the Company as well as the general classification of such instruments pursuant to the above fair value hierarchy. There were no transfers between any of the fair value levels during any period presented.

Derivatives

The Company uses Level 2 inputs to measure the fair value of its oil and natural gas commodity derivatives. The Company uses industry-standard models that consider various assumptions including current market and contractual prices for the underlying instruments, implied market volatility, time value, nonperformance risk, as well as other relevant economic measures. Substantially all of these inputs are observable in the marketplace throughout the full term of the instrument and can be supported by observable data. The Company utilizes its counterparties’ valuations to assess the reasonableness of its own valuations. ~~Refer to~~ ~~Note 7—Derivative Instruments~~ ~~for details of the gross and net derivatives assets, liabilities and offset amounts presented in the consolidated balance sheets.~~

Nonrecurring Fair Value Measurements

The Company applies the provisions of the fair value measurement standard on a nonrecurring basis to its non-financial assets and liabilities, including proved oil and gas properties. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances.

Oil and Gas Property Acquisitions. The fair value measurements of assets acquired and liabilities assumed are measured on the acquisition date using an income valuation technique based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs to the valuation of acquired oil and gas properties include estimates of: (i) reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; (v) future cash flows; and (vi) a market participant-based weighted average cost of capital rate. These inputs require significant judgements and estimates by the Company’s management at the time of valuation. Refer to Note 2—Business Combination for additional information on the fair value of assets acquired and liabilities assumed.

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Impairment of Oil and Natural Gas Properties. The Company reviews its proved oil and natural gas properties for impairment whenever events and circumstances indicate that the fair value of these assets may be below their carrying value. An impairment loss is indicated if the sum of the expected undiscounted future net cash flows from oil and gas properties is less than the carrying amount of the assets. In this circumstance, the Company then recognizes impairment expense for the amount by which the carrying amount of proved properties exceeds their estimated fair value. The Company reviews its oil and natural gas properties on a field-by-field basis.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

The Company calculates the estimated fair values of its oil and natural gas properties using an income approach that is based on inputs that are not observable in the market and therefore represent Level 3 inputs. Significant inputs to the expected future net cash flows used for the impairment review and the related fair value measurement of oil and natural gas proved properties include estimates of: (i) oil and gas reserves; (ii) future production decline rates; (iii) future operating and development costs; (iv) future commodity prices, including price differentials; and (v) a market participant-based weighted average cost of capital rate. These inputs require significant judgments and estimates by the Company’s management.

Asset Retirement Obligations. The initial measurement of ARO at fair value is calculated using discounted cash flow techniques and is based on internal estimates of future retirement costs associated with property, plant and equipment. Significant Level 3 inputs used in the calculation of ARO include the estimated future costs to plug and abandon oil and gas properties and reserve lives. Refer to Note 5—Asset Retirement Obligations for additional information on the Company’s ARO.

Other Financial Instruments

The carrying amounts of the Company’s cash, cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximate their fair values because of the short-term maturities and/or liquid nature of these assets and liabilities.

The Company’s senior notes and borrowings under its ~~credit agreement~~Credit Agreement are accounted for at ~~cost, and the cost basis of the Company’s Senior Secured Notes issued in the Debt Exchange was measured based on their fair value on the date of the exchange.~~cost. The following table summarizes the carrying values, principal amounts and fair values of these instruments as of the dates indicated:

September 30, 2021 December 31, 2020
Carrying Value Principal Amount Fair Value Carrying Value Principal Amount Fair value
Credit facility due 2023(1)
$ 205,000 $ 205,000 $ 205,000 $ 330,000 $ 330,000 $ 330,000
8.00% Senior Secured Notes due 2025(2)
— — — 103,901 127,073 114,366
5.375% Senior Notes due 2026(2)
285,462 289,448 282,212 284,867 289,448 206,955
6.875% Senior Notes due 2027(2)
350,493 356,351 362,373 349,856 356,351 254,791
3.25% Convertible Notes due 2028(2)
163,982 170,000 223,839 — — —


	September 30, 2022						December 31, 2021
	Carrying Value		Principal Amount		Fair Value		Carrying Value		Principal Amount		Fair value
Credit Facility due 2027(1)	$	550,000	$	550,000	$	550,000	$	25,000	$	25,000	$	25,000
5.375% Senior Notes due 2026(2)	286,296		289,448		264,121		285,666		289,448		286,554
7.75% Senior Notes due 2026(2)	300,000		300,000		294,375		—		—		—
6.875% Senior Notes due 2027(2)	351,396		356,351		344,388		350,712		356,351		361,696
3.25% Convertible Senior Notes due 2028(2)	164,812		170,000		228,135		164,187		170,000		215,279
5.875% Senior Notes due 2029(2)	651,166		700,000		624,540		—		—		—

(1) The carrying values of the amounts outstanding under ~~CRP’s credit agreement~~OpCo’s Credit Agreement approximate fair value because its variable interest rates are tied to current market rates and the applicable credit spreads represent current market rates for the credit risk profile of the Company.

(2) The carrying values include associated unamortized debt issuance costs and any debt discounts as reflected in the consolidated balance sheets. The fair values are determined using quoted market prices for these debt securities, a Level 1 classification in the fair value hierarchy, and are based on the aggregate principal amount of the senior notes outstanding.

2630

Table of Contents

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 9—Shareholders' Equity and Noncontrolling Interest

Authorized shares of Common Stock

On August 29, 2022, the Company’s stockholders approved the Fourth Amended and Restated Certificate of Incorporation (as amended and restated, the “Charter”) to, among other things, increase the authorized number of shares of Class A Common Stock for issuance from 600,000,000 to 1,000,000,000 and Class C Common Stock for issuance from 20,000,000 to 500,000,000. The amendment became effective on September 1, 2022.

Class A Common Stock

The Company had 288,482,677 shares of Class A Common Stock outstanding as of September 30, 2022.

Holders of Class A Common Stock are entitled to one vote for each share held on all matters to be voted on by the Company’s stockholders. Holders of the Class A Common Stock and holders of the Class C Common Stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders, except as required by law.

Unless specified in the Charter (including any certificate of designation of preferred stock) or the Company’s Second Amended and Restated Bylaws, or as required by applicable provisions of the Delaware General Corporation Law or applicable stock exchange rules, the affirmative vote of a majority of the Company’s shares of Common Stock that are voted is required to approve any such matter voted on by the Company’s stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors. Subject to the rights of the holders of any outstanding series of preferred stock, the holders of the Class A Common Stock are entitled to receive ratable dividends when, as and if declared by the board of directors out of funds legally available therefor.

In the event of a liquidation, dissolution or winding up of the Company, the holders of the Class A Common Stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities and after provision is made for each class of stock, if any, having preference over the Class A Common Stock. The holders of the Class A Common Stock have no preemptive or other subscription rights. There are no sinking fund provisions applicable to the Class A Common Stock.

Class C Common Stock

The Company had 269,300,000 shares of Class C Common Stock outstanding as of September 30, 2022, which represent the portion of the 500,000,000 shares of Class C Common Stock issued to the Colgate Unitholder in connection with the Merger.

Holders of Class C Common Stock, together with holders of Class A Common Stock voting as a single class, have the right to vote on all matters properly submitted to a vote of the stockholders. In addition, the holders of Class C Common Stock, voting as a separate class, will be entitled to approve any amendment, alteration or repeal of any provision of the Charter that would alter or change the powers, preferences or relative, participating, optional or other or special rights of the Class C Common Stock. Holders of Class C Common Stock will not be entitled to any dividends from the Company and will not be entitled to receive any of the Company’s assets in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company’s affairs.

Shares of Class C Common Stock may be issued only to the Colgate Unitholder, its respective successors and assigns, as well as any permitted transferees of the Colgate Unitholder. Following the closing of the Merger, the Colgate Unitholder distributed its shares of Class C Common Stock to Colgate Owners. A holder of Class C Common Stock may transfer shares of Class C Common Stock to any transferee (other than the Company) only if such holder also simultaneously transfers an equal number of such holder’s Common Units representing common membership interests in OpCo to such transferee in compliance with the Sixth Amended and Restated Limited Liability Company Agreement of OpCo. Each holder of Class C Common Stock generally has the right to cause the Company to redeem all or a portion of its Common Units in exchange for, at the Company’s option, an equal number of shares of Class A Common Stock or an equivalent amount of cash. The Company may, however, at its option, effect a direct exchange of cash or Class A Common Stock for such OpCo Common Units in lieu of such a redemption by OpCo. Upon the future redemption or exchange of Common Units held by a holder of Class C Common Stock, a corresponding number of shares of Class C Common Stock held by such holder of Class C Common Stock will be canceled.

The shares of Class C Common Stock and underlying Common Units are not exchangeable until March 1, 2023, subject to certain customary exceptions.

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Preferred Stock

The Company is authorized to issue 1,000,000 shares of preferred stock, par value $0.0001 per share, with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At September 30, 2022, there were no shares of preferred stock issued or outstanding.

Stock Repurchase Program

In February 2022, the Company’s Board of Directors authorized a stock repurchase program to acquire up to $350 million of the Company’s outstanding Common Stock (the “Repurchase Program”), which is approved to run through April 1, 2024. In connection with the Merger, the Repurchase Program was increased to $500 million and was extended through December 31, 2024. The Repurchase Program can be used by the Company to reduce its shares of Common Stock outstanding. Repurchases may be made from time to time in the open-market or via privately negotiated transactions at the Company’s discretion and will be subject to market conditions, applicable legal requirements, available liquidity, compliance with the Company’s debt and other agreements and other factors. The Repurchase Program does not require any specific number of shares to be acquired and can be modified or discontinued by the Company’s Board of Directors at any time. There were no shares purchased under the Repurchase Program during the nine months ended September 30, 2022.

Noncontrolling Interest

The noncontrolling interest relates to Common Units in OpCo that were issued to the Colgate Unitholder in connection with the Merger. At the date of the Merger, the noncontrolling interest represented approximately 48% of the ownership in OpCo. The noncontrolling interest percentage is affected by various equity transactions such as Common Unit and Class C Common Stock exchanges and Class A Common Stock activities.

The Company consolidates the financial position, results of operations and cash flows of OpCo and reflects the portion retained by other holders of Common Units as a noncontrolling interest. Refer to the “Consolidated Statements of Shareholders’ Equity” for a summary of the activity attributable to the noncontrolling interest during the period.

Note 9—10—Earnings Per Share

Basic earnings per share (“EPS”) is calculated by dividing net income ~~available to Class A Common Stock~~ by the weighted average shares of Class A Common Stock outstanding during each period. Diluted EPS is calculated by dividing adjusted net income ~~available to Class A Common Stock~~ by the weighted average shares of diluted Class A Common Stock outstanding, which includes the effect of potentially dilutive securities. Potentially dilutive securities for the diluted EPS calculation consists of (i) unvested equity-based restricted stock and performance stock units, outstanding stock options, withholding amounts from the employee stock purchase plan and warrants (prior to their expiration in 2021), all using the treasury stock method, and (ii) the Company’s Class C ~~common stock outstanding, prior to the conversion of remaining Class C shares in the second quarter of 2020,~~Common Stock and potential shares issuable under our Convertible Senior Notes, both using the “if-converted” method, which is net of tax.

The following table reflects the ~~allocation of net income to common shareholders and~~ EPS computations for the periods indicated based on a weighted average number of ~~common shares~~Class A Common Stock outstanding ~~for the~~each period:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	(in thousands, except per share data)	2021		2020		2021		2020		(in thousands, except per share data)	2022		2021		2022		2021
Net income (loss) attributable to Class A Common Stock	Net income (loss) attributable to Class A Common Stock	$	37,124	$	(51,529)	$	(22,576)	$	(594,182)	Net income (loss) attributable to Class A Common Stock	$	224,359	$	37,124	$	431,987	$	(22,576)
Add: Income from Convertible Senior Notes		1,584		—		—		—

Add: Interest on Convertible Senior Notes, net of tax										Add: Interest on Convertible Senior Notes, net of tax	1,395		1,584		5,391		—
Adjusted net income (loss) attributable to Class A Common Stock	Adjusted net income (loss) attributable to Class A Common Stock	$	38,708	$	(51,529)	$	(22,576)	$	(594,182)	Adjusted net income (loss) attributable to Class A Common Stock	$	225,754	$	38,708	$	437,378	$	(22,576)

Basic weighted average shares of Class A Common Stock outstanding	Basic weighted average shares of Class A Common Stock outstanding	281,162		278,017		279,781		277,038		Basic weighted average shares of Class A Common Stock outstanding	286,245		281,162		285,368		279,781
Add: Dilutive effects of potential common stock		7,973		—		—		—
Add: Dilutive effects of equity awards and ESPP shares										Add: Dilutive effects of equity awards and ESPP shares	8,667		7,973		8,153		—

Add: Dilutive effects of Convertible Senior Notes	Add: Dilutive effects of Convertible Senior Notes	27,074		—		—		—		Add: Dilutive effects of Convertible Senior Notes	27,074		27,074		27,074		—
Diluted weighted average shares of Class A Common Stock outstanding	Diluted weighted average shares of Class A Common Stock outstanding	316,209		278,017		279,781		277,038		Diluted weighted average shares of Class A Common Stock outstanding	321,986		316,209		320,595		279,781

Basic net earnings (loss) per share of Class A Common Stock	Basic net earnings (loss) per share of Class A Common Stock	$	0.13	$	(0.19)	$	(0.08)	$	(2.14)	Basic net earnings (loss) per share of Class A Common Stock	$	0.78	$	0.13	$	1.51	$	(0.08)
Diluted net earnings (loss) per share of Class A Common Stock	Diluted net earnings (loss) per share of Class A Common Stock	$	0.12	$	(0.19)	$	(0.08)	$	(2.14)	Diluted net earnings (loss) per share of Class A Common Stock	$	0.70	$	0.12	$	1.36	$	(0.08)

The Company recognized a net loss during the nine months ended September 30, 2021 and during the three and nine months ended September 30, 2020. As a result, all potential common shares were anti-dilutive for each of those three periods and have been excluded from the calculation of diluted net earnings per share accordingly for such periods. The following table presents shares excluded from the diluted earnings per share calculation for the periods presented as their ~~impact was anti-dilutive:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Out-of-the-money stock options 2,215 2,469 2,250 3,983
Restricted stock 83 9,572 8,780 6,607
Employee Stock Purchase Plan 28 — 46 93
Weighted average shares of Class C Common Stock — — — 348
Warrants 8,000 8,000 8,000 8,000
Performance stock units — — 133 —
Convertible Senior Notes — — 27,074 —

2732

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~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

impact was anti-dilutive:


	Three Months Ended September 30,		Nine Months Ended September 30,
(in thousands)	2022	2021	2022	2021(1)
Out-of-the-money stock options	2,034	2,215	2,060	2,250
Restricted stock	3,095	83	1,032	8,780
Weighted average shares of Class C Common Stock	87,815	—	29,593	—
Performance stock units	1,452	—	634	133
Employee Stock Purchase Plan	—	28	—	46
Convertible Senior Notes	—	—	—	27,074
Warrants	—	8,000	—	8,000

(1) The Company recognized a net loss during the nine months ended September 30, 2021, and therefore all potentially dilutive securities were anti-dilutive and excluded from the calculation of diluted net earnings per share.

Note ~~10—~~11—Transactions with Related Parties

Riverstone Investment Group LLC ~~and its affiliates~~ (“Riverstone”), NGP Energy Capital (“NGP”), and Pearl Energy Investments (“Pearl”) and all related affiliates of each entity each beneficially own a more than 10% equity interest in the ~~Company~~Company. Certain members of OpCo’s management own profit interests at CEP III Holdings, LLC and its affiliates (“Colgate Holdings”). Due to Riverstone, NGP, and Pearl’s beneficial ownership and OpCo’s management interest in Colgate Holdings, these entities are ~~therefore~~ considered related ~~parties.~~parties to the Company. The Company has (i) a marketing agreement with Lucid Energy Delaware, LLC (“Lucid”), who was an affiliate of ~~Riverstone.~~Riverstone until the sale of Riverstone’s investment in Lucid in July 2022, (ii) a vendor arrangement with Streamline Innovations Inc (“Streamline”) who was an affiliate of Riverstone beginning in the second quarter of 2022 and an affiliate of Pearl, (iii) a joint operating agreement with Maple Energy Holdings LLC who is an affiliate of Riverstone, and (iv) overriding royalty interests in certain properties operated by the Company that are held by CM Royalties, LP (“CM Royalties”), who is an affiliate of Colgate Holdings. The Company believes that the terms of ~~the marketing agreement with Lucid~~these arrangements are no less favorable to either party than those held with unaffiliated parties.

The following table summarizes the costs incurred and revenues recognized ~~and~~from such arrangements during the ~~associated processing fees incurred from this marketing agreement~~periods they were considered related parties, as discussed above, as included in the consolidated statements of operations for the periods indicated, as well as the related net receivables and payables outstanding as of the balance sheet dates:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		2021		2020		(in thousands)	2022		2021		2022		2021
Lucid										Lucid
Oil and gas sales	Oil and gas sales	$	2,715	$	1,610	$	6,846	$	3,272	Oil and gas sales	$	6,527	$	2,715	$	25,117	$	6,846
Gathering, processing and transportation expenses	Gathering, processing and transportation expenses	1,715		1,464		4,556		3,526		Gathering, processing and transportation expenses	729		1,715		5,398		4,556
Streamline										Streamline
Lease operating expenses										Lease operating expenses	358		—		669		—

(in thousands) September 30, 2021 December 31, 2020
Accounts receivable, net(1)
$ 4,229 $ 994


(in thousands)	September 30, 2022	December 31, 2021
Accounts receivable, net
Lucid(1)	—	$	5,562
Accounts payable and accrued expenses
Maple Energy Holdings LLC	9,444	—
CM Royalties	1,337	—
Streamline	176	—

(1) Represents amounts due from Lucid and are presented net of unpaid processing fees as of the indicated period end date.

~~Senior Secured Notes~~

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Riverstone held $106.3 million~~

On September 1, 2022, as contemplated in the Merger Agreement, Colgate transferred to Colgate Holdings, a related party, its contractual right to receive certain payments from a third party as a result of drilling and completion activities completed on Company-operated properties. For the Company’s Senior Secured Notes as of December 31, 2020. In April 2021, the Company redeemed all of its Senior Secured Notes, including the portion held by Riverstone. In connection with this redemption, the Company paid ~~$3.8 million~~ ~~in accrued interest associated with the Senior Secured Notes, including $3.1 million to Riverstone during the nine~~three months ended September 30, ~~2021. No interest~~2022, the amount of these payments ~~were made to Riverstone during the three or nine months ended September 30, 2020.~~was $1.5 million.

Note ~~11—~~12—Commitments and Contingencies

Commitments

The Company routinely enters into, extends or amends operating agreements in the ordinary course of business. During the nine months ended September 30, 2022, the Company entered into a two-year purchase agreement to buy frac sand used in its well fracture stimulation process. Under the terms of this take-or-pay agreement, the Company is obligated to purchase a minimum volume of frac sand at a fixed price. The obligation is $33.4 million, which represents the minimum financial commitment pursuant to the terms of the contract from September 30, 2022 through March 31, 2024. There have been no other material, non-routine changes in commitments during the nine months ended September 30, ~~2021.~~2022. Please refer to Note 13—Commitments and Contingencies included in Part II, Item 8 in the Company’s ~~2020~~2021 Annual Report.

The Company has a firm crude oil sales agreement with a large integrated oil company, and in the first quarter of 2021, new pricing terms under this agreement went into effect. Utilizing this integrated oil company’s transport capacity out of the Permian Basin, the agreement provides for firm gross sales of 30,000 Bbls/d over the next 4 years and is based upon prevailing market prices of ICE Brent less contractual differentials. These pricing terms are resulting in realized prices that currently have wider differentials than those being realized under the Company’s other oil marketing agreements. However, if the oil price differential between the ICE Brent and NYMEX WTI indices widen in the future, the oil price realized under this delivery commitment will improve relative to the prices realized under the Company’s other oil sales contracts. Under-delivery of volumes that are committed under this agreement would result in a financial obligation to the Company, although the Company’s current production level (on a gross basis) is, and the Company believes its future production will be, sufficient to fulfill this physical delivery commitment.

Contingencies

The Company may at times be subject to various commercial or regulatory claims, prior period adjustments from service providers, litigation or other legal proceedings that arise in the ordinary course of business. While the outcome of these lawsuits and claims cannot be predicted with certainty, management believes it is remote that the impact of such matters, other than those discussed below, that are reasonably possible to occur will have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In February 2021, the Permian Basin was impacted by record-low temperatures and a severe winter storm (“Winter Storm Uri”) that resulted in multi-day electrical outages and shortages, pipeline and infrastructure freezes, transportation disruptions, and regulatory actions in Texas, which led to significant increases in gas prices, gathering, processing and transportation fees and electrical rates during this time. As a result, many oil and gas ~~operations,~~operators, including upstream producers like the Company, ~~as well as~~ gas processors and purchasers, and transportation providers experienced operational disruptions. During this time, the Company was unable to utilize the entire volume of its reserved capacity on pipelines and as a result has made certain force majeure declarations. One third-party transportation provider has filed a lawsuit against the Company claiming compensation for the full amount of the reserved capacity, both utilized and unutilized. The Company has made a payment for the utilized capacity and filed a separate lawsuit against the transportation provider requesting declaratory relief for the purpose of construing the provisions of the transportation agreement relating to the unutilized capacity. At this time, the Company believes that a loss is reasonably possible in relation to these matters and such amount could range from zero to $7.6 million, and no amount in that range is a better estimate than any other.

Other than the matter above, management is unaware of any pending litigation brought against the Company requiring a contingent liability to be recognized as of the date of these consolidated financial statements.

Note ~~12—~~13—Revenues

Revenue from Contracts with Customers

Crude oil, natural gas and NGL sales are recognized at the point that control of the product is transferred to the customer and collectability is reasonably assured. Virtually all of the Company’s contract pricing provisions are tied to a market index, with certain adjustments based on, among other factors, transportation costs to an active spot market and quality differentials. As a result, the Company’s realized prices of oil, natural gas, and NGLs fluctuate to remain competitive with other available oil, natural gas, and NGLs supplies both globally (in the case of crude oil) and locally.

Oil and gas revenues presented within the consolidated statements of operations relate to the sale of oil, natural gas and NGLs as shown below:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended September 30,				Nine Months Ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021
Operating revenues (in thousands):	Operating revenues (in thousands):									Operating revenues (in thousands):
Oil sales	Oil sales	$	201,447	$	119,966	$	512,278	$	363,571	Oil sales	$	397,187	$	201,447	$	1,009,545	$	512,278
Natural gas sales	Natural gas sales	43,800		11,907		106,266		29,052		Natural gas sales	93,455		43,800		200,503		106,266
NGL sales	NGL sales	43,258		17,228		94,929		39,756		NGL sales	59,136		43,258		159,661		94,929
Oil and gas sales	Oil and gas sales	$	288,505	$	149,101	$	713,473	$	432,379	Oil and gas sales	$	549,778	$	288,505	$	1,369,709	$	713,473

Table of Contents

PERMIAN RESOURCES CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Oil sales

The Company’s crude oil sales contracts are generally structured whereby oil is delivered to the purchaser at a contractually agreed-upon delivery point at which the purchaser takes title of the product. This delivery point is usually at the wellhead or at the inlet of a transportation pipeline. Revenue is recognized when control transfers to the purchaser at the delivery point based on the net price received from the purchaser. Any downstream transportation costs incurred by crude purchasers are reflected as a net reduction to oil sales revenues.

Natural gas and NGL sales

Under the Company’s natural gas processing contracts, liquids rich natural gas is delivered to a midstream gathering and processing entity at the ~~inlet~~agreed upon delivery point at which the purchaser takes title of the ~~gas gathering system.~~product. The midstream processing entity gathers and processes the raw gas and then remits proceeds to ~~Centennial for~~ the ~~resulting sales of NGLs, while the Company generally elects to take its residue gas product “in-kind” at the plant tailgate.~~Company. For these contracts, the Company evaluates when control is transferred and revenue should be recognized. Where the Company ~~has concluded that control transfers~~elects to take its residue gas product “in-kind” at the plant tailgate, ~~of the processing facility,~~ fees incurred prior to transfer of control are presented as gathering, processing and transportation expenses (“GP&T”) within the consolidated statements of operations. Any gathering, transportation and fractionation costs incurred subsequent to the point of transfer of control are reflected as a net reduction to natural gas and NGL sales revenues presented in the table above.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Performance obligations

For all commodity products, the Company records revenue in the month production is delivered to the purchaser. Settlement statements for natural gas and NGL sales may not be ~~received~~received for 30 to 90 days after the date production volumes are delivered and for crude oil, generally within 30 days after delivery has occurred. However, payment is unconditional once the performance obligations have been satisfied. At such time, the volumes delivered and ~~sales~~sales prices can be reasonably estimated and amounts due from customers are accrued in Accounts receivable, net in the consolidated balance sheets. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, such receivable balances were ~~$82.1~~$146.4 million and ~~$41.7~~$57.3 million, respectively.

The Company records any differences between its estimates and the actual amounts received for product sales in the month that payment is received from the purchaser. Historically, any identified differences between revenue estimates and actual revenue received have not been significant. For the three and nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, revenue recognized in the reporting period related to performance obligations satisfied in prior reporting periods were not material.

Transaction price allocated to remaining performance obligations

For the Company’s product sales that have a contract term greater than one year, the Company has utilized the practical ~~expedient~~expedient in ASC Topic 606, Revenue from contracts with Customers, which states the Company is not required to disclose the transaction price allocated to the remaining performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under ~~these~~these sales contracts, monthly sales of a product generally represent a separate performance obligation. Therefore, future commodity volumes to be delivered and sold are wholly unsatisfied, and disclosure of the transaction price allocated to such unsatisfied performance obligations is not required.

Note ~~13—Leases~~14—Subsequent Events

~~At contract inception,~~On November 8, 2022, the Company ~~determines whether or not an arrangement contains~~announced that its Board of Directors declared a ~~lease. However, in connection with the implementation~~quarterly cash dividend of ~~ASC Topic 842,~~ ~~Leases~~ ~~(“ASC 842”), this assessment was made~~$0.05 per share of Class A Common Stock and a quarterly cash distribution of $0.05 per common unit of OpCo. The first dividend is payable on November 29, 2022 to shareholders of record as of the adoption date of ASC 842. Upon determination of a lease, a lease right-of-use (“ROU”) asset and related liability are recorded based on the present value of the future lease payments over the lease term. ROU assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make future lease payments arising from the lease.

The Company has operating leases for drilling rig contracts, office rental agreements, and other wellhead equipment. As of September 30, 2021, these leases have remaining lease terms ranging from one month to 10 years, some of which include options to extend the lease term for up to five years, and some of which include options to early terminate. These options are considered in determining the lease term and are included in the present value of future payments that are recorded for leases when the Company is reasonably certain to exercise the option. Leases with an initial term of one year or less are not recorded in the consolidated balance sheets. Additionally, none of the Company’s lease agreements contain any material residual value guarantees or material restrictive covenants.

The present value of future lease payments is determined at the lease commencement date based upon the Company’s incremental borrowing rate. The incremental borrowing rate is calculated using a risk-free interest rate adjusted for the Company’s specific risk and the specific lease term. The table below summarizes the Company’s weighted-average discount rate and weighted-average remaining lease term as of the period presented.


	~~As of September 30, 2021~~
~~Weighted-average discount rate~~	~~4.47~~	%
~~Weighted-average remaining lease term (months)~~	~~107~~

The Company’s drilling rig contracts, office rental agreements, and wellhead equipment agreements contain both lease and non-lease components, which are combined and accounted for as a single lease component.November 21, 2022.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Variable lease payments are recognized in the period in which they are incurred and include operating expenses related to the office rental agreements and expenses incurred on the drilling rig contracts in excess of the contractual rate. Expenses related to short-term leases are recognized on a straight-line basis over the lease term as either expenses to the consolidated statements of operations or capitalized to the consolidated balance sheets. The following table presents the components of the Company’s lease expenses for the periods presented.
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2021 2020 2021 2020
Lease costs
Operating lease cost $ 906 $ 1,227 $ 2,621 $ 7,059
Variable lease cost 55 53 77 4,538
Short-term lease cost 9,209 5,512 26,376 34,529
Total lease cost $ 10,170 $ 6,792 $ 29,074 $ 46,126

~~The following table presents supplemental cash flow information related to the Company’s leases for the periods presented.~~

Nine Months Ended September 30,
(in thousands) 2021 2020
Operating lease liability payments:
Net cash used in operating activities $ 2,311 $ 5,257
Net cash used in investing activities $ — $ 1,802
Right-of-use assets recognized (derecognized) with offsetting operating lease liabilities $ 15,450 $ (3,711)

~~Maturities of the Company’s long-term operating lease liabilities by fiscal year as of September 30, 2021 are as follows:~~

(in thousands)
Total(2)
2021(1)
$ 468
2022 1,898
2023 2,985
2024 2,670
2025 2,086
2026 and thereafter 12,669
Total lease payments 22,776
Less: imputed interest (4,565)
Present value of lease liabilities (3)
$ 18,211

~~(1)~~ ~~Excludes payments made during the nine months ended September 30, 2021.~~

~~(2)~~ ~~Total lease payments exclude variable lease payments which can be charged under the terms of the lease agreements.~~

~~(3)~~ ~~This amount is included in current and noncurrent liabilities in the line item~~ ~~Operating lease liabilities~~ ~~in the consolidated balance sheets as of September 30, 2021.~~

3135

Table of Contents

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Note 14—Subsequent Events~~

~~Asset Divestiture~~

On October 27, 2021, the Company entered into a purchase and sale agreement for the sale of approximately 6,200 net leasehold acres at closing for an unadjusted purchase price of $101 million. The divested assets represent non-core acreage that is primarily undeveloped but which also contains 20 producing wells located on the southernmost portion of the Company’s position in Reeves County, Texas. The producing properties included in this divestiture averaged 1,600 Boe/d (64% oil) during the third quarter of 2021. The Company expects to recognize a net gain of approximately $36.5 million as a result of this divestiture. The transaction is expected to close in December of 2021, subject to customary closing terms and conditions, and the Company plans to use the net proceeds from the sale to repay a portion of its borrowings outstanding under its Credit Agreement.

~~Expiring Warrants~~

Simultaneously with the closing of the Company’s initial public offering on February 29, 2016, 8,000,000 warrants were purchased by Silver Run Sponsor, LLC, a Riverstone affiliate, in a private placement (the “Private Placement Warrants”), and each Private Placement Warrant was exercisable for one share of Class A Common Stock at a price of $11.50 per share. These warrants were still outstanding as of September 30, 2021. However, on October 11, 2021, all of the 8,000,000 Private Placement Warrants expired unexercised.

~~Table of Contents~~

~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and related notes. The following discussion and analysis contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, future market prices for oil, natural gas and NGLs, future production volumes, estimates of proved reserves, capital expenditures, economic and competitive conditions, inflation, regulatory changes, the implementation and actual result of the Merger (defined below), continued and future impacts of ~~Coronavirus Disease 2019 (“COVID-19”)~~COVID-19 and other uncertainties, as well as those factors discussed ~~above~~ in “Cautionary Statement ~~Regarding~~Concerning Forward-Looking Statements” and under the heading “Item 1A. Risk Factors” in this Quarterly Report and our ~~2020~~2021 Annual Report all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Overview

~~Centennial Resource Development, Inc. (“Centennial,” “we,” “us,” or “our”)~~Permian Resources Corporation is an independent oil and natural gas company focused on the responsible acquisition, optimization and development of high-return oil and ~~associated liquids-rich~~ natural gas ~~reserves in the Permian Basin.~~properties. Our assets are ~~concentrated~~located in the ~~Delaware Basin, a sub-basin~~core of the ~~Permian~~Delaware Basin. Our ~~capital programs are focused on projects that we believe provide the highest~~principal business objective is to increase shareholder value by efficiently developing our oil and natural gas assets in an environmentally and socially responsible way, with an overall objective of improving our rates of return ~~on capital.~~and generating sustainable free cash flow. Unless otherwise specified or the context otherwise requires, all references in these discussions to ~~“Centennial,~~“Permian Resources,” “we,” “us,” or “our” are to ~~Centennial Resource Development, Inc.~~Permian Resources Corporation and its consolidated subsidiary, Permian Resources Operating, LLC (“OpCo”, which was formerly Centennial Resource Production, LLC or “CRP”).

On September 1, 2022, CRP completed the merger (the “Merger”) with Colgate Energy Partners III, LLC (“~~CRP”~~Colgate”) as discussed below. In connection with the closing of the Merger, we changed our name from “Centennial Resource Development, Inc.” to “Permian Resources Corporation” and transferred the listing of our Class A Common Stock to the New York Stock Exchange under the ticker symbol “PR”.

Market Conditions

The ~~2020~~demand for oil and natural gas has been significantly impacted by the worldwide outbreak of COVID-19, specifically regarding the uncertainty ~~regarding its~~surrounding the virus’s impact and because of various governmental actions taken to mitigate the ~~effects~~spread of ~~COVID-19 resulted in an unprecedented decline in~~ the ~~demand for~~virus. Concurrently, global oil and natural gas ~~throughout 2020. In addition, the decision~~supplies have been disrupted by ~~Saudi Arabia to drastically reduce export prices and increase oil~~ production ~~in March 2020 (the “Saudi-Russia oil price war”) followed by~~ curtailment agreements among the Organization of Petroleum Exporting Countries ~~(“OPEC”) and other countries such as Russia further increased uncertainty and volatility around global oil supply-demand dynamics. However, in April of 2020, the members of OPEC~~ and other oil producing countries (“OPEC+”) ~~agreed to reduce their crude oil production throughout the year, while U.S. producers substantially~~and reduced ~~or suspended~~ drilling and completion activity ~~due to low oil prices~~from U.S. producers. Both OPEC+ output and ~~poor economics.~~

The demand for oil and natural gas continued to remain low in early 2021 due to continued uncertainty regarding the impacts of COVID-19. OPEC+ extended their production cuts through the first quarter of 2021 and began to gradually increase output during the second quarter of 2021 with more substantial output increases beginning in August 2021 through September 2022. U.S. drilling activity ~~began to increase in the fourth quarter of~~has increased since 2020 ~~and has continued to increase steadily since. These~~levels; however, these factors have only led to a gradual increase in oil and gas supply, ~~but~~and global supply has not returned ~~global supply~~ to pre-pandemic levels. ~~Meanwhile,~~Further in the first nine months of 2022, Russia’s invasion of Ukraine and global sanctions placed on Russia in response have created additional downward pressures on the supply of oil and natural gas. Meanwhile, demand for oil and gas has risen steadily throughout 2021 and 2022 due to the availability of COVID-19 vaccinations, ~~less governmental~~fewer government mandated restrictions and the ~~global~~global-wide transition away from coal to natural gas. While governmental actions from several countries to release a portion of their strategic petroleum reserves have increased global inventories, oil supply and demand remain relatively tight due to the lack of additional supply and limited spare capacity. These factors, among others, have aided in the recovery of global commodity prices ~~during~~throughout 2021 and have led to heightened commodity prices in the first nine months of ~~2021.~~2022. Specifically, NYMEX WTI spot prices for crude oil reached a high of ~~$75.45~~$123.70 per barrel on ~~September 27, 2021~~March 8, 2022, from a low of negative $37.63 per barrel on April 20, ~~2020 (which was due to depressed demand and insufficient storage capacity, particularly at the WTI physical settlement location in Cushing, Oklahoma).~~2020. Similarly, the ~~average~~NYMEX Henry Hub index price for natural gas reached ~~$4.28 during the third quarter~~a high of ~~2021, which was more than double~~$9.85 per MMBtu on August 23, 2022, from a low of ~~the average Henry Hub price of $1.95 for the comparable 2020 period.~~$1.33 per MMBtu on September 22, 2020.

The oil and natural gas industry is cyclical, and it is likely that commodity prices, as well as commodity price differentials, will continue to be volatile due to fluctuations in global supply and demand, inventory levels, the continued effects from COVID-19 and variant strains of the virus, geopolitical events, federal and state government regulations, weather conditions, the global transition to alternative energy sources, supply chain constraints and other factors. The following table highlights the quarterly average NYMEX price trends for crude oil and natural gas since the first quarter of ~~2019:~~2020:


		2019								2020								2021							2020								2021								2022
		Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1		Q2		Q3			Q1		Q2		Q3		Q4		Q1		Q2		Q3		Q4		Q1		Q2		Q3
Crude oil (per Bbl)	Crude oil (per Bbl)	$	54.90	$	59.81	$	56.45	$	56.94	$	46.19	$	28.00	$	40.93	$	42.66	$	57.84	$	66.06	$	70.56	Crude oil (per Bbl)	$	46.19	$	28.00	$	40.93	$	42.66	$	57.84	$	66.06	$	70.56	$	77.09	$	94.40	$	108.34	$	91.56
Natural gas (per MMBtu)	Natural gas (per MMBtu)	$	2.88	$	2.51	$	2.33	$	2.34	$	1.88	$	1.65	$	1.95	$	2.47	$	3.44	$	2.88	$	4.28	Natural gas (per MMBtu)	$	1.88	$	1.65	$	1.95	$	2.47	$	3.44	$	2.88	$	4.28	$	4.74	$	4.60	$	7.39	$	7.96

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Lower commodity prices ~~(including realized differentials)~~ and lower futures curves for oil and gas prices can result in ~~further~~ impairments of our proved oil and natural gas properties or undeveloped acreage ~~(such as the impairments incurred in the first~~

~~Table of Contents~~

~~quarter of 2020)~~ and may materially and adversely affect our ~~future business,~~operating cash flows, liquidity, financial condition, results of operations, ~~operating cash flows, liquidity~~future business, and/or our ability to finance planned capital expenditures. Lower realized prices may also reduce the borrowing base under ~~CRP’s~~OpCo’s credit agreement, which is determined at the discretion of the lenders and is based on the collateral value of our proved reserves that have been mortgaged to the lenders. Upon a redetermination, if any borrowings in excess of the revised borrowing capacity were outstanding, we could be forced to immediately repay a portion of the debt outstanding under the credit agreement. Additionally, ~~the~~ lower ~~price environment and its impact to~~prices can affect our operations, which could impact our ability to comply with the covenants under our credit agreement and senior notes.

Due to the cyclical nature of the oil and gas industry, fluctuating demand for oilfield goods and services can put pressure on the pricing structure within our industry. As commodity prices rise, the cost of oilfield goods and services generally also increase, while during periods of commodity price declines, oilfield costs typically lag and do not adjust downward as fast as oil prices do. In addition, the U.S. inflation rate has been steadily increasing during 2021 and 2022. These inflationary pressures may also result in increases to the costs of our oilfield goods, services and personnel, which would in turn cause our capital expenditures and operating costs to rise.

COVID-19 Outbreak

The COVID-19 outbreak and its development into a pandemic in March 2020 have required that we take precautionary measures intended to help minimize the risk to our business, employees, customers, vendors, suppliers and the communities in which we operate. Our operational employees have been and are currently able to work on site, while certain non-operational employees have been working remotely part-time and then also reporting to our offices on a ~~limited~~part-time basis. We have taken various precautionary measures with respect to our operational employees, direct contractors and employees who returned to our offices or job sites ~~such as (i) requesting that they~~and have not experienced any symptoms consistent with COVID-19, or been in close contact with someone showing such symptoms, before reporting to the work site or office, (ii) self-quarantining any employees or contractors who have shown signs or symptoms of COVID-19 (regardless of whether such person has been confirmed to be infected), (iii) imposing certain mask and social distancing requirements on work sites and at our officesfollowed ~~, and (iv) encouraging all employees and contractors to follow~~ the Center of Disease Control (the “CDC”) recommended preventive measures ~~(including those mentioned above)~~ to limit the spread of COVID-19. We have continued to update our safety protocols in alignment with CDC guidance and ~~governmental mandates, and have been able to reduce some requirements if employees, customers, vendors, or suppliers are fully vaccinated.~~government mandates. We have not experienced any significant operational disruptions, ~~(including~~including disruptions from our suppliers or service ~~providers)~~providers, as a result of the COVID-19 outbreak.

~~2021~~2022 Highlights and Future Considerations

Colgate Merger

On May 19, 2022, we entered into a Business Combination Agreement (the “Merger Agreement”) with CRP, Colgate, and Colgate Energy Partners III MidCo, LLC (the “Colgate Unitholder”). The Merger Agreement provided for a merger of equals transaction, with CRP (which was renamed Permian Resources Operating, LLC or “OpCo” following the Merger) continuing as the surviving entity in the Merger and a subsidiary of Permian Resources Corporation.

On September 1, 2022, the Merger was completed, and all membership interests in CRP issued and outstanding immediately prior to the closing were converted into units of Permian Resources Operating, LLC (“Common Units”) equal to the number of shares of our Class A Common Stock that were outstanding immediately prior to the closing. All of the Colgate Unitholder’s membership interests in Colgate were exchanged for 269,300,000 shares of Class C Common Stock, 269,300,000 Common Units and $525 million in cash consideration. Following the closing of the Merger, the Colgate Unitholder distributed the merger consideration to its equity holders (the “Colgate Owners”), who collectively continue to own in the aggregate 100% of the outstanding shares of Class C Common Stock of the Company and approximately 48% of the outstanding Common Units in OpCo, which represent an approximate 48% noncontrolling interest in OpCo. This ownership of all our shares of Class C Common Stock by the Colgate Owners represents approximately 48% of the Company’s total outstanding shares of Class A Common Stock and Class C Common Stock taken together (the “Common Stock”).

As a result of the Merger, we acquired approximately 105,000 net leasehold acres and 25,000 net royalty acres located primarily in Reeves and Ward Counties in Texas and Eddy County in New Mexico. We believe that the Merger will provide significant increases to our operational and financial scale, drive accretion across our key financial and operating metrics, and enhance the combined company’s shareholder returns.

Operational Highlights

We operated a two-rig drilling program during the first ~~nine~~eight months of ~~2021,~~2022, and an eight-rig drilling program after the close of the Merger on September 1, 2022, which enabled us to complete and bring online 3358 gross operated wells as of the end of the third quarter, with an average effective lateral length of approximately ~~9,000~~9,300 feet. We plan to reduce our operated drilling rig program to seven rigs in November and expect to operate at this level for the remainder of the year.

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Financing Highlights

On February 18, 2022, we closed on a new five-year revolving credit facility (the “Credit Agreement”), which replaced our previous credit agreement that was set to mature on May 4, 2023. The elected commitments under the new Credit Agreement increased to $750 million from $700 million under our previous facility, and the borrowing base increased to $1.15 billion from $700 million previously. The new Credit Agreement will mature in February 2027.

On July 15, 2022, we entered into the first amendment to our Credit Agreement (the “Amendment”). The Amendment, among other things, waived compliance with certain restrictive covenants and provided the lenders’ consent to a planned Pre-Merger Reorganization (as defined within the Amendment) in order to enable the Merger to occur. In addition, the Amendment increased the elected commitments under our Credit Agreement to $1.5 billion from $750 million, increased the borrowing base to $2.5 billion from $1.15 billion, and became effective as of the September 1, 2022 Merger closing date.

In February ~~2021,~~2022, our Board of Directors authorized a stock repurchase program to acquire up to $350 million of our outstanding Common Stock, which program is approved to run through April 1, 2024 (the “Repurchase Program”). In connection with the ~~Permian Basin~~Merger, the Repurchase Program was ~~impacted by record-low temperatures~~increased to $500 million and ~~a severe winter storm (“Winter Storm Uri”) that caused multi-day electrical outages and shortages, pipeline and infrastructure freezes, and transportation disruptions, which further led~~was extended through December 31, 2024. The Repurchase Program can be used to ~~significant increases in gas prices, gathering, processing and transportation fees and electrical rates during this time. Our operations~~reduce shares of our Common Stock outstanding. There were ~~impacted by Winter Storm Uri and led to a partial shut-in of certain wells and associated production for about seven days during~~no shares purchased under the ~~event. Refer to the discussion below for the current impacts from Winter Storm Uri on our results of operations~~Repurchase Program during the nine months ended September 30, ~~2021.~~2022.

~~Financing Highlights~~

On March 19, 2021, we issued $150.0 million of 3.25% senior convertible notes due 2028 (the “Convertible Senior Notes”) in a public offering. On March 26, 2021, the Company issued an additional $20.0 million of Convertible Senior Notes pursuant to the exercise of the underwriters’ over-allotment option to purchase additional notes. The issuance resulted in net proceeds of $163.6 million, after deducting debt issuance costs of $6.4 million, and such proceeds were used to fund the cost of entering into capped call spread transactions totaling $14.7 million and to repay borrowing outstanding under CRP’s revolving credit facility. In April 2021, we redeemed at par all of our 2025 senior secured notes ($127.1 million), which was the intended use of proceeds from the Convertible Senior Notes offering.

~~In connection with CRP’s credit facility fall 2021 semi-annual borrowing base redetermination, the facility’s borrowing base and amount of elected commitments were reaffirmed at $700.0 million.~~

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Results of Operations

Colgate’s results of operations were included in the Company’s interim consolidated financial statements and results of operations beginning on September 1, 2022.

Three Months Ended September 30, ~~2021~~2022 Compared to Three Months Ended September 30, ~~2020~~2021

The following table provides the components of our net revenues and net production (net of all royalties, overriding royalties and production due to others) for the periods indicated, as well as each period’s average prices and average daily production volumes:


		Three Months Ended September 30,				Increase/(Decrease)					Three Months Ended September 30,				Increase/(Decrease)
		2021		2020		$		%			2022		2021		$		%
Net revenues (in thousands):	Net revenues (in thousands):									Net revenues (in thousands):
Oil sales	Oil sales	$	201,447	$	119,966	$	81,481	68	%	Oil sales	$	397,187	$	201,447	$	195,740	97	%
Natural gas sales	Natural gas sales	43,800		11,907		31,893		268	%	Natural gas sales	93,455		43,800		49,655		113	%
NGL sales	NGL sales	43,258		17,228		26,030		151	%	NGL sales	59,136		43,258		15,878		37	%
Oil and gas sales	Oil and gas sales	$	288,505	$	149,101	$	139,404	93	%	Oil and gas sales	$	549,778	$	288,505	$	261,273	91	%

Average sales prices:	Average sales prices:									Average sales prices:
Oil (per Bbl)	Oil (per Bbl)	$	65.31	$	36.95	$	28.36	77	%	Oil (per Bbl)	$	89.02	$	65.31	$	23.71	36	%
Effect of derivative settlements on average price (per Bbl)	Effect of derivative settlements on average price (per Bbl)	(8.37)		(9.82)		1.45		15	%	Effect of derivative settlements on average price (per Bbl)	(2.71)		(8.37)		5.66		68	%
Oil net of hedging (per Bbl)	Oil net of hedging (per Bbl)	$	56.94	$	27.13	$	29.81	110	%	Oil net of hedging (per Bbl)	$	86.31	$	56.94	$	29.37	52	%

Average NYMEX price for oil (per Bbl)	Average NYMEX price for oil (per Bbl)	$	70.56	$	40.93	$	29.63	72	%	Average NYMEX price for oil (per Bbl)	$	91.56	$	70.56	$	21.00	30	%
Oil differential from NYMEX	Oil differential from NYMEX	(5.25)		(3.98)		(1.27)		(32)	%	Oil differential from NYMEX	(2.54)		(5.25)		2.71		52	%

Natural gas (per Mcf)	Natural gas (per Mcf)	$	3.99	$	1.15	$	2.84	247	%	Natural gas (per Mcf)	$	6.57	$	3.99	$	2.58	65	%
Effect of derivative settlements on average price (per Mcf)	Effect of derivative settlements on average price (per Mcf)	(0.27)		(0.25)		(0.02)		(8)	%	Effect of derivative settlements on average price (per Mcf)	(1.41)		(0.27)		(1.14)		(422)	%
Natural gas net of hedging (per Mcf)	Natural gas net of hedging (per Mcf)	$	3.72	$	0.90	$	2.82	313	%	Natural gas net of hedging (per Mcf)	$	5.16	$	3.72	$	1.44	39	%

Average NYMEX price for natural gas (per Mcf)	Average NYMEX price for natural gas (per Mcf)	$	4.28	$	1.95	$	2.33	119	%	Average NYMEX price for natural gas (per Mcf)	$	7.96	$	4.28	$	3.68	86	%
Natural gas differential from NYMEX	Natural gas differential from NYMEX	(0.29)		(0.80)		0.51		64	%	Natural gas differential from NYMEX	(1.39)		(0.29)		(1.10)		(379)	%

NGL (per Bbl)	NGL (per Bbl)	$	40.16	$	12.58	$	27.58	219	%	NGL (per Bbl)	$	36.21	$	40.16	$	(3.95)	(10)	%

Net production:	Net production:									Net production:
Oil (MBbls)	Oil (MBbls)	3,085		3,247		(162)		(5)	%	Oil (MBbls)	4,462		3,085		1,377		45	%
Natural gas (MMcf)	Natural gas (MMcf)	10,977		10,354		623		6	%	Natural gas (MMcf)	14,216		10,977		3,239		30	%
NGL (MBbls)	NGL (MBbls)	1,077		1,370		(293)		(21)	%	NGL (MBbls)	1,633		1,077		556		52	%
Total (MBoe)(1)	Total (MBoe)(1)	5,991		6,342		(351)		(6)	%	Total (MBoe)(1)	8,464		5,991		2,473		41	%

Average daily net production:	Average daily net production:									Average daily net production:
Oil (Bbls/d)	Oil (Bbls/d)	33,529		35,292		(1,763)		(5)	%	Oil (Bbls/d)	48,499		33,529		14,970		45	%
Natural gas (Mcf/d)	Natural gas (Mcf/d)	119,311		112,545		6,766		6	%	Natural gas (Mcf/d)	154,520		119,311		35,209		30	%
NGL (Bbls/d)	NGL (Bbls/d)	11,707		14,885		(3,178)		(21)	%	NGL (Bbls/d)	17,751		11,707		6,044		52	%
Total (Boe/d)(1)	Total (Boe/d)(1)	65,121		68,934		(3,813)		(6)	%	Total (Boe/d)(1)	92,003		65,121		26,882		41	%

(1) Calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Boe.

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Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the three months ended September 30, ~~2021~~2022 were ~~$139.4~~$261.3 million (or ~~93%~~91%) higher than total net revenues for the three months ended September 30, ~~2020.~~2021. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.

Average realized sales prices for oil ~~residue~~and natural gas ~~and NGLs~~ increased in the third quarter of ~~2021~~2022 compared to the same ~~2020~~2021 period by ~~77%~~36% and 65%, ~~247% and 219%, respectively.~~respectively, while the average realized sales price for NGLs decreased 10% period over period. The ~~77%~~36% increase in the average realized oil price ~~before the effects of hedging~~ was mainly the result of higher ~~(72%~~(30%) NYMEX crude prices between periods, ~~which was partially offset by wider~~as well as improved oil differentials ($~~1.27~~2.71 per Bbl ~~wider) oil differentials.~~narrower). The ~~247% increase in the~~ average realized sales price of natural gas ~~before the effects of hedging was~~increased 65% due to higher ~~(119%~~(86%) NYMEX gas prices between periods, ~~and improved (by $0.51~~partially offset by wider gas differentials ($1.10 per ~~Mcf) gas differentials.~~Mcf wider). The ~~increase~~10% decrease in average realized NGL prices ~~of 219%~~ between periods was primarily attributable to ~~higher~~lower Mont Belvieu spot prices for plant products in the third quarter of ~~2021~~2022 as compared to the third quarter of ~~2020.~~2021. The market prices for oil and natural gas ~~and NGLs~~ have ~~all~~ been impacted by ~~higher~~ global ~~demand~~supply constraints for oil and gas ~~compared to the third quarter of 2020 when prices remained depressed~~throughout 2021 and 2022, as ~~a result of~~well as increasing demand worldwide as global economies emerge from COVID-19 era lockdowns and ~~supply disruptions from the Saudi-Russia oil price war~~restrictions, as discussed in the market conditions section above.

Net production volumes for oil, natural gas and NGLs ~~decreased 5%~~increased 45%, 30% and ~~21%~~52%, respectively, ~~while natural gas increased 6%~~between periods. The increase in ~~the third quarter of 2021 compared to the same 2020 period. The crude~~ oil production volume decrease was primarily the result of normal production decline across our existing wells. Oil volume declines in the third quarter of 2021 were additionally impacted by less drilling and completion activity over the past 12 months as a result of depressed oil and gas prices, which resulted ~~in only 33~~from placing 67 wells ~~being placed~~ on production since the third quarter of ~~2020. This~~2021, which added ~~1,103~~1,762 MBbls of net oil production to the three months ended September 30, ~~2021~~2022, as compared to 5833 wells brought online since the third quarter of ~~2019~~2020 that added ~~1,363~~1,103 MBbls of net oil production to the third quarter of ~~2020.~~2021. Oil production also benefited from wells acquired in the Merger with Colgate, which added 942 MBbls of net oil production to the three months ended September 30, 2022. These oil volume increases were partially offset by normal production decline across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, which typically ~~resulting~~results in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold. However, ~~during the third quarter of 2021,~~ the main processor of our raw gas operated in ~~full ethane-rejection,~~partial ethane-recovery during the third quarter of 2022, as compared to operating in full ~~ethane-recovery~~ethane-rejection during the ~~entire 2020 period. Additionally,~~ ~~the amount of gas flared as a percentage of wellhead gas produced was lessduring the third quarter of~~ 2021 ~~as compared to the same 2020 period.~~ ~~Both of these factors combined~~period, and this resulted in ~~an increase in the amount~~a lower percentage of natural gas ~~recovered~~volumes and ~~sold~~a higher percentage of NGLs being recovered from our wet gas stream ~~between periods, while the variations in ethane-rejection resulted in fewer NGLs being recovered~~ during the ~~2021~~2022 period.

Operating Expenses. The following table sets forth selected operating expense data for the periods indicated:


		Three Months Ended September 30,						Increase/(Decrease)						Three Months Ended September 30,						Increase/(Decrease)
		2021			2020			Change			%			2022			2021			Change			%
Operating costs (in thousands):	Operating costs (in thousands):												Operating costs (in thousands):
Lease operating expenses	Lease operating expenses	$	28,685		$	24,543		$	4,142		17	%	Lease operating expenses	$	40,944		$	28,685		$	12,259		43	%
Severance and ad valorem taxes	Severance and ad valorem taxes	17,800			7,839			9,961			127	%	Severance and ad valorem taxes	41,745			17,800			23,945			135	%
Gathering, processing and transportation expenses	Gathering, processing and transportation expenses	24,164			19,130			5,034			26	%	Gathering, processing and transportation expenses	30,022			24,164			5,858			24	%
Operating cost metrics:	Operating cost metrics:												Operating cost metrics:
Lease operating expenses (per Boe)	Lease operating expenses (per Boe)	$	4.79		$	3.87		$	0.92		24	%	Lease operating expenses (per Boe)	$	4.84		$	4.79		$	0.05		1	%
Severance and ad valorem taxes (% of revenue)	Severance and ad valorem taxes (% of revenue)	6.2		%	5.3		%	0.9		%	17	%	Severance and ad valorem taxes (% of revenue)	7.6		%	6.2		%	1.4		%	23	%
Gathering, processing and transportation expenses (per Boe)	Gathering, processing and transportation expenses (per Boe)	$	4.03		$	3.02		$	1.01		33	%	Gathering, processing and transportation expenses (per Boe)	$	3.55		$	4.03		$	(0.48)		(12)	%

Lease Operating Expenses. Lease operating expenses (“LOE”) for the three months ended September 30, ~~2021~~2022 increased ~~$4.1~~$12.3 million compared to the three months ended September 30, ~~2020.~~2021. Higher LOE for the third quarter of ~~2021~~2022 was primarily related to ~~(i) higher chemical costs for treating natural gas; (ii) increased environmental expenses and preventative maintenance costs; and (iii) higher fixed and variable~~additional costs associated with ~~our higher well count, which increased to 413~~the 309 gross operated horizontal wells ~~as of~~acquired in the Merger on September 30, 2021 from 387 gross operated horizontal wells as of September 30, 2020. These increases were partially offset by cost reduction initiatives, which included moving multiple wells off generators to more cost-efficient electrical line-power and switching wells away from electrical submersible pumps to more reliable and lower cost gas lift, and lower variable and semi-variable costs stemming from the 6% production decline between periods.1, 2022.

LOE per Boe was $4.79 for the third quarter of 2021, which represents an increase of $0.92 per Boe (or 24%) from the third quarter of 2020. This increase was primarily driven by per BOE increases associated with higher environmental and preventative maintenance costs between periods as well as fixed and semi-variable costs that don’t decrease at the same rate as declines in production, such as monthly rental fees for compressors and other equipment, wellhead chemical costs and water handling costs. These increases were partially offset by our cost reduction initiatives described above.

~~Table of Contents~~

Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the three months ended September 30, ~~2021~~2022 increased ~~$10.0~~$23.9 million compared to the three months ended September 30, ~~2020.~~2021. Severance taxes are ~~primarily~~ based on the market value of our oil and gas production at the wellhead, while ad valorem taxes are generally based on the assessed taxable value of proved developed oil and gas properties and vary across the different counties in which we operate. Severance taxes for the third quarter of ~~2021~~2022 increased ~~$11.1~~$19.2 million compared to the same ~~2020~~2021 period primarily due to higher oil, natural gas and NGL revenues between periods. ~~These increases were partially offset by a $1.2 million decrease in ad~~Ad valorem taxes between periods also increased $4.8 million due to ~~lower~~higher tax assessments on our oil and gas reserve ~~values.~~values as well as an increase in our oil and gas properties as a result of the Merger.

Severance and ad valorem taxes as a percentage of total net revenues increased to ~~6.2%~~7.6% for the ~~third quarter of 2021~~three months ended September 30, 2022 as compared to ~~5.3%~~6.2% for the same prior year ~~quarter due to~~quarter. This increase in rate was the result of higher ad valorem taxes as discussed above as well as a ~~greater proportion~~larger portion of our ~~commodity sales~~oil and gas volumes being ~~generated~~produced in New Mexico, which ~~has~~levies higher severance tax rates ~~in 2021. However, these rates for both periods were lower~~ than our average historical rates of 7% to 8%. The lower severance and ad valorem tax rate for the 2021 period was due to the decrease in ad valorem tax assessments discussed above, and the lower rate for the 2020 period was related to $2.2 million in tax credits we received inTexas, during the third quarter of ~~2020 on wells designated as “high cost gas” by the state~~2022.

Table of ~~Texas.~~Contents

Gathering, Processing and Transportation Expenses. Gathering, processing and transportation expenses (“GP&T”) for the three months ended September 30, ~~2021~~2022 increased ~~$5.0~~$5.9 million as compared to the three months ended September 30, ~~2020. On~~2021. This increase was mainly attributable to higher gas plant processing costs, whose variable fee portion is based on natural gas and NGL prices. Natural gas prices increased substantially between periods as discussed above, slightly offset by a decrease in NGL prices. The increase is also attributable to additional expenses incurred as a result of the Merger in the third quarter of 2022.

GP&T decreased on a per Boe basis, ~~GP&T likewise increased~~however, from ~~$3.02 for the third quarter of 2020 to~~ $4.03 for the third quarter of ~~2021. These increases were mainly related~~2021 to ~~substantially~~$3.55 for the third quarter of 2022. This decrease is due to a higher ~~natural~~portion of GP&T costs reducing our realized gas and NGL prices, ~~between periods,~~ as ~~these products are cost inputs into~~ the ~~percent-of-proceeds (“POP”) portion~~majority of gas gathering and processing contracts acquired in the Merger transfer control of our products at delivery points prior to, or at, the inlet of gas ~~plant~~ processing ~~fees.~~plants. Refer to Note 13—Revenues for additional information.

Depreciation, Depletion and Amortization. The following table summarizes our depreciation, depletion and amortization (“DD&A”) for the periods indicated:


		Three Months Ended September 30,					Three Months Ended September 30,
(in thousands, except per Boe data)	(in thousands, except per Boe data)	2021		2020		(in thousands, except per Boe data)	2022		2021
Depreciation, depletion and amortization	Depreciation, depletion and amortization	$	76,047	$	89,444	Depreciation, depletion and amortization	$	109,500	$	76,047
Depreciation, depletion and amortization per Boe	Depreciation, depletion and amortization per Boe	$	12.69	$	14.10	Depreciation, depletion and amortization per Boe	$	12.94	$	12.69

For the three months ended September 30, ~~2021,~~2022, DD&A expense amounted to ~~$76.0~~$109.5 million, ~~a decrease~~an increase of ~~$13.4~~$33.5 million over the same ~~2020~~2021 period. The primary factor contributing to ~~lower~~higher DD&A expense in ~~2021~~2022 was the ~~decrease~~increase in our ~~DD&A rates between periods, which lowered our DD&A expense by $8.5 million, while our lower~~ overall production volumes between periods, ~~decreased~~which increased DD&A expense by ~~an additional $4.9~~$31.4 million, ~~during the three months ended September 30, 2021.~~while our overall higher DD&A rate increased DD&A expense by $2.1 million between periods.

Our DD&A rate can fluctuate as a result of finding and development costs incurred, acquisitions, impairments, as well as changes in proved developed and proved undeveloped reserves. DD&A per Boe was ~~$12.69~~$12.94 for the third quarter of ~~2021~~2022 compared to ~~$14.10~~$12.69 for the same period in ~~2020.~~2021. This ~~decrease~~increase in DD&A rate was primarily ~~due~~attributable to ~~(i) net upward~~downward reserve revisions as a result of changes in future drilling plans.

General and Administrative Expenses. The following table summarizes our ~~proved developed reserves since~~general and administrative (“G&A”) expenses for the periods indicated:


	Three Months Ended September 30,
(in thousands)	2022		2021
Cash general and administrative expenses	$	15,106	$	12,462
Stock-based compensation - equity awards	48,197		22,049
Stock-based compensation - liability awards	(29,301)		(4,628)
Stock-based compensation - cash settled awards	9,385		5,865
General and administrative expenses	43,387		35,748

G&A expenses for the three months ended September 30, 2022 were $43.4 million compared to $35.7 million for the three months ended September 30, 2021. Higher G&A in the third quarter of ~~2020~~2022 was mainly the result of a $5.0 million increase in total stock-based compensation expense between periods. This increase in stock-based compensation expense was related to ~~higher SEC reserve pricing, lower operating costs and positive well performance from our drilling and completion (“D&C”) activity~~(i) an increase of $6.2 million during the period related to PSUs, mainly due to the modification and reclassification of our 2020 PSU awards from liability to equity; (ii) ~~lower D&C~~$3.5 million increase related to cash settled awards between periods; and (iii) a $3.2 million increase in various equity classified awards due to new grants and the mark to market of accelerated vestings. These increases in stock-based compensation are partially offset by a decrease of $7.9 million in expense related to the portion of liability classified restricted stock units that became fully vested following a maximum return event that was triggered in the third quarter of 2021. Refer to Note 6—Stock-Based Compensation for additional information regarding these awards. Cash G&A additionally increased $2.6 million period over period due to higher payroll and other personnel costs ~~per lateral foot~~as a result of increased headcount associated with the Merger.

Merger and integration expense. Merger and integration expense for the three months ended September 30, 2022 was $59.3 million. These costs primarily relate to (i) $40 million in ~~2021 versus 2020.~~bankers’ advisory fees, (ii) $10.8 million in severance and related benefits associated with employees that were terminated in connection with the Merger and (iii) legal, accounting and consultancy fees. See Note 2—Business Combination for further details regarding the Merger.

Impairment and Abandonment Expense. During the three months ended September 30, ~~2021~~2022, impairment and abandonment expense was ~~$7.7~~$0.5 million as compared to ~~$19.9~~$7.7 million during the three months ended September 30, ~~2020 both~~2021. Both periods consist solely of ~~which related to the~~ amortization of leasehold expiration costs associated with individually insignificant unproved properties.

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Exploration and Other Expenses. The following table summarizes our exploration and other expenses for the periods indicated:


		Three Months Ended September 30,					Three Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Geological and geophysical costs	Geological and geophysical costs	$	836	$	1,055	Geological and geophysical costs	$	1,768	$	836
Stock-based compensation - equity awards	Stock-based compensation - equity awards	1,184		256		Stock-based compensation - equity awards	572		1,184
Stock-based compensation - liability awards	Stock-based compensation - liability awards	(495)		—		Stock-based compensation - liability awards	—		(495)
Stock-based compensation - cash settled awards	Stock-based compensation - cash settled awards	314		—		Stock-based compensation - cash settled awards	—		314
Other expenses	Other expenses	—		1,359		Other expenses	12		—
Exploration and other expenses	Exploration and other expenses	$	1,839	$	2,670	Exploration and other expenses	$	2,352	$	1,839

Exploration and other expenses were $2.4 million for the three months ended September 30, 2022 compared to $1.8 million for the three months ended September 30, ~~2021 compared to $2.7 million for the three months ended September 30, 2020.~~2021. Exploration and other expenses mainly consist of topographical studies, geographical and geophysical (“G&G”) projects, salaries and expenses of G&G personnel and includes other operating costs. The

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period over period ~~decrease~~increase was primarily related to ~~$1.4 million in environmental remediation~~higher G&G personnel costs ~~incurred~~ in the third quarter of ~~2020, which were not similarly incurred in 2021.~~2022. This ~~decrease was~~increase is partially offset by ~~an increase~~a decrease in total stock-based compensation ~~costs incurred in the third quarter of 2021~~ related to certain restricted stock units that became fully vested ~~as discussed below.~~

~~General and Administrative Expenses.~~ ~~The following table summarizes our general and administrative (“G&A”) expenses for the periods indicated:~~

Three Months Ended September 30,
(in thousands) 2021 2020
Cash general and administrative expenses $ 12,462 $ 11,741
Stock-based compensation - equity awards 22,049 4,772
Stock-based compensation - liability awards (4,628) 487
Stock-based compensation - cash settled awards 5,865 —
Severance payments — 582
General and administrative expenses $ 35,748 $ 17,582

~~G&A expenses for the three months ended September 30, 2021 were $35.7 million compared to $17.6 million for the three months ended September 30, 2020. Higher G&A~~ in the third quarter of 2021 was the result of an $18.0 million increase in total stock-based compensation expense between periods. This increase was primarily related to a portion of our liability classified restricted stock units, held by certain officers (non-NEOs) and employees, becoming fully vested following a maximum return event that was triggered in the third quarter of 2021. These awards were settled one-third in cash ($5.9 million) and two-thirds in equity, resulting in $13.8 million of expense being recognized during the three months ended September 30, 2021. Also, there was an additional $4.4 million increase in stock-based compensation related to liability classified performance stock units that had a higher fair value as ~~of September 30, 2021, as their fair value is required to be re-measured at each balance sheet date. Refer to~~ ~~Note 6—Stock-Based Compensation~~ ~~for additional information regarding these awards and the maximum return event.~~

~~Other Income and Expenses.~~discussed above.

Interest Expense. The following table summarizes our interest expense for the periods indicated:


		Three Months Ended September 30,					Three Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Credit facility	Credit facility	$	2,668	$	3,930	Credit facility	$	4,068	$	2,668
8.00% Senior Secured Notes due 2025		—		2,514
5.375% Senior Notes due 2026	5.375% Senior Notes due 2026	3,889		3,889		5.375% Senior Notes due 2026	3,889		3,889
7.75% Senior Notes due 2026						7.75% Senior Notes due 2026	1,938		—
6.875% Senior Notes due 2027	6.875% Senior Notes due 2027	6,125		6,125		6.875% Senior Notes due 2027	6,125		6,125
3.25% Convertible Senior Notes due 2028	3.25% Convertible Senior Notes due 2028	1,381		—		3.25% Convertible Senior Notes due 2028	1,381		1,381
5.875% Senior Notes due 2029						5.875% Senior Notes due 2029	3,427		—
Amortization of debt issuance costs and debt discount	Amortization of debt issuance costs and debt discount	1,048		1,778		Amortization of debt issuance costs and debt discount	8,620		1,048
Interest capitalized	Interest capitalized	(421)		(518)		Interest capitalized	(641)		(421)
Total	Total	$	14,690	$	17,718	Total	$	28,807	$	14,690

Interest expense ~~decreased $3.0~~increased $14.1 million for the three months ended September 30, ~~2021~~2022 as compared to the three months ended September 30, ~~2020~~2021 primarily due to (i) ~~$2.5~~$7.6 million in ~~interest expense on our Senior Secured Notes due 2025 that was incurred in~~additional debt issuance costs amortized during the third quarter of ~~2020 but not~~2022 mainly related to fees incurred for an incremental commitment letter we entered into in connection with the Merger; (ii) $5.4 million in additional interest expense from the senior notes that were assumed in the ~~2021 period, as these notes were redeemed in April 2021,~~Merger; and ~~(ii) $1.3~~(iii) $1.4 million in ~~lower~~higher interest incurred on our ~~credit facility~~Credit Agreement due to ~~fewer~~higher borrowings outstanding during the ~~2021~~2022 period. ~~These decreases were partially offset by interest on our Convertible Senior Notes that was incurred in 2021 but not in 2020 due to their issuance in March 2021. Refer to~~ ~~Note 4—Long-Term Debt~~ ~~under Part I, Item I of this Quarterly Report for additional information on our senior notes and debt transactions.~~

Our weighted average borrowings outstanding under our ~~credit facility~~Credit Agreement were ~~$264.8~~$263.6 million versus ~~$389.6~~$264.8 million for the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Our ~~credit facility’s~~Credit Agreement’s weighted average effective interest rate ~~(which is a LIBOR-based rate) was~~increased to 4.9% from 3.3% ~~and 3.5%~~ for the three months ended September 30, 2022 and 2021, ~~and 2020, respectively.~~respectively, due to a higher market based rate between periods.

Net Gain (Loss) on Derivative Instruments. Net gains and losses are a function of (i) changes in derivative fair values associated with fluctuations in the forward price curves for the commodities underlying each of our hedge contracts outstanding and (ii) monthly cash settlements on any closed out hedge positions during the period.

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The following table presents gains and losses on our derivative instruments for the periods indicated:


		Three Months Ended September 30,					Three Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Realized cash settlement gains (losses)	Realized cash settlement gains (losses)	$	(28,796)	$	(34,486)	Realized cash settlement gains (losses)	$	(32,195)	$	(28,796)
Non-cash mark-to-market derivative gain (loss)	Non-cash mark-to-market derivative gain (loss)	(15,731)		32,518		Non-cash mark-to-market derivative gain (loss)	213,503		(15,731)
Total	Total	$	(44,527)	$	(1,968)	Total	$	181,308	$	(44,527)

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Income Tax (Expense) Benefit. The following table summarizes our pre-tax income (loss) and income tax (expense) benefit for the periods indicated:


		Three Months Ended September 30,					Three Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Income (loss) before income taxes	Income (loss) before income taxes	$	37,124	$	(51,529)	Income (loss) before income taxes	$	374,673	$	37,124
Income tax (expense) benefit	Income tax (expense) benefit	—		—		Income tax (expense) benefit	(31,169)		—

Our provisions for income taxes for the three months ended September 30, ~~2021~~2022 and ~~2020~~2021 differs from the amounts that would be provided by applying the ~~statutory~~ U.S. federal ~~income tax~~statutory rate of 21% to pre-tax book income (loss) primarily due to (i) permanent differences, (ii) state income taxes, ~~(ii) permanent differences,~~ and (iii) any changes during the period in our deferred tax asset valuation allowance.

For the three months ended September 30, 2022, we generated pre-tax net income of $374.7 million and recorded income tax expense of $31.2 million. The primary factors decreasing our income tax expense below the U.S. statutory rate was (i) the portion of pre-tax income that was attributable to our non-controlling interest partners and (ii) the partial release of our deferred tax valuation allowance due to the generation of net income in the current year.

For the three months ended September 30, 2021, we generated pre-tax net income of $37.1 million, which reduced our total net operating losses (“NOLs”) accumulated for the year by this same amount. As a result of the ~~$37.1~~$37.1 million reduction to our 2021 NOL position, we were able to reduce our corresponding deferred tax asset valuation ~~allowance~~ by $11.9 million. ~~Conversely, for the three months ended September 30, 2020,~~ we recognized a deferred tax asset valuation allowance of $8.3 million against NOLs generated during the quarter. These changes in our deferred tax asset valuation allowance are the primary factor reducing our income tax expense or benefit (based on the U.S. statutory rate) for the ~~third quarter of 2021 and 2020, respectively,~~ ~~to zero.~~

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Nine Months Ended September 30, ~~2021~~2022 Compared to Nine Months Ended September 30, ~~2020~~2021


		Nine Months Ended September 30,				Increase/(Decrease)					Nine Months Ended September 30,				Increase/(Decrease)
		2021		2020		$		%			2022		2021		$		%
Net revenues (in thousands):	Net revenues (in thousands):									Net revenues (in thousands):
Oil sales	Oil sales	$	512,278	$	363,571	$	148,707	41	%	Oil sales	$	1,009,545	$	512,278	$	497,267	97	%
Natural gas sales	Natural gas sales	106,266		29,052		77,214		266	%	Natural gas sales	200,503		106,266		94,237		89	%
NGL sales	NGL sales	94,929		39,756		55,173		139	%	NGL sales	159,661		94,929		64,732		68	%
Oil and gas sales	Oil and gas sales	$	713,473	$	432,379	$	281,094	65	%	Oil and gas sales	$	1,369,709	$	713,473	$	656,236	92	%

Average sales prices:	Average sales prices:									Average sales prices:
Oil (per Bbl)	Oil (per Bbl)	$	60.05	$	34.86	$	25.19	72	%	Oil (per Bbl)	$	93.93	$	60.05	$	33.88	56	%
Effect of derivative settlements on average price (per Bbl)	Effect of derivative settlements on average price (per Bbl)	(10.12)		(3.58)		(6.54)		(183)	%	Effect of derivative settlements on average price (per Bbl)	(9.91)		(10.12)		0.21		2	%
Oil net of hedging (per Bbl)	Oil net of hedging (per Bbl)	$	49.93	$	31.28	$	18.65	60	%	Oil net of hedging (per Bbl)	$	84.02	$	49.93	$	34.09	68	%

Average NYMEX price for oil (per Bbl)	Average NYMEX price for oil (per Bbl)	$	64.82	$	38.37	$	26.45	69	%	Average NYMEX price for oil (per Bbl)	$	98.10	$	64.82	$	33.28	51	%
Oil differential from NYMEX	Oil differential from NYMEX	(4.77)		(3.51)		(1.26)		(36)	%	Oil differential from NYMEX	(4.17)		(4.77)		0.60		13	%

Natural gas (per Mcf)	Natural gas (per Mcf)	$	3.44	$	0.93	$	2.51	270	%	Natural gas (per Mcf)	$	5.72	$	3.44	$	2.28	66	%
Effect of derivative settlements on average price (per Mcf)	Effect of derivative settlements on average price (per Mcf)	(0.09)		(0.13)		0.04		31	%	Effect of derivative settlements on average price (per Mcf)	(1.20)		(0.09)		(1.11)		(1,233)	%
Natural gas net of hedging (per Mcf)	Natural gas net of hedging (per Mcf)	$	3.35	$	0.80	$	2.55	319	%	Natural gas net of hedging (per Mcf)	$	4.52	$	3.35	$	1.17	35	%

Average NYMEX price for natural gas (per Mcf)	Average NYMEX price for natural gas (per Mcf)	$	3.53	$	1.82	$	1.71	94	%	Average NYMEX price for natural gas (per Mcf)	$	6.65	$	3.53	$	3.12	88	%
Natural gas differential from NYMEX	Natural gas differential from NYMEX	(0.09)		(0.89)		0.80		90	%	Natural gas differential from NYMEX	(0.93)		(0.09)		(0.84)		(933)	%

NGL (per Bbl)	NGL (per Bbl)	$	33.98	$	11.50	$	22.48	195	%	NGL (per Bbl)	$	42.20	$	33.98	$	8.22	24	%

Net production:	Net production:									Net production:
Oil (MBbls)	Oil (MBbls)	8,531		10,429		(1,898)		(18)	%	Oil (MBbls)	10,748		8,531		2,217		26	%
Natural gas (MMcf)	Natural gas (MMcf)	30,933		31,209		(276)		(1)	%	Natural gas (MMcf)	35,082		30,933		4,149		13	%
NGL (MBbls)	NGL (MBbls)	2,794		3,458		(664)		(19)	%	NGL (MBbls)	3,784		2,794		990		35	%
Total (MBoe)(1)	Total (MBoe)(1)	16,479		19,088		(2,609)		(14)	%	Total (MBoe)(1)	20,378		16,479		3,899		24	%

Average daily net production:	Average daily net production:									Average daily net production:
Oil (Bbls/d)	Oil (Bbls/d)	31,246		38,061		(6,815)		(18)	%	Oil (Bbls/d)	39,369		31,246		8,123		26	%
Natural gas (Mcf/d)	Natural gas (Mcf/d)	113,305		113,900		(595)		(1)	%	Natural gas (Mcf/d)	128,504		113,305		15,199		13	%
NGLs (Bbls/d)	NGLs (Bbls/d)	10,233		12,619		(2,386)		(19)	%	NGLs (Bbls/d)	13,859		10,233		3,626		35	%
Total (Boe/d)(1)	Total (Boe/d)(1)	60,363		69,664		(9,301)		(13)	%	Total (Boe/d)(1)	74,646		60,363		14,283		24	%

(1) Calculated by converting natural gas to oil equivalent barrels at a ratio of six Mcf of natural gas to one Boe.

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Oil, Natural Gas and NGL Sales Revenues. Total net revenues for the nine months ended September 30, ~~2021~~2022 were ~~$281.1~~$656.2 million, or ~~65%~~92%, higher than total net revenues for the nine months ended September 30, ~~2020.~~2021. Revenues are a function of oil, natural gas and NGL volumes sold and average commodity prices realized.

Average realized sales prices for oil, ~~residue~~natural gas and NGLs increased for the first nine months of ~~2021~~2022 compared to the same ~~2020~~2021 period by ~~72%~~56%, ~~270%~~66%, and ~~195%~~24%, respectively. The ~~72%~~56% increase in the average realized oil price was mainly the result of higher ~~(69%~~(51%) NYMEX crude prices between periods, ~~which was minimally offset by wider~~as well as improved oil differentials ($~~1.26~~0.60 per Bbl ~~wider)~~narrower). The average realized sales price of natural gas increased ~~270%~~66% due to higher ~~(94%~~(88%) average NYMEX gas prices between periods, ~~as well as improved~~partially offset by wider gas differentials ~~(by $0.80~~($0.84 per ~~Mcf)~~Mcf wider). The ~~195%~~24% increase in average realized NGL prices between periods was primarily attributable to higher Mont Belvieu spot prices for plant products for the first nine months of ~~2021~~2022 compared to the first nine months of ~~2020.~~2021. The market prices for oil, natural gas and NGLs have all been impacted by ~~higher~~ global ~~demand~~supply constraints for oil and gas ~~compared to the first nine months of 2020, when prices decreased significantly beginning in March 2020~~throughout 2021 and 2022, as ~~a result of~~well as increasing demand worldwide as global economies emerge from COVID-19 era lockdowns and ~~supply disruptions from the Russia-Saudi oil price war~~restrictions, as discussed in the market conditions section above. Additionally, the first quarter 2021 realized price for natural gas in the Permian Basin was impacted by Winter Storm Uri, which caused gas pipeline and supply disruptions and resulted in significant increases in Permian natural gas prices during this period.

Net production volumes for oil, natural gas, and NGLs ~~decreased 18%~~increased 26%, 1%13%, and ~~19%~~35%, respectively, between periods. The oil production volume ~~decrease was primarily related to normal production decline across our existing~~increase resulted from placing 67 wells and temporary shut-ins of our wells during mid-February as a result of Winter Storm Uri. Oil volume declines in the first nine months of 2021 were additionally impacted by less drilling and completion activity over the past 12 months as a result of depressed oil and gas prices, which resulted in only 33 wells being placed on production since the third quarter of ~~2020. This~~2021, which added 4,614 MBbls of net oil production to the nine months ended September 30, 2022 as compared to 33 wells brought online since the third quarter of 2020 that added 2,078 MBbls of net oil production to the nine months ended September 30, ~~2021 as compared to 58~~2021. Oil production also benefited from wells ~~brought online since~~acquired in the ~~third quarter of 2019 that~~Merger with Colgate, which added ~~4,036~~942 MBbls of net oil production to the nine months ended September 30, ~~2020.~~2022. These oil volume increases were partially offset by normal production decline across our existing wells. Natural gas and NGLs are produced concurrently with our crude oil volumes, typically resulting in a high correlation between fluctuations in oil quantities sold and natural gas and NGL quantities sold. However, ~~during the 2021 period,~~ the main processor of our raw gas operated in ~~full ethane-rejection,~~partial ethane-recovery during the first nine months of 2022, as compared to operating in ~~partial ethane-recovery~~full ethane-rejection during the ~~same 2020 period.~~ ~~Additionally, the amount of gas flared as a percentage of wellhead gas produced was significantly less during the first~~ ~~nine months~~ of 2021 ~~as compared to the same 2020 period.~~ ~~Both of these factors combined~~period, and this resulted in ~~an increase in the amount~~a lower percentage of natural gas ~~recovered~~volumes and ~~sold~~a higher percentage of NGLs being recovered from our wet gas stream ~~between periods, while the variations in ethane-rejection resulted in fewer NGLs being recovered~~ during the ~~2021~~2022 period.

Operating Expenses. The following table summarizes our operating expenses for the periods indicated:


		Nine Months Ended September 30,						Increase/(Decrease)						Nine Months Ended September 30,						Increase/(Decrease)
		2021			2020			Change			%			2022			2021			Change			%
Operating costs (in thousands):	Operating costs (in thousands):												Operating costs (in thousands):
Lease operating expenses	Lease operating expenses	$	77,522		$	83,021		$	(5,499)		(7)	%	Lease operating expenses	$	98,578		$	77,522		$	21,056		27	%
Severance and ad valorem taxes	Severance and ad valorem taxes	46,167			30,108			16,059			53	%	Severance and ad valorem taxes	101,491			46,167			55,324			120	%
Gathering, processing and transportation expenses	Gathering, processing and transportation expenses	64,283			53,353			10,930			20	%	Gathering, processing and transportation expenses	77,669			64,283			13,386			21	%
Operating cost metrics:	Operating cost metrics:												Operating cost metrics:
Lease operating expenses (per Boe)	Lease operating expenses (per Boe)	$	4.70		$	4.35		$	0.35		8	%	Lease operating expenses (per Boe)	$	4.84		$	4.70		$	0.14		3	%
Severance and ad valorem taxes (% of revenue)	Severance and ad valorem taxes (% of revenue)	6.5		%	7.0		%	(0.5)		%	(7)	%	Severance and ad valorem taxes (% of revenue)	7.4		%	6.5		%	0.9		%	14	%
Gathering, processing and transportation expenses (per Boe)	Gathering, processing and transportation expenses (per Boe)	$	3.90		$	2.80		$	1.10		39	%	Gathering, processing and transportation expenses (per Boe)	$	3.81		$	3.90		$	(0.09)		(2)	%

Lease Operating Expenses. LOE for the nine months ended September 30, ~~2021 decreased $5.5~~2022 increased $21.1 million as compared to the nine months ended September 30, ~~2020. Lower~~2021. Higher LOE for the first nine months of ~~2021~~2022 was primarily related to ~~(i) a $3.9 million decrease in workover expense between periods; (ii) decreases in electricity~~higher fixed and semi-variable costs, such as a result of credits realized in the current year period related to Winter Storm Uri; (iii) lower well operating expenses due to cost reduction initiatives, which included moving multiple wells off generator to more cost-efficient electrical line-powermonthly equipment rentals, repair work, labor, and ~~switching wells away from electric submersible pumps to more reliable and lower cost gas lift; and (iv) lower variable and semi-variable~~wellhead chemical costs stemming from the ~~14%~~ production ~~decline~~increase between ~~periods. These decreases were partially offset by higher chemical costs, environmental expenses and preventative maintenance costs, and~~periods as well as additional ~~fixed and variable~~ costs associated with ~~our higher well count, which increased to 413~~the 309 gross operated horizontal wells ~~as of~~acquired in the Merger on September ~~30, 2021 from 387 gross operated horizontal wells as of September 30, 2020.~~

LOE per Boe was $4.70 for the nine months ended September 30, 2021, which represents an increase of $0.35 per Boe (or 8%) from the comparable 2020 period. This increase was primarily driven by per BOE cost increases between periods associated with fixed and semi-variable costs that don’t decrease at the same rate as declines in production, such as monthly rental fees for compressors and other equipment, wellhead chemical costs, and water handling costs. In addition, environmental expenses and preventative maintenance costs were higher for the nine months ended September 30, 2021 as compared to the same prior year

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~~period.~~1, 2022. These increases were partially offset by ~~the~~ lower environmental expenses and lower water handling costs, which are associated with our higher level of ~~workover~~recycling activity whereby produced water from our operated wells is recycled and then reused in ~~the 2021 period, decreased electricity~~our drilling and completion operations. This process results in significantly lower costs ~~and the cost reduction initiatives we have undertaken,~~ as ~~discussed above.~~compared to typical water disposal rates.

Severance and Ad Valorem Taxes. Severance and ad valorem taxes for the nine months ended September 30, ~~2021~~2022 increased ~~$16.1~~$55.3 million compared to the nine months ended September 30, ~~2020.~~2021. Severance taxes are ~~primarily~~ based on the market value of our production at the wellhead, while ad valorem taxes are generally based on the assessed taxable value of our proved developed oil and gas properties and vary across the different counties in which we operate. Severance taxes for the first nine months of ~~2021~~2022 increased ~~$19.6~~$48.2 million compared to the same ~~2020~~2021 period primarily due to higher oil, natural gas and NGL revenues between periods. ~~These increases were partially offset by a $3.6 million decrease in ad~~Ad valorem taxes between periods also increased $7.1 million due to ~~lower~~higher tax assessments on our oil and gas reserve ~~values.~~values as well as an increase in our oil and gas properties as a result of the Merger.

Severance and ad valorem taxes as a percentage of total net revenues ~~decreased~~increased to ~~6.5%~~7.4% for the first nine months of ~~2021~~2022 as compared to ~~7.0%~~6.5% for the same ~~2020 period~~2021 period. This increase in rate was the result of higher ad valorem taxes as discussed above as well as a ~~result~~larger portion of our oil and gas volumes being produced in New Mexico, which levies higher severance tax rates than Texas, during the ~~lower 2021 ad valorem tax assessments discussed above.~~first nine months of 2022.

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Gathering, Processing and Transportation Expenses. GP&T for the nine months ended September 30, ~~2021~~2022 increased ~~$10.9~~$13.4 million compared to the nine months ended September 30, ~~2020. On a per Boe basis, GP&T likewise increased from $2.80 for the first nine months of 2020 to $3.90 for the same 2021 period. These increases were~~2021. This increase was mainly attributable to ~~(i)~~ higher gas plant processing costs, whose ~~POP~~variable fee portion is based on natural gas and NGL prices, both of which increased substantially between periods as discussed ~~above,~~above. The increase is also attributable to additional expenses incurred as a result of the Merger in the third quarter of 2022.

GP&T on a per Boe basis, however, decreased from $3.90 for the first nine months of 2021 to $3.81 for the same 2022 period. This decrease is due to a higher portion of GP&T costs reducing our realized gas and ~~(ii) a $2.1 million decrease~~NGL prices, as the majority of gas gathering and processing contracts acquired in ~~reimbursements received from third parties for their usage~~the Merger transfer control of our ~~available firm transport capacity.~~product at delivery points prior to, or at, the inlet of gas processing plants. Refer to Note 13—Revenues for additional information.

Depreciation, Depletion and Amortization. The following table summarizes our DD&A for the periods indicated:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands, except per Boe data)	(in thousands, except per Boe data)	2021		2020		(in thousands, except per Boe data)	2022		2021
Depreciation, depletion and amortization	Depreciation, depletion and amortization	$	213,259	$	283,722	Depreciation, depletion and amortization	$	262,626	$	213,259
Depreciation, depletion and amortization per Boe	Depreciation, depletion and amortization per Boe	$	12.94	$	14.86	Depreciation, depletion and amortization per Boe	$	12.89	$	12.94

For the nine months ended September 30, ~~2021,~~2022, DD&A expense amounted to ~~$213.3~~$262.6 million, ~~a decrease~~an increase of ~~$70.5~~$49.4 million over the same ~~2020~~2021 period. The primary factor contributing to ~~lower~~higher DD&A expense in ~~2021~~2022 was the ~~decrease~~increase in our overall production volumes between periods, which ~~lowered~~increased DD&A expense by ~~$38.8~~$50.5 million during the first nine months of ~~2021,~~2022, while lower DD&A rates between periods decreased DD&A expense by ~~$31.7~~$1.1 million ~~during~~for the nine months ended September 30, ~~2021.~~2022.

Our DD&A rate can fluctuate as a result of finding and development costs incurred, acquisitions, impairments, as well as changes in proved developed and proved undeveloped reserves. DD&A per Boe was ~~$12.94~~$12.89 for the first nine months of ~~2021~~2022 compared to ~~$14.86~~$12.94 for the same period in ~~2020.~~2021. This decrease in ~~DD&A~~the rate was ~~primarily due~~driven by the inclusion of depletion related to the production from the oil and gas properties acquired in the Merger.

General and Administrative Expenses. The following table summarizes our G&A expenses for the periods indicated:


	Nine Months Ended September 30,
(in thousands)	2022		2021
Cash general and administrative expenses	$	39,309	$	33,220
Stock-based compensation expense - equity awards	59,417		30,686
Stock-based compensation expense - liability awards	(24,174)		20,040
Stock-based compensation expense - cash settled awards	9,385		5,865
General and administrative expenses	$	83,937	$	89,811

G&A expenses for the nine months ended September 30, 2022 were $83.9 million compared to $89.8 million for the nine months ended September 30, 2021. Lower G&A for the first nine months of 2022 was the result of a $12.0 million decrease in total stock-based compensation expense between periods. This decrease in stock-based compensation expense was related to (i) a decrease of $15.5 million in expense related to the ~~proved property impairment recognized~~portion of liability classified restricted stock units that became fully vested following a maximum return event that was triggered in ~~the first quarter of 2020, which lowered the carrying value of our depletion base by $591.8 million; (ii) net upward revisions in our proved developed reserves since~~ the third quarter of ~~2020 mainly~~2021 and (ii) a decrease of $3.0 million during the period related to PSUs, mainly due to a portion of the 2020 PSU awards being settled in cash, offset by the reclassification of our 2020 PSU awards from liability to equity. These decreases were slightly offset by a $3.5 million increase related to cash settled awards between periods and a $3.0 million increase in various equity classified awards due to new grants and accelerated vestings. Refer to Note 6—Stock-Based Compensation for additional information regarding these awards. Further offsetting this decrease was higher ~~SEC reserve pricing, lower operating~~cash G&A, which increased $6.1 million period over period due to higher payroll and other personnel cost increases as a result of increased headcount associated with the Merger on September 1, 2022.

Merger and integration expense. Merger and integration expense for the nine months ended September 30, 2022 was $65.0 million. These costs primarily relate to (i) $43 million in bankers’ advisory fees(ii) $10.8 million in severance and ~~positive well performance from our D&C activity during~~related benefits associated with employees that were terminated in connection with the ~~period;~~Merger and (iii) ~~lower D&C costs per lateral foot in 2021 versus 2020.~~legal, accounting and consultancy fees. See Note 2—Business Combination for further details regarding the Merger.

Impairment and Abandonment Expense. During the nine months ended September 30, ~~2021, $26.1 million of~~2022, impairment and abandonment expense was ~~incurred related~~$3.6 million as compared to ~~the amortization of leasehold expiration costs associated with individually insignificant unproved properties. During~~$26.1 million during the nine months ended September 30, ~~2020, impairment and abandonment expense was $650.6 million and consisted~~2021. Both periods consist solely of ~~(i) a $591.8 million non-cash impairment of our proved oil and gas properties as a result of depressed NYMEX oil and gas forward curves as of March 31, 2020; and (ii) $58.8 million related to the~~ amortization of leasehold expiration costs associated with individually insignificant unproved properties.

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Exploration and Other Expenses. The following table summarizes our exploration and other expenses for the periods indicated:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Geological and geophysical costs	Geological and geophysical costs	$	2,622	$	4,129	Geological and geophysical costs	$	5,005	$	2,622
Rig termination fees		—		3,046
Severance payments		—		722
Stock-based compensation - equity awards	Stock-based compensation - equity awards	1,613		1,230		Stock-based compensation - equity awards	1,554		1,613
Stock-based compensation - liability awards	Stock-based compensation - liability awards	(89)		—		Stock-based compensation - liability awards	—		(89)
Stock-based compensation - cash settled awards	Stock-based compensation - cash settled awards	314		—		Stock-based compensation - cash settled awards	—		314
Other expenses	Other expenses	238		1,603		Other expenses	54		238
Exploration and other expenses	Exploration and other expenses	$	4,698	$	10,730	Exploration and other expenses	$	6,613	$	4,698

Exploration and other expenses were ~~$4.7~~$6.6 million for the nine months ended September 30, ~~2021~~2022 compared to ~~$10.7~~$4.7 million for the same prior year period. Exploration and other expenses mainly consist of topographical studies, G&G projects, salaries and expenses of G&G personnel and includes other operating costs. The period over period ~~decrease~~increase was primarily ~~due~~related to (i) rig termination fees that went from $3.0 million in the first nine months of 2020 (when we reduced our drilling program from five rigs to none) to zero in the 2021 period; (ii) $1.2 million in lower ongoinghigher G&G personnel costs related to the 2020 workforce reduction; (iii) $0.7 million in severance payments to G&G employees in the 2020 period that did not reoccur in the 2021 period; and (iv) $1.4 million in environmental remediation costs incurred in the first nine months of 2020, which were not similarly incurred in 2021. These decreases were partially offset by an increase in total stock-based compensation costs incurred during the nine months ended September 30, ~~2021~~2022. This increase is partially offset by a decrease in total stock-based compensation related to certain restricted stock units that became fully vested ~~during the period as discussed below.~~

~~General and Administrative Expenses.~~ ~~The following table summarizes our G&A expenses for the periods indicated:~~

Nine Months Ended September 30,
(in thousands) 2021

2020
Cash general and administrative expenses $ 33,220 $ 35,559
Stock-based compensation expense - equity awards 30,686 14,934
Stock-based compensation expense - liability awards 20,040 487
Stock-based compensation - cash settled awards 5,865 —
Severance payments — 3,466
General and administrative expenses $ 89,811 $ 54,446

G&A expenses for the nine months ended September 30, 2021 were $89.8 million compared to $54.4 million for the nine months ended September 30, 2020. Higher G&A in the first nine months of 2021 was the result of a $41.2 million increase in total stock-based compensation expense between periods. This increase was primarily related to a portion of our liability classified restricted stock units, held by certain officers (non-NEOs) and employees, becoming fully vested following a maximum return event that was triggered in the third quarter of 2021. These awards were settled one-third in cash ($5.9 million) and two-thirds in equity, resulting in $21.4 million of expense being recognized during the nine months ended September 30, 2021. Also, there was an additional $21.5 million increase in total stock-based compensation related to liability classified performance stock units that had a higher fair value as of September 30, 2021 as ~~their fair value is required to be re-measured at each balance sheet date. Refer to~~ ~~Note 6—Stock-Based Compensation~~ for additional information regarding these awards and the maximum return event. These increases were partially offset by (i) $3.5 million in severance payments to G&A employees in the 2020 period that did not reoccur in the first nine months of 2021; and (ii) $2.3 million in lower payroll and other personnel related costs as a result of our lower G&A headcount between periods.

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discussed above.

Other Income and Expenses.

Interest Expense. The following table summarizes our interest expense for the periods indicated:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Credit facility	Credit facility	$	8,745	$	9,256	Credit facility	$	5,717	$	8,745
8.00% Senior Secured Notes due 2025	8.00% Senior Secured Notes due 2025	2,908		3,643		8.00% Senior Secured Notes due 2025	—		2,908
5.375% Senior Notes due 2026	5.375% Senior Notes due 2026	11,667		13,995		5.375% Senior Notes due 2026	11,667		11,667
7.75% Senior Notes due 2026						7.75% Senior Notes due 2026	1,938		—
6.875% Senior Notes due 2027	6.875% Senior Notes due 2027	18,375		22,243		6.875% Senior Notes due 2027	18,375		18,375
3.25% Convertible Senior Notes due 2028	3.25% Convertible Senior Notes due 2028	2,934		—		3.25% Convertible Senior Notes due 2028	4,143		2,934
5.875% Senior Notes due 2029						5.875% Senior Notes due 2029	3,427		—
Amortization of debt issuance costs and debt discount	Amortization of debt issuance costs and debt discount	3,935		4,112		Amortization of debt issuance costs and debt discount	12,846		3,935
Interest capitalized	Interest capitalized	(1,207)		(1,739)		Interest capitalized	(1,826)		(1,207)
Total	Total	$	47,357	$	51,510	Total	$	56,287	$	47,357

Interest expense was ~~$4.2~~$8.9 million ~~lower~~higher for the nine months ended September 30, ~~2021~~2022 compared to the same ~~2020~~2021 period mainly due to (i) ~~$6.2~~$8.9 million in additional debt issuance costs amortized during the 2022 period mainly related to fees incurred for an incremental commitment letter we entered into in connection with the Merger; (ii) $5.4 million in additional interest expense from the senior notes that were assumed in the Merger; and (iii) interest on our Convertible Senior Notes that was incurred in 2022 but only partially during the 2021 period due to their issuance in March of 2021. These increases were partially offset by (i) $3.0 million in lower interest incurred on our ~~Senior Unsecured Notes~~Credit Agreement due to lower borrowings outstanding during the ~~2021~~2022 period, ~~as $110.6 million of the Senior Notes due 2026~~ and ~~$143.7 million of the Senior Notes due 2027 were extinguished in our debt exchange transaction in May 2020;~~ (ii) ~~$0.7~~$2.9 million in decreased interest expense on our Senior Secured Notes due 2025 that were ~~issued in May of 2020 and then subsequently~~ redeemed in April of 2021; and (iii) $0.5 million in lower interest expense incurred on our credit facility due to fewer borrowings outstanding during the 2021 period. These decreases were partially offset by $2.9 million in interest incurred on our Convertible Senior Notes that were issued in March of 2021. ~~Refer to~~ ~~Note 4—Long-Term Debt~~ ~~under Part I, Item I of this Quarterly Report for additional information on our senior notes and debt transactions.~~

Our weighted average borrowings outstanding under our ~~credit facility~~Credit Agreement were ~~$294.6~~$99.8 million ~~and $322.3~~versus $294.6 million for the first nine months of ~~2021~~2022 and ~~2020,~~2021, respectively. Our ~~credit facility’s~~Credit Agreement’s weighted average effective interest rate ~~(which is a LIBOR-based rate)~~ was ~~3.3%~~3.4% and ~~3.2%~~3.3% for the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Gain (loss) on extinguishment of debt. During the nine months ended September 30, 2021, we redeemed at par all of our $127.1 million aggregate principal amount of Senior Secured Notes outstanding. In connection with this ~~redemptions,~~redemption, we recorded a loss on debt extinguishment of $22.2 million related to the write-off of all unamortized debt issuance costs and debt discounts associated with these notes.

~~A gain~~Table of $143.4 million was recognized during the nine months ended September 30, 2020 related to our 2020 debt exchange transaction. This gain was determined based on the difference between the carrying value of the Senior Unsecured Notes extinguished less the fair value of our newly issued Senior Secured Notes on their date of issuance. Refer to Contents~~Note 4—Long-Term Debt~~ ~~for additional information regarding the debt extinguishment transactions discussed above.~~

The following table presents gains and losses for derivative instruments for the periods indicated:


		Nine Months Ended September 30,					Nine Months Ended September 30,
(in thousands)	(in thousands)	2021		2020		(in thousands)	2022		2021
Realized cash settlement gains (losses)	Realized cash settlement gains (losses)	$	(89,195)	$	(41,433)	Realized cash settlement gains (losses)	$	(148,721)	$	(89,195)
Non-cash mark-to-market derivative gain (loss)	Non-cash mark-to-market derivative gain (loss)	(61,490)		1,103		Non-cash mark-to-market derivative gain (loss)	166,372		(61,490)
Total	Total	$	(150,685)	$	(40,330)	Total	$	17,651	$	(150,685)

Income Tax (Expense) Benefit. The following table summarizes our pre-tax income (loss) and income tax (expense) benefit for the periods indicated:

Nine Months Ended September 30,
(in thousands) 2021 2020
Income (loss) before income taxes $ (22,576) $ (681,668)
Income tax (expense) benefit — 85,124

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	Nine Months Ended September 30,
(in thousands)	2022		2021
Income (loss) before income taxes	$	630,564	$	(22,576)
Income tax (expense) benefit	(79,432)		—

Our provisions for income taxes for the first nine months of ~~2021~~2022 and ~~2020~~2021 differs from the amounts that would be provided by applying the statutory U.S. federal income tax rate of 21% to pre-tax book income (loss) primarily due to (i) permanent differences; (ii) state income taxes; ~~(ii) permanent differences;~~ and (iii) any changes during the period in our deferred tax asset valuation allowance.

For the nine months ended September 30, ~~2021~~2022 we generated pre-tax net income of $630.6 million and ~~2020,~~recorded income tax expense of $79.4 million. The primary factors decreasing our income tax expense below the U.S. statutory rate was (i) the portion of pre-tax income that was attributable to our non-controlling interest partners and (ii) the partial release of our deferred tax valuation allowance due to the generation of net income in the current year.

For the nine months ended September 30, 2021, we recognized deferred tax asset valuation allowances of $8.1 million ~~and $58.0 million, respectively,~~ against ~~net operating losses (“NOLs”)~~NOLs we generated during ~~those respective periods,~~the period, and such NOLs ~~are~~were estimated at such time as unlikely to be realized in future periods. ~~These increases~~The increase in our valuation allowance ~~were~~was the primary factor reducing our income tax benefit (based on the U.S. statutory rate) ~~recognized in each respective period~~ to zero for the first nine months of ~~2021 and to $85.1 million for the first nine months of 2020.~~2021.

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Liquidity and Capital Resources

Overview

Our drilling and completion activities require us to make significant capital expenditures. Historically, our primary sources of liquidity have been cash flows from operations, borrowings under ~~CRP’s~~our revolving credit facility, proceeds from offerings of debt or equity securities, or proceeds from the sale of oil and gas properties. ~~Future~~Our future cash flows are subject to a number of variables, including oil and natural gas prices, which have been and will likely continue to be volatile. Lower commodity prices can negatively impact our cash flows and our ability to access debt or equity markets, and sustained low oil and natural gas prices could have a material and adverse effect on our liquidity position. To date, our primary use of capital has been for drilling and development capital expenditures and the acquisition of oil and natural gas properties. ~~The following table summarizes our capital expenditures (“capex”) incurred for the nine months ended September 30, 2021:~~


~~(in millions)~~	~~Nine Months Ended September 30, 2021~~
~~Drilling, completion and facilities~~	$	~~227.8~~
~~Infrastructure, land and other~~	~~7.2~~

~~Total capital expenditures incurred~~	$	~~235.0~~

We continually evaluate our capital needs and compare them to our capital resources. We operated a two-rig drilling program during the first ~~nine~~eight months of ~~2021~~2022, and ~~plan~~an eight-rig drilling program after the Merger closing on September 1, 2022, which is expected to ~~continue with two~~reduce to seven drilling rigs in November and for the remainder of the year. Our total capital expenditures incurred for the nine months ended September 30, 2022 was $454.2 million. We expect our total drilling, completion and facilities capex budget for ~~2021~~the fourth quarter of 2022 to be between $300 million to ~~$315 million, of which $290 million to $305 million is allocated to drilling, completion and facilities activity.~~$325 million. We funded our capital expenditures for the nine months ended September 30, ~~2021~~2022 entirely from cash flows from operations, and we expect to fund the remainder of our ~~2021~~2022 capex budget entirely from cash flows from operations as well, given our anticipated level of oil and gas production, ~~together with~~current commodity prices and our commodity hedge positions in place. ~~We were free cash flow positive during~~

In May 2022, we announced the ~~first nine months~~Merger with Colgate that was completed on September 1, 2022. As a result of ~~2021~~the Merger, our 2022 operational plans and sources and use of capital, among others things, as a combined entity have changed, and such ~~that we were able~~changes include (i) the Company assumed $1.0 billion of Colgate’s senior notes, (ii) the Company refinanced Colgate’s credit facility borrowings outstanding at closing through borrowings under the Company’s Credit Agreement, (iii) borrowings under our Credit Agreement to ~~pay down approximately $105~~fund a portion of the $525 million in ~~borrowings (excluding~~cash Merger consideration, and (iv) funding of transaction costs incurred related to the Merger.

In February 2022, our Board of Directors authorized the Repurchase Program to acquire up to $350 million of our outstanding Common Stock. In connection with the Merger, the Repurchase Program was increased to $500 million and was extended through December 31, 2024. The Repurchase Program can be used to reduce our shares of Common Stock outstanding. Such repurchases would be made at terms and prices determined by us based upon prevailing market conditions, applicable legal requirements, available liquidity, compliance with our debt ~~refinancing~~and other agreements and other factors. In addition, we may, from time to time, seek to retire or purchase our outstanding senior notes through cash purchases and/or exchanges for debt in open-market purchases, privately negotiated transactions discussed below) under our credit agreement during the period, and based upon current commodity prices, we expect to continue to pay down borrowings from free cash flow generation during the remainder of 2021.or otherwise.

Because we are the operator of a high percentage of our acreage, we can control the amount and timing of our capital expenditures. We can choose to defer or accelerate a portion of our planned capex depending on a variety of factors, including but not limited to: prevailing and anticipated prices for oil and natural gas; oil storage or transportation constraints; the success of our drilling activities; the availability of necessary equipment, infrastructure and capital; the receipt and timing of required regulatory permits and approvals; seasonal conditions; property or land acquisition costs; and the level of participation by other working interest owners.

We cannot ensure that cash flows from operations ~~will be available~~ or other sources of needed capital will be available on acceptable terms or at all. Further, our ability to access the public or private debt or equity capital markets at economic terms in the future will be affected by general economic conditions, the domestic and global oil and financial markets, our operational and financial performance, the value and performance of our debt or equity securities, prevailing commodity prices and other macroeconomic factors outside of our control.

Moreover, to manage our future maturities, lower interest expense, and improve our liquidity position, we issued 3.25% Convertible Senior Notes in March 2021, which resulted in net proceeds of $163.6 million. The proceeds were used to repay borrowing outstanding under CRP’s revolving credit facility and to fund the cost of entering into capped call spread transactions of $14.7 million. In April 2021, we redeemed at par all of our 2025 senior secured notes ($127.1 million) that bore interest at 8% per year and paid accrued interest of $3.8 million on these notes, which was the intended use of proceeds from the Convertible Senior Notes offering. As a result of this refinancing transaction, we able to reduce net borrowings outstanding under CRP’s revolving credit facility by approximately $20 million.

Analysis of Cash Flow Changes

The following table summarizes our cash flows for the periods indicated:

Nine Months Ended September 30,
(in thousands) 2021 2020
Net cash provided by operating activities $ 333,132 $ 130,232
Net cash used in investing activities (216,318) (308,009)
Net cash (used in) provided by financing activities (117,626) 172,752

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	Nine Months Ended September 30,
(in thousands)	2022		2021
Net cash provided by operating activities	$	843,376	$	333,132
Net cash used in investing activities	(896,438)		(216,318)
Net cash provided by (used in) financing activities	89,194		(117,626)

For the nine months ended September 30, ~~2021,~~2022, we generated ~~$333.1~~$843.4 million of cash from operating activities, an increase of ~~$202.9~~$510.2 million from the same period in ~~2020.~~2021. Cash provided by operating activities increased primarily due to higher realized prices for all commodities, ~~lower lease operating expenses, lower exploration expense, decreased cash interest costs,~~higher production volumes, and the timing of our supplier payments during the nine months ended September 30, ~~2021.~~2022. These increasing factors were partially offset by ~~lower production volumes,~~ higher merger and integration expense, severance and ad

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valorem taxes, lease operating expenses, GP&T, and ~~severance and ad valorem costs, the timing of our receivable collections, and~~ cash ~~settlement losses from derivatives~~G&A expense for the nine months ended September 30, ~~2021~~2022 as compared to the same ~~2020~~2021 period. Refer to “Results of Operations” for more information on the impact of volumes and prices on revenues and on fluctuations in our operating ~~expenses~~costs between periods.

During the nine months ended September 30, 2022, cash flows from operating activities and net borrowings under our revolving credit facility were used to finance $496.7 million of net cash consideration paid for the Merger, fund $397.9 million of drilling and development cash expenditures and repay $400 million of borrowings outstanding from Colgate’s credit facility that were assumed at closing.

During the nine months ended September 30, 2021, cash flows from operating activities and net proceeds from the issuance of the Convertible Senior Notes (defined below) were used to finance $215.4 million of drilling and development cash expenditures, repay net borrowings of $125.0 million under our credit facility, redeem $127.1 million of our 2025 senior secured notes outstanding and to fund $14.7 million in capped call spread transactions.

During the nine months ended September 30, 2020, cash flows from operating activities, cash on hand, and net borrowings of $180.0 million under our credit facility were used to finance $300.7 million of drilling and development cash expenditures, to fund $7.7 million in oil and gas property acquisitions, and to finance $6.7 million of debt issuance and exchange costs.

Credit Agreement

~~CRP, our consolidated subsidiary, has a~~On February 18, 2022, OpCo entered into an amended and restated five-year secured credit ~~agreement~~facility with a syndicate of banks, ~~that provides for a five-year secured revolving~~which replaced its previous credit facility ~~maturing on~~that was set to mature in May ~~4, 2023 (the “Credit Agreement”). As of September 30, 2021, we had $205.0 million~~2023. The restated Credit Agreement extended its maturity date to February 2027.

On July 15, 2022, OpCo entered into the first amendment to its Credit Agreement. The Amendment, among other things, waived compliance with certain restrictive covenants and provided the lenders’ consent to a planned Pre-Merger Reorganization (as defined within the Amendment) in borrowings outstanding and $488.5 million in available borrowing capacity, which was net of $6.5 million in letters of credit. The borrowing base had previously been reduced by an availability blocker of $31.8 million, however,order to enable the ~~blocker was removed as a result of~~Merger to occur. In addition, the ~~Senior Secured Note redemption discussed above. In connection with~~Amendment increased the elected commitments under the Credit ~~Agreement’s fall 2021 semi-annual borrowing base redetermination,~~Agreement to $1.5 billion from $750 million, increased the borrowing base to $2.5 billion from $1.15 billion, and ~~amount~~became effective as of ~~elected commitments were reaffirmed at $700.0 million.~~the September 1, 2022 Merger closing date.

~~CRP’s~~The Credit Agreement contains restrictive covenants that limit ~~its~~our ability to, among other things: (i) incur additional indebtedness; (ii) make investments and loans; (iii) enter into mergers; (iv) make restricted payments; (v) repurchase or ~~declare dividends; (v)~~redeem junior debt; (vi) enter into commodity hedges exceeding a specified percentage of our expected production; ~~(vi)~~(vii) enter into interest rate hedges exceeding a specified percentage of its outstanding indebtedness; ~~(vii)~~(viii) incur liens; ~~(viii)~~(ix) sell assets; and ~~(ix)~~(x) engage in transactions with affiliates.

~~CRP’s~~The Credit Agreement also requires usOpCo to maintain compliance with the following financial ratios:

(i) a current ratio, which is the ratio of ~~CRP’s~~OpCo’s consolidated current assets (including an add back of unused commitments under ~~its~~the revolving credit facility and excluding non-cash derivative assets and certain restricted cash) to its consolidated current liabilities (excluding ~~any~~the current portion of long-term debt ~~due~~ under the ~~credit agreement~~Credit Agreement and non-cash derivative liabilities), of not less than 1.0 to 1.0; and

~~(iii) a leverage ratio, as defined with~~ the Credit Agreement as the ratio of total funded debt to consolidated EBITDAX (as defined within the Credit Agreement) for the ~~rolling~~prior four fiscal quarter period. Pursuant to the Q2 2020 Amendments, the leverage ratio is suspended until March 31, 2022, at which time, the ratio may not exceed 5.00 to 1.00, with such maximum ratio declining at a ratequarters, of ~~0.25 for each succeeding quarter until March 31, 2023 when the ratio is set at~~ not greater than ~~4.0~~3.5 to 1.0.

OpCo was in compliance with the covenants and the applicable financial ratios described above as of September 30, ~~2021~~2022 and through the filing of this Quarterly Report.

For further information on the Credit Agreement, refer to Note 4—Long-Term Debt under Part I, Item I of this Quarterly Report.

Convertible Senior Notes

On March 19, 2021, ~~CRP~~OpCo issued $150.0 million ~~in aggregate principal amount~~ of ~~Convertible~~3.25% senior unsecured convertible notes due 2028 (the “Convertible Senior ~~Notes.~~Notes”). On March 26, 2021, ~~CRP~~OpCo issued an additional $20.0 million of Convertible Senior Notes pursuant to the exercise of the underwriters’ over-allotment option to purchase additional notes. ~~The Convertible~~These issuances resulted in aggregate net proceeds to OpCo of $163.6 million, which were used to repay borrowings outstanding under the Credit Agreement and to fund the cost of entering into capped call spread transactions of $14.7 million. Subsequently in April 2021, we redeemed at par all of our Senior Secured Notes ~~bear interest at an annual rate~~(defined below), which was the intended use of ~~3.25% and are due on April 1, 2028. Interest is payable semi-annually in arrears on each April 1 and October 1, commencing on October 1, 2021. CRP can settle~~proceeds from the Convertible Senior Notes ~~by paying or delivering cash, shares of the Company’s Class A common stock (the “Common Stock”), or a combination of cash and Common Stock, at CRP’s election.~~offering.

The Convertible Senior Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of OpCo’s current subsidiaries that guarantee OpCo’s outstanding Senior Unsecured Notes as defined below.

The Convertible Senior Notes bear interest at an annual rate of 3.25% and are due on April 1, 2028 unless earlier repurchased, redeemed or converted. The Convertible Senior Notes may become convertible prior to April 1, 2028, upon the occurrence of certain events or conditions being met as disclosed in Note 4—Long-Term Debt under Part I, Item I of this Quarterly Report. OpCo can settle the Convertible Senior Notes by paying or delivering cash, shares of the Class A Common

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~~each~~Stock, or a combination of ~~CRP’s current subsidiaries~~cash and Class A Common Stock, at OpCo’s election.

In connection with the Convertible Senior Notes issuance, OpCo entered into privately negotiated capped call spread transactions (the “Capped Call Transactions”), that ~~guarantee CRP’s outstanding~~are expected to reduce potential dilution to our Class A Common Stock upon a conversion and/or offset any cash payments OpCo is required to make in excess of the principal amount of the Convertible Senior ~~Unsecured~~ Notes, ~~as defined below.~~subject to a cap. The Capped Call Transactions have an initial strike price of $6.28 per share of Class A Common Stock and an initial capped price of $8.4525 per share of Class A Common Stock (each subject to certain customary adjustments per the agreements).

Senior Notes

On September 1, 2022, in connection with the Merger, OpCo entered into supplemental indentures whereby all of Colgate’s outstanding senior notes were assumed at Closing and became the senior unsecured debt of OpCo. The senior notes assumed by OpCo included $300 million of 7.75% senior notes due 2026 (the “2026 Colgate Senior Notes”) and $700 million of 5.875% senior notes due 2029 (the “2029 Colgate Senior Notes,” and together with the 2026 Colgate Senior Notes, the “Colgate Senior Notes”). The Company recorded the Colgate Senior Notes at their fair value as of the Merger closing, which were equal to 100% of par for the 2026 Colgate Senior Notes and 93.68% of par (a $44.3 million debt discount) for the 2029 Colgate Senior Notes.

On November 30, 2017, ~~CRP~~OpCo issued $400.0 million of 5.375% senior notes due 2026 (the “2026 Senior Notes”) and on March 15, 2019, ~~CRP~~OpCo issued $500.0 million of 6.875% senior notes due 2027 (the “2027 Senior Notes” and, together with the 2026 Senior Notes and the Colgate Senior Notes, the “Senior Unsecured Notes”) in 144A private placements. In May 2020, $110.6 million aggregate principal amount of the 2026 Senior Notes and $143.7 million aggregate principal amount of the 2027 Senior Notes were validly tendered and exchanged by certain eligible bondholders for consideration consisting of $127.1 million aggregate principal amount of 8.00% second lien senior secured notes ~~due~~ (the “Senior Secured Notes”). The Senior Secured Notes were fully redeemed at par in connection with the Convertible Senior Notes issuance during the second quarter of 2021.

The Senior Unsecured Notes are fully and unconditionally guaranteed on a senior unsecured basis by ~~Centennial~~Permian Resources and each of ~~CRP’s~~OpCo’s current subsidiaries that guarantee ~~CRP’s revolving credit facility.~~OpCo’s Credit Agreement.

The indentures governing the Senior Unsecured Notes contain covenants that, among other things and subject to certain exceptions and qualifications, limit ~~CRP’s~~OpCo’s ability and the ability of ~~CRP’s~~OpCo’s restricted subsidiaries to: (i) incur or guarantee additional indebtedness or issue certain types of preferred stock; (ii) pay dividends on capital stock or redeem, repurchase or retire capital stock or subordinated indebtedness; (iii) transfer or sell assets; (iv) make investments; (v) create certain liens; (vi) enter into agreements that restrict dividends or other payments from their subsidiaries to them; (vii) consolidate, merge or transfer all or substantially all of their assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. ~~CRP~~OpCo was in compliance with these covenants as of September 30, ~~2021~~2022 and through the filing of this Quarterly Report.

For further information on our Convertible Senior Notes and Senior Unsecured Notes, refer to Note 4—Long-Term Debt under Part I, Item I of this Quarterly Report.

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Contractual Obligations

~~Our contractual obligations include~~We routinely enter into or extend operating and transportation agreements, ~~drilling rig contracts,~~ office and equipment leases, ~~asset retirement obligations, long-term debt~~drilling rig contracts, among others, in the ordinary course of business. The following table summarizes our obligations and cash interest expense on long-term debt obligations, which we routinely enter into, modify or extend. Since December 31, 2020, there have not been any significant, non-routine changes in our contractual obligations, other than the changes to certain of our operating lease commitments ~~and principal and interest due under our senior notes discussed above. Refer to~~ ~~Note 13—Leases~~ ~~under Part I, Item I of this Quarterly Report for updated contractual obligations associated with our operating leases~~ as of September 30, ~~2021.~~2022 to make future payments under long-term contracts for the time periods specified below.


(in thousands)	2022		2023		2024		2025		2026		Thereafter		Total
Operating leases(1)	$	7,983	$	31,687	$	19,679	$	5,203	$	4,074	$	20,127	$	88,753
Purchase obligations(2)	6,883		27,488		10,780		5,192		5,192		—		55,535
Asset retirement obligations(3)	178		25		780		9,110		3		30,046		40,142
Long term debt obligations(4)	—		—		—		—		589,448		1,776,351		2,365,799
Cash interest expense on long-term debt obligations(5)	35,562		142,249		142,249		142,249		106,995		120,347		689,651
Cash based severance payments(6)	9,716		11,471		—		—		—		—		21,187
Total	$	60,322	$	212,920	$	173,488	$	161,754	$	705,712	$	1,946,871	$	3,261,067

(1) Operating leases consist of our office rental agreements, drilling rig contracts and other wellhead equipment.

(2) Consists of an energy purchase agreement to buy a minimum amount of electricity at a fixed price or pay for underutilization as well as a take-or-pay agreement to purchase a minimum volume of frac sand at a fixed price. The obligations reported above represent our remaining minimum financial commitments pursuant to the terms of these contracts as of September 30, 2022, however actual expenditures may exceed the minimum commitments presented above.

(3) Asset retirement obligations reflect the present value of the estimated future costs associated with the plugging and abandonment of oil and gas wells and the related land restoration in accordance with applicable laws and regulations.

(4) Long-term debt consists of the principal amounts of our senior notes due and borrowings outstanding under the Credit Agreement as of September 30, 2022.

(5) Cash interest expense on our senior notes is estimated assuming no principal repayment until the maturity of the instruments. Cash interest expense on the Credit Agreement includes unused commitment fees and assumes no additional principal borrowings, repayments or changes to commitments under the agreement through the instrument due date.

(6) Long-term severance and related expenses associated with the Merger.

Critical Accounting Policies and Estimates

There have been no material changes, other than those discussed below, during the nine months ended September 30, ~~2021~~2022 to the critical accounting policies ~~previously~~as disclosed in ~~our 2020 Annual Report. Please refer to~~ Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates in our ~~2020~~2021 Annual ~~Report~~Report.

Business and Asset Acquisitions

From time to time, we may acquire assets and assume liabilities in transactions accounted for ~~a discussion~~as business combinations, such as the Merger. In connection with the Merger, we allocated the $2.7 billion of ~~our critical accounting policies~~purchase price consideration to the assets acquired and liabilities assumed based on estimated fair values as of the Merger closing date.

For business and asset acquisitions, we generally recognize the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree at their estimated fair values on the acquisition date. Determining fair value requires management’s judgment and involves the use of significant estimates and assumptions with respect to projections of future production volumes, pricing and cash flows, discount rates, expectations regarding customer contracts and relationships, and other management estimates. The judgments made in the determination of the estimated fair value assigned to the assets acquired, liabilities assumed and any noncontrolling interest, as well as the estimated useful life of each asset and the duration of each liability, can materially impact the financial statements in periods after acquisition. Refer to Note 2—Business Combination and Note 8—Fair Value Measurements for additional information.

New Accounting Pronouncements

~~Please refer to~~ ~~Note 1—Basis of Presentation and Summary of Significant Accounting Policies~~ ~~under Part I, Item 1. of this Quarterly Report for a discussion of recently adopted~~There were no significant new accounting standards ~~and the~~adopted or new accounting pronouncements that would have potential effects to us as of ~~new accounting pronouncements.~~September 30, 2022.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The term “market risk” as it applies to our business refers to the risk of loss arising from adverse changes in oil and natural gas prices and interest rates, and we are exposed to market risk as described below. The primary objective of the following information is to provide quantitative and qualitative information about our potential exposure to market risks. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. All of our market risk sensitive instruments were entered into for purposes other than speculative trading.

Commodity Price Risk

Our primary market risk exposure is in the pricing that we receive for our oil, natural gas and NGL production. Pricing for oil, natural gas and NGLs has been volatile and unpredictable for several years, and we expect this volatility to continue for the foreseeable future. Based on our production for the first nine months of ~~2021,~~2022, our oil and gas sales for the nine months ended September 30, ~~2021~~2022 would have moved up or down ~~$51.2~~$101.0 million for each 10% change in oil prices per Bbl, ~~$9.5~~$16.0 million for each 10% change in NGL prices per Bbl, and ~~$10.6~~$20.1 million for each 10% change in natural gas prices per Mcf.

Due to this volatility, we have historically used, and we may elect to continue to selectively use, commodity derivative instruments (such as collars, swaps and basis swaps) to mitigate price risk associated with a portion of our anticipated production. Our derivative instruments allow us to reduce, but not eliminate, the potential effects of the variability in cash flows that can emanate from ~~operations due to~~ fluctuations in oil and natural gas prices, and thereby provide increased certainty of cash flows for our drilling program and debt service requirements. These instruments provide only partial price protection against declines in oil and natural gas prices, but alternatively they ~~may~~ partially limit our potential gains from future increases in prices. Our Credit Agreement limits our ability to enter into commodity hedges covering greater than 85% of our reasonably anticipated projected production from proved properties.

The table below summarizes the terms of the derivative contracts we had in place as of September 30, ~~2021~~2022 and additional contracts entered into through October 31, ~~2021.~~2022. Refer to Note 7—Derivative Instruments in Item 1 of Part I of this Quarterly Report for open derivative positions as of September 30, ~~2021.~~2022.
Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Crude Price
($/Bbl)(1)
Crude oil swaps
NYMEX WTI October 2021 - December 2021 828,000 9,000 $49.82
January 2022 - March 2022 1,080,000 12,000 65.03
April 2022 - June 2022 1,092,000 12,000 65.28
July 2022 - September 2022 736,000 8,000 64.53
October 2022 - December 2022 644,000 7,000 64.58
January 2023 - March 2023 45,000 500 69.41
April 2023 - June 2023 45,500 500 68.08
ICE Brent October 2021 - December 2021 322,000 3,500 $58.10
Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Collar Price Ranges
($/Bbl)(2)
Crude oil collars
NYMEX WTI October 2021 - December 2021 92,000 1,000 $42.00 - $50.10
January 2022 - March 2022 225,000 2,500 63.60 - 74.30
April 2022 - June 2022 227,500 2,500 63.20 - 72.41
ICE Brent October 2021 - December 2021 138,000 1,500 $66.67 - $74.80


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Crude Price ($/Bbl)(1)
Crude oil swaps	October 2022 - December 2022	2,530,000	27,500	$89.17
	January 2023 - March 2023	1,575,000	17,500	90.58
	April 2023 - June 2023	1,592,500	17,500	87.64
	July 2023 - September 2023	1,472,000	16,000	86.36
	October 2023 - December 2023	1,472,000	16,000	84.11
	January 2024 - March 2024	1,092,000	12,000	78.46
	April 2024 - June 2024	1,092,000	12,000	77.30
	July 2024 - September 2024	1,104,000	12,000	76.21
	October 2024 - December 2024	1,104,000	12,000	75.27


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Collar Price Ranges ($/Bbl)(2)
Crude oil collars	October 2022 - December 2022	644,000	7,000	$80.00	-	$104.17
	January 2023 - March 2023	810,000	9,000	75.56	-	91.15
	April 2023 - June 2023	819,000	9,000	75.56	-	91.15
	July 2023 - September 2023	644,000	7,000	76.43	-	92.70
	October 2023 - December 2023	644,000	7,000	76.43	-	92.70

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Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Differential
($/Bbl)(3)
Crude oil differential basis swaps October 2021 - December 2021 644,000 7,000 $0.26
January 2022 - March 2022 450,000 5,000 0.22
April 2022 - June 2022 455,000 5,000 0.22
July 2022 - September 2022 460,000 5,000 0.22
October 2022 - December 2022 460,000 5,000 0.22


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Differential ($/Bbl)(3)
Crude oil basis differential swaps	October 2022 - December 2022	1,848,886	20,097	$0.62
	January 2023 - March 2023	729,999	8,111	0.55
	April 2023 - June 2023	739,499	8,126	0.55
	July 2023 - September 2023	749,000	8,141	0.52
	October 2023 - December 2023	749,002	8,141	0.52
	January 2024 - March 2024	637,000	7,000	0.43
	April 2024 - June 2024	637,000	7,000	0.43
	July 2024 - September 2024	644,000	7,000	0.43
	October 2024 - December 2024	644,000	7,000	0.43

Period Volume (Bbls) Volume
(Bbls/d)
Wtd. Avg. Differential
($/Bbl)(4)
Crude oil roll differential swaps January 2022 - March 2022 900,000 10,000 $0.71
April 2022 - June 2022 910,000 10,000 0.71
July 2022 - September 2022 920,000 10,000 0.71
October 2022 - December 2022 920,000 10,000 0.71


	Period	Volume (Bbls)	Volume (Bbls/d)	Wtd. Avg. Differential ($/Bbl)(4)
Crude oil roll differential swaps	October 2022 - December 2022	2,760,000	30,000	$1.85
	January 2023 - March 2023	1,350,000	15,000	1.34
	April 2023 - June 2023	1,365,000	15,000	1.25
	July 2023 - September 2023	1,380,000	15,000	1.23
	October 2023 - December 2023	1,380,000	15,000	1.22
	January 2024 - March 2024	637,000	7,000	0.75
	April 2024 - June 2024	637,000	7,000	0.74
	July 2024 - September 2024	644,000	7,000	0.73
	October 2024 - December 2024	644,000	7,000	0.72

(2) These crude oil collars are settled based on the NYMEX WTI ~~or ICE Brent~~ index price, ~~as applicable,~~ on each trading day within the specified monthly settlement period versus the contractual floor and ceiling prices for the volumes stipulated.

(4) These crude oil roll swap transactions are settled based on the difference between the arithmetic average of NYMEX WTI calendar month prices and the physical crude oil delivery month price.

Period Volume (MMBtu) Volume (MMBtu/d)
Wtd. Avg. Gas Price
($/MMBtu)(1)
Natural gas swaps October 2021 - December 2021 3,680,000 40,000 $2.95
January 2022 - March 2022 2,700,000 30,000 3.00
April 2022 - June 2022 2,730,000 30,000 3.24
July 2022 - September 2022 2,760,000 30,000 3.24
October 2022 - December 2022 1,540,000 16,739 3.15

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Period Volume (MMBtu) Volume (MMBtu/d)
Wtd. Avg. Differential
($/MMBtu)(2)
Natural gas basis differential swaps October 2021 - December 2021 4,290,000 46,630 $(0.24)
January 2022 - March 2022 2,700,000 30,000 (0.18)


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Gas Price ($/MMBtu)(1)
Natural gas swaps	October 2022 - December 2022	3,432,715	37,312	$5.86
	January 2023 - March 2023	1,670,157	18,557	7.64
	April 2023 - June 2023	1,572,752	17,283	4.70
	July 2023 - September 2023	1,486,925	16,162	4.70
	October 2023 - December 2023	1,413,628	15,366	4.90
	January 2024 - March 2024	464,919	5,109	5.01
	April 2024 - June 2024	446,321	4,905	3.93
	July 2024 - September 2024	429,388	4,667	4.01
	October 2024 - December 2024	413,899	4,499	4.32

Period Volume (MMBtu) Volume (MMBtu/d)
Wtd. Avg. Collar Price Ranges
($/MMBtu)(3)
Natural gas collars October 2021 - December 2021 1,220,000 13,261 $3.15 - $4.65
January 2022 - March 2022 1,800,000 20,000 3.15 - 4.65
April 2022 - June 2022 910,000 10,000 3.00 - 3.68
July 2022 - September 2022 920,000 10,000 3.00 - 3.68
October 2022 - December 2022 310,000 3,370 3.00 - 3.68


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Differential ($/MMBtu)(2)
Natural gas basis differential swaps	October 2022 - December 2022	6,900,000	75,000	$(0.72)
	January 2023 - March 2023	6,075,000	67,500	(1.10)
	April 2023 - June 2023	6,142,500	67,500	(1.30)
	July 2023 - September 2023	6,210,000	67,500	(1.30)
	October 2023 - December 2023	6,210,000	67,500	(1.30)
	January 2024 - March 2024	1,820,000	20,000	(0.59)
	April 2024 - June 2024	1,820,000	20,000	(0.67)
	July 2024 - September 2024	1,840,000	20,000	(0.66)
	October 2024 - December 2024	1,840,000	20,000	(0.64)


	Period	Volume (MMBtu)	Volume (MMBtu/d)	Wtd. Avg. Collar Price Ranges ($/MMBtu)(3)
Natural gas collars	October 2022 - December 2022	5,617,285	61,057	$5.64	-	$9.11
	January 2023 - March 2023	7,104,843	78,943	4.67	-	10.33
	April 2023 - June 2023	6,389,748	70,217	3.64	-	7.62
	July 2023 - September 2023	6,563,075	71,338	3.64	-	7.52
	October 2023 - December 2023	6,636,372	72,134	3.66	-	8.22
	January 2024 - March 2024	3,175,081	34,891	3.36	-	9.44
	April 2024 - June 2024	1,373,679	15,095	3.00	-	6.45
	July 2024 - September 2024	1,410,612	15,333	3.00	-	6.52
	October 2024 - December 2024	1,426,101	15,501	3.25	-	7.30

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Changes in the fair value of derivative contracts from December 31, ~~2020~~2021 to September 30, ~~2021,~~2022, are presented below:


(in thousands)	Commodity derivative asset (liability)
Net fair value of oil and gas derivative contracts outstanding as of December 31, ~~2020~~2021	$	~~(18,209)~~(34,910)
Commodity hedge contract settlement payments, net of any receipts	~~89,195~~148,721
Fair value of commodity hedge contracts acquired in the Merger	71,639
Cash and non-cash mark-to-market ~~losses~~gains on commodity hedge contracts(1)	~~(150,686)~~17,651
Net fair value of oil and gas derivative contracts outstanding as of September 30, ~~2021~~2022	$	~~(79,700)~~203,101


c

(1) At inception, new derivative contracts entered into by us have no intrinsic value.

A hypothetical upward or downward shift of 10% per Bbl in the NYMEX forward curve for crude oil as of September 30, ~~2021~~2022 would cause a ~~$37.5~~$110.8 million increase or ~~$37.1~~$111.6 million decrease, respectively, in this fair value position, and a hypothetical upward or downward shift of 10% per Mcf in the NYMEX forward curve for natural gas as of September 30, ~~2021~~2022 would cause a ~~$7.8~~$9.7 million increase or ~~$7.7 million~~ decrease ~~respectively,~~ in this same fair value position.

Interest Rate Risk

Our ability to borrow and the rates offered by lenders can be adversely affected by deteriorations in the credit markets and/or downgrades in our credit rating. ~~CRP’s credit facility~~OpCo’s Credit Agreement interest rate is based on a ~~LIBOR~~SOFR spread, ~~(subject to a 1% floor),~~ which exposes us to interest rate risk ~~on our borrowings outstanding~~ to the extent ~~LIBOR increases above the floor and~~ we have borrowings outstanding. Further, LIBOR rates are expected to no longer be published beginning June 30, 2023, however, due to the structure of the Credit Agreement, we do not expect the termination of LIBOR rates to have a material impact to us.outstanding under this credit facility.

As of September 30, ~~2021,~~2022, we had ~~$205.0~~$550.0 million of debt outstanding under our Credit Agreement, with a weighted average interest rate of ~~3.25%~~5.13%. Assuming no change in the amount outstanding, the impact on interest expense of a 1.0% increase or decrease in the weighted average interest rate would be approximately ~~$2.1~~$5.5 million per year. We do not currently have or intend to enter into any derivative hedge contracts to protect against fluctuations in interest rates applicable to our outstanding indebtedness.

The remaining long-term debt balance of ~~$799.9 million~~$1.8 billion consists of our senior notes, which have fixed interest rates; therefore, this balance is not affected by interest rate movements. For additional information regarding our debt instruments, see Note 4—Long-Term Debt, in Item 1 of Part I of this Quarterly Report.

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Item 4. Controls and Procedures

Evaluation of Disclosure Control and Procedures

In accordance with Rules 13a-15 and 15d-15 under the Exchange Act, we have evaluated, under the supervision and with the participation of management, including our principal executive ~~officer~~officers and principal financial officer, 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, ~~2021.~~2022. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive ~~officer~~officers and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive ~~officer~~officers and principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, ~~2021~~2022 at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There were no changes in the system of internal control over financial reporting (as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) during the three months ended September 30, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Refer to ~~in Item 1,~~ Note ~~11—~~12—Commitments and Contingencies under Part I, Item 1. of this Quarterly Report for more information regarding our legal proceedings.

Environmental. Due to the nature of the oil and gas industry, we are exposed to environmental risks. We have various policies and procedures to minimize and mitigate the risks from environmental contamination and we conduct periodic reviews to identify changes in our environmental risk profile. Liabilities are recorded when environmental damages resulting from events are probable and the costs can be reasonably estimated. Except as discussed herein, we are not aware of any material environmental claims existing as of September 30, 2022 which have not been provided for or would otherwise have a material impact on our financial statements; however, there can be no assurance that current regulatory requirements will not change or that unknown potential past non-compliance with environmental laws or other environmental liabilities will not be discovered on our properties.

In September 2022, we were provided with a request to settle an air emissions issue previously detected by the U.S. Environmental Protection Agency (the “EPA”). The amount of the penalty is still being negotiated between the Company and the EPA. We do not believe any resulting penalties or expenditures associated with the issue identified will have a material effect on our financial condition or results of operations, but such penalty may exceed $300,000.

Item 1A. Risk Factors

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our ~~2020~~2021 Annual Report and the risk factors and other cautionary statements contained in our other SEC ~~filings.~~filings as well as additional risk factors set forth below. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. ~~There~~Other than with respect to the additional risk factors below, there have been no material changes in our risk factors from those described in our ~~2020~~2021 Annual Report or our SEC filings.

Risks Relating to the Merger

The failure to integrate our businesses and operations with those of Colgate successfully in the expected time frame may adversely affect our future results.

The Merger involved the combination of two companies that previously operated as independent companies. It is possible that the process of integrating the two businesses following the Merger could result in the loss of key employees, the disruption of either or both companies’ ongoing businesses, inconsistencies in standards, controls, procedures and policies, potential unknown liabilities, unforeseen expenses or delays or higher-than-expected integration costs and an overall post-completion integration process that takes longer than originally anticipated.

Combining the businesses of Centennial and Colgate may be more difficult, costly or time-consuming than expected and we may fail to realize the anticipated synergies and other benefits of the Merger, which may adversely affect our business results and negatively affect the value of our Common Stock following the consummation of the Merger.

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The Merger completed through the Business Combination Agreement (the “Merger”) involved the combination of two companies that previously operated as independent companies. The success of the Merger will depend on, among other things, our ability to combine these businesses in a manner that facilitates growth opportunities and realizes expected cost savings.

The following issues, among others, must be addressed in integrating the operations of the two companies in order to realize the anticipated benefits of the Merger:

•combining the companies’ operations and corporate functions;

•combining the businesses of Centennial and Colgate and meeting the capital requirements of the combined company, in a manner that permits the combined company to achieve any cost savings or other synergies anticipated to result from the Merger, the failure of which would result in the anticipated benefits of the Merger not being realized in the time frame currently anticipated or at all;

•integrating personnel from the two companies;

•integrating and unifying our reserves and the development of our new proved undeveloped reserves;

•identifying and eliminating underperforming or uncertain wells;

•harmonizing the companies’ operating practices, employee development and compensation programs, internal controls and other policies, procedures and processes;

•maintaining existing agreements with customers, suppliers, distributors and vendors, avoiding delays in entering into new agreements with prospective customers, suppliers, distributors and vendors, and leveraging relationships with such third parties for the benefit of the combined company;

•addressing possible differences in business backgrounds, corporate cultures and management philosophies;

•consolidating the companies’ administrative and information technology infrastructure;

•coordinating distribution and marketing efforts;

•managing the movement of certain positions to the new headquarters in Midland, Texas; and

•effecting actions that may be required in connection with obtaining regulatory or other governmental approvals.

It is possible that the integration process could result in the loss of key employees, the loss of customers, the disruption of our ongoing businesses, inconsistencies in standards, controls, procedures and policies, unexpected integration issues, higher than expected integration costs and an overall post-completion integration process that takes longer than originally anticipated. In addition, the actual integration may result in additional and unforeseen expenses. If we are not able to adequately address integration challenges, we may be unable to successfully integrate operations and the anticipated benefits of the integration plan may not be realized.

An inability to realize the full extent of the anticipated benefits of the Merger, as well as any delays encountered in the integration process, could have an adverse effect upon our revenues, level of expenses and operating results, which may adversely affect the value of our Common Stock following the consummation of the Merger. Moreover, if we are unable to realize the full strategic and financial benefits currently anticipated from the Merger, our shareholders will have experienced substantial dilution of their ownership interests without receiving any commensurate benefit, or only receiving part of the commensurate benefit to the extent we were able to realize only part of the strategic and financial benefits currently anticipated from the Merger.

Colgate was not a U.S. public reporting company and the obligations associated with integrating it into a public company may require significant resources and management attention.

Prior to the consummation of the Merger, Colgate was a private company that was not subject to reporting requirements and did not have accounting personnel specifically employed to review internal controls over financial reporting. In connection with integrating its business and assets into our public company, the Colgate business will become subject to the rules and regulations established from time to time by the United States Securities and Exchange Commission and New York Stock Exchange. In addition, as a public company, we are required to document and test our internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, so that our management can certify as to the effectiveness of our internal control over financial reporting in connection with the annual report. Colgate’s business will be required to be included in the scope of our internal control over financial reporting in the annual report to be filed with the SEC for the fiscal year following the fiscal year in which the Merger are consummated and thereafter, which requires us to make and document significant changes to our internal controls over financial reporting. Bringing Colgate’s business into compliance with these rules and regulations and integrating the Colgate assets into our current compliance and accounting system may increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources.

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Item 5. Other Information

On November 3, 2022, the Board of Directors of the Company adopted the Permian Resources Corporation Third Amended and Restated Severance Plan (the “Amended Plan”). The Amended Plan amends and restates the Centennial Resource Development, Inc. Second Amended and Restated Severance Plan (the “Original Plan”) in its entirety. Capitalized terms used, but not specifically defined in this Item 5, have the meanings given to such terms in the Amended Plan.

Under the Amended Plan, if one of the Company’s named executive officers experiences a CIC Qualifying Termination during the CIC Protection Period, the named executive officer is entitled to cash severance in an amount equal to 275% (or, in the case of the Co-CEOs, 300%) of the executive officer’s Base Salary and CIC Bonus. The Amended Plan makes no changes to the healthcare continuation benefits, outplacement benefits or equity treatment benefits that the named executive officers are entitled to receive following a CIC Qualifying Termination during the CIC Protection Period, which benefits are each described in the Company’s 2021 Proxy Statement.

Under the Amended Plan, if one of the Company’s named executive officers is terminated due to death or Disability, then such named executive officer’s time-based equity awards will immediately vest in full, and such named executive officer’s performance-based equity awards will immediately vest, based on the level of performance achieved through the termination date. Further, if one of the Company’s named executive officers is terminated by the Company without Cause or resigns with Good Reason outside the CIC Protection Period, a prorated amount (based on the number of calendar months that have elapsed during the vesting period) of such named executive officer’s time-based equity awards will immediately vest and such named executive officer’s performance-based equity awards will remain outstanding and be eligible to vest in a prorated amount (based on the number of calendar months that have elapsed during the performance period) based on actual performance at the end of the performance period. Under these qualifying terminations, no cash severance will be provided to the terminated named executive officer, but the named executive officer will generally be entitled to healthcare continuation benefits and outplacement benefits.

The foregoing description of the Amended Plan is not complete and is qualified in its entirety by reference to the full text of the Amended Plan, which is attached as Exhibit 10.6 to this Quarterly Report on Form 10-Q and incorporated into this Item 5 by reference.

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Item 6. Exhibits


Exhibit Number						Description of Exhibit
2.1						Business Combination Agreement, dated as of May 19, 2022, by and among Centennial Resource Development, Inc., Centennial Resource Production, LLC, Colgate Energy Partners III, LLC, and, solely for purposes of the specified provisions therein, Colgate Energy Partners Holdings III, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 19, 2022).
3.1						~~Third~~Fourth Amended ~~and~~& Restated Certificate of Incorporation of Permian Resources Corporation (incorporated by reference to Exhibit 3.1 to the Company’s ~~Quarterly~~Current Report on Form ~~10-Q as~~8-K filed with the SEC on ~~May 6, 2019)~~September 8, 2022).
3.2						Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K as filed with the SEC on May 1, 2019).
~~3.3~~10.1						~~Fifth~~Limited Consent and Waiver and First Amendment to Third Amended and Restated ~~Limited Liability Company~~Credit Agreement of Centennial Resource Production, LLC dated as of October 11, 2016 (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K as filed with the SEC on October 11, 2016).
~~3.4~~						~~Amendment No. 1 to Fifth Amended and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of December 28, 2016~~ (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K as filed with the SEC on ~~December 29, 2016)~~July 21, 2022).
~~3.5~~10.2						~~Amendment No. 2 to Fifth Amended~~Voting and ~~Restated Limited Liability Company~~Support Agreement, ~~of Centennial Resource Production, LLC~~ dated as of ~~March 20, 2017 (incorporated~~May 19, 2022, by ~~reference to Exhibit 3.5 to the Company’s Annual Report on Form 10-K as filed with the SEC on March 23, 2017).~~
~~3.6~~						~~Amendment No. 3 to Fifth Amended~~ and Restated Limited Liability Company Agreement of Centennial Resource Production, LLC dated as of June 15, 2018 (incorporated by reference to Exhibit 3.6 to the Company’s Quarterly Report on Form 10-Q as filed with the SEC on August 6, 2018).
~~10.1#~~						~~Form of Performance Restricted Stock Unit Agreement under the~~among Centennial Resource Development, Inc. ~~2016 Long Term Incentive Plan~~, Riverstone VI Centennial QB Holdings, L.P., REL US Centennial Holdings, LLC, Riverstone Non-ECI USRPI AIV, L.P., Silver Run Sponsor, LLC and Colgate Energy Partners III, LLC (incorporated by reference to Exhibit 10.1 to the ~~Company's Quarterly~~Company’s Current Report on Form ~~10-Q as~~8-K filed with the SEC on ~~August 4, 2021)~~May 19, 2022)
10.3						Registration Rights Agreement, dated as of September 1, 2022, by and between Permian Resources Corporation, Colgate Energy Partners III MidCo, LLC and such other parties as may be designated as holders thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2022).
10.4						Sixth Amended and Restated Limited Liability Company of Centennial Resource Production, LLC (now known as Permian Resources Operating, LLC), dated as of September 1, 2022 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2022).
10.5						Fifth Amended and Restated Non-Employee Director Compensation Program of Permian Resources Corporation (formerly known as Centennial Resource Development, Inc.), dated as of September 1, 2022 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the SEC on September 8, 2022).
10.6*#						Permian Resources Corporation Third Amended and Restated Severance Plan.
31.1*						Certification of ~~the Chief~~Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3*						Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*						Certification of Co-Chief Executive Officer s pursuant to 18 U.S.C. Section 1350.
32.2*						Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS*						Inline XBRL Instance Document - The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*						Inline XBRL Taxonomy Extension Schema Document.
101.CAL*						Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						Inline XBRL Taxonomy Extension Presentation Linkbase Document.

# Management contract or compensatory plan or agreement.

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized.


			~~CENTENNIAL RESOURCE DEVELOPMENT, INC.~~PERMIAN RESOURCES CORPORATION

			By:			/s/ GEORGE S. GLYPHIS
						George S. Glyphis Executive Vice President and Chief Financial Officer

			Date:			November ~~4, 2021~~9, 2022

5461


(in thousands)	Total(2)
2021(1)	$	468
2022	1,898
2023	2,985
2024	2,670
2025	2,086
2026 and thereafter	12,669
Total lease payments	22,776
Less: imputed interest	(4,565)
Present value of lease liabilities (3)	$	18,211