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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 March 31, 2023
 or
     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                             to                            
Commission File Number: 001-35380
https://cdn.kscope.io/4595eae918a959bbce32f23d78077ec9-vital_logo_rgb.jpg
 Vital Energy, Inc.
(Exact name of registrant as specified in its charter)
Delaware45-3007926
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
521 E. Second StreetSuite 1000 
TulsaOklahoma74120
(Address of principal executive offices)(Zip code)
(918513-4570
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading symbolName of each exchange on which registered
Common stock, $0.01 par value per shareVTLENew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No 
Indicate by check mark whether the registrant has submitted electronically, if any, 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, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filerAccelerated filer Non-accelerated filerSmaller reporting companyEmerging 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  
Number of shares of registrant's common stock outstanding as of May 4, 2023: 18,596,810



VITAL ENERGY, INC.
TABLE OF CONTENTS
 Page

ii


Glossary of Oil and Natural Gas Terms and Certain Other Terms
The following terms are used throughout this Quarterly Report on Form 10-Q (this "Quarterly Report"):
"Argus WTI Midland"—An index price reflecting the weighted average price of WTI at the pipeline and storage hub at Midland.
"Argus WTI Formula Basis"—The outright price at Cushing that is used as the basis for pricing all other Argus US Gulf coast physical crudes.
"Basin"—A large natural depression on the earth's surface in which sediments, generally brought by water, accumulate.
"Bbl" or "barrel"—One stock tank barrel, of 42 U.S. gallons liquid volume, used herein in reference to crude oil, condensate, natural gas liquids or water.
"Bbl/d"—Bbl per day.
"Benchmark Prices"—The unweighted arithmetic average first-day-of-the-month price for each month within the 12-month period prior to the end of the reporting period before differentials, as required by SEC guidelines.
"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.
"BOE/d"—BOE per day.
"Btu"—British thermal unit, the quantity of heat required to raise the temperature of a one pound mass of water by one degree Fahrenheit.
"Completion"—The process of treating a drilled well followed by the installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.
"Dry hole"—A well found to be incapable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes.
"Exchange Act" —The Securities Exchange Act of 1934, as amended.
"Formation"—A layer of rock which has distinct characteristics that differ from nearby rock.
"Fracturing" or "Frac"—The propagation of fractures in a rock layer by a pressurized fluid. This technique is used to release petroleum and natural gas for extraction.
"GAAP"—Generally accepted accounting principles in the United States.
"Gross acres"—The total acres or wells, as the case may be, in which a working interest is owned.
"Henry Hub"—A natural gas pipeline delivery point in south Louisiana that serves as the benchmark natural gas price underlying NYMEX natural gas futures contracts.
"Horizon" —A term used to denote a surface in or of rock, or a distinctive layer of rock that might be represented by a reflection in seismic data.
"Initial Production"The measurement of production from an oil or gas well when first brought on stream. Often stated in terms of production during the first thirty days.
"Liquids"—Describes oil, condensate and natural gas liquids.
"MBbl"—One thousand barrels of crude oil, condensate or natural gas liquids.
"MBOE"—One thousand BOE.
"Mcf"—One thousand cubic feet of natural gas.
"MMBtu"—One million Btu.
"MMcf"—One million cubic feet of natural gas.
"Natural gas liquids" or "NGL"—Components of natural gas that are separated from the gas state in the form of liquids, which include propane, butanes and ethane, among others.
iii


"Net acres"—The percentage of gross acres an owner has out of a particular number of acres, or a specified tract. An owner who has 50% interest in 100 acres owns 50 net acres.
"NYMEX"—The New York Mercantile Exchange.
"OPEC"—The Organization of the Petroleum Exporting Countries.
"Proved reserves"—The estimated quantities of oil, natural gas and natural gas liquids 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.
"Realized Prices"—Prices which reflect adjustments to the Benchmark Prices for quality, transportation fees, geographical differentials, marketing bonuses or deductions and other factors affecting the price received at the delivery point without giving effect to our commodity derivative transactions.
"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 separate from other reservoirs.
"SEC" — The U.S. Securities and Exchange Commission.
"Securities Act" — The Securities Act of 1933, as amended.
"Senior Secured Credit Facility" — The Fifth Amended and Restated Credit Agreement among Vital Energy, Inc., as borrower, Wells Fargo Bank, N.A., as administrative agent, Vital Midstream Services, LLC, as guarantor, and the banks signatory thereto.
"Spacing"—The distance between wells producing from the same reservoir.
"Standardized measure"—Discounted future net cash flows estimated by applying Realized Prices to the estimated future production of year-end proved reserves. Future cash inflows are reduced by estimated future production and development costs based on period end costs to determine pre-tax cash inflows. Future income taxes, if applicable, are computed by applying the statutory tax rate to the excess of pre-tax cash inflows over our tax basis in the oil and natural gas properties. Future net cash inflows after income taxes are discounted using a 10% annual discount rate.
"WAHA"—Waha West Texas Natural Gas Index price as quoted in Platt's Inside FERC.
"Working interest" or "WI"—The right granted to the lessee of a property to explore for and to produce and own crude oil, natural gas liquids, natural gas or other minerals. The working interest owners bear the exploration, development and operating costs on either a cash, penalty or carried basis.
"WTI"—West Texas Intermediate grade crude oil. A light (low density) and sweet (low sulfur) crude oil, used as a pricing benchmark for NYMEX oil futures contracts.
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Table of Contents
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Various statements contained in or incorporated by reference into this Quarterly Report are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements include statements, projections and estimates concerning our operations, performance, business strategy, oil, NGLs and natural gas reserves, drilling program capital expenditures, liquidity and capital resources, the timing and success of specific projects, outcomes and effects of litigation, claims and disputes, derivative activities and potential financing. Forward-looking statements are generally accompanied by words such as "estimate," "project," "predict," "believe," "expect," "anticipate," "potential," "could," "may," "will," "foresee," "plan," "goal," "should," "intend," "pursue," "target," "continue," "suggest" or the negative thereof or other variations thereof or other words that convey the uncertainty of future events or outcomes. Forward-looking statements are not guarantees of performance. These statements are based on certain assumptions and analyses made by us in light of our experience and our perception of historical trends, current conditions and expected future developments as well as other factors we believe are appropriate under the circumstances. Among the factors that significantly impact our business and could impact our business in the future are:
continuing and worsening inflationary pressures and associated changes in monetary policy that may cause costs to rise;
changes in domestic and global production, supply and demand for oil, NGL and natural gas, including as a result of the coronavirus ("COVID-19") pandemic and actions by the Organization of the Petroleum Exporting Countries members and other oil exporting nations ("OPEC+");
the volatility of oil, NGL and natural gas prices, including our area of operation in the Permian Basin;
reduced demand due to shifting market perception towards the oil and gas industry;
our ability to optimize spacing, drilling and completions techniques in order to maximize our rate of return, cash flows from operations and shareholder value;
the ongoing instability and uncertainty in the U.S. and international energy, financial and consumer markets that could adversely affect the liquidity available to us and our customers and the demand for commodities, including oil, NGL and natural gas;
competition in the oil and gas industry;
our ability to execute our strategies, including our ability to successfully identify and consummate strategic acquisitions at purchase prices that are accretive to our financial results and to successfully integrate acquired businesses, assets and properties; our ability to realize the anticipated benefits of acquisitions, including effectively managing our expanded acreage;
our ability to discover, estimate, develop and replace oil, NGL and natural gas reserves and inventory;
insufficient transportation capacity in the Permian Basin and challenges associated with such constraint, and the availability and costs of sufficient gathering, processing, storage and export capacity;
a decrease in production levels which may impair our ability to meet our contractual obligations and ability to retain our leases;
risks associated with the uncertainty of potential drilling locations and plans to drill in the future;
the inability of significant customers to meet their obligations;
revisions to our reserve estimates as a result of changes in commodity prices, decline curves and other uncertainties;
the availability and costs of drilling and production equipment, supplies, labor and oil and natural gas processing and other services;
the effects, duration and other implications of, including government response to, COVID-19, or the threat and occurrence of other epidemic or pandemic diseases;
ongoing war and political instability in Ukraine and Russian efforts to destabilize the government of Ukraine and the global hydrocarbon market;
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loss of senior management or other key personnel;
risks related to the geographic concentration of our assets;
capital requirements for our operations and projects;
our ability to hedge commercial risk, including commodity price volatility, and regulations that affect our ability to hedge such risks;
our ability to continue to maintain the borrowing capacity under our Senior Secured Credit Facility (as defined herein) or access other means of obtaining capital and liquidity, especially during periods of sustained low commodity prices;
our ability to comply with restrictions contained in our debt agreements, including our Senior Secured Credit Facility and the indentures governing our senior unsecured notes, as well as debt that could be incurred in the future;
our ability to generate sufficient cash to service our indebtedness, fund our capital requirements and generate future profits;
drilling and operating risks, including risks related to hydraulic fracturing activities and those related to inclement or extreme weather, impacting our ability to produce existing wells and/or drill and complete new wells over an extended period of time;
the impact of legislation or regulatory initiatives intended to address induced seismicity on our ability to conduct our operations;
United States ("U.S.") and international economic conditions and legal, tax, political and administrative developments, including the effects of energy, trade and environmental policies and existing and future laws and government regulations;
our ability to comply with federal, state and local regulatory requirements;
the impact of repurchases, if any, of securities from time to time;
our ability to maintain the health and safety of, as well as recruit and retain, qualified personnel necessary to operate our business;
risks related to the geographic concentration of our assets;
our ability to secure or generate sufficient electricity to produce our wells without limitations; and
our belief that the outcome of any legal proceedings will not materially affect our financial results and operations.
These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Forward-looking statements should, therefore, be considered in light of various factors, including those set forth under "Part I, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations"and elsewhere in this Quarterly Report, and under "Part I, Item 1A. Risk Factors" and "Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the "2022 Annual Report") and those set forth from time to time in our other filings with the SEC. These documents are available through our website or through the SEC's Electronic Data Gathering and Analysis Retrieval system at http://www.sec.gov. In light of such risks and uncertainties, we caution you not to place undue reliance on these forward-looking statements. These forward-looking statements speak only as of the date of this Quarterly Report, or if earlier, as of the date they were made. We do not intend to, and disclaim any obligation to, update or revise any forward-looking statements unless required by securities law.
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Table of Contents
Part I

Item 1.    Consolidated Financial Statements (Unaudited)

Vital Energy, Inc.
Consolidated balance sheets
(in thousands, except share data)
(Unaudited)
March 31, 2023December 31, 2022
Assets  
Current assets:  
Cash and cash equivalents$27,682 $44,435 
Accounts receivable, net147,071 163,369 
Derivatives39,109 24,670 
Other current assets15,804 13,317 
Total current assets229,666 245,791 
Property and equipment: 
Oil and natural gas properties, full cost method: 
Evaluated properties9,735,559 9,554,706 
Unevaluated properties not being depleted50,142 46,430 
Less: accumulated depletion and impairment(7,401,480)(7,318,399)
Oil and natural gas properties, net2,384,221 2,282,737 
Midstream and other fixed assets, net128,012 127,803 
Property and equipment, net2,512,233 2,410,540 
Derivatives26,448 24,363 
Operating lease right-of-use assets138,513 23,047 
Other noncurrent assets, net36,384 22,373 
Total assets$2,943,244 $2,726,114 
Liabilities and stockholders' equity 
Current liabilities: 
Accounts payable and accrued liabilities$91,688 $102,516 
Accrued capital expenditures67,221 48,378 
Undistributed revenue and royalties148,199 160,023 
Derivatives1,686 5,960 
Operating lease liabilities48,434 15,449 
Other current liabilities34,279 82,950 
Total current liabilities391,507 415,276 
Long-term debt, net1,163,807 1,113,023 
Asset retirement obligations71,308 70,366 
Operating lease liabilities87,301 9,435 
Other noncurrent liabilities3,953 7,268 
Total liabilities1,717,876 1,615,368 
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 50,000,000 shares authorized and zero issued as of March 31, 2023 and December 31, 2022
  
Common stock, $0.01 par value, 40,000,000 shares authorized, and 17,024,976 and 16,762,127 issued and outstanding as of March 31, 2023 and December 31, 2022, respectively
170 168 
Additional paid-in capital2,754,765 2,754,085 
Accumulated deficit(1,529,567)(1,643,507)
Total stockholders' equity1,225,368 1,110,746 
Total liabilities and stockholders' equity$2,943,244 $2,726,114 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Table of Contents
Vital Energy, Inc.
Consolidated statements of operations
(in thousands, except per share data)
(Unaudited)
  Three months ended March 31,
 20232022
Revenues:
Oil sales$266,731 $347,443 
NGL sales33,006 65,155 
Natural gas sales18,074 38,589 
Sales of purchased oil13,851 78,864 
Other operating revenues845 2,344 
Total revenues332,507 532,395 
Costs and expenses:
Lease operating expenses50,181 40,876 
Production and ad valorem taxes20,531 27,487 
Transportation and marketing expenses10,915 14,743 
Costs of purchased oil14,167 82,964 
General and administrative25,930 21,944 
Depletion, depreciation and amortization86,779 73,492 
Other operating expenses, net1,484 138 
Total costs and expenses209,987 261,644 
Gain (loss) on disposal of assets, net237 (260)
Operating income122,757 270,491 
Non-operating income (expense):
Gain (loss) on derivatives, net20,490 (325,816)
Interest expense(28,554)(32,477)
Other income, net854 144 
Total non-operating expense, net(7,210)(358,149)
Income (loss) before income taxes115,547 (87,658)
Income tax benefit (expense):
Current(1,331)(1,218)
Deferred(276)2,095 
Total income tax benefit (expense)(1,607)877 
Net income (loss) $113,940 $(86,781)
Net income (loss) per common share:
Basic$6.93 $(5.18)
Diluted$6.89 $(5.18)
Weighted-average common shares outstanding:
Basic16,431 16,767 
Diluted16,545 16,767 

The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Table of Contents
Vital Energy, Inc.
Consolidated statements of stockholders' equity
(in thousands)
(Unaudited)
Common stockAdditional
paid-in capital
Treasury stock
(at cost)
Accumulated deficit 
 SharesAmountSharesAmountTotal
Balance, December 31, 202216,762 $168 $2,754,085  $ $(1,643,507)$1,110,746 
Restricted stock awards315 3 (3)— — —  
Restricted stock forfeitures(3)— — — — — — 
Stock exchanged for tax withholding— — — 49 (2,459)— (2,459)
Retirement of treasury stock(49)(1)(2,458)(49)2,459 —  
Share-settled equity-based compensation— — 3,141 — — — 3,141 
Net income— — — — — 113,940 113,940 
Balance, March 31, 202317,025 $170 $2,754,765  $ $(1,529,567)$1,225,368 
Common stockAdditional
paid-in capital
Treasury stock
(at cost)
Accumulated deficit
SharesAmountSharesAmountTotal
Balance, December 31, 202117,075 $171 $2,788,628  $ $(2,275,019)$513,780 
Restricted stock awards232 2 (2)— — —  
Restricted stock forfeitures(4)— — — — — — 
Stock exchanged for tax withholding— — — 76 (5,847)— (5,847)
Retirement of treasury stock(76)(1)(5,846)(76)5,847 —  
Share-settled equity-based compensation— — 2,636 — — — 2,636 
Performance share conversion75 1 (1)— — —  
Net loss— — — — — (86,781)(86,781)
Balance, March 31, 202217,302 $173 $2,785,415  $ $(2,361,800)$423,788 

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

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Table of Contents
Vital Energy, Inc.
Consolidated statements of cash flows
(in thousands)
(Unaudited)
Three months ended March 31,
20232022
Cash flows from operating activities:  
Net income (loss)$113,940 $(86,781)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-settled equity-based compensation, net2,572 2,053 
Depletion, depreciation and amortization86,779 73,492 
(Gain) loss on disposal of assets, net(237)260 
Mark-to-market on derivatives:
(Gain) loss on derivatives, net(20,490)325,816 
Settlements paid for matured derivatives, net(2,343)(125,370)
Deferred income tax expense (benefit)276 (2,095)
Other, net2,384 6,731 
Changes in operating assets and liabilities:
Accounts receivable, net13,961 (61,742)
Other current assets(7,464)5,092 
Other noncurrent assets, net2,345 (15,227)
Accounts payable and accrued liabilities(10,693)1,842 
Undistributed revenue and royalties(11,825)44,294 
Other current liabilities(48,650)(1,471)
Other noncurrent liabilities(4,430)3,988 
Net cash provided by operating activities116,125 170,882 
Cash flows from investing activities:
Acquisitions of oil and natural gas properties, net (7,870)
Capital expenditures:
Oil and natural gas properties(165,042)(143,500)
Midstream and other fixed assets(2,771)(2,345)
Proceeds from dispositions of capital assets, net of selling costs2,175 2,019 
Settlements received for contingent consideration2,035  
Net cash used in investing activities(163,603)(151,696)
Cash flows from financing activities:
Borrowings on Senior Secured Credit Facility95,000 50,000 
Payments on Senior Secured Credit Facility(45,000)(55,000)
Stock exchanged for tax withholding(2,459)(5,847)
Other, net(492) 
Net cash provided by (used in) financing activities47,049 (10,847)
Net (decrease) increase in cash, cash equivalents and restricted cash(429)8,339 
Cash, cash equivalents and restricted cash, beginning of period44,435 56,798 
Cash, cash equivalents and restricted cash, end of period(1)
$44,006 $65,137 
______________________________________________________________________________
(1)See Note 1 for further discussion of the Company's cash, cash equivalents and restricted cash.
 The accompanying notes are an integral part of these unaudited consolidated financial statements.
4

Vital Energy, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 1—Organization and basis of presentation
Organization
Vital Energy, Inc. ("Vital" or the "Company"), together with its wholly-owned subsidiaries, is an independent energy company focused on the acquisition, exploration and development of oil and natural gas properties in the Permian Basin of West Texas. The Company has identified one operating segment: exploration and production. In these notes, the "Company" refers to Vital and its subsidiaries collectively, unless the context indicates otherwise. All amounts, dollars and percentages presented in these unaudited consolidated financial statements and the related notes are rounded and, therefore, approximate.
Basis of presentation
The unaudited consolidated financial statements were derived from the historical accounting records of the Company and reflect the historical financial position, results of operations and cash flows for the periods described herein. The unaudited consolidated financial statements have been prepared in accordance with GAAP. All material intercompany transactions and account balances have been eliminated in the consolidation of accounts.
The unaudited consolidated financial statements have not been audited by the Company's independent registered public accounting firm, except that the consolidated balance sheet as of December 31, 2022 is derived from the Company's audited consolidated financial statements. In the opinion of management, the unaudited consolidated financial statements reflect all necessary adjustments to present fairly the Company's financial position as of March 31, 2023, results of operations for the three months ended March 31, 2023 and 2022 and cash flows for the three months ended March 31, 2023 and 2022. All adjustments are of a recurring nature unless otherwise disclosed herein.
Certain disclosures have been condensed or omitted from the unaudited consolidated financial statements. Accordingly, the unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the 2022 Annual Report.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period financial statement presentation. There was no impact on previously reported total assets, total liabilities, net income (loss) or stockholders' equity for the periods presented.
Significant accounting policies
There have been no material changes in the Company's significant accounting policies during the three months ended March 31, 2023. See Note 2 in the 2022 Annual Report for discussion of significant accounting policies.
The following table presents the Company's cash, cash equivalents and restricted cash as of the dates presented:
As of March 31,
(in thousands)20232022
Cash and cash equivalents$27,682 $65,137 
Restricted cash(1)
16,324  
Total cash, cash equivalents and restricted cash$44,006 $65,137 
______________________________________________________________________________
(1)Under the terms of the Driftwood PSA (defined below), the Company deposited $16.3 million into a third-party escrow account, which is included in "Other noncurrent assets, net" on the consolidated balance sheets as of March 31, 2023.

5

Vital Energy, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Use of estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ.
See Note 2 in the 2022 Annual Report for further information regarding the use of estimates and assumptions.
Note 2—New accounting standards
The Company considered the applicability and impact of all accounting standard updates ("ASU") issued by the Financial Accounting Standards Board to the Accounting Standards Codification ("ASC") and has determined there are no ASUs that are not yet adopted and meaningful to disclose as of March 31, 2023. Additionally, the Company did not adopt any new ASUs during the three months ended March 31, 2023.
Note 3—Acquisitions and divestitures
2023 Acquisition
On February 14, 2023, the Company entered into a purchase and sale agreement (the "Driftwood PSA") with Driftwood Energy Operating, LLC (the "Seller"), pursuant to which the Company agreed to purchase (the "Driftwood Acquisition") Seller's oil and gas properties in the Midland Basin, including approximately 11,200 net acres located in Upton and Reagan Counties and related assets and contracts, inclusive of derivatives, for a purchase price of (i) $127.6 million of cash, subject to customary closing price adjustments, and (ii) 1,578,948 shares of the Company's common stock. Under the terms of the Driftwood PSA, the Company deposited $16.3 million into a third-party escrow account, which is included in "Other noncurrent assets, net" on the consolidated balance sheets as of March 31, 2023. The Company funded the cash portion of the purchase price and related transaction costs with respect to the Driftwood Acquisition from cash on hand and borrowings under its Senior Secured Credit Facility.
The Company expects to finalize its allocation of the purchase consideration as soon as practicable after completion of the Driftwood Acquisition.
For income tax purposes, the Driftwood Acquisition will be treated as an asset purchase such that the tax basis in the assets and liabilities will generally reflect the allocated fair value at closing. Therefore, the Company does not anticipate a material tax consequence for deferred income taxes related to the Driftwood Acquisition.
See Note 13 for discussion of the April 3, 2023 closing of the Driftwood Acquisition.
2022 Divestiture
On August 16, 2022, the Company entered into a purchase and sale agreement with Northern Oil and Gas, Inc. ("NOG"), pursuant to which the Company agreed to sell to NOG the Company's working interests in certain specified non-operated oil and gas properties (the "NOG Working Interest Sale").
On October 3, 2022, the Company closed the NOG Working Interest Sale for an aggregate sales price of $106.1 million, inclusive of post-closing adjustments.
6

Vital Energy, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 4—Debt
Long-term debt, net
The following table presents the Company's long-term debt and debt issuance costs, net included in "Long-term debt, net" on the consolidated balance sheets as of the dates presented:
 March 31, 2023December 31, 2022
(in thousands)Long-term debtDebt issuance costs, netLong-term debt, netLong-term debtDebt issuance costs, netLong-term debt, net
January 2025 Notes$455,628 $(2,854)$452,774 $455,628 $(3,297)$452,331 
January 2028 Notes300,309 (3,302)297,007 300,309 (3,478)296,831 
July 2029 Notes 298,214 (4,188)294,026 298,214 (4,353)293,861 
Senior Secured Credit Facility(1)
120,000  120,000 70,000  70,000 
Total$1,174,151 $(10,344)$1,163,807 $1,124,151 $(11,128)$1,113,023 
______________________________________________________________________________
(1)Debt issuance costs, net related to the Senior Secured Credit Facility of $6.6 million and $7.3 million as of March 31, 2023 and December 31, 2022, respectively, are included in "Other noncurrent assets, net" on the consolidated balance sheets.
Senior Secured Credit Facility
As of March 31, 2023, the Senior Secured Credit Facility, which matures on July 16, 2025 (subject to a springing maturity date of July 29, 2024 if any of the January 2025 Notes are outstanding on such date), had a maximum credit amount of $2.0 billion, a borrowing base and an aggregate elected commitment of $1.3 billion and $1.0 billion, respectively, with a $120.0 million balance outstanding, and was subject to an interest rate of 7.385%. The Senior Secured Credit Facility contains both financial and non-financial covenants, all of which the Company was in compliance with for all periods presented. Additionally, the Senior Secured Credit Facility provides for the issuance of letters of credit, limited to the lesser of total capacity and $80.0 million. As of March 31, 2023 and December 31, 2022, the Company had no letters of credit outstanding under the Senior Secured Credit Facility. For additional information see Note 7 in the 2022 Annual Report. See Note 13 for discussion of (i) additional borrowings and repayments on and (ii) the reaffirmation of the borrowing base and aggregate commitment of the Senior Secured Credit Facility subsequent to March 31, 2023.
Note 5—Equity Incentive Plan
The Vital Energy, Inc. Omnibus Equity Incentive Plan (the "Equity Incentive Plan") provides for the granting of incentive awards in the form of restricted stock awards, stock option awards, performance share awards, performance unit awards, phantom unit awards and other awards. The Equity Incentive Plan allows for the issuance of up to 2,432,500 shares.
See Note 9 in the 2022 Annual Report for additional discussion of the Company's equity-based compensation awards.

7

Vital Energy, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table presents activity for equity-based compensation awards for the three months ended March 31, 2023:
Equity AwardsLiability Awards
(in thousands)Restricted Stock AwardsStock Option AwardsPerformance Share Awards
Performance Unit Awards(1)(2)
Phantom Unit Awards(3)
Outstanding as of December 31, 2022
362 3 48 150 18 
Granted315 —  75 — 
Forfeited(3)—   — 
Vested(133)—  (67)(16)
Expired or canceled— (1)— — — 
Outstanding as of March 31, 2023
541 2 48 158 2 
_____________________________________________________________________________
(1)The performance unit awards granted on March 5, 2020 had a performance period of January 1, 2020 to December 31, 2022 and, as their market and performance criteria were satisfied, resulted in a 151% payout, or 101,368 units. As such, the granted awards vested and were paid out in cash on March 3, 2023 at $57.06 based on the Company's closing stock price on the vesting date.
(2)On February 15, 2023, the Company granted performance unit awards with a performance period of January 1, 2023 through December 31, 2025. The market criteria consists of: (i) annual relative total shareholder return comparing the Company's shareholder return to the shareholder return of the exploration and production companies listed in the Russel 2000 Index and (ii) annual absolute shareholder return. The performance criteria for these awards consists of: (i) earnings before interest, taxes, depreciation, amortization and exploration expense and three-year total debt reduction, (ii) growth in inventory and (iii) emissions reductions. Any units earned are expected to be paid in cash during the first quarter following the completion of the requisite service period, based on the achievement of market and performance criteria, and the payout can range from 0% to 225%.
(3)On March 1, 2023 and March 3, 2023, granted phantom unit awards vested and were paid out in cash at $52.56 and $57.06, respectively, based on the Company's closing stock price on the vesting date.
As of March 31, 2023, total unrecognized cost related to equity-based compensation awards was $34.4 million, of which $5.3 million was attributable to liability awards which will be settled in cash rather than shares. Such cost will be recognized on a straight-line basis over an expected weighted-average period of 2.35 years.
Equity-based compensation
The following table reflects equity-based compensation expense for the periods presented:
Three months ended March 31,
(in thousands)20232022
Equity awards:
Restricted stock awards$2,717 $2,175 
Performance share awards424 461 
Total share-settled equity-based compensation, gross3,141 2,636 
Less amounts capitalized(569)(583)
Total share-settled equity-based compensation, net2,572 2,053 
Liability awards:
Performance unit awards497 5,566 
Phantom unit awards217 609 
Total cash-settled equity-based compensation, gross714 6,175 
Less amounts capitalized (50)(47)
Total cash-settled equity-based compensation, net664 6,128 
Total equity-based compensation, net$3,236 $8,181 
8

Vital Energy, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 6—Net income (loss) per common share
Basic and diluted net income (loss) per common share are computed by dividing net income (loss) by the weighted-average common shares outstanding for the period. Diluted net income (loss) per common share reflects the potential dilution of non-vested equity-based compensation awards. See Note 9 in the 2022 Annual Report for additional discussion of these awards. For the three months ended March 31, 2022, all of these awards were anti-dilutive due to the Company's net loss and, therefore, were excluded from the calculation of diluted net loss per common share.
The following table reflects the calculations of basic and diluted (i) weighted-average common shares outstanding and (ii) net income (loss) per common share for the periods presented:
Three months ended March 31,
(in thousands, except for per share data)20232022
Net income (loss)$113,940 $(86,781)
Weighted-average common shares outstanding:
Basic16,431 16,767 
Dilutive non-vested restricted stock awards114  
Diluted16,545 16,767 
Net income (loss) per common share:
Basic$6.93 $(5.18)
Diluted$6.89 $(5.18)
Note 7—Derivatives
The Company has two types of derivative instruments as of March 31, 2023: (i) commodity derivatives and (ii) a contingent consideration derivative. In previous periods, the Company also engaged in an interest rate swap derivative, which concluded during the second quarter of 2022. See Note 8 for discussion of fair value measurement of derivatives on a recurring basis and Note 13 for discussion of derivatives subsequent events. The Company's derivatives were not designated as hedges for accounting purposes, and the Company does not enter into such instruments for speculative trading purposes. Accordingly, the changes in derivative fair values are recognized in "Gain (loss) on derivatives, net" under "Non-operating expense" on the consolidated statements of operations.
The following table summarizes components of the Company's gain (loss) on derivatives, net by type of derivative instrument for the periods presented:
Three months ended March 31,
(in thousands)20232022
Commodity$17,582 $(329,724)
Contingent consideration2,908 3,895 
Interest rate 13 
Gain (loss) on derivatives, net$20,490 $(325,816)
Commodity
Due to the inherent volatility in oil, NGL and natural gas prices and the sometimes wide pricing differentials between where the Company produces and where the Company sells such commodities, the Company engages in commodity derivative transactions, such as puts, swaps, collars and basis swaps, to hedge price risk associated with a portion of the Company's anticipated sales volumes. By removing a portion of the price volatility associated with future sales volumes, the Company expects to mitigate, but not eliminate, the potential effects of variability in cash flows from operations. See Note 11 in the 2022 Annual Report for discussion of transaction types and settlement indexes. During the three months ended March 31, 2023, the Company’s derivatives were settled based on reported prices on commodity exchanges, with oil derivatives settled based on WTI NYMEX and natural gas derivatives settled based on Henry Hub NYMEX and Waha Inside FERC pricing.

9

Vital Energy, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
The following table summarizes open commodity derivative positions as of March 31, 2023, for commodity derivatives that were entered into through March 31, 2023, for the settlement periods presented:
 Remaining Year 2023Year 2024
Oil: 
WTI NYMEX - Collars:
Volume (Bbl)3,658,000  
Weighted-average floor price ($/Bbl)$69.00 $ 
Weighted-average ceiling price ($/Bbl)$85.47 $ 
Natural gas:
Henry Hub NYMEX - Collars: 
Volume (MMBtu)19,250,000  
Weighted-average floor price ($/MMBtu)$4.14 $ 
Weighted-average ceiling price ($/MMBtu)$8.43 $ 
Waha Inside FERC to Henry Hub NYMEX - Basis Swaps: 
Volume (MMBtu)30,250,000 3,660,000 
Weighted-average differential ($/MMBtu)$(1.53)$(0.75)
Contingent consideration
On May 7, 2021, the Company entered into a purchase and sale agreement (the "Sixth Street PSA"), to sell 37.5% of the Company's working interest in certain producing wellbores and the related properties primarily located within Glasscock and Reagan Counties, Texas. The Sixth Street PSA provides for potential contingent payments to be paid to the Company if certain cash flow targets are met related to divested oil and natural gas property operations (the "Sixth Street Contingent Consideration"). The Sixth Street Contingent Consideration provides the Company with the right to receive up to a maximum of $93.7 million in additional cash consideration, comprised of potential quarterly payments through June 2027 totaling up to $38.7 million and a potential balloon payment of $55.0 million in June 2027. As of March 31, 2023, the maximum remaining additional cash consideration of the contingent consideration was $87.8 million. The fair value of the Sixth Street Contingent Consideration was $28.1 million as of March 31, 2023 and $26.6 million as of December 31, 2022.
10

Vital Energy, Inc.
Condensed notes to the consolidated financial statements
(Unaudited)
Note 8—Fair value measurements
See the beginning of Note 12 in the 2022 Annual Report for information about the fair value hierarchy levels.
Fair value measurement on a recurring basis
See Note 7 for further discussion of the Company's derivatives.
Balance sheet presentation
The following tables present the Company's derivatives by (i) balance sheet classification, (ii) derivative type and (iii) fair value hierarchy level, and provide a total, on a gross basis and a net basis reflected in "Derivatives" on the consolidated balance sheets as of the dates presented:
March 31, 2023
(in thousands)Level 1Level 2Level 3Total gross fair valueAmounts offsetNet fair value presented on the consolidated balance sheets
Assets:
Current:
Commodity$ $41,453 $ $41,453 $(4,353)$37,100 
Contingent consideration  2,009 2,009  2,009 
Noncurrent:
Commodity 364  364  364 
Contingent consideration  26,084 26,084  26,084 
Liabilities:
Current:
Commodity (6,039) (6,039)4,353 (1,686)
Net derivative asset positions$ $35,778 $28,093 $63,871 $ $63,871 
December 31, 2022
(in thousands)Level 1Level 2Level 3Total gross fair valueAmounts offsetNet fair value presented on the consolidated balance sheets
Assets:
Current:
Commodity$ $35,586 $ $35,586 $(13,193)$22,393 
Contingent consideration  2,277 2,277  2,277 
Noncurrent:
Contingent consideration  24,363 24,363  24,363 
Liabilities:
Current:
Commodity (19,153) (19,153)13,193 (