Energy, Automobile, EV, Renewable News | Sitio Royalties Reports Fourth Quarter and Full Year 2023 Operational and Financial Results, Recent Developments, and Provides Full Year 2024 Guidance

Sitio Royalties Reports Fourth Quarter and Full Year 2023 Operational and Financial Results, Recent Developments, and Provides Full Year 2024 Guidance

February 29, 2024

Announces Definitive Agreement to Acquire 13,062 NRAS in the DJ Basin for $150 Million⁽¹⁾

Announces $200 Million Share Repurchase Program and Updated Return of Capital Framework

Closed on Previously Announced Sale of Anadarko and Appalachia Assets for $114 Million

Declared $0.51 Dividend Per Share of Class A Common Stock for Fourth Quarter 2023

Issues Full Year 2024 Financial and Operational Guidance, With Pro Forma Production Range of 35,000 – 38,000 Boe/d (49% – 51% Oil)⁽²⁾

DENVER–(BUSINESS WIRE)–Sitio Royalties Corp. (NYSE: STR) (“Sitio”, “STR” or the “Company”) today announced operational and financial results for the quarter and year ended December 31, 2023. Unless the context clearly indicates otherwise, references to “we,” “our,” “us” or similar terms refer to Sitio and its subsidiaries.

FOURTH QUARTER 2023 OPERATIONAL AND FINANCIAL HIGHLIGHTS

4Q 2023 average daily production volume of 35,776 barrels of oil equivalent per day (“Boe/d”) (47% oil); Pro forma 4Q 2023 average daily production volume of 36,623 Boe/d (49% oil)⁽³⁾
Declared 4Q 2023 dividend of $0.51 per share of Class A Common Stock, an increase of $0.02 per share, or approximately 4% higher compared to the 3Q 2023 dividend
Record high pro forma net line-of-sight (“LOS”) wells of 53.4 as of December 31, 2023, comprised of 34.4 net spuds and 19.0 net permits; Approximately 78% of pro forma net LOS wells are in the Permian Basin and 14% in the DJ Basin⁽⁴⁾
4Q 2023 net loss of $91.7 million, compared to 3Q 2023 net income of $0.3 million; decrease primarily driven by a $144.5 million non-cash loss on sale of assets in the Appalachian and Anadarko Basins, decreased average daily production volumes of 1,124 Boe/d and a $1.06 per Boe decrease in realized hedged commodity prices
4Q 2023 Adjusted EBITDA⁽⁵⁾ of $134.9 million, down by 5.3% sequentially from 3Q 2023 Adjusted EBITDA, primarily due to decreased average daily production volumes of 3.0% and a 2.3% decrease in realized hedged prices per Boe
4Q 2023 Pro Forma Adjusted EBITDA⁽⁶⁾ of $143.6 million, including contribution from the DJ Basin Acquisition⁽¹⁾ and 4Q23 Stock Acquisition⁽⁷⁾ assets for the entire quarter
During 4Q 2023, reduced long-term debt by $131.1 million, resulting in liquidity of $588.2 million as of December 31, 2023

RECENT DEVELOPMENTS – DJ BASIN ACQUISITION HIGHLIGHTS

In January 2024, signed definitive agreement with an undisclosed third party to acquire 13,062 NRAs in the DJ Basin (the “DJ Basin Acquisition”), of which approximately 77% are in the Wattenberg Field in Weld County, for $150 million, subject to customary closing adjustments; Effective date of October 1, 2023 and expected to close in early 2Q 2024
Expected to fund acquisition with cash on hand, cash generated from operations and revolving credit facility borrowings
Represents a 4.0x purchase multiple of asset level cash flow for the twelve months ending September 30, 2024
Resulted in $0.04 per share increase to 4Q 2023 return of capital and is expected to be 6% accretive to Sitio’s standalone 2024 return of capital per share
4Q 2023 average daily production volume of 2,609 Boe/d (41% oil) and asset level cash flow of $8.6 million
Top operators by production volumes are Chevron Corporation, Civitas Resources and Occidental Petroleum Corporation
As of February 19, 2024, approximately 75% of rigs in the entire DJ Basin were on the DJ Basin acquisition acreage, an increase of 3x relative to rigs on Sitio’s legacy DJ Basin acreage
Net LOS wells of 5.1 as of December 31, 2023, comprised of 3.4 net spuds and 1.7 net permits; Strong visibility of activity through 1Q 2030 because approximately 21% of NRAs have exposure to multi-year Comprehensive Area Plans (“CAP”) or Oil and Gas Development Plans (“OGDP”)
Estimated remaining inventory of 9.6 net locations, with 73% in the Wattenberg Field and approximately 26% in CAPs or OGDPs as of December 31, 2023

UPDATED RETURN OF CAPITAL FRAMEWORK

On February 28, 2024, Sitio’s Board of Directors authorized a $200 million share repurchase program, which has no expiration date and is expected to commence in early March 2024
New return of capital framework creates additional flexibility for the Company to maximize long-term value for shareholders
The Company is revising its return of capital framework to include both cash dividends and share repurchases effective 1Q 2024, with no impact on 4Q 2023 distributions:
- Minimum of 65% of Discretionary Cash Flow (“DCF”): Allocated to total return of capital (minimum cash dividend and mix of additional cash dividends and/or share repurchases)
  - Minimum of 35% of DCF: Allocated to cash dividends; Represents an approximate 5% yield based on 4Q 2023 Pro Forma DCF
  - Minimum of 30% of DCF: Allocated to additional cash dividends, share repurchases or a mix of both
- Up to 35% of DCF: Allocated to balance sheet management and opportunistic cash acquisitions; no changes from previous return of capital framework

4Q 2023 and 2H 2023 RESULTS RELATIVE TO 2H 2023 GUIDANCE

The table below shows fourth quarter 2023 and second half 2023 results relative to financial and operational guidance for the second half of 2023 that was issued on November 8, 2023.

2H 2023 Guidance Metric	4Q 2023 Results			2H 2023 Results			4Q 2023 Pro Forma⁽³⁾			2H 2023 Guidance (November 8, 2023)
Average daily production (Boe/d)	35,776				36,338			36,623		35,000 – 37,000
Oil %		47	%		47	%		49	%	49% – 51%
Gathering and transportation ($/Boe)	$	1.58		$	1.47		$	1.52		$1.25 – $1.50
Cash G&A ($ in millions)	$	6.6		$	14.0		$	6.6		$27.0–$28.0(annual)
Production taxes (% of royalty revenue)		9.8	%		8.8	%		9.6	%	6% – 8%
Reported cash tax rate (% of pre-tax income/loss)⁽⁸⁾	NM			NM			NA			2% – 4%

Chris Conoscenti, Chief Executive Officer of Sitio commented, “In the fourth quarter, we continued to advance our strategic efforts through active portfolio management and returns-focused capital allocation. We are already off to a great start in 2024 as we entered into an agreement to acquire over 13,000 NRAs in the DJ Basin for a compelling price that is accretive for our shareholders. As we reallocate capital from the recently closed divestiture of assets in the Appalachia and Anadarko Basins into these higher returning assets, we will have transformed our current DJ Basin position into a leading position with enhanced exposure to the Greater Wattenberg Field. Additionally, I’m excited to announce that the Board of Directors has authorized a $200 million share repurchase program as part of our new return of capital framework, which provides us with another method to enhance long-term shareholder value. This repurchase program is a reflection of the confidence we have in the fundamentals of our business. We still plan to allocate at least 65% of DCF to return of capital and utilize the remainder of DCF to pay down debt and make opportunistic cash acquisitions. Under our updated return of capital framework, we intend to allocate a minimum of 35% of DCF to cash dividends and at least 30% of DCF to additional cash dividends, share repurchases or a mix of both.”

(1) Definitive agreement to acquire DJ Basin assets from an undisclosed third party signed in January 2024 and is expected to close in early 2Q 2024; $150 million purchase price and final NRAs subject to customary closing adjustments

(2) Includes production from the DJ Basin Acquisition for full year 2024 as if the transaction had closed on January 1, 2024

(3) Represents 4Q 2023 metrics plus 4Q 2023 metrics from the DJ Basin Acquisition and 4Q23 Stock Acquisition (collectively the “Oct’23 Effective Date Acquisitions”) as if they were owned on October 1, 2023 and excludes 4Q 2023 metrics from the Appalachian and Anadarko Basin assets that were divested on December 22, 2023; Metrics include production volumes, gathering and transportation costs, and production taxes, as appropriate

(4) Includes net wells from the DJ Basin Acquisition as of December 31, 2023

(5) For definitions of non-GAAP financial measures and reconciliations to their most directly comparable GAAP financial measures, please see “Non-GAAP financial measures”

(6) 4Q 2023 Pro Forma Adjusted EBITDA represents 4Q 2023 Adjusted EBITDA plus Oct’23 Effective Date Acquisitions⁽²⁾ EBITDA, which reflects as if Sitio had owned the Oct’23 Effective Date Acquisitions since October 1, 2023

(7) The 4Q23 Stock Acquisition is defined as the acquisition of 522 NRAs in the Permian Basin for shares of Sitio’s Class C Common Stock and a corresponding number of common units representing limited partner interests in Sitio Royalties Operating Partnership, LP, a controlled subsidiary of the Company (“OpCo” and such units, “OpCo Units”) that closed on December 8, 2023

(8) Calculated as cash taxes paid of $8 thousand divided by net loss before taxes of $112.9 million for the three months ended December 31, 2023. Calculated as cash taxes paid of $465 thousand divided by net loss before taxes of $112.2 million for the six months ended December 31, 2023. Shown as “NM”, or “not meaningful” because the implied reported 4Q 2023 and 2H 2023 cash tax rates are negative

OPERATOR ACTIVITY

The following table summarizes Sitio’s net average daily production, pro forma net average daily production, as reported net wells online, pro forma net wells online, as reported net LOS wells, pro forma net LOS wells, as reported net royalty acres by area, and pro forma net royalty acres by area as of December 31, 2023.

	Delaware			Midland			DJ			Eagle Ford			Williston			Appalachia			Anadarko			Total
Average Daily Production (Boe/d) for the three months ended December 31, 2023
As reported		18,566			8,242			3,737			2,789			646			986			810			35,776
% Oil		48	%		59	%		30	%		53	%		62	%		3	%		28	%		47	%
Pro forma⁽⁹⁾		18,600			8,242			6,346			2,789			646			–			–			36,623
% Oil⁽⁹⁾		48	%		59	%		35	%		53	%		62	%	NA			NA				49	%

Net Well Activity (normalized to 5,000′ laterals)
Net wells online as of September 30, 2023		127.1			62.2			37.1			35.7			9.4			3.8			9.9			285.2
As reported net wells online as of December 31, 2023		131.8			65.4			38.9			36.0			9.5			–			–			281.6

Pro forma net wells online as of December 31, 2023⁽¹⁰⁾		131.8			65.4			57.4			36.0			9.5			–			–			300.1
Pro forma net wells online increase (decrease) since September 30, 2023⁽¹⁰⁾		4.7			3.2			20.3			0.3			0.1			(3.8	)		(9.9	)		14.9

Net LOS Wells as of December 31, 2023
As reported net LOS wells		27.4			14.2			2.5			3.4			0.8			–			–			48.3

Pro forma net spuds⁽⁴⁾		17.6			9.0			4.7			2.6			0.5			–			–			34.4
Pro forma net permits⁽⁴⁾		9.8			5.2			2.9			0.8			0.3			–			–			19.0
Pro forma net LOS wells⁽⁴⁾		27.4			14.2			7.6			3.4			0.8			–			–			53.4

Net Royalty Acres (normalized to 1/8th royalty equivalent)
September 30, 2023		152,268			45,366			24,973			21,783			8,202			12,676			9,872			275,140
As reported December 31, 2023		152,664			45,380			24,973			21,077			8,203			–			–			252,297

Pro forma December 31, 2023⁽¹¹⁾		152,664			45,380			38,035			21,077			8,203			–			–			265,359
Pro forma NRA increase (decrease) since September 30, 2023⁽¹¹⁾		396			14			13,062			(706	)		1			(12,676	)		(9,872	)		(9,781	)

(9) Includes 4Q 2023 reported production volumes plus 4Q 2023 production volumes from the Oct’23 Effective Date Acquisitions as if they were owned on October 1, 2023 and excludes 4Q 2023 production volumes from the Appalachian and Anadarko Basin assets that were divested on December 22, 2023

(10) Wells currently online and producing, based on well designations in public data as of December 31, 2023. Pro forma for net wells from the DJ Basin Acquisition as of December 31, 2023 and excludes wells from the Appalachian and Anadarko Basin assets that were divested on December 22, 2023

(11) Includes NRAs from the DJ Basin Acquisition, subject to closing adjustments

MERGERS AND ACQUISITIONS

On December 8, 2023, Sitio closed on the acquisition of 522 NRAs in the Permian Basin (the “4Q23 Stock Acquisition”) in exchange for shares of its Class C Common Stock and OpCo Units. The acquired assets produced an average of approximately 46 Boe/d (62% oil) and generated approximately $0.2 million of asset level cash flow for the three months ended December 31, 2023 as if they were owned on October 1, 2023. The 4Q23 Stock Acquisition has an effective date of October 1, 2023 and 4Q 2023 cash flow attributable to the NRAs acquired is included in Sitio’s 4Q 2023 Pro Forma DCF.

On December 22, 2023, Sitio closed on the divestiture of all of its mineral and royalty interests in the Anadarko Basin in Oklahoma and the Appalachian Basin in Pennsylvania, Ohio and West Virginia to an undisclosed third party for $114.0 million (the “Appalachian and Anadarko Basins Divestiture”).

In January of 2024, Sitio signed a definitive agreement to acquire 13,062 NRAs primarily in the core of the DJ Basin for $150.0 million, subject to customary closing adjustments. The transaction enhances the Company’s DJ Basin footprint, adding high-quality acreage in the Greater Wattenberg Field at a compelling price with visible growth through the first half of 2025 from spuds, permits and acreage in several multi-year CAPs and OGDPs with leading operators such as Chevron Corporation, Occidental Petroleum, and Civitas Resources. Monthly net production on the DJ Basin Acquisition acreage has grown by 89% from December 2022 through December 2023, versus a 7% decline on the divested assets over the same time period. As of December 31, 2023, the DJ Basin Acquisition assets had approximately 18.4 net wells online and 5.1 net LOS wells, comprised of 3.4 net spuds and 1.7 net permits. The transaction is expected to close in early 2Q 2024 with an effective date of October 1, 2023; therefore, DJ Basin Acquisition 4Q 2023 asset level cash flow is included in Sitio’s 4Q 2023 Pro Forma DCF. Sitio plans to fund the DJ Basin Acquisition with cash on hand, cash generated from operations and revolving credit facility borrowings.

FINANCIAL UPDATE

Sitio’s fourth quarter 2023 average unhedged realized prices including all expected quality, transportation and demand adjustments were $77.91 per barrel of oil, $1.40 per Mcf of natural gas and $18.72 per barrel of natural gas liquids, for a total equivalent price of $43.65 per barrel of oil equivalent. During the fourth quarter of 2023, the Company received $5.9 million in net cash settlements for commodity derivative contracts and as a result, average hedged realized prices were $80.68 per barrel of oil, $1.66 per Mcf of natural gas and $18.72 per barrel of natural gas liquids, for a total equivalent price of $45.43 per barrel of oil equivalent. This represents a $1.06 per barrel of oil equivalent, or a 2.3% decrease relative to hedged realized prices for the three months ended September 30, 2023.

Consolidated net loss for the fourth quarter of 2023 was $91.7 million, compared to consolidated net income of $0.3 million in the third quarter of 2023. This decrease was driven primarily by a $144.5 million non-cash loss on sale from the divestiture of assets in the Appalachian and Anadarko Basins, and lower revenues from decreased average daily production volumes of 1,124 Boe/d, or 3.0% and a $1.06 per Boe decrease in realized hedged commodity prices, offset partially by a non-cash unrealized gain in derivatives of $12.2 million. For the three months ended December 31, 2023, Adjusted EBITDA was $134.9 million, down 5.3% sequentially from third quarter 2023 Adjusted EBITDA, primarily due to decreased average production volumes of 3.0% and a 2.3% decrease in realized hedged prices per Boe.

As of December 31, 2023, the Company had $877.0 million principal value of total debt outstanding (comprised of $277.0 million of borrowings outstanding under Sitio’s revolving credit facility and $600.0 million aggregate principal amount of senior unsecured notes) and liquidity of $588.2 million, including $15.2 million of cash and $573.0 million of remaining availability under its $850.0 million credit facility.

Sitio had approximately $0.4 million of realized gains during 4Q 2023 from its interest rate swap, which had a $202.5 million notional amount during the quarter and expired on December 31, 2023. Sitio did not add to or extinguish any of its commodity swaps or collars during the fourth quarter of 2023. A summary of the Company’s existing commodity derivative contracts as of December 31, 2023 is included in the table below.

	Oil (NYMEX WTI)
	2024		1H25
Swaps
Bbl per day		3,300		1,100
Average price ($/Bbl)	$	82.66	$	74.65
Collars
Bbl per day		—		2,000
Average call ($/Bbl)		—	$	93.20
Average put ($/Bbl)		—	$	60.00
	Gas (NYMEX Henry Hub)
	2024		1H25
Swaps
MMBtu per day		500		—
Average price ($/MMBtu)	$	3.41		—
Collars
MMBtu per day		11,400		11,600
Average call ($/MMBtu)	$	7.24	$	10.34
Average put ($/MMBtu)	$	4.00	$	3.31

2023 YEAR END PROVED RESERVES

Estimated 2023 year end proved reserves of 85,293 MBOE attributable to Sitio’s interests in its underlying acreage are based on a reserve report prepared by the independent petroleum engineering firm of Cawley, Gillespie & Associates, Inc. in accordance with Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Evaluation Engineers and definitions and guidelines established by the SEC. Of these reserves, approximately 82% were classified as proved developed reserves and 18% were classified as proved undeveloped (“PUD”) reserves. PUD reserves for Sitio included in these estimates relate solely to wells that were spud but not yet producing as of December 31, 2023. The largest driver of year-over-year changes to reserves was extensions of 9,257 MBbls of oil, 26,710 MMcf of natural gas, and 3,723 MBbls of NGLs. Acquisitions increased 2023 year end reserves by 5,803 Mboe; however, the Appalachian and Anadarko Basins Divestiture decreased 2023 year end reserves by 5,340 Mboe, resulting in an overall net increase in 2023 year end reserves from acquisitions and divestitures of 463 Mboe. The following table sets forth information regarding the Company’s net ownership interest in estimated quantities of proved developed and undeveloped oil and natural gas quantities and the changes therein for each of the periods presented.

	Oil (MBbls)			Natural Gas (MMcf)			Natural Gas Liquids (MBbls)			Total (MBOE)
Balance as of December 31, 2022		35,057			159,442			18,359			79,989
Revisions		(994	)		(289	)		1,394			352
Extensions		9,257			26,710			3,723			17,431
Acquisition of reserves		2,682			9,572			1,525			5,803
Divestiture of reserves		(826	)		(22,029	)		(843	)		(5,340	)
Production		(6,344	)		(23,136	)		(2,742	)		(12,942	)
Balance as of December 31, 2023		38,832			150,270			21,416			85,293

Proved developed and undeveloped reserves:	Oil (MBbls)		Natural Gas (MMcf)		Natural Gas Liquids (MBbls)		Total (MBOE)
Developed as of December 31, 2022		27,407		133,489		15,169		64,824
Undeveloped as of December 31, 2022		7,650		25,953		3,190		15,165
Balance at December 31, 2022		35,057		159,442		18,359		79,989

Developed as of December 31, 2023		30,537		127,170		18,167		69,899
Undeveloped as of December 31, 2023		8,295		23,100		3,249		15,394
Balance at December 31, 2023		38,832		150,270		21,416		85,293

2024 FULL YEAR FINANCIAL AND OPERATIONAL GUIDANCE

The table below includes Sitio’s guidance for full year 2024 and includes impacts from the DJ Basin Acquisition as if the transaction had closed on January 1, 2024. The 36,500 Boe/d midpoint of the pro forma average daily production range is in-line with pro forma average daily production of 36,623 Boe/d for 4Q 2023 and reflects the Company’s current expectations for operator activity on its acreage. Full year 2024 Cash G&A guidance is inclusive of a 25%+ increase in headcount since the end of 2022 and technology development and enhancement projects that are expected to further streamline the Company’s large-scale minerals acquisitions and management.

Full Year 2024 Guidance	Low			High
Pro Forma Average Daily Production⁽²⁾
Pro forma average daily production (Boe/d)⁽²⁾		35,000			38,000
Pro forma average daily production (% oil)⁽²⁾		49	%		51	%

Expenses and Taxes
Cash G&A ($ in millions)	$	31.5		$	33.5
Production taxes (% of royalty revenue)		7.5	%		9.5	%
Cash taxes ($ in millions)⁽¹²⁾	$	30.0		$	37.0

(2) Includes production from the DJ Basin Acquisition for full year 2024 as if the transaction had closed on January 1, 2024

(12) Cash tax guidance range is based on expectations at current strip pricing

RETURN OF CAPITAL

The Company’s Board of Directors declared a cash dividend of $0.51 per share of Class A Common Stock with respect to the fourth quarter of 2023. The dividend is payable on March 28, 2024 to the stockholders of record at the close of business on March 15, 2024. Based on a 65% payout ratio of fourth quarter 2023 DCF and not including the pro forma impacts from the Oct’23 Effective Date Acquisitions, Sitio’s quarterly dividend would have been approximately $0.47 per Class A common share; however, the Company’s Board of Directors approved a fourth quarter 2023 dividend of $0.51 per Class A common share, which equates to a 65% payout ratio including pro forma DCF for the full three months ended December 31, 2023.

On February 28, 2024, the Company’s Board of Directors also authorized a share repurchase program up to $200 million, and updated its return of capital framework to include share repurchases. The Company has revised its return of capital framework to allow more flexibility to maximize shareholder returns based on market conditions, business outlook, and stock price. The Company plans to continue to allocate a minimum of 65% of DCF to return of capital, comprised of a minimum of 35% of DCF in cash dividends and at least 30% of DCF comprised of additional cash dividends, share repurchases, or a mix of both.

Repurchases may be made from time to time through various methods, including but not limited to open market transactions, privately negotiated transactions, and by other means in accordance with applicable state and federal securities laws, certain of which may be made pursuant to trading plans meeting the requirements of Rule 10b5-1 and 10b-18 under the Securities Exchange Act of 1934, as amended. The timing of repurchases under the repurchase program, as well as the number and value of shares repurchased under the program, will be determined by the Company at its discretion and will depend on a variety of factors, including the market price of the Company’s Common Stock, oil and gas commodity prices, general market and economic conditions, available liquidity, compliance with the Company’s debt and other agreements, applicable legal requirements and other considerations. The exact number of shares to be repurchased by the Company is not guaranteed, and the program may be modified, suspended, or discontinued at any time without prior notice. The Company is not obligated to purchase any dollar amount or number of shares under the repurchase program.

FOURTH QUARTER 2023 EARNINGS CONFERENCE CALL

Sitio will host a conference call at 8:30 a.m. Eastern on Thursday, February 29, 2024 to discuss its fourth quarter and full year 2023 operating and financial results.

Contacts

IR contact:
Ross Wong

(720) 640–7647

IR@sitio.com

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