EDGAR 10-K Filing

Company CIK: 1949543
Filing Year: 2025
Filename: 1949543_10-K_2025_0001628280-25-008152.json

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ITEM 1. BUSINESS
Item 1. Business
Overview
Sitio acquires, owns and manages high-quality mineral and royalty interests across premium basins in the United States with the objective of generating cash flow from operations that can be returned to shareholders as dividends or through share repurchases, utilized to pay down debt obligations, and reinvested to expand its base of cash flow generating assets. Sitio leases its mineral interests to oil and gas E&P companies. Sitio’s leases permit E&P companies to explore for and produce oil, natural gas and natural gas liquids from its properties and entitle Sitio to receive a percentage of the proceeds from the sales of these commodities. Unlike owners of working interests in oil and gas properties, Sitio is not obligated to fund drilling and completion costs, plugging and abandonment costs or lease operating expenses associated with oil and gas production. As a mineral and royalty owner, Sitio incurs only its proportionate share of production and ad valorem taxes and, in some cases, gathering, processing and transportation costs.
As of December 31, 2024, Sitio owned mineral and royalty interests representing approximately 273,100 NRAs when adjusted to a 1/8th royalty. Unless otherwise indicated, references to financial and operating information on a “pro forma basis” as of and for the year ended December 31, 2022 refer to the historical financial and operating information of Sitio, as adjusted to give pro forma effect to (i) the Falcon Merger (defined below) and (ii) the Brigham Merger (defined below), in each case as if the transaction had occurred at the beginning of the period presented. For the year ended December 31, 2024, the average net daily production associated with Sitio’s mineral and royalty interests was 38,517 BOE/d consisting of 19,128 Bbls/d of oil, 64,363 Mcf/d of natural gas and 8,661 Bbls/d of NGLs. Since Sitio’s original Predecessor’s (defined below) formation in November 2016, it has accumulated its acreage position through 209 acquisitions as of December 31, 2024. Sitio expects to continue to add to its mineral and royalty asset base by making acquisitions that meet its investment criteria for geologic quality, operator capability, remaining growth potential, cash flow generation, regulatory environment, and, most importantly, rate of return.
Sitio’s assets are focused primarily in the Permian Basin in West Texas and Southeast New Mexico, with additional assets across productive and high-quality areas of the United States, including the Denver-Julesburg (“DJ”) Basin in Colorado and Wyoming, Eagle Ford in South Texas, and Williston Basin in North Dakota. As of December 31, 2024, approximately 74% of Sitio’s NRAs were located in the Permian Basin, 15% in the DJ Basin, 8% in the Eagle Ford, and 3% in the Williston Basin. Sitio believes the basins in which its assets are located offer some of the most compelling rates of return for domestic E&P companies and significant potential for mineral and royalty income growth. For example, as a result of these compelling rates of return, development activity in the Permian Basin has outpaced all other onshore U.S. oil and gas basins since the end of 2016. This development activity has driven Permian Basin production to grow faster than production in the rest of the United States.
Since January 1, 2016, Sitio has evaluated over 1,000 potential mineral and royalty interest acquisitions and completed 209 acquisitions from landowners and other mineral interest owners, representing approximately 295,300 NRAs as of December 31, 2024. In addition to completing numerous small transactions, Sitio has completed a total of 24 transactions larger than 1,500 NRAs that account for approximately 92% of its NRAs. Sitio has acquired mineral and royalty interests from individuals, families, trusts, partnerships, small minerals aggregators, minerals brokers, large private minerals companies and private E&P companies. Sitio’s acquisition strategy is differentiated by its proactive focus on building relationships with owners of high-quality mineral and royalty interest positions. Sitio also actively manages its portfolio of assets through portfolio optimization. In December 2023, Sitio sold all of its mineral and royalty interests in the Appalachian Basin in Pennsylvania, West Virginia and Ohio and in the Anadarko Basin in Oklahoma, representing approximately 22,400 NRAs.
Sitio is led by a management team with extensive oil and gas engineering, geology and land expertise, mergers and acquisitions and capital markets experience, long-standing industry relationships and a history of successfully acquiring and managing a portfolio of leasehold interests, producing crude oil, natural gas and NGL assets, and acquiring and managing mineral and royalty interests. Sitio intends to capitalize on its management team’s expertise and relationships to continue to make value-enhancing mineral and royalty interest acquisitions in premium basins in the United States designed to increase its cash flow per share.
Sitio’s Key Producing Regions
Permian Basin
As of December 31, 2024, the Permian Basin had the highest level of horizontal drilling activity in the United States, according to Baker Hughes. The Permian Basin includes three geologic provinces: the Delaware Basin to the west, the Midland Basin to the east and the Central Basin Platform in between. The Delaware Basin is identified by an abundant amount of oil-in-place, stacked pay potential across an approximately 3,900 foot hydrocarbon column, attractive well economics, favorable operating environment, well developed network of oilfield service providers and significant midstream infrastructure in place or actively under construction. The Midland Basin is also identified by an abundant amount of oil-in-place, stacked pay potential across an approximately 3,500 foot hydrocarbon column, attractive well economics, favorable operating environment, well developed network of oilfield service providers and significant midstream infrastructure in place or actively under construction. According to the United States Geological Survey (“USGS”), the Delaware Basin contains the largest recoverable reserves among all unconventional basins in the United States. The average net daily production attributable to Sitio’s net royalty interests in the Permian Basin was 28,923 BOE/d (49% crude oil) for the three months ended December 31, 2024.
Sitio believes the stacked-pay potential of the Permian Basin combined with favorable drilling economics support continued activity as E&P operators continue to develop their positions and improve well-spacing and completion techniques. Sitio believes these factors will continue to support development activity in the region and in the areas where it holds mineral and royalty interests, leading to increasing cash flows free of lease operating expenses. Sitio expects Permian Basin drilling and completion efficiency to continue to improve as drilling and completion days further compress and lateral lengths keep expanding.
Other Basins
DJ Basin
The DJ Basin is located in Northeast Colorado and Southeast Wyoming, with the majority of operator horizontal drilling activity located in Weld and Broomfield Counties, Colorado, and Laramie County, Wyoming. Based on Sitio’s geologic and engineering interpretations as well as current delineation efforts by operators, Sitio believes its mineral and royalty interests in the DJ Basin are prospective for four or more producing zones of economic horizontal development including the Niobrara A, B and C and Codell formations. The average net daily production attributable to Sitio's net royalty interests in the DJ Basin was 6,619 BOE/d (42% crude oil) for the three months ended December 31, 2024.
Eagle Ford
The Eagle Ford is one of the largest oil fields in North America with an aerial extent that covers approximately 13 million surface acres across multiple counties in South Texas. The Eagle Ford has top-tier single-well economics, is operated by premier E&P companies, and has access to abundant offtake infrastructure in close proximity to the U.S. Gulf Coast.
Sitio’s Eagle Ford assets are concentrated in what Sitio believes is the core of the liquids-rich condensate region of the Eagle Ford in Karnes, DeWitt, and Gonzales Counties, Texas and are characterized by high oil and liquids content and low finding and development costs. In all three of these counties, Sitio also has substantial exposure to the Austin Chalk and Upper Eagle Ford formations, which have experienced increased horizontal development activity, in addition to the more established and historically developed Lower Eagle Ford formation. The average net daily production attributable to Sitio's net royalty interests in the Eagle Ford was 4,540 BOE/d (47% crude oil) for the three months ended December 31, 2024.
Williston Basin
The Williston Basin stretches from western North Dakota into eastern Montana with the majority of operator horizontal drilling activity located in Mountrail, Williams, and McKenzie Counties, North Dakota. Based on Sitio’s geologic and engineering interpretations as well as current operator delineation efforts, Sitio believes its mineral and royalty interests are prospective for two or more producing zones of economic horizontal development including the Bakken and multiple Three Forks benches. The majority of our interests are located in Mountrail, Williams and McKenzie Counties with additional interests owned in Divide, Burke, Dunn, Billings and Stark Counties, North Dakota and Richland County, Montana. The average net daily production attributable to Sitio's net royalty interests in the Williston Basin was 727 BOE/d (58% crude oil) for the three months ended December 31, 2024.
Sitio’s Mineral and Royalty Interests
Sitio’s interests consist of mineral and royalty interests. Mineral interests, which represent approximately 79% of Sitio’s NRAs as of December 31, 2024, are real property interests that are typically perpetual and grant ownership of the crude oil and natural gas underlying a tract of land and the rights to explore for, drill for and produce crude oil and natural gas on that land or to lease those exploration and development rights to a third party. When E&P companies lease those rights from Sitio, usually for a one- to three-year term, Sitio typically receives an upfront cash payment, known as a lease bonus, and it retains a mineral royalty, which entitles it to a percentage (typically up to 25%) of production or revenue from production free of lease operating expenses. A lessee can extend the lease beyond the initial lease term with continuous drilling, production or other operating activities or through negotiated contractual lease extension options. When production and drilling cease, the lease terminates, allowing Sitio to lease the exploration and development rights to another party and receive another lease bonus. As of December 31, 2024, other types of royalty interests, NPRIs and ORRIs, comprised approximately 7% and 14%, respectively, of Sitio’s NRAs. Also, as of December 31, 2024, approximately 92% of Sitio’s total NRAs derived from mineral interests only were leased to E&P operators and other working interest owners. Sitio refers to its mineral interests, NPRIs and ORRIs collectively as Sitio’s “mineral and royalty interests.”
Sitio generates a substantial majority of its revenues and cash flows from its mineral and royalty interests when crude oil, natural gas and NGLs are produced from its acreage and sold by the applicable E&P operators and other working interest owners. Sitio’s revenue generated from these mineral and royalty interests was approximately $611.1 million for the year ended December 31, 2024. Approximately 94% of 2024 total revenues were derived from the sale of oil and NGLs.
As of December 31, 2024, Sitio’s interests covered 146,810 net mineral acres, approximately 93% of which have been leased to E&P operators and other working interest owners with Sitio retaining an average 18.2% royalty. Typically, within the mineral and royalty industry, owners standardize ownership of NRAs to a 12.5%, or a 1/8th, royalty interest, representing the number of equivalent acres earning a 12.5% royalty, which is referred to as an NRA. When adjusted to a 1/8th royalty, Sitio’s mineral interests represent 214,405 NRAs, and its NPRIs and ORRIs represent an additional 58,698 NRAs, totaling 273,103 NRAs in the aggregate. Sitio’s drilling spacing units (“DSUs”), in the aggregate, consist of a total of 4.15 million gross acres, which Sitio refers to as Sitio’s “gross DSU acreage.” Sitio expects to have an ownership interest in all wells that will be drilled within its gross DSU acreage in the future.
The following table summarizes Sitio’s mineral and royalty interest position and the conversion of its interests from net mineral acres to NRAs and 100% royalty acres as of December 31, 2024.
Net Mineral Acres Average
Royalty
NRAs
(Mineral
Interests)(1)(2)
NRAs
(NPRIs) NRAs
(ORRIs) Total
NRAs 100%
NRAs(3)
Gross DSU
Acres Implied
Average
Net
Revenue
Interest per
Well(4)
146,810 18.2 % 214,405 20,484 38,214 273,103 34,138 4,147,964 0.8 %
(1)Sitio’s mineral interests are based on its average royalty interests across its net mineral acreage position normalized to reflect a 1/8th royalty interest per net mineral acre (i.e., NRAs from mineral and royalty interests are calculated by multiplying 146,810 net mineral acres multiplied by an average royalty of 18.2% and then divided by 12.5%).
(2)All unleased mineral interests are assumed at a 25% royalty interest or 12.5% royalty interest on Relinquishment Act Lands for the Permian Basin, and 20% for Eagle Ford, Bakken, and DJ Basins.
(3)Calculated as 273,103 NRAs multiplied by 12.5%.
(4)Calculated as 34,138 100% royalty acres divided by 4.15 MM gross DSU acres.
As of December 31, 2024
Resource
Play/Basin Net Mineral Acres Net Royalty Acres (1)
100% Royalty Acres(2)
Gross DSU Acres Implied Average Net Revenue Interest per
Well (3)
Gross Horizontal Producing Well Count as
of December 31, 2024 (4)
Average Daily Net Production for the
Quarter Ended December 31, 2024 (5)
BOE/d
Delaware 80,883 156,543 19,568 1,508,564 1.3 % 13,614 20,570
Midland 23,703 45,626 5,703 1,063,809 0.5 % 14,555 8,353
DJ 31,397 41,681 5,210 800,410 0.7 % 10,975 6,619
Eagle Ford 4,467 21,047 2,631 228,845 1.1 % 3,214 4,540
Williston
6,360 8,206 1,026 546,336 0.2 % 4,959 727
Total 146,810 273,103 34,138 4,147,964 0.8 % 47,317 40,809
(1)Standardized to a 1/8th interest.
(2)Standardized to a 100% interest.
(3)Calculated as number of 100% royalty acres per gross DSU acre.
(4)Represents number of horizontal producing wells across all DSUs in which we participate.
(5)Represents actual production plus allocated accrued volumes attributable to the period presented. Excludes de minimis impact of production from properties divested in 2023.
As of December 31, 2024, we had 47,317 gross (361.7 net) producing horizontal wells on our acreage. Sitio had interests in 5,047 (24.5 net) horizontal wells on which drilling has commenced but are not yet producing, which Sitio refers to as spud wells, and 3,598 (20.4 net) horizontal wells for which permits have been issued to the operators, but on which drilling has not yet commenced, which Sitio refers to as permitted wells as of December 31, 2024.
Sitio’s Reserves and Production
As of December 31, 2024, the estimated proved crude oil, natural gas and NGLs reserves attributable to Sitio’s interests in its underlying acreage were 103,756 MBOE (68% liquids, consisting of 41% crude oil and 27% NGLs), based on a reserve report audited by Cawley, Gillespie & Associates, Inc. (“CG&A”). Of these reserves, approximately 88% were classified as proved developed reserves and approximately 12% 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, 2024.
Sitio anticipates E&P operators to continue shifting drilling activity from a focus on drilling single wells to hold acreage towards more drilling in each DSU, particularly on multi-well pads. Furthermore, Sitio expects to see increases in its production, revenue and discretionary cash flows from the development of 5,047 spud wells and 3,598 permitted wells across its interests as of December 31, 2024. Sitio believes its current interests provide the potential for significant long-term organic revenue growth as E&P operators develop its acreage and utilize advancements in drilling and completion techniques to increase crude oil, natural gas and NGL production.
Sitio’s E&P Operators
In addition to utilizing technical analysis to identify attractive mineral and royalty interests, Sitio’s management team strives to acquire mineral and royalty interests in properties with top-tier E&P operators. Sitio seeks E&P operators that are well-capitalized, have a strong operational track record, and that Sitio believes will continue to produce through the application of the latest drilling and completion techniques across its mineral and royalty interests. Approximately 142 E&P operators are currently producing oil and gas from horizontally drilled wells on Sitio’s acreage.
The chart below summarizes the E&P operators of Sitio’s acreage, based on revenue for the twelve months ended December 31, 2024.
Corporate Responsibility Philosophy
Since Sitio’s inception, it has been committed to corporate governance, building and retaining a talented team of minerals professionals, encouraging responsible environmental stewardship by the operators on its acreage and conducting business at a high standard of ethics, accountability and transparency. Sitio’s compensation for its board of directors (the “Board”) and executive management is structured to be well-aligned with shareholders, with incentive compensation for executive management that is 100% equity based, with an emphasis on absolute total shareholder return over a three-year period. Sitio targets minerals under operators with strong environmental track records and prioritizes responsible environmental practices, striving to incentivize E&P companies to avoid flaring natural gas in each new lease. Sitio's form lease agreement, used to permit E&P operators to explore for and produce oil, natural gas and NGLs on its properties, provides an economic disincentive for the flaring of natural gas, which is designed to reduce unnecessary methane and other GHG emissions by the Company’s E&P operators. Presently, Sitio has no environmental liabilities and, due to the nature of our business, no Scope 1 greenhouse gas (“GHG”) emissions. Our minimal Scope 2 emissions are from power consumption at Sitio office locations.
Crude Oil, Natural Gas and NGL Data
The information included in “-Summary of Reserves,” “-PUD Reserves,” and “-Crude Oil, Natural Gas and NGLs Production Prices and Costs” presents Sitio’s (i) proved reserves as of the years ended December 31, 2024, 2023 and 2022 and (ii) operating data as of and for the years ended December 31, 2024, 2023 and 2022, in each case, on an actual basis, without giving pro forma effect to transactions completed after such dates. Assets acquired during 2024 are included in Sitio’s proved reserves and operating data as of December 31, 2024, and operating data attributable to the assets acquired in such acquisitions is included since the date of each respective acquisition for the year ended December 31, 2024 on an actual basis. The assets acquired in 2023 are included in Sitio’s proved reserves and operating data as of December 31, 2023, and operating data attributable to the assets acquired in such acquisitions is included since the date of each respective acquisition for the year ended December 31, 2023 on an actual basis. Assets divested during 2023 are not included in Sitio’s proved reserves and operating data as of December 31, 2023, and operating data attributable to the assets divested during 2023 is included through the date of disposition. The assets acquired in 2022, including through the Falcon Merger and Brigham Merger, are included in Sitio’s proved reserves and operating data as of December 31, 2022,
and operating data attributable to the assets acquired in such acquisitions is included since the date of each respective acquisition for the year ended December 31, 2022 on an actual basis.
Preparation of Proved Reserve Estimates
Sitio’s proved reserve estimates as of December 31, 2024, 2023, and 2022 have been prepared in accordance with the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Evaluation Engineers and the definitions and guidelines established by the SEC. For the year ended December 31, 2024, the reserve estimates were prepared internally by Sitio’s corporate reserves team of petroleum engineers and subsequently audited by CG&A. For the years ended December 31, 2023 and December 31, 2022, the reserve estimates were prepared directly by CG&A, an independent petroleum engineering firm. Sitio selected CG&A as its independent reserve auditor based on their extensive historical experience and geographic expertise in evaluating similar resources.
In accordance with rules and regulations of the SEC applicable to companies involved in crude oil and natural gas producing activities, proved reserves are those quantities of crude oil and natural gas, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations. The term “reasonable certainty” means deterministically, the quantities of crude oil and/or natural gas are much more likely to be achieved than not, and probabilistically, there should be at least a 90% probability of recovering volumes equal to or exceeding the estimate. All of Sitio’s proved reserves as of December 31, 2024, 2023 and 2022 were estimated using a deterministic method. The estimation of reserves involves two distinct determinations. The first determination results in the estimation of the quantities of recoverable crude oil and natural gas and the second determination results in the estimation of the uncertainty associated with those estimated quantities in accordance with the definitions established under SEC rules. The process of estimating the quantities of recoverable reserves relies on the use of certain generally accepted analytical procedures. These analytical procedures fall into four broad categories or methods: (i) production performance-based methods, (ii) material balance-based methods, (iii) volumetric-based methods and (iv) analogy. These methods may be used singularly or in combination by the reserve evaluator in the process of estimating the quantities of reserves. Reserves for proved developed producing wells were estimated using production performance methods for the vast majority of properties. Certain new producing properties with very little production history were forecast using a combination of production performance and analogy to similar production, both of which are considered to provide a reasonably high degree of accuracy. Reserve estimates for undeveloped properties were forecast using analogy methods. This method provides a reasonably high degree of accuracy for predicting proved undeveloped reserves for Sitio’s properties due to the abundance of analog data.
To estimate economically recoverable proved reserves and related future net cash flows, Sitio considered many factors and assumptions, including the use of reservoir parameters derived from geological and engineering data that cannot be measured directly, economic criteria based on current costs and the SEC pricing requirements and forecasts of future production rates.
Under SEC rules, reasonable certainty can be established using techniques that have been proven effective by actual production from projects in the same reservoir or an analogous reservoir or by other evidence using reliable technology that establishes reasonable certainty. Reliable technology is a grouping of one or more technologies (including computational methods) that have been field tested and have been demonstrated to provide reasonably certain results with consistency and repeatability in the formation being evaluated or in an analogous formation. To establish reasonable certainty with respect to Sitio’s estimated proved reserves, the technologies and economic data used in the estimation of its proved reserves have been demonstrated to yield results with consistency and repeatability, and include production and well test data, downhole completion information, geologic data, electrical logs, radioactivity logs, core data and historical well cost and operating expense data.
Internal Controls
Sitio’s internal staff of petroleum engineers and geoscience professionals work closely with Sitio’s management team and its independent reserve auditor to ensure the integrity, accuracy and timeliness of data furnished to such independent reserve auditor in its audit of proved reserve estimates. Sitio’s internal staff, along with members of its management team, meet with its independent reserve auditor periodically during the period covered by the proved reserve report to discuss the assumptions and methods used in the proved reserve estimation process. Sitio provides historical information to its independent reserve auditor for its properties, such as ownership interest, crude oil and natural gas production, well test data, commodity prices and estimates of its operators’ operating and development costs. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation. As a result, the
estimates of different engineers can often vary. In addition, the results of drilling, testing and production may justify revisions of such estimates. Accordingly, reserve estimates often differ from the quantities of crude oil, natural gas and NGLs that are ultimately recovered. Sitio’s engineering group is responsible for the internal review of reserve estimates and includes the Executive Vice President, Operations, Jarret Marcoux. Mr. Marcoux is primarily responsible for overseeing the preparation of its reserve estimates and has more than 19 years of experience as an engineer. Prior to joining Sitio, Mr. Marcoux worked at Kimmeridge Energy.
The preparation of Sitio’s proved reserve estimates was completed in accordance with its internal control procedures. These procedures, which are intended to ensure reliability of reserve estimations, include the following:
•review and verification of historical crude oil, natural gas and NGLs production data, which such data is based on actual production reported by the operators of Sitio’s properties;
•review by Mr. Marcoux of all of Sitio’s reported proved reserves, including the review of all significant reserve changes and all PUD additions or reductions;
•verification of property ownership by the land department; and
•direct reporting responsibilities of Mr. Marcoux to our CEO.
No portion of Sitio’s internal engineering and geoscience group’s compensation is directly dependent on the quantity of reserves booked. The engineering reviews the estimates with the independent reserve engineering firm. CG&A does not own an interest in any of Sitio’s properties, nor is it employed on a contingent basis. A summary of CG&A’s audit report with respect to our proved reserve estimates as of December 31, 2024 is included as an exhibit to this Annual Report on Form 10-K.
CG&A is a Texas Registered Engineering Firm (F-693), made up of independent registered professional engineers and geologists that have provided petroleum consulting services to the oil and gas industry for over 50 years. The lead engineer that prepared or audited Sitio’s reserve reports was Zane Meekins at CG&A. Mr. Meekins has been a practicing consulting petroleum engineer at CG&A since 1989. Mr. Meekins is a Registered Professional Engineer in the State of Texas (License No. 71055) and has over 37 years of practical experience in petroleum engineering, with over 35 years of experience in the estimation and evaluation of reserves. He graduated from Texas A&M University in 1987 with a Bachelor of Science degree in Petroleum Engineering. Mr. Meekins meets or exceeds the education, training and experience requirements, as well as the independence, objectivity and confidentiality requirements, set forth in the Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information promulgated by the Society of Petroleum Engineers; he is proficient in judiciously applying industry standard practices to engineering and geoscience evaluations as well as applying SEC and other industry reserve definitions and guidelines.
Summary of Reserves
The following table presents Sitio’s estimated proved reserves as of December 31, 2024, 2023 and 2022. The reserve estimates presented in the table below are based on reports prepared or audited by CG&A, Sitio’s independent petroleum
engineers, which reports were prepared or audited in accordance with current SEC rules and regulations. All of Sitio’s proved reserves are located in the United States.
December 31, 2024(1)
December 31,
2023(2)
December 31,
2022(3)
Estimated proved developed reserves:
Crude oil (MBbls) 36,384 30,537 27,407
Natural gas (MMcf) 179,056 127,170 133,489
NGLs (MBbls) 25,368 18,167 15,169
Total (MBOE) 91,595 69,899 64,824
Estimated proved undeveloped reserves:
Crude oil (MBbls) 5,680 8,295 7,650
Natural gas (MMcf) 20,888 23,100 25,953
NGLs (MBbls) 3,000 3,249 3,190
Total (MBOE) 12,161 15,394 15,165
Estimated proved reserves:
Crude oil (MBbls) 42,064 38,832 35,057
Natural gas (MMcf) 199,944 150,270 159,442
NGLs (MBbls) 28,368 21,416 18,359
Total (MBOE) 103,756 85,293 79,989
(1)Sitio’s estimated proved reserves were determined using average first-day-of-the-month prices for the prior 12 months in accordance with SEC guidance. For crude oil and NGLs volumes, the average WTI posted price of $75.48 per Bbl as of December 31, 2024 was adjusted for quality, transportation fees and a regional price differential. NGLs price was modeled at 23.8% of the WTI posted price. For natural gas volumes, the average Henry Hub spot price of $2.13 per MMBtu as of December 31, 2024 was adjusted for energy content, transportation fees and a regional price differential. The average adjusted product prices weighted by production over the remaining lives of the proved properties are $73.94 per Bbl of crude oil, $17.98 per Bbl of NGLs and $0.77 per Mcf of natural gas as of December 31, 2024.
(2)Sitio’s estimated proved reserves were determined using average first-day-of-the-month prices for the prior 12 months in accordance with SEC guidance. For crude oil and NGLs volumes, the average WTI posted price of $78.22 per Bbl as of December 31, 2023 was adjusted for quality, transportation fees and a regional price differential. NGLs price was modeled at 25.9% of the WTI posted price. For natural gas volumes, the average Henry Hub spot price of $2.64 per MMBtu as of December 31, 2023 was adjusted for energy content, transportation fees and a regional price differential. The average adjusted product prices weighted by production over the remaining lives of the proved properties are $77.20 per Bbl of crude oil, $20.22 per Bbl of NGLs and $1.75 per Mcf of natural gas as of December 31, 2023.
(3)Sitio’s estimated proved reserves were determined using average first-day-of-the-month prices for the prior 12 months in accordance with SEC guidance. For crude oil and NGLs volumes, the average WTI posted price of $93.67 per Bbl as of December 31, 2022 was adjusted for quality, transportation fees and a regional price differential. NGLs price was modeled at 37.3% of the WTI posted price. For natural gas volumes, the average Henry Hub spot price of $6.358 per MMBtu as of December 31, 2022 was adjusted for energy content, transportation fees and a regional price differential. The average adjusted product prices weighted by production over the remaining lives of the proved properties are $93.05 per Bbl of crude oil, $34.97 per Bbl of NGLs and $5.70 per Mcf of natural gas as of December 31, 2022.
Reserve engineering is a subjective process of estimating volumes of economically recoverable crude oil and natural gas that cannot be measured in an exact manner. Sitio’s reserve estimates do not include any value for probable or possible reserves that may exist. The reserve estimates represent Sitio’s net revenue interest and royalty interest in its properties. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation. As a result, the estimates of different engineers often vary. Although Sitio believes these estimates are reasonable, actual future production, cash flows, taxes, development expenditures, operating expenses, and quantities of recoverable oil and natural gas may vary substantially from these estimates. In addition, the results of drilling, testing, and production may justify revisions of such estimates. Accordingly, reserve estimates often differ from the quantities of crude oil and natural gas that are ultimately recovered. Estimates of economically recoverable crude oil and natural gas and of future net revenues are based on a number of variables and assumptions, all of which may vary from actual results, including geologic interpretation, prices, and future production rates and costs. Please read Item 1A. “Risk Factors.”
PUD Reserves
As of December 31, 2024, Sitio estimated its PUD reserves to be 5,680 MBbls of crude oil, 20,888 MMcf of natural gas and 3,000 MBbls of NGLs, for a total of 12,161 MBOE. PUDs will be converted from undeveloped to developed as the applicable wells begin production.
The following tables summarize Sitio’s changes in PUD reserves during the year ended December 31, 2024 (in MBOE):
Proved
Undeveloped
Reserves
(MBOE)
Balance, December 31, 2023
15,394
Acquisitions of Reserves 1,437
Extensions and Discoveries 9,795
Revisions of Previous Estimates (294)
Transfers to Estimated Proved Developed (14,171)
Balance, December 31, 2024
12,161
Changes in Sitio’s PUD reserves that occurred during the year ended December 31, 2024 were primarily due to the following:
•the acquisition of additional mineral and royalty interests located in the Delaware, DJ and Midland Basins in multiple transactions, which included 1,437 MBOE of additional PUD reserves;
•well additions, extensions and discoveries of approximately 9,795 MBOE, as 1,638 horizontal locations were converted to proved undeveloped;
•negative volume revisions of 294 MBOE primarily driven by uncertainty of development timing and well abandonments; and
•the conversion of approximately 14,171 MBOE in PUD reserves into proved developed reserves as 1,605 of 1,829 horizontal locations were drilled and completed.
As a mineral and royalty interest owner, Sitio does not incur any capital expenditures or lease operating expenses in connection with the development of its PUD reserves, which are costs borne entirely by the E&P operator. As a result, during the year ended December 31, 2024, Sitio had no expenditures to convert PUD reserves to proved developed reserves.
Sitio identifies drilling locations based on its assessment of current geologic, engineering and land data. This includes DSU formation and current well spacing information derived from state agencies and the operations of the E&P companies drilling Sitio’s mineral and royalty interests. Sitio limits its PUD reserves solely to wells that have been spud but are not yet producing. As of December 31, 2024, 2023 and 2022, approximately 12%, 18% and 19%, respectively, of Sitio’s total proved reserves were classified as PUD reserves.
Prospective Undeveloped Horizontal Drilling Locations
As of December 31, 2024, Sitio identified 44,468 undeveloped locations across its gross DSU acreage. Furthermore, Sitio believes additional opportunity is possible through the delineation of additional formations as well as incremental wells in existing formations. Approximately 92% of Sitio’s estimated total net horizontal undeveloped locations are located in the Permian Basin, with another 6% located in the DJ Basin in Colorado and Wyoming as shown in the following table.
Basin Gross Horizontal Undeveloped Locations Percentage of Total Portfolio
Net Horizontal Undeveloped Locations Percentage of Total Portfolio
Delaware 26,306 59 % 302 77 %
Midland 11,571 26 % 57 15 %
DJ 3,905 9 % 23 6 %
Eagle Ford 267 1 % 4 1 %
Williston 2,419 5 % 4 1 %
Total 44,468 100 % 390 100 %
Crude Oil, Natural Gas and NGLs Production Prices and Costs
Production and Price History
For the years ended December 31, 2024, 2023 and 2022, 98%, 97%, and 96% of our total revenue was related to crude oil, natural gas and NGLs sales, respectively.
The following table sets forth information regarding net production of crude oil, natural gas and NGLs, and certain price and cost information for each of the periods indicated:
Year Ended December 31,
2024 2023 2022
Production data:
Crude oil (MBbls) 7,001 6,344 2,861
Natural gas (MMcf) 23,557 23,136 9,531
NGLs (MBbls) 3,170 2,742 1,100
Total (MBOE) 14,097 12,942 5,550
Average realized prices:
Crude oil (per Bbl) $ 75.26 $ 75.80 $ 93.05
Natural gas (per Mcf) $ 1.02 $ 1.77 $ 5.50
NGLs (per Bbl) $ 18.99 $ 19.21 $ 33.51
Combined (per BOE)(1)
$ 43.35 $ 44.39 $ 64.05
Average cost (per BOE):
Production and ad valorem taxes $ 3.29 $ 3.63 $ 4.61
(1)“Btu-equivalent” production volumes are presented on an oil-equivalent basis using a conversion factor of six Mcf of natural gas per Bbl of “oil equivalent,” which is based on approximate energy equivalency and does not reflect the price or value relationship between crude oil and natural gas.
Drilling Results
Productive wells consist of producing horizontal wells, wells capable of production and exploratory, development or extension wells that are not dry wells. As of December 31, 2024, 2023 and 2022, there were 47,317, 36,915, and 32,451 productive horizontal wells, respectively, on Sitio’s mineral and royalty interests. Accordingly, Sitio does not own any net wells as such term is defined by Item 1208(c)(2) of Regulation S-K. However, based on its net revenue interest per well, as of December 31, 2024, 2023 and 2022, Sitio had the equivalent of 361.7, 281.6, and 239.9 net producing horizontal wells, respectively, on its acreage.
Sitio is not aware of any dry holes drilled on the acreage underlying its mineral and royalty interests during the relevant periods.
Acreage
The following table sets forth information relating to Sitio’s acreage for its mineral and royalty interests as of December 31, 2024:
Basin Gross DSU
Acreage Total
NRAs 100%
NRAs Gross
DSU
Developed
Acreage Gross DSU
Undeveloped
Acreage NRAs
(Developed) NRAs (Undeveloped)
Delaware 1,508,564 156,543 19,568 667,492 841,072 67,480 89,063
Midland 1,063,809 45,626 5,703 635,657 428,152 26,740 18,886
DJ 800,410 41,681 5,210 589,464 210,946 31,257 10,424
Eagle Ford 228,845 21,047 2,631 205,828 23,017 18,794 2,253
Williston 546,336 8,206 1,026 367,592 178,744 5,782 2,424
Total 4,147,964 273,103 34,138 2,466,033 1,681,931 150,053 123,050
Mineral interests comprised approximately 79% of our NRAs, ORRIs comprised approximately 14% of our NRAs and NPRIs comprised approximately 7% of our NRAs as of December 31, 2024. For information regarding the impact of lease expirations on our interests, please see Item 1A. “Risk Factors.”
Regulation
The following disclosure describes regulation directly associated with E&P operators of crude oil and natural gas properties, including Sitio’s current E&P operators, and other owners of working interests in crude oil and natural gas properties.
Crude oil and natural gas operations are subject to various types of legislation, regulation and other legal requirements enacted by governmental authorities. This legislation and regulation affecting the crude oil and natural gas industry is under constant review for amendment or expansion. Some of these requirements carry substantial penalties for failure to comply. The regulatory burden on the crude oil and natural gas industry increases the cost of doing business.
Environmental Matters
Crude oil and natural gas exploration, development and production operations are subject to stringent laws and regulations governing the discharge of materials into the environment or otherwise relating to protection of the environment or occupational health and safety. These laws and regulations have the potential to impact production on the properties in which Sitio owns mineral interests, which could materially adversely affect its business and its prospects. Numerous federal, state and local governmental agencies, such as the U.S. Environmental Protection Agency (the “EPA”), issue regulations that often require difficult and costly compliance measures that carry substantial administrative, civil and criminal penalties and may result in injunctive obligations for non-compliance. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentrations of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit construction or drilling activities on certain lands lying within wilderness, wetlands, ecologically sensitive and other protected areas, require action to prevent or remediate pollution from current or former operations, such as plugging abandoned wells or closing earthen pits, result in the suspension or revocation of necessary permits, licenses and authorizations, require that additional pollution controls be installed and impose substantial liabilities for pollution resulting from operations. The strict, joint and several liability nature of such laws and regulations could impose liability upon the E&P operators of Sitio’s properties regardless of fault. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances, hydrocarbons or other waste products into the environment. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent and costly pollution control or waste handling, storage, transport, disposal or cleanup requirements could materially adversely affect Sitio’s business and prospects.
Non-Hazardous and Hazardous Waste
The Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes and regulations promulgated thereunder, affect crude oil and natural gas exploration, development, and production activities by imposing requirements regarding the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. With federal approval, the individual states administer some or all of the provisions of RCRA, sometimes in conjunction
with their own, more stringent requirements. Administrative, civil and criminal penalties can be imposed for failure to comply with waste handling requirements. Although most wastes associated with the exploration, development and production of crude oil and natural gas are exempt from regulation as hazardous wastes under RCRA, these wastes typically constitute nonhazardous solid wastes that are subject to less stringent requirements. From time to time, the EPA and state regulatory agencies have considered the adoption of stricter disposal standards for nonhazardous wastes, including crude oil and natural gas wastes. Moreover, it is possible that some wastes generated in connection with E&P of oil and gas that are currently classified as nonhazardous may, in the future, be designated as “hazardous wastes,” resulting in the wastes being subject to more rigorous and costly management and disposal requirements. Any changes in the laws and regulations could have a material adverse effect on the E&P operators of Sitio’s properties’ capital expenditures and operating expenses, which in turn could affect production from the acreage underlying Sitio’s mineral and royalty interests and adversely affect Sitio’s business and prospects.
Remediation
The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and analogous state laws generally impose strict, joint and several liability, without regard to fault or legality of the original conduct, on classes of persons who are considered to be responsible for the release of a “hazardous substance” into the environment. These persons include the current owner or operator of a contaminated facility, a former owner or operator of the facility at the time of contamination, and those persons that disposed or arranged for the disposal of the hazardous substance at the facility. Under CERCLA and comparable state statutes, persons deemed “responsible parties” may be subject to strict, joint and several liability for the costs of removing or remediating previously disposed wastes (including wastes disposed of or released by prior owners or operators) or property contamination (including groundwater contamination), for damages to natural resources and for the costs of certain health studies. In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment. In addition, the risk of accidental spills or releases could expose the operators of the acreage underlying Sitio’s mineral interests to significant liabilities that could have a material adverse effect on the operators’ businesses, financial condition and results of operations. Liability for any contamination under these laws could require the operators of the acreage underlying Sitio’s mineral interests to make significant expenditures to investigate and remediate such contamination or attain and maintain compliance with such laws and may otherwise have a material adverse effect on their results of operations, competitive position or financial condition.
Water Discharges
The Clean Water Act (the “CWA”), U.S. Safe Drinking Water Act (the “SDWA”), the Oil Pollution Act of 1990 (the “OPA”), and analogous state laws and regulations promulgated thereunder impose restrictions and strict controls regarding the unauthorized discharge of pollutants, including produced waters and other crude oil and natural gas wastes, into regulated waters. The definition of regulated waters has been the subject of significant controversy in recent years, with different definitions proposed under the Obama and Trump Administrations. Both of these definitions have been subject to litigation. In January 2023, the EPA and the U.S. Army Corps of Engineers (the “Corps”) released a final revised definition of “waters of the United States” founded upon a pre-2015 definition and including updates to incorporate existing Supreme Court decisions and regulatory guidance. In October 2022, the Supreme Court heard oral arguments in Sackett v. EPA regarding the scope and authority of the CWA and the definition of “waters of the United States” and in May 2023, issued a ruling invalidating certain parts of the January 2023 rule. A revised rule was issued in September 2023. However, due to the injunction of the rule in certain states, the implementation of the September 2023 rule currently varies by state. Therefore, some uncertainty remains as to how broadly the September 2023 rule and the Sackett v. EPA decision will be interpreted by the agencies. Additionally, the Trump Administration may seek to take additional action with respect to these regulations, though the substance and timing of such action cannot be predicted. To the extent the implementation of the final rule, results of the litigation, or any further action expands the scope of jurisdiction, it may impose greater compliance costs or operational requirements on Sitio’s operators. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the EPA or the state. The CWA and regulations implemented thereunder also prohibit the discharge of dredge and fill material into regulated waters, including jurisdictional wetlands, unless authorized by an appropriately issued permit. In addition, spill prevention, control and countermeasure plan requirements under federal law require appropriate containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon tank spill, rupture or leak. The EPA has also adopted regulations requiring certain crude oil and natural gas E&P facilities to obtain individual permits or coverage under general permits for storm water discharges, and effluent limitation guidelines for the discharge of wastewater from hydraulic fracturing.
The OPA is the primary federal law for crude oil spill liability. The OPA contains numerous requirements relating to the prevention of and response to petroleum releases into regulated waters, including the requirement that operators of offshore facilities and certain onshore facilities near or crossing waterways must develop and maintain facility response contingency plans and maintain certain significant levels of financial assurance to cover potential environmental cleanup and restoration costs. The OPA subjects owners of facilities to strict, joint and several liability for all containment and cleanup costs and certain other damages arising from a release, including, but not limited to, the costs of responding to a release of crude oil into surface waters.
Noncompliance with the CWA, the SDWA, or the OPA may result in substantial administrative, civil and criminal penalties, as well as injunctive obligations, for the E&P operators of the acreage underlying Sitio’s mineral interests.
Air Emissions
The Clean Air Act (the “CAA”), and comparable state laws and regulations, regulate emissions of various air pollutants through the issuance of permits and the imposition of other requirements. The EPA has developed, and continues to develop, stringent regulations governing emissions of air pollutants at specified sources. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to obtain additional permits and incur capital costs in order to remain in compliance. For example, in June 2016, the EPA established criteria for aggregating multiple small surface sites into a single source for air quality permitting purposes, which could cause small facilities, on an aggregate basis, to be deemed a major source subject to more stringent air permitting processes and requirements. These laws and regulations may increase the costs of compliance for crude oil and natural gas producers and impact production of the acreage underlying Sitio’s mineral and royalty interests. In addition, federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the CAA and associated state laws and regulations. Moreover, obtaining or renewing permits has the potential to delay the development of crude oil and natural gas projects.
Climate Change
Climate change continues to attract considerable public and scientific attention. As a result, numerous proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of carbon dioxide, methane and other GHGs. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources.
In the United States, no comprehensive climate change legislation has been implemented at the federal level. However, the EPA has adopted regulations that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the United States, and together with the U.S. Department of Transportation (the “DOT”), implement GHG emissions limits on vehicles manufactured for operation in the United States. The regulation of methane from oil and gas facilities has been subject to uncertainty in recent years. However, in response to President Biden’s executive order calling on the EPA to revisit federal regulations regarding methane, the EPA finalized more stringent methane rules for new, modified, and reconstructed facilities, known as OOOOb, as well as standards for existing sources, known as OOOOc, in December 2023. Under the final rules, states have two years to prepare and submit their plans to impose methane emissions controls on existing sources. The presumptive standards established under the final rule include enhanced leak detection survey requirements using optical gas imaging and other advanced monitoring to encourage the deployment of innovative technologies to detect and reduce methane emissions, reduction of emissions by 95% through capture and control systems, zero-emission requirements for certain devices, and the establishment of a “super emitter” response program that would allow third parties to make reports to the EPA of large methane emissions events. The final methane rule is currently being challenged by 23 states and a coalition of industry groups in the U.S. Circuit Court of Appeals for the D.C. Circuit, although OOOOb is already in effect. Moreover, compliance with the new rules may affect the amount oil and gas companies owe under the IRA 2022, which amended the CAA to impose a first-time fee on the emission of methane from sources required to report their GHG emissions to the EPA. On November 12, 2024, the EPA finalized the methane emissions fee rule, which applies to excess methane emissions from certain facilities and starts at $900 per metric ton of leaked methane in 2024 and increases to $1,200 in 2025 and $1,500 in 2026 and thereafter. Compliance with the EPA’s new final methane rules would exempt an otherwise covered facility from the requirement to pay the methane fee. We cannot predict whether, how, or when the Trump Administration might take action to revise or repeal the methane fee rule or the finalized EPA rule related to methane emissions. Additionally, Congress may take actions to repeal or revise the IRA 2022, including with respect to the methane charge, which timing or outcome similarly cannot be predicted. To the extent the methane rule is not timely repealed or modified by the Trump
Administration, failure to comply with the requirements of the EPA’s new rules and the methane fee could adversely affect costs of compliance and operations and result in the imposition of substantial fines and penalties, as well as costly injunctive relief on the E&P operators of the acreage underlying Sitio’s mineral interests.
Separately, various states and groups of states have adopted or are considering adopting legislation, regulation or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions. For example, New Mexico has adopted regulations to restrict the venting or flaring of methane from both upstream and midstream operations. At the international level, the United Nations-sponsored “Paris Agreement” requires member states to submit non-binding, individually-determined reduction goals known as Nationally Determined Contributions every five years after 2020. President Biden recommitted the United States to the Paris Agreement and, in April 2021, announced a goal of reducing the United States’ emissions by 50-52% below 2005 levels by 2030; subsequent United Nations climate conferences have called for additional action to transition away from fossil fuels and control or otherwise reduce GHG emissions, though none have been legally binding. However, on January 20, 2025, President Trump issued an Executive Order re-withdrawing from the Paris Agreement and from other commitments made under the United Nations Convention on Climate Change. The full impact of these actions and the United States’ participation in future United Nations climate-related conferences is uncertain at this time.
The Federal government has from time to time taken, most recently under the Biden Administration, and in the future could again attempt to take, various actions related to climate change, including, among other things, the increased use of zero-emission vehicles by the federal government, the elimination of subsidies provided to the fossil fuel industry, and increased emphasis on climate-related risks across government agencies and economic sectors, which have had varying degrees of success. We cannot predict at this time what actions the Trump Administration may take with respect to these matters. The majority of Sitio’s interests are located on private lands, but it cannot predict the full impact of these developments or whether a future administration may pursue further restrictions. For example, on January 26, 2024, President Biden announced a temporary pause on pending decisions on new exports of LNG to countries that the United States does not have free trade agreements with pending Department of Energy (the “DOE”) review of the underlying analysis for authorizations. The pause was challenged by both states and industry groups and was struck down by the U.S. District Court for the Western District of Louisiana in July 2024. Subsequently, in December 2024, the Biden Administration released a study on the economic and environmental impacts of LNG exports, finding, based on a range of scenarios that vary in assumptions about global climate policies and technology availability, that increased U.S. LNG exports are associated with higher global GHG emissions. While President Trump has issued an Executive Order directing the DOE to restart reviews of LNG export applications, we cannot predict what impact the study released by the prior administration may ultimately have. Further, litigation risks are also increasing as a number of entities have sought to bring suit against various oil and natural gas companies in state or federal court, alleging among other things that such companies created public nuisances by producing fuels that contributed to climate change or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts.
There are also increasing financial risks for fossil fuel producers as shareholders currently invested in fossil-fuel energy companies may elect in the future to shift some or all of their investments into non-fossil fuel related sectors. Institutional lenders who provide financing to fossil fuel energy companies also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies. There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector, although this trend has waned in recent years. While we cannot predict how or to what extent sustainable lending and investment practices may impact our operations, the limitation of investments in and financing for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities. Additionally, on March 6 2024, the SEC issued a final rule that would require registrants to make certain climate-related disclosures in registration statements and in annual reports, including their governance of climate-related risks, material climate-related impacts on strategy, outlook and business model, climate risk management, Scope 1 and 2 GHG emissions, and if the registrant has set them, climate-related targets and goals. The rule’s implementation is currently paused pending litigation, and the SEC under the Trump Administration is expected to repeal or further modify the rule; however, the timeline for any repeal, if at all, is subject to uncertainty and may face additional legal challenges.
The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oil and natural gas or generate the GHG emissions could result in increased costs of compliance or costs of consuming, and thereby reduce demand for oil and natural gas, which could reduce the profitability of Sitio’s interests. Additionally, political, litigation and financial risks may result in Sitio’s oil and natural gas operators restricting or canceling production activities, incurring liability for infrastructure damages as a result
of climatic changes, or impairing their ability to continue to operate in an economic manner, which also could reduce the profitability of Sitio’s interests. One or more of these developments could have a material adverse effect on Sitio’s business, financial condition and results of operation.
Climate change may also result in various physical risks, such as the increased frequency or intensity of extreme weather events or changes in meteorological and hydrological patterns, that could adversely impact our operations, as well as those of our operators and their supply chains. Such physical risks may result in damage to operators’ facilities or otherwise adversely impact their operations, such as if they become subject to water use curtailments in response to drought, or demand for their products, such as to the extent warmer winters reduce the demand for energy for heating purposes. Extreme weather conditions can interfere with production and increase costs and damage resulting from extreme weather may not be fully insured. However, at this time, Sitio is unable to determine the extent to which climate change may lead to increased storm or weather hazards affecting its business.
Regulation of Hydraulic Fracturing
Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons from tight formations. The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. Hydraulic fracturing operations have historically been overseen by state regulators as part of their crude oil and natural gas regulatory programs. However, several agencies have asserted regulatory authority over certain aspects of the process. For example, in August 2012, the EPA finalized regulations under the CAA that establish new air emission controls for crude oil and natural gas production and natural gas processing operations. Federal regulation of methane emissions from the oil and gas sector has been subject to substantial controversy in recent years. For more information, see Sitio’s risk factor titled “Sitio’s operations, and those of its E&P operators, are subject to a series of risks arising from climate change, which could result in increased operating costs, limit the areas in which natural gas, oil and NGLs production may occur, and reduce demand for the natural gas, oil and NGLs Sitio’s E&P operators produce.”
In addition, governments have studied the environmental aspects of hydraulic fracturing practices. These studies, depending on their degree of pursuit and whether any meaningful results are obtained, could spur initiatives to further regulate hydraulic fracturing under the SDWA or other regulatory authorities. For example, in December 2016, the EPA issued its final report on a study it had conducted over several years regarding the effects of hydraulic fracturing on drinking water sources. The final report concluded that “water cycle” activities associated with hydraulic fracturing may impact drinking water under certain limited circumstances.
Several states where we operate, including Colorado, North Dakota, Texas, and New Mexico, have adopted, or are considering adopting, regulations that could restrict or prohibit hydraulic fracturing in certain circumstances and/or require the disclosure of the composition of hydraulic fracturing fluids. For example, the Texas Railroad Commission has previously issued a “well integrity rule,” which updates the requirements for drilling, putting pipe down, and cementing wells, and in August 2024, published a proposed rule to significantly overhaul its oil and gas waste management rules. Local governments also may seek to adopt ordinances within their jurisdictions regulating the time, place and manner of drilling activities in general or hydraulic fracturing activities in particular or prohibit the performance of well drilling in general or hydraulic fracturing in particular.
In Colorado, restrictions on oil and gas development have been increasingly pursued in recent years. In 2020, the Colorado Energy and Carbon Management Commission (“ECMC,” formerly the Colorado Oil and Gas Conservation Commission), as part of Senate Bill 181’s mandate for the ECMC to prioritize public health and environmental concerns in its decisions, adopted revisions to several regulations to increase protections for public health, safety, welfare, wildlife, and environmental resources. Most significantly, these revisions establish more stringent setbacks (2,000 feet, instead of the prior 500 feet) on new oil and gas development and eliminate routine flaring and venting of natural gas at new or existing wells across the state, each subject to only limited exceptions. In October 2024, the ECMC adopted final rules that would apply increased scrutiny to the cumulative impacts of GHG emissions of oil and gas development and set GHG emissions intensity targets for oil and gas operators. Further, in 2024, Colorado lawmakers proposed a bill that would phase out the permitting of new oil and gas wells in the state beginning in 2028, and fully prohibit new drilling permits as of 2030. Although this bill was eventually abandoned, any future state laws that prohibit drilling or the restrict the methods of drilling may adversely impact our business.
In addition to state laws, local land use restrictions, such as city ordinances, may restrict or prohibit the performance of well drilling in general or hydraulic fracturing in particular. Neither New Mexico nor Texas currently have state-wide setback legislation, although some local communities have adopted, or are considering adopting, further restrictions for oil
and gas activities, such as requiring greater setbacks. Moreover, in January 2024, the New Mexico legislature proposed House Bill 32, which would create a “children’s health protection zone” that extends 5,280 feet from the property line of any school and, further, would suspend oil and gas operations within any such children’s health protection zone. Also in January 2024, the New Mexico legislature proposed House Bill 133, which proposed setbacks for new well pads, production facilities, tank batteries, compressor stations, and gas plants at 2,250 feet for most residential, educational, and health or correctional institutions, 650 feet from regular or intermittent streams, lakes, ponds, wetlands, or irrigation infrastructure, and 300 feet from all other surface water. In June 2024, the New Mexico Legislative Finance Committee held a legislative hearing to discuss the potential oil and gas setback legislation, although neither House Bill 32 nor House Bill 133 were passed during the legislative session. The Colorado Department of Public Health and the Environment also finalized rules related to the control of emissions from certain pre-production activities; namely, curbing methane emissions by setting limits of per 1,000 barrels of oil equivalent produced, more frequent inspections, and limits on emissions during maintenance. These and other developments related to the implementation of Senate Bill 181 and any similar legislation could adversely impact our revenues and future production from our properties.
State and federal regulatory agencies recently have focused on a possible connection between hydraulic fracturing related activities, particularly the disposal of produced water in underground injection wells, and the increased occurrence of seismic activity. When caused by human activity, such events are called induced seismicity. In some instances, operators of injection wells in the vicinity of seismic events have been ordered to reduce injection volumes or suspend operations. Some state regulatory agencies, including those in Colorado, New Mexico, and Texas, have modified their regulations to account for induced seismicity. For example, in October 2014, the Texas Railroad Commission published a new rule governing permitting or re-permitting of disposal wells that would require, among other things, the submission of information on seismic events occurring within a specified radius of the disposal well location, as well as logs, geologic cross sections and structure maps relating to the disposal area in question. The Texas Railroad Commission has used this authority to deny permits for waste disposal wells, most recently suspending the permits of all deep disposal wells within the Northern Culberson-Reeves Seismic Response Area in December 2023. Separately, in November 2021, New Mexico implemented protocols requiring operators to take various actions within a specified proximity of certain seismic activity, including a requirement to limit injection rates if a seismic event is of a certain magnitude, and in July 2024, announced the administrative cancellation of 75 pending permit applications for UIC Class II wells within the 10-mile County Line Seismic Response Area due to the potential for increased seismicity. In addition to regulatory developments, an additional consequence of seismic activity is potential lawsuits alleging that produced water handling operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal.
As a result of these developments, Sitio’s operators may be required to curtail operations or adjust development plans, which may adversely impact Sitio’s business.
The USGS has identified six states with the most significant hazards from induced seismicity, including New Mexico, Colorado and Texas. In addition, a number of lawsuits have been filed, alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. These developments could result in additional regulation and restrictions on the use of injection wells and hydraulic fracturing. Such regulations and restrictions could cause delays and impose additional costs and restrictions on the E&P operators of Sitio’s properties and on their waste disposal activities.
If new laws or regulations that significantly restrict hydraulic fracturing and related activities are adopted, such laws could make it more difficult or costly to perform fracturing to stimulate production from tight formations. In addition, if hydraulic fracturing is further regulated at the federal or state level, fracturing activities could become subject to additional permitting and financial assurance requirements, more stringent construction specifications, increased monitoring, reporting and recordkeeping obligations, plugging and abandonment requirements and also to attendant permitting delays and potential increases in costs. Such legislative changes could cause E&P operators to incur substantial compliance costs, and compliance or the consequences of any failure to comply by E&P operators could have a material adverse effect on Sitio’s financial condition and results of operations. At this time, it is not possible to estimate the impact on Sitio’s business of newly enacted or potential federal or state legislation governing hydraulic fracturing.
Endangered Species Act
The Endangered Species Act (the “ESA”) restricts activities that may affect endangered and threatened species or their habitats. The designation of previously unidentified endangered or threatened species could cause E&P operators to incur additional costs or become subject to operating delays, restrictions or bans in the affected areas. As part of a stipulated settlement agreement in a case challenging its failure to timely make a twelve-month finding on a petition to list the dunes sagebrush lizard, whose habitat includes parts of the Permian Basin, the United States Fish and Wildlife Service (the
“FWS”) finalized a rule in May 2024 which lists the species as endangered under the ESA. The FWS must also identify the species’ critical habitat, which is expected in 2025. Additionally, in June 2021, the FWS proposed to list two distinct population sections of the Lesser Prairie Chicken, including one in portions of the Permian Basin, under the ESA. In November 2022, following an extensive review, the FWS listed the northern distinct population segment of the Lesser Prairie Chicken, encompassing southeastern Colorado, southcentral to western Kansas, western Oklahoma, and the northeast Texas Panhandle, as threatened, and the southern district population segment, covering eastern New Mexico and the southwest Texas Panhandle, as endangered. Both listing decisions were challenged in the U.S. District Court for the Western District of Texas, and the results of both challenges remain uncertain. To the extent species are listed under the ESA or similar state laws, or previously unprotected species are designated as threatened or endangered in areas where Sitio’s properties are located, operations on those properties could incur increased costs arising from species protection measures and face delays or limitations with respect to production activities thereon.
Employee Health and Safety
Operations on Sitio’s properties are subject to a number of federal and state laws and regulations, including the federal Occupational Safety and Health Act (“OSHA”) and comparable state statutes, whose purpose is to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act, and comparable state statutes require that information be maintained concerning hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens.
Other Regulation of the Crude Oil and Natural Gas Industry
The crude oil and natural gas industry is extensively regulated by numerous federal, state and local authorities. Legislation affecting the crude oil and natural gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue rules and regulations that are binding on the crude oil and natural gas industry and its individual members, some of which carry substantial penalties for failure to comply. Although the regulatory burden on the crude oil and natural gas industry increases the cost of doing business, these burdens generally do not affect us any differently or to any greater or lesser extent than they affect other companies in the industry with similar types, quantities and locations of production.
The availability, terms and conditions and cost of transportation significantly affect sales of crude oil and natural gas. The interstate transportation of crude oil and natural gas and the sale for resale of natural gas is subject to federal regulation, including regulation of the terms, conditions and rates for interstate transportation, storage and various other matters, primarily by the Federal Energy Regulatory Commission (“FERC”). Federal and state regulations govern the price and terms for access to crude oil and natural gas pipeline transportation. FERC’s regulations for interstate crude oil and natural gas transmission in some circumstances may also affect the intrastate transportation of crude oil and natural gas.
Sitio cannot predict whether new legislation to regulate crude oil and natural gas might be proposed, what proposals, if any, might actually be enacted by the U.S. Congress or the various state legislatures, and what effect, if any, the proposals might have on its operations. Sales of crude oil, condensate and NGLs are not currently regulated and are made at market prices.
Drilling and Production
The operations of the E&P operators of Sitio’s properties are subject to various types of regulation at the federal, state and local level. These types of regulation include requiring permits for the drilling of wells, drilling bonds and reports concerning operations. The states, and some counties and municipalities, in which Sitio operates also regulate one or more of the following:
•the location of wells;
•the method of drilling and casing wells;
•the timing of construction or drilling activities, including seasonal wildlife closures;
•the rates of production or “allowables”;
•the surface use and restoration of properties upon which wells are drilled;
•the plugging and abandoning of wells; and
•notice to, and consultation with, surface owners and other third parties.
State laws regulate the size and shape of drilling and spacing units or proration units governing the pooling of crude oil and natural gas properties. Some states allow forced pooling or integration of tracts to facilitate exploration while other states rely on voluntary pooling of lands and leases. In some instances, forced pooling or unitization may be implemented by third parties and may reduce Sitio’s interest in the unitized properties. In addition, state conservation laws establish maximum rates of production from crude oil and natural gas wells, generally prohibit the venting or flaring of natural gas and impose requirements regarding the ratability of production. These laws and regulations may limit the amount of crude oil and natural gas that the E&P operators of Sitio’s properties can produce from Sitio’s wells or limit the number of wells or the locations at which E&P operators can drill. Moreover, each state generally imposes a production or severance tax with respect to the production and sale of crude oil, natural gas and NGLs within its jurisdiction. States do not regulate wellhead prices or engage in other similar direct regulation, but Sitio cannot assure you that they will not do so in the future. The effect of such future regulations may be to limit the amounts of crude oil and natural gas that may be produced from Sitio’s wells, negatively affect the economics of production from these wells or to limit the number of locations E&P operators can drill.
Federal, state and local regulations provide detailed requirements for the abandonment of wells, closure or decommissioning of production facilities and pipelines and for site restoration in areas where the E&P operators of Sitio’s properties operate. The Corps and many other state and local authorities also have regulations for plugging and abandonment, decommissioning and site restoration. Although the Corps does not require bonds or other financial assurances, some state agencies and municipalities do have such requirements.
Natural Gas Sales and Transportation
FERC has jurisdiction over the transportation and sale for resale of natural gas in interstate commerce by natural gas companies under the Natural Gas Act of 1938 (“NGA”) and the Natural Gas Policy Act of 1978. Since 1978, various federal laws have been enacted which have resulted in the complete removal of all price and non-price controls for sales of domestic natural gas sold in “first sales.”
Under the Energy Policy Act of 2005, FERC has substantial enforcement authority to prohibit the manipulation of natural gas markets and enforce its rules and orders, including the ability to assess substantial civil penalties. FERC also regulates interstate natural gas transportation rates and service conditions and establishes the terms under which the E&P operators of Sitio’s properties may use interstate natural gas pipeline capacity, as well as the revenues such E&P operators receive for release of natural gas pipeline capacity. Interstate pipeline companies are required to provide nondiscriminatory transportation services to producers, marketers and other shippers, regardless of whether such shippers are affiliated with an interstate pipeline company. FERC’s initiatives have led to the development of a competitive, open access market for natural gas purchases and sales that permits all purchasers of natural gas to buy gas directly from third-party sellers other than pipelines.
Gathering services, which occur upstream of jurisdictional transmission services, are regulated by the states onshore and in state waters. Section 1(b) of the NGA exempts natural gas gathering facilities from regulation by FERC under the NGA. FERC has in the past reclassified certain jurisdictional transmission facilities as non-jurisdictional gathering facilities, which may increase the E&P operators’ costs of transporting gas to point-of-sale locations. This may, in turn, affect the costs of marketing natural gas that the E&P operators of Sitio’s properties produce.
Historically, the natural gas industry was more heavily regulated; therefore, Sitio cannot guarantee that the regulatory approach currently pursued by FERC and the U.S. Congress will continue indefinitely into the future nor can Sitio determine what effect, if any, future regulatory changes might have on its natural gas related activities.
Crude Oil Sales and Transportation
Crude oil sales are affected by the availability, terms and cost of transportation. The transportation of crude oil in common carrier pipelines is also subject to rate regulation. FERC regulates interstate crude oil pipeline transportation rates under the Interstate Commerce Act and intrastate crude oil pipeline transportation rates are subject to regulation by state regulatory commissions. The basis for intrastate crude oil pipeline regulation, and the degree of regulatory oversight and scrutiny given to intrastate crude oil pipeline rates, varies from state to state. Insofar as effective interstate and intrastate rates are equally applicable to all comparable shippers, Sitio believes that the regulation of crude oil transportation rates
will not affect its operations in any materially different way than such regulation will affect the operations of its competitors.
Further, interstate and intrastate common carrier crude oil pipelines must provide service on a non-discriminatory basis. Under this open access standard, common carriers must offer service to all similarly situated shippers requesting service on the same terms and under the same rates. When crude oil pipelines operate at full capacity, access is governed by prorationing provisions set forth in the pipelines’ published tariffs. Accordingly, Sitio believes that access to crude oil pipeline transportation services by E&P operators of Sitio’s properties will not materially differ from Sitio’s competitors’ access to crude oil pipeline transportation services.
State Regulation & Developments
Texas
Texas regulates the drilling for, and the production, gathering and sale of, crude oil and natural gas, including imposing severance taxes and requirements for obtaining drilling permits. Texas currently imposes a 4.6% severance tax on the market value of crude oil production and a 7.5% severance tax on the market value of natural gas production. States also regulate the method of developing new fields, the spacing and operation of wells and the prevention of waste of crude oil and natural gas resources.
States may regulate rates of production and may establish maximum daily production allowables from crude oil and natural gas wells based on market demand or resource conservation, or both. States do not regulate wellhead prices or engage in other similar direct economic regulation, but Sitio cannot assure you that they will not do so in the future. Should direct economic regulation or regulation of wellhead prices by the states increase, this could limit the amount of crude oil and natural gas that may be produced from wells on Sitio’s properties and the number of wells or locations the E&P operators of Sitio’s properties can drill.
The petroleum industry is also subject to compliance with various other federal, state and local regulations and laws. Some of those laws relate to resource conservation and equal employment opportunity. Sitio does not believe that compliance with these laws will have a material adverse effect on its business.
North Dakota
On July 6, 2020, the U.S. District Court for the District of Columbia ordered vacatur of Dakota Access Pipeline’s (“DAPL”) easement from the Corps and further ordered the shutdown of the pipeline by August 5, 2020 while the Corps completes a full environmental impact statement for the project. On January 26, 2021, the Court of Appeals for the District of Columbia affirmed the vacatur of the easement, but declined to require the pipeline to shut down while an environmental impact statement is prepared. On May 21, 2021, the District Court denied the Plaintiff’s request for an injunction and, on June 22, 2021, terminated the consolidated lawsuits and dismissed all remaining outstanding counts without prejudice. Following the denial of a rehearing en banc by the Court of Appeals for the District of Columbia, on September 20, 2021, Dakota Access filed a petition with the U.S. Supreme Court to hear the case. Oppositions were filed by the Solicitor General and Plaintiffs and Dakota Access filed its reply, although in February 2022, the U.S. Supreme Court denied certiorari, declining to hear the appeal. The pipeline continues to operate pending completion of the environmental impact statement, which the Corps released in September 2023. The draft environmental impact statement was subject to public comment until November 2023. We cannot determine when or how future lawsuits will be resolved or the impact they may have on the DAPL. If future legal challenges to DAPL are successful, we may be adversely affected by increased transportation costs, well shut ins, and lower future production, negatively impacting our revenue costs.
Title to Properties
Prior to completing an acquisition of mineral and royalty interests, Sitio performs a title review on a majority of tracts to be acquired. Sitio’s title review is meant to confirm the quantum of mineral and royalty interests owned by a prospective seller, the property’s lease status and royalty amount as well as encumbrances or other related burdens. As a result, title examinations have been obtained on a significant portion of Sitio’s properties.
In addition to Sitio’s initial title work, E&P operators often will conduct a thorough title examination prior to leasing and/or drilling a well. Should an E&P operator’s title work uncover any further title defects, either Sitio or the E&P operator will perform curative work with respect to such defects. An E&P operator generally will not commence drilling operations on a property until any material title defects on such property have been cured.
Sitio believes that the title to its assets is satisfactory in all material respects. Although title to these properties is in some cases subject to encumbrances, such as customary interests generally retained in connection with the acquisition of crude oil and gas interests, NPRIs and other burdens, easements, restrictions or minor encumbrances customary in the crude oil and natural gas industry, Sitio believes that none of these encumbrances will materially detract from the value of these properties or from its interest in these properties.
Competition
The crude oil and natural gas mineral and royalty business is highly competitive; Sitio primarily competes with public and private royalty aggregator companies, private equity firms, and select E&P companies for the acquisition of mineral and royalty interests. Some of Sitio’s competitors not only own and acquire mineral and royalty interests but also explore for and produce crude oil and natural gas and, in some cases, carry on midstream and refining operations and market petroleum and other products on a regional, national or worldwide basis. By engaging in such other activities, Sitio’s competitors may be able to develop or obtain information that is superior to the information that is available to us. In addition, certain of Sitio’s competitors may possess financial or other resources substantially larger than Sitio possesses. Sitio’s ability to acquire additional minerals and properties will be dependent upon its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.
In addition, crude oil and natural gas products compete with other forms of energy available to customers, primarily based on price. These alternate forms of energy include electricity, coal, and fuel oils. Changes in the availability or price of crude oil and natural gas or other forms of energy, as well as business conditions, conservation, legislation, regulations, and the ability to convert to alternate fuels and other forms of energy may affect the demand for crude oil and natural gas.
Seasonality of Business
Weather conditions affect the demand for, and prices of, natural gas and can also delay drilling activities, disrupting Sitio’s overall business plans. Additionally, some of the areas in which Sitio’s properties are located are adversely affected by seasonal weather conditions, primarily in the winter and spring. During periods of heavy snow, ice or rain, Sitio’s E&P operators may be unable to move their equipment between locations, thereby reducing their ability to operate Sitio’s wells, reducing the amount of crude oil and natural gas produced from the wells on Sitio’s properties during such times. Additionally, extended drought conditions in the areas in which Sitio’s properties are located could impact its E&P operators’ ability to source sufficient water or increase the cost for such water. Furthermore, demand for natural gas is typically higher during the winter, resulting in higher natural gas prices for Sitio’s natural gas production during its first and fourth quarters. Certain natural gas users utilize natural gas storage facilities and purchase some of their anticipated winter requirements during the summer, which can lessen seasonal demand fluctuations. Seasonal weather conditions can limit drilling and producing activities and other crude oil and natural gas operations in a portion of Sitio’s operating areas. Due to these seasonal fluctuations, Sitio’s results of operations for individual quarterly periods may not be indicative of the results that it may realize on an annual basis.
Human Capital Resources
Overview and Structure
We consider our workforce to be our most important asset, and we have sought to structure our hiring practices, compensation and benefits programs, and employee practices to attract and retain high-quality personnel and to provide a comfortable and collegial work environment. We continue to invest in our employees by providing training opportunities, promoting equal employment opportunity, and maintaining focus on corporate ethics. We are managed and operated by the executive officers of our Company and our Board oversees the management of the Company.
Headcount
Sitio had 72 employees as of December 31, 2024.
Recruiting
As a small, tight-knit community, our employees have broad responsibilities, and we encourage continuing development in their careers. When new opportunities arise within our organization, we may look within our organization for talent to fill those needs, ask for referrals from our team (who understand our need for a wide array of skill sets, high energy and forward-thinking attitudes to contribute to delivering exceptional results), or work with recruiters who specialize in the areas of our vacancies.
Compensation
As part of our efforts to hire and retain highly qualified employees, we have structured compensation and benefits programs that, we believe, are extremely competitive and reward outstanding performance. In addition to the incentive programs in place for our named executive officers, which are described in detail in our proxy statement, we have structured an incentive bonus program for non-officer employees that is dependent on an employee’s individual performance and our performance as a company. Our employees also receive restricted-share and/or performance-unit awards to encourage retention and align compensation with our company performance.
Healthcare and Other Benefits
We provide a robust suite of benefits to our employees covering all aspects of life, including 401(k) contributions, medical-insurance options, and programs to encourage and support the employees’ development.
Corporate History and Recent Acquisitions
Sitio was initially formed through the merger of Ferrari Merger Sub A LLC with and into DPM Holdco, LLC ("Desert Peak") on June 7, 2022 (the "Falcon Merger"). Pursuant to the Falcon Merger, Desert Peak became a wholly-owned subsidiary of Falcon Minerals Operating Partnership, LP. Following the completion of the Falcon Merger, Sitio is managed by the legacy Desert Peak management team and Falcon Minerals Corporation (“Falcon”) and Falcon Minerals Operating Partnership, LP were renamed “Sitio Royalties Corp.” and “Sitio Royalties Operating Partnership, LP,” respectively. The Falcon Merger contributed approximately 34,000 NRAs in the Eagle Ford and Appalachian Basin. The assets in the Appalachian Basin were subsequently divested in December 2023.
On December 29, 2022, we consummated the previously announced merger transactions contemplated by the Agreement and Plan of Merger, dated as of September 6, 2022 (the “Brigham Merger Agreement”) by and among STR Sub Inc. (formerly Sitio Royalties Corp.) (“Former Sitio”), MNRL Sub Inc. (formerly Brigham Minerals, Inc.) (“Brigham”), Brigham Minerals Holdings, LLC, Sitio Royalties Operating Partnership, LP, successor Sitio Royalties Corp. (formerly Snapper Merger Sub I, Inc.) (“New Sitio”), Snapper Merger Sub IV, Inc., Snapper Merger Sub V, Inc., and Snapper Merger Sub II, LLC. The Brigham Merger Agreement provides for the acquisition of Brigham by Former Sitio in an all-stock transaction (the “Brigham Merger”). The Brigham assets consisted of approximately 86,500 NRAs in aggregate, including 30,300 NRAs in the Delaware Basin, 13,200 NRAs in the Midland Basin, 24,800 NRAs in the DJ Basin, 10,000 NRAs in the Anadarko Basin and 8,200 NRAs in the Williston Basin. The assets in the Anadarko Basin were subsequently divested in December 2023.
2024 Acquisitions
For the year ended December 31, 2024, Sitio completed multiple acquisitions totaling approximately 20,600 NRAs in the Delaware, DJ and Midland Basins from private and unrelated sellers.
Office Locations
Sitio’s corporate headquarters is located at 1401 Lawrence Street, Suite 1750, Denver, CO 80202 and its main office number is (720) 640-7620. Sitio also has office locations at 9811 Katy Freeway, Suite 700, Houston, TX 77024 and 5914 W. Courtyard Drive, Suite 150, Austin, TX 78730.
Sitio’s website address is www.sitio.com. Sitio makes periodic reports and other information filed with or furnished to the SEC available free of charge through its website as soon as reasonably practicable after those reports and other information are electronically filed with or furnished to the SEC. Information on Sitio’s website or any other website is not incorporated by reference into, and does not constitute a part of, this Annual Report on Form 10-K.
Directors and Officers
The following table sets forth information regarding the members of Sitio’s Board and executive officers as of the date of this Annual Report on Form 10-K.
Name Age Position
Christopher L. Conoscenti 49 Chief Executive Officer and Director
Carrie L. Osicka 46 Chief Financial Officer
Britton L. James 42 Executive Vice President of Land
Jarret J. Marcoux 43 Executive Vice President, Operations
A. Dax McDavid 44 Executive Vice President of Corporate Development
Brett S. Riesenfeld 40 Executive Vice President, General Counsel and Secretary
Noam Lockshin 40 Chairman of the Board of Directors
Morris R. Clark 57 Director
Alice E. Gould 63 Director
Claire R. Harvey 45 Director
Gayle L. Burleson 59 Director
Jon-Al Duplantier 57 Director
Richard K. Stoneburner 71 Director
John R. (“J.R.”) Sult 65 Director
The following are biographical summaries of the business experience of each director and executive officer.
Christopher L. Conoscenti. Mr. Conoscenti has served as our Chief Executive Officer and as a member of the Board since the closing of the Falcon Merger. Prior to the Falcon Merger, he joined Kimmeridge as the Chief Executive Officer of its mineral and royalty interest business in March 2019 following an 18-year career in oil and gas investment banking, most recently as a Managing Director in the Oil & Gas Investment Banking and Capital Markets Group at Credit Suisse Securities (USA) LLC (“Credit Suisse”) from July 2014 to March 2019. Previously, Mr. Conoscenti worked in Oil & Gas Investment Banking at J.P. Morgan Securities LLC beginning in January 2001 where he served as a Managing Director from May 2012 until his departure in April 2014. His clients at Credit Suisse included large and mid-cap upstream E&P operators and minerals companies. During his investment banking career, Mr. Conoscenti advised on numerous mergers and acquisition transactions and served as an active bookrunner on equity, equity-linked and debt transactions. Mr. Conoscenti holds a Bachelor of Arts degree from the University of Notre Dame and a Juris Doctor and a Master of Business Administration from Tulane University.
Carrie L. Osicka. Ms. Osicka has served as our Chief Financial Officer since the closing of the Falcon Merger. Prior to the Falcon Merger, she joined Kimmeridge as the Chief Financial Officer of its mineral and royalty interest business in April 2019 following a ten-year career at Resolute Energy Corporation, where she served as the Senior Director of Finance from November 2017 to February 2019 and previously as Manager of Business Analytics from November 2010 to October 2017. While at Resolute Energy Corporation, Ms. Osicka focused on strategy, financial planning, analysis and mergers and acquisition transactions. Ms. Osicka holds a Master of Business Administration from the Kellogg School of Management at Northwestern University and Bachelor of Science degree in Accounting from Metropolitan State University.
Britton L. James. Mr. James has served as our Executive Vice President of Land since the closing of the Falcon Merger. Prior to the Falcon Merger, he joined Kimmeridge as Vice President of Land of its mineral and royalty interest business in December 2018 following a 12-year career in land management as part of teams covering the Bakken, Delaware Basin, Powder River Basin and several other basins throughout the United States, most recently as a Land Manager for Rockies Resources LLC from June 2018 until November 2018. Previously, Mr. James was an independent land consultant for multiple upstream companies from March 2018 until June 2018, and a Managing Partner, Vice President-Land and member of the Board of Directors for Clear Creek E&P, LLC from January 2017 until its sale in February 2018. Mr. James was also Land Manager for Arris Petroleum Corporation (“Arris Petroleum”) from May 2015 until its sale to PDC Energy, Inc. (“PDC Energy”) in December 2016, Senior Landman for American Eagle Energy Corporation from January 2012 until May 2015, and Senior Landman for Whiting Petroleum Corporation for over five years. Mr. James was also involved in Kimmeridge’s investment in 299 Resources LLC (“299 Resources”) until its sale to PDC Energy. During his career, Mr. James advised on acquisitions/divestitures, grassroots leasing, managing drilling programs and all other facets of land management. In addition to his career in oil and gas, Mr. James served as a Non-
Commissioned Officer in the Colorado Army National Guard for six years. Mr. James holds a Bachelor of Science degree in Business from the University of Montana.
Jarret J. Marcoux. Mr. Marcoux has served as our Executive Vice President, Operations since January 2024. Prior to January 2024, Mr. Marcoux served as our Executive Vice President of Engineering and Acquisitions since the closing of the Falcon Merger. Prior to the Falcon Merger, he joined Kimmeridge in January 2015 as Reservoir Engineer, became Vice President of Reservoir Engineering in September 2015 and Vice President of Engineering and Acquisitions of its mineral and royalty interest business in May 2019. Mr. Marcoux was involved in Kimmeridge’s investments in Arris Petroleum and 299 Resources and the subsequent sale of Kimmeridge’s ownership interests in those companies to PDC Energy. Prior to Kimmeridge, Mr. Marcoux spent two years at Baker Hughes Company, first consulting on various unconventional plays as a Reservoir Engineer from May 2013 until May 2014, and later held the title of Product Line Manager, overseeing all subsurface consulting in the Permian Basin from June 2014 until December 2014. Additionally, Mr. Marcoux has eight years of engineering experience working for International Business Machines Corporation (NYSE: IBM) (“IBM”), Samsung Electronics Co., Ltd. and Advanced Micro Devices, Inc. (NASDAQ: AMD) within the electronics industry. Mr. Marcoux holds a Master of Engineering from Texas A&M University in Petroleum Engineering as well as a Bachelor of Science degree from the University of Massachusetts Amherst in Chemical Engineering with a secondary major in Economics.
A. Dax McDavid. Mr. McDavid has served as our Executive Vice President of Corporate Development since the closing of the Brigham Merger. Prior to the closing of the Brigham Merger, Mr. McDavid held the position of Senior VP of Exploration for Brigham since February 2013, where he focused his geologic efforts in the Midland, Delaware and Williston Basins, while also leading mineral and prospect evaluations in the Eagle Ford play. Mr. McDavid began his career as a Petroleum Geologist for Stalker Energy, L.P. (“Stalker”), an independent oil and gas exploration and development company located in Austin, Texas. As an onshore exploration and development geologist for Stalker, he was a key player in several new field discoveries and field redevelopment projects in Louisiana, the Fort Worth Basin and along the Texas Gulf Coast. He earned a Bachelor of Arts degree in Geology (2003) as well as a Master of Arts degree in Petroleum Geology (2006) both from the Jackson School of Geosciences at The University of Texas at Austin. He is an actively engaged alumnus of the Jackson School, serving as a member of the Jackson School of Geosciences Friends and Alumni Network (“FAN”) Board from 2008 to 2015 and serving as the FAN’s Board President in 2014 and 2015. Mr. McDavid is an active member of the American Association of Petroleum Geologists, serving as a member of the AAPG Trustee Associates for the AAPG Foundation.
Brett S. Riesenfeld. Mr. Riesenfeld has served as our Executive Vice President, General Counsel and Secretary since the closing of the Falcon Merger. Prior to the Falcon Merger, he joined Kimmeridge as the General Counsel of its mineral and royalty interest business in June 2019. From October 2010 to June 2019, Mr. Riesenfeld served as an attorney at Vinson & Elkins L.L.P. While at Vinson & Elkins L.L.P., Mr. Riesenfeld represented public and private companies in capital markets offerings and mergers and acquisitions, primarily in the oil and natural gas industry. Mr. Riesenfeld holds a Bachelor of Arts degree from The University of Texas and a Juris Doctor from The University of Texas School of Law.
Noam Lockshin. Mr. Lockshin was appointed to the Board and elected as Chairman of the Board in connection with the closing of the Falcon Merger and, prior to the Falcon Merger, served as a director of Desert Peak beginning in April 2019. Mr. Lockshin is a Partner of Kimmeridge and has been with the firm since its founding in May 2012. Mr. Lockshin is a member of the firm’s investment team, and serves in various capacities including research, analysis, and diligence of investment opportunities as well as the negotiation and execution of investment strategies. Most recently, Mr. Lockshin led the firm’s investment efforts in the mineral and royalty interests business focused on the Delaware Basin in Texas and New Mexico. Prior to joining Kimmeridge, Mr. Lockshin served as a Vice President, Energy Investing for AllianceBernstein Holding L.P., a leading global asset management firm, from July 2010 to May 2012. Prior to that, Mr. Lockshin was an Equity Research Associate for E&P at Sanford C. Bernstein & Co. LLC from July 2007 to July 2010. Mr. Lockshin holds a Bachelor of Arts degree in Mathematics from York University.
Morris R. Clark. Mr. Clark was appointed to the Board in connection with the closing of the Falcon Merger. Prior to the Falcon Merger, he served as Vice President and Treasurer of Marathon Oil Corporation (“Marathon Oil”) from January 2014 to July 2019. From 2007 until January 2014, Mr. Clark served as Assistant Treasurer of Marathon Oil. Mr. Clark was responsible for managing all treasury related matters, including corporate finance, cash and banking/operations, insurance, pensions, enterprise risk management and credit and counterparty risk. During his tenure, Mr. Clark led financing transactions, including bond and equity issuances, revolving credit and receivables facilities, merger and acquisition financings and major corporate restructurings (public spin-offs). Prior to joining Marathon Oil, Mr. Clark served as Senior Tax Counsel at Enron North America Corporation, a Tax Attorney at Bracewell LLP in Houston and a Senior Accountant with Touche Ross & Company (Deloitte & Touche) in Los Angeles. Mr. Clark currently serves as a director of Civitas Resources, Inc. (NYSE: CIVI) (“Civitas”), a position he has held since October 2021, and is Chair of the Audit Committee of its Board of Directors. He previously served as a Director and Chair of the Audit Committee of the Board of Directors of Extraction Oil & Gas, Inc. from January 2021 until its amalgamation with multiple companies resulting in the formation of
Civitas in October 2021. Additionally, Mr. Clark has been involved with several non-profit and educational boards. Mr. Clark holds a Bachelor of Science degree in Accounting from Southern University, a Juris Doctor from Tulane Law School, and a Master of Laws degree (LL.M.) from New York University School of Law.
Alice E. Gould. Ms. Gould was appointed to the Board in connection with the closing of the Falcon Merger. Prior to the Falcon Merger, she joined the Board of Directors of CorePoint Lodging Inc. (NYSE: CPLG), a publicly-traded select service lodging real estate investment trust spun off from La Quinta Franchising LLC, in 2018 and served on its Compensation and Nominating and Corporate Governance Committees until the sale of the company in May 2022. Ms. Gould is a former Investment Manager at DUMAC Inc. (“DUMAC”), a professionally staffed investment office controlled by Duke University that managed over $18 billion of endowment and other Duke-related assets, where Ms. Gould worked from 2004 to 2018 and had responsibility for the evaluation, selection and monitoring of energy and natural resources investments. Prior to her role at DUMAC, Ms. Gould was a management consultant assisting senior executives in the technology, pharmaceutical, media and financial industries with strategic initiatives. Ms. Gould also worked for ten years at IBM where she managed product development, marketing and business planning. Ms. Gould has served on the advisory board of over 20 private equity and real assets partnerships in the U.S. and abroad. Ms. Gould received a Bachelor of Science degree in Engineering from Duke University (magna cum laude) and Master of Business Administration from The Fuqua School of Business at Duke University, where she was a Fuqua Scholar.
Claire R. Harvey. Ms. Harvey was appointed to the Board in connection with the closing of the Falcon Merger and served as a member of and as Chairman of Falcon’s Board from May 2020 through the closing of the Falcon Merger. Ms. Harvey is a Partner of EIV Capital and serves as the Chief Executive Officer of EIV Resources and as the President of ARM Resource Partners, LLC. From May 2019 to August 2020, she led Gryphon Oil and Gas, LLC (“Gryphon”), a Blackstone-sponsored company focused on acquiring non-operated interests in the Permian Basin. Prior to Gryphon, Ms. Harvey made upstream oil and gas investments on behalf of two private equity funds, Pine Brook Partners, LLC (“Pine Brook”) from March 2014 to May 2019, and TPH Partners LLC from May 2010 to February 2014. Earlier in her career, she worked as an investment banker at Lehman Brothers and Barclays plc, primarily focused on corporate finance and mergers and acquisitions for oil and gas companies. She currently serves on the board of Viridis Chemical, LLC, a renewable chemical company headquartered in Houston, Texas, a position she has held since March 2024, and served as a director for Tellurian Inc., a global LNG company based in Houston, Texas, from December 2021 to January 2023. Ms. Harvey earned a Bachelor of Business Administration degree in Finance at Texas A&M University, where she was also a four-year letterman and co-captain for the Texas Aggie Volleyball Team. In addition, Ms. Harvey earned a Master of Business Administration from the Jones Graduate School of Business at Rice University where she was the Jones Scholar and M.A. Wright Award winner.
Gayle L. Burleson. Ms. Burleson was appointed to the Board in connection with the closing of the Brigham Merger and served as a member of the Brigham Board of Directors from January 2022 through the closing of the Brigham Merger. She serves on the board and on the audit committee and compensation committee of each of Select Water Solutions, Inc. (NYSE: WTTR) and Atlas Energy Solutions, Inc. (NYSE: AESI), board positions she has held since June 2021 and March 2023, respectively. Ms. Burleson previously served on the audit committee of privately held Chisholm Energy Holdings, LLC. Ms. Burleson was the Senior Vice President of Business Development and Land of Concho Resources Inc. (“Concho”) and held that position until Concho’s acquisition by ConocoPhillips (NYSE: COP) in January 2021. She was employed at Concho in various roles and capacities with ever increasing leadership responsibilities for 15 years. She has also served in a number of engineering and operations positions with BTA Oil Producers, Mobil Oil Corporation, Parker & Parsley Petroleum Company and Exxon Corporation, prior to joining Concho. She received her B.S. in Chemical Engineering from Texas Tech University.
Jon-Al Duplantier. Mr. Duplantier was appointed to the Board in connection with the closing of the Brigham Merger and served as a member of the Brigham Board of Directors from February 2021 through the closing of the Brigham Merger. Mr. Duplantier serves as a director of AltaGas Ltd. (TSX: ALA), a position he has held since February 2021, where he serves on the Governance Committee and the Human Resources and Compensation Committee. Mr. Duplantier is a director of Stellar Bancorp, Inc. (NASDAQ: STEL) (“Stellar”), a position he has held since October 2022, and serves as a member of the Compensation Committee and chair of the Corporate Governance and Nominating Committee. Mr. Duplantier served as a director of Allegiance Bancshares, Inc. from January 2021 until its merger with CBTX, Inc. to form Stellar in October 2022. Mr. Duplantier is also a director of Kodiak Gas Services, Inc. (NYSE: KGS), a position he has held since June 2023, where he chairs the Nominating, Governance and Sustainability Committee and serves as a member of the Personnel and Compensation Committee. He has had a 25-year career in the oil and gas industry with Conoco Inc., ConocoPhillips and Parker Drilling Company (“Parker Drilling”). Most recently, he served as Parker Drilling’s President, Rental Tools and Well Services, a position he held from April 2018 until his departure in July 2020. He held a series of executive positions at Parker Drilling where he had responsibility across more than a dozen countries, and his roles included management and oversight of legal affairs, corporate compliance and governance, human resources, environmental, safety and procurement from 2009 to 2018, prior to that role. Parker Drilling filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code in December 2018. Mr. Duplantier worked for ConocoPhillips from 2002 to
2009, where he held legal and management roles, prior to joining Parker Drilling. Prior to joining ConocoPhillips, he served in multiple roles of increasing responsibility at Conoco Inc., from 1995 to 2002. He holds a Juris Doctorate from Louisiana State University and a Bachelor of Science degree from Grambling State University.
Richard K. Stoneburner. Mr. Stoneburner was appointed to the Board in connection with the closing of the Brigham Merger and served as a member of the Brigham Board of Directors from May 2018 through the closing of the Brigham Merger. Mr. Stoneburner has over 45 years of experience in the oil and gas industry. He currently is the owner of Stoneburner Consulting Services. From April 2013 to December 2022, he served as Senior Advisor and Partner with Pine Brook. He served as president of the North America Shale Production Division for BHP Billiton Petroleum (“BHP”) from 2011 to 2012. Prior to joining BHP, he served as president and chief operating officer of Petrohawk Energy Corporation, from 2009 to 2011. He was the company’s chief operating officer from 2007 to 2009 and led their exploration activities as executive vice president of exploration from 2003 to 2007. Mr. Stoneburner began his career as a geologist in 1977 and held positions at Texas Oil and Gas Corp., Weber Energy Corp., Hugoton Energy Corp. and 3TEC Energy Corp. Mr. Stoneburner is non-Executive chairman for Tamboran Resources (NYSE: TBN), as well as a director for private upstream companies Pursuit Oil and Gas and Elevation Resources. Mr. Stoneburner formerly served as a director for private upstream companies Saguaro Resources, Accelerate Resources and Serafina Oil and Gas, and formerly served as non-Executive Chairman of Yuma Energy (NYSE: YUMAQ) until 2020. He is an advisor to Ayata, a private company developing oil and gas related AI. Mr. Stoneburner also serves on the advisory council of The Jackson School of Geosciences at the University of Texas at Austin, on the visiting committee of the Bureau of Economic Geology at the University of Texas at Austin and is a board member of not-for-profit Switch Energy Alliance. Mr. Stoneburner was a former board member for not-for-profit Memorial Assistance Ministries and past President and former board member of the Houston Producers Forum. He holds a B.S. in Geological Sciences from the University of Texas at Austin, an M.S. in Geological Sciences from Wichita State University, was a member of the American Association of Petroleum Geologists (“AAPG”) Foundation’s Distinguished Lecturer Series in 2012-2013 and was awarded the Norman Foster Outstanding Explorer of the Year award by the AAPG in 2016.
John R. (“J.R.”) Sult. Mr. Sult was appointed to the Board in connection with the closing of the Brigham Merger and served as a member of the Brigham Board of Directors from May 2018 through the closing of the Brigham Merger. Mr. Sult served on the board of directors of Dynegy, Inc., where he served as the chairman of its audit committee, from October 2012 to April 2018, and joined the board of directors of Vistra Corp. (NYSE: VST), where he currently serves as the chairman of its audit committee, in April 2018 in connection with its acquisition of Dynegy, Inc. He also served on the board of directors of Jagged Peak Energy Inc. (NYSE: JAG), from January 2017 until its merger with Parsley Energy Inc. in January 2020, serving as the chairman of its audit committee. From September 2013 to August 2016, Mr. Sult served as Executive Vice President and Chief Financial Officer of Marathon Oil. Prior to joining Marathon Oil, he served as Executive Vice President and Chief Financial Officer of El Paso Corporation (“El Paso”) from March 2010 until May 2012 where he previously served as Senior Vice President and Chief Financial Officer from November 2009 until March 2010, and as Senior Vice President and Controller from November 2005 until November 2009. Mr. Sult also served as Executive Vice President, Chief Financial Officer and director of El Paso Pipeline GP Company, L.L.C., the general partner of El Paso Pipeline Partners, L.P., from July 2010 until May 2012, where he previously served as Senior Vice President and Chief Financial Officer from November 2009 until July 2010, and as Senior Vice President, Chief Financial Officer and Controller from August 2007 until November 2009. Mr. Sult served as Chief Accounting Officer of El Paso and as Senior Vice President, Chief Financial Officer and Controller of El Paso’s Pipeline Group from November 2005 to November 2009. From August 2004 to October 2005, he served as Vice President and Controller of Halliburton Energy Services, Inc. He managed an independent consulting practice that provided a broad range of finance and accounting advisory services and assistance to public companies in the energy industry. Prior to private practice, Mr. Sult was an audit partner with Arthur Andersen LLP. He graduated from Washington & Lee University with a Bachelor of Science with Special Attainments in Commerce. Mr. Sult serves on the Board of Directors of Boys and Girls Country of Houston, Inc.

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ITEM 1A. RISK FACTORS
Item 1A. Risk Factors
Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occur, our business, financial condition, results of operations and future prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Sitio’s Business
A substantial majority of Sitio’s revenues from the crude oil and gas producing activities of its E&P operators are derived from royalty payments that are based on the price at which crude oil, natural gas and NGLs produced from the acreage underlying its interests are sold. Prices of crude oil, natural gas and NGLs are volatile due to factors beyond Sitio’s control. A substantial or extended decline in commodity prices may adversely affect Sitio’s business, financial condition, results of operations and cash flows.
Sitio’s revenues, operating results, discretionary cash flows and the carrying value of its mineral and royalty interests depend significantly upon the prevailing prices for crude oil, natural gas and NGLs. Historically, crude oil, natural gas and NGL prices and their applicable basis differentials have been volatile and are subject to fluctuations in response to changes in supply and demand, market uncertainty and a variety of additional factors that are beyond Sitio’s control, including:
•the domestic and foreign supply of and demand for crude oil, natural gas and NGLs;
•the level of prices and market expectations about future prices of crude oil, natural gas and NGLs;
•the level of global crude oil, natural gas and NGL exploration and production activities;
•the cost of Sitio’s operators exploring for, developing, producing and delivering crude oil, natural gas and NGLs;
•the price and quantity of foreign imports and U.S. exports of crude oil, natural gas and NGLs;
•the level of U.S. domestic production and the degree to which consolidation among our customers may affect spending on U.S. drilling and completions in the near-term;
•political and economic conditions and events in foreign oil, natural gas and NGL producing countries, including inflation, elevated interest rates, embargoes, the conflict in the Israel-Gaza region and increased hostilities in the Middle East, including heightened tensions with Iran and other sustained military campaigns, the armed conflict in Ukraine and associated economic sanctions on Russia, conditions in South America, Central America and China and acts of terrorism or sabotage;
•the ability of members of OPEC and other oil exporting nations to agree to and maintain crude oil price and production controls;
•risks related to Sitio’s hedging activities;
•speculative trading in crude oil, natural gas and NGL derivative contracts;
•the level of consumer product demand;
•the severity and duration of world health events, natural disasters or inclement or hazardous weather conditions, including cold weather, hurricanes, droughts, earthquakes, wildfires, flooding and tornadoes, the frequency and impact of which could be increased by the effects of climate change;
•the availability of storage for hydrocarbons and technological advances affecting energy consumption, energy storage and energy supply;
•uncertainty surrounding recent U.S. elections, including potential legal, regulatory and policy changes, such as proposed tariffs, as well as the potential for general market volatility and political uncertainty;
•domestic and foreign governmental regulations and taxes;
•evolving cybersecurity risks, such as those involving unauthorized access, third-party provider defects and service failures, denial-of service attacks, malicious software, data privacy breaches by employees, insiders or others with authorized access, cyber or phishing-attacks, ransomware, social engineering, physical breaches or other actions;
•the proximity, cost, availability and capacity of crude oil, natural gas and NGL pipelines and other transportation facilities;
•the price and availability of competitors’ supplies of oil, natural gas and NGLs and alternative fuels, including the potential acceleration of the transition to a low-carbon economy as a result of the IRA 2022; and
•overall domestic and global economic conditions.
These factors and the volatility of the energy markets make it extremely difficult to predict future crude oil, natural gas and NGL price movements with any certainty. For example, during the past five years, the posted price for WTI light sweet crude oil has ranged from a historic, record low price of negative $36.98 per Bbl in April 2020 to a high of $123.64 per Bbl in March 2022, and the Henry Hub spot market price for natural gas has ranged from a low of $1.21 per MMBtu in November 2024 to a high of $23.86 per MMBtu in February 2021. The prices for crude oil have historically remained volatile, which has adversely affected the prices at which production from Sitio’s properties is sold as well as the production activities of operators on Sitio’s properties and may continue to do so in the future. This, in turn, has and will materially affect the amount of royalty payments that Sitio receives from such operators. Additionally, on January 20, 2025, President Trump issued an Executive Order titled “Unleashing American Energy,” with the stated goals of, among other things, encouraging energy exploration and production and reviewing actions that potentially burden the development of domestic energy resources. We cannot predict what impact, if any, the Executive Order will have on crude oil, natural gas and NGLs prices.
Any substantial decline in the price of crude oil, natural gas and NGLs or prolonged period of low commodity prices will materially adversely affect Sitio’s business, financial condition, results of operations and cash flows. In addition, lower crude oil, natural gas and NGL prices may reduce the amount of crude oil, natural gas and NGLs that can be produced economically by Sitio’s E&P operators, which may reduce its E&P operators’ willingness to develop its properties. This may result in Sitio having to make substantial downward adjustments to its estimated proved reserves, which could negatively impact the borrowing base under the Sitio Revolving Credit Facility (as defined below) and its ability to fund its operations. If this occurs or if production estimates change or exploration or development results deteriorate, the successful efforts method of accounting principles may require Sitio to write down, as a non-cash charge to earnings, the carrying value of its crude oil and natural gas properties. For example, Sitio recognized impairment expense of $25.6 million related to its Appalachian Basin proved properties during the year ended December 31, 2023. Sitio’s E&P operators could also determine during periods of low commodity prices to shut in or curtail production from wells on Sitio’s properties. In addition, they could determine during periods of low commodity prices to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a longer period under conditions of higher prices. Specifically, they may abandon any well if they reasonably believe that the well can no longer produce crude oil, natural gas or NGLs in commercially paying quantities thereby potentially causing some or all of the underlying lease to expire along with Sitio’s royalties therein. Sitio may choose to use various derivative instruments in connection with anticipated crude oil, natural gas and NGL sales to minimize the impact of commodity price fluctuations. However, Sitio cannot hedge the entire exposure of its operations from commodity price volatility. To the extent Sitio does not hedge against commodity price volatility, or its hedges are not effective, Sitio’s results of operations and financial position may be diminished.
If the E&P operators of Sitio’s properties suspend its right to receive royalty payments due to title or other issues, its business, financial condition, results of operations and cash flows may be adversely affected.
Sitio depends in part on acquisitions to grow its reserves, production and cash generated from operations. In connection with these acquisitions, record title to mineral and royalty interests is conveyed to Sitio or its subsidiaries by asset assignment, and Sitio or its subsidiaries become the record owner of these interests. Upon such a change in ownership of mineral interests, and at regular intervals pursuant to routine audit procedures at each of Sitio’s E&P operators otherwise at its discretion, the E&P operator of the underlying property has the right to investigate and verify the title and ownership of mineral and royalty interests with respect to the properties it operates. If any title or ownership issues are not resolved to its reasonable satisfaction in accordance with customary industry standards, the E&P operator may suspend payment of the related royalty. If an E&P operator of Sitio’s properties is not satisfied with the documentation Sitio provides to validate its ownership, such E&P operator may place Sitio’s royalty payment in suspense until such issues are resolved, at which time Sitio would receive in full payments that would have been made during the suspense period, without interest. Certain of
Sitio’s E&P operators impose significant documentation requirements for title transfer and may keep royalty payments in suspense for significant periods of time. During the time that an E&P operator puts Sitio’s assets in pay suspense, Sitio would not receive the applicable mineral or royalty payment owed to it from sales of the underlying oil or natural gas related to such mineral or royalty interest. If a significant amount of Sitio’s royalty interests are placed in suspense, its results of operations may be reduced significantly.
Title to the properties in which Sitio has an interest may be impaired by title defects.
Sitio is not required to, and under certain circumstances it may elect not to, incur the expense of retaining lawyers to examine the title to its royalty and mineral interests. In such cases, Sitio would rely upon the judgment of oil and gas lease brokers or landmen who perform the fieldwork in examining records in the appropriate governmental office before acquiring a specific royalty or mineral interest. The existence of a material title deficiency can render an interest worthless and can materially adversely affect Sitio’s results of operations, financial condition and cash flows. No assurance can be given that Sitio will not suffer a monetary loss from title defects or title failure. Additionally, undeveloped acreage has a greater risk of title defects than developed acreage. If there are any title defects in properties in which Sitio holds an interest, it may suffer a financial loss.
Sitio may experience delays in the payment of royalties and be unable to replace E&P operators that do not make required royalty payments, and it may not be able to terminate its leases with defaulting lessees if any of the E&P operators on those leases declare bankruptcy.
Sitio may experience delays in receiving royalty payments from its E&P operators, including as a result of delayed division orders received by its E&P operators. A failure on the part of the E&P operators to make royalty payments typically gives Sitio the right to terminate the lease, repossess the property and enforce payment obligations under the lease. If Sitio repossessed any of its properties, it would seek a replacement E&P operator. However, Sitio might not be able to find a replacement E&P operator and, if it did, it might not be able to enter into a new lease on favorable terms within a reasonable period of time. In addition, the outgoing E&P operator could be subject to a proceeding under Title 11 of the United States Code (the “Bankruptcy Code”), in which case Sitio’s right to enforce or terminate the lease for any defaults, including non-payment, may be substantially delayed or otherwise impaired. In general, in a proceeding under the Bankruptcy Code, the bankrupt E&P operator would have a substantial period of time to decide whether to ultimately reject or assume the lease, which could prevent the execution of a new lease or the assignment of the existing lease to another E&P operator. For example, certain of Sitio’s E&P operators historically have undergone restructurings under the Bankruptcy Code and any future restructurings of Sitio’s operators may impact their future operations and ability to make royalty payments to Sitio. In the event that the E&P operator rejected the lease, Sitio’s ability to collect amounts owed would be substantially delayed, and its ultimate recovery may be only a fraction of the amount owed or nothing. In addition, if Sitio is able to enter into a new lease with a new E&P operator, the replacement E&P operator may not achieve the same levels of production or sell crude oil or natural gas at the same price as the E&P operator it replaced.
Sitio depends on various unaffiliated E&P operators for all of the exploration, development and production on the properties underlying its mineral and royalty interests. Substantially all of Sitio’s revenue is derived from royalty payments made by these E&P operators. A reduction in production from wells and/or the expected number of wells to be drilled on Sitio’s acreage by these E&P operators or the failure of its E&P operators to adequately and efficiently develop and operate the wells on its acreage could have an adverse effect on its results of operations and cash flows. Some of the E&P operators of the properties underlying Sitio’s mineral and royalty interests are not contractually obligated to undertake any development activities, so any development and production activities will be subject to their discretion.
Sitio’s assets consist of mineral and royalty interests. Because Sitio depends on third-party E&P operators for all of the exploration, development and production on its properties, it has little to no control over the operations related to its properties. For the year ended December 31, 2024, Sitio received revenue from 142 E&P operators, with approximately 69% coming from the top ten E&P operators on its properties, three of which accounted for more than 10% of such royalty revenues. The failure of Sitio’s E&P operators to adequately or efficiently perform operations or an E&P operator’s failure to act in ways that are in Sitio’s best interests could reduce production and revenues. Additionally, certain investors have requested that operators adopt initiatives to return capital to investors, which could also reduce the capital available to Sitio’s E&P operators for investment in exploration, development and production activities. Sitio’s E&P operators may further reduce capital expenditures devoted to exploration, development and production on its properties in the future, which could negatively impact revenues it receives.
If production on Sitio’s mineral and royalty interests decreases due to decreased development activities, as a result of the low commodity price environment, limited availability of development capital, production-related difficulties or otherwise Sitio’s results of operations may be adversely affected. For example, depressed commodity prices have historically caused some of Sitio’s E&P operators to voluntarily shut in and curtail production from wells on its properties. Although most of these have come back online, an additional or extended period of depressed commodity prices may cause additional E&P operators to take similar action or even to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a longer period under more favorable pricing conditions, both of which would decrease the amount of royalty payments Sitio receives from its E&P operators. Sitio’s E&P operators are often not obligated to undertake any development activities other than those required to maintain their leases on Sitio’s acreage. Furthermore, some of the E&P operators of Sitio’s properties underlying its mineral and royalty interests are not contractually obligated to undertake any development activities. In the absence of a specific contractual obligation, any development and production activities will be subject to their reasonable discretion (subject to certain implied obligations to develop imposed by the laws of some states). Sitio’s E&P operators could determine to drill and complete fewer wells on Sitio’s acreage than is currently expected. The success and timing of drilling and development activities on Sitio’s properties, and whether the E&P operators elect to drill any additional wells on Sitio’s acreage, depends on a number of factors that are largely outside of Sitio’s control, including:
•the capital costs required for drilling activities by Sitio’s E&P operators, which could be significantly more than anticipated;
•the ability of Sitio’s E&P operators to access capital;
•prevailing commodity prices;
•the availability of suitable drilling equipment, production and transportation infrastructure and qualified operating personnel;
•the availability of storage for hydrocarbons, the E&P operators’ expertise, operating efficiency and financial resources;
•approval of other participants in drilling wells;
•the E&P operators’ expected return on investment in wells drilled on Sitio’s acreage as compared to opportunities in other areas;
•the selection of technology;
•the selection of counterparties for the marketing and sale of production; and
•the rate of production of the reserves.
The E&P operators may elect not to undertake development activities, or may undertake these activities in an unanticipated fashion, which may result in significant fluctuations in Sitio’s results of operations and cash flows. Sustained reductions in production by the E&P operators on Sitio’s properties may also adversely affect Sitio’s results of operations and cash flows. Additionally, if an E&P operator were to experience financial difficulty, the E&P operator might not be able to pay its royalty payments or continue its operations, which could have a material adverse impact on Sitio’s cash flows.
Sitio’s future success depends on finding and replacing reserves through acquisitions and the exploration and development activities of its E&P operators.
Producing crude oil and natural gas wells are characterized by declining production rates as reserves are depleted, which such rates vary depending upon reservoir characteristics and other factors. Sitio’s future crude oil, natural gas and NGL reserves and its E&P operators’ production thereof and Sitio’s cash flows are highly dependent on the successful development and exploitation of Sitio’s current reserves and its ability to successfully acquire additional reserves that are economically recoverable. Moreover, the production decline rates of Sitio’s properties may be significantly higher than currently estimated if the wells on its properties do not produce as expected. Sitio may not have sufficient resources to acquire additional reserves and may also not be able to find, acquire or develop additional reserves to replace the current and future production of its properties at economically acceptable terms, or at all.
Furthermore, although revenues may increase if prevailing crude oil and natural gas prices increase significantly, finding costs for additional reserves could also increase. Aside from acquisitions, Sitio has little to no control over the
exploration and development of its properties. If Sitio is not able to replace or grow its oil, natural gas and NGL reserves, its business, financial condition and results of operations would be adversely affected.
Project areas on Sitio’s properties, which are in various stages of development, may not yield oil, natural gas or NGLs in commercially viable quantities.
Project areas on Sitio’s properties are in various stages of development, ranging from project areas with current drilling or production activity to project areas that have limited drilling or production history. If the wells in the process of being completed do not produce sufficient revenues or if dry holes are drilled, Sitio’s financial condition and results of operations may be adversely affected.
Sitio’s failure to successfully identify, complete and integrate acquisitions of properties or businesses could materially and adversely affect its growth, results of operations and cash flows.
Sitio depends in part on acquisitions to grow its reserves, production and cash flows. Sitio’s decision to acquire a property will depend in part on the evaluation of data obtained from production reports and engineering studies, geophysical and geological analyses and seismic data, and other information, the results of which are often inconclusive and subject to various interpretations. The successful acquisition of properties requires an assessment of several factors, including:
•recoverable reserves;
•future crude oil, natural gas and NGL prices and their applicable differentials;
•development plans;
•operating costs Sitio’s E&P operators would incur to develop and operate the properties; and
•potential environmental and other liabilities that E&P operators may incur.
The accuracy of these assessments is inherently uncertain and Sitio may not be able to identify attractive acquisition opportunities. In connection with these assessments, Sitio performs a review of the subject properties that it believes to be generally consistent with industry practices, given the nature of its interests. Sitio’s review will not reveal all existing or potential problems, nor will it permit it to become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all or part of the problems. Even if Sitio does identify attractive acquisition opportunities, it may not be able to complete the acquisition or do so on commercially acceptable terms. Unless Sitio’s E&P operators further develop its existing properties, it will depend on acquisitions to grow its reserves, production and cash flows.
There is intense competition for acquisition opportunities in Sitio’s industry. Competition for acquisitions may increase the cost of, or cause Sitio to refrain from, completing acquisitions. Additionally, acquisition opportunities vary over time. Sitio’s ability to complete acquisitions is dependent upon, among other things, its ability to obtain debt and equity financing and, in some cases, regulatory approvals. Further, these acquisitions may be in geographic regions in which Sitio does not currently hold assets, which could result in unforeseen difficulties. In addition, if Sitio acquires interests in new geographic regions, it may be subject to additional and unfamiliar legal and regulatory requirements. Compliance with regulatory requirements may impose substantial additional obligations on Sitio and its management, cause it to expend additional time and resources in compliance activities and increase its exposure to penalties or fines for non-compliance with such additional legal requirements. Further, the success of any completed acquisition will depend on Sitio’s ability to integrate effectively the acquired business into its existing business. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of Sitio’s managerial and financial resources. In addition, potential future acquisitions may be larger and for purchase prices significantly higher than those paid for earlier acquisitions.
No assurance can be given that Sitio will be able to identify suitable acquisition opportunities, negotiate acceptable terms, obtain financing for acquisitions on acceptable terms or successfully acquire identified targets. Sitio’s failure to achieve consolidation savings, to integrate the acquired assets into its existing operations successfully or to minimize any unforeseen difficulties could materially and adversely affect its financial condition, results of operations and cash flows. The inability to effectively manage these acquisitions could reduce Sitio’s focus on subsequent acquisitions and current operations, which, in turn, could negatively impact its growth, results of operations and cash flows.
Investment in new business ventures could prove unsuccessful and adversely affect Sitio’s business, financial condition and results of operations.
In the future, Sitio may invest in new business ventures. Such endeavors may involve risks and uncertainties, including greater-than-expected liabilities and expenses, as well as economic and regulatory challenges associated with operating in new businesses, regions or countries. Investment into new business ventures may expose Sitio to additional risks that could delay or prevent Sitio from completing an investment or otherwise limit Sitio’s ability to fully realize the anticipated benefits of an investment. The failure of any significant investment could adversely affect Sitio’s business, financial condition, and results of operations.
Sitio may acquire properties that do not produce as projected, and it may be unable to determine reserve potential, identify liabilities associated with such properties or obtain protection from sellers against such liabilities.
Acquiring crude oil, natural gas and NGL properties requires Sitio to assess reservoir and infrastructure characteristics, including recoverable reserves, development and operating costs and potential environmental and other liabilities. Such assessments are inexact and inherently uncertain. In connection with the assessments, Sitio performs diligence of the subject properties, but such a review will not necessarily reveal all existing or potential problems. In the course of Sitio’s due diligence, it may not evaluate every well or pipeline. Sitio may not be able to obtain contractual indemnities from the seller for liabilities created prior to its purchase of the property.
Any acquisitions of additional mineral and royalty interests that Sitio completes will be subject to substantial risks.
Even if Sitio makes acquisitions that it believes will increase its cash generated from operations, these acquisitions may nevertheless result in a decrease in its cash flows. Any acquisition involves potential risks, including, among other things:
•the validity of Sitio’s assumptions about estimated proved reserves, potential undeveloped drilling locations, future production, prices, revenues, capital expenditures, and the operating expenses and costs its E&P operators would incur to develop the minerals;
•a decrease in Sitio’s liquidity by using a significant portion of its cash generated from operations or borrowing capacity to finance acquisitions;
•a significant increase in Sitio’s interest expense or financial leverage if it incurs debt to finance acquisitions;
•the assumption of unknown liabilities, losses or costs for which Sitio is not indemnified or for which any indemnity it receives is inadequate;
•mistaken assumptions about the overall cost of equity or debt;
•Sitio’s ability to obtain satisfactory title to the assets it acquires;
•an inability to hire, train or retain qualified personnel to manage and operate Sitio’s growing business and assets; and
•the occurrence of other significant changes, such as impairment of crude oil and natural gas properties, goodwill or other intangible assets, asset devaluation or restructuring charges.
Sitio’s E&P operators’ identified potential drilling locations, which are scheduled out over many years, are susceptible to uncertainties that could materially alter the occurrence or timing of their drilling.
Proved undeveloped drilling locations represent a significant part of Sitio’s growth strategy, however, it does not control the development of these locations. The ability of Sitio’s E&P operators to drill and develop identified potential drilling locations depends on a number of uncertainties, including the availability of capital, construction of and limitations on access to infrastructure, the generation of additional seismic or geological information, seasonal conditions and inclement weather, regulatory changes and approvals, crude oil, natural gas and NGL prices, costs, negotiation of agreements with third parties, drilling results, lease expirations and the availability of water. Further, Sitio’s E&P operators’ identified potential drilling locations are in various stages of evaluation, ranging from locations that are ready to drill to locations that will require substantial additional interpretation. The use of technologies and the study of producing fields in the same area will not enable Sitio’s E&P operators, or it, to know conclusively prior to drilling whether crude oil, natural gas or NGLs will be present or, if present, whether crude oil, natural gas or NGLs will be present in sufficient quantities to be economically viable. Even if sufficient amounts of crude oil or natural gas exist, Sitio’s E&P operators may
damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, possibly resulting in a reduction in production from the well or abandonment of the well. If Sitio’s E&P operators drill additional wells that they identify as dry holes in current and future drilling locations, their drilling success rate may decline and materially harm their business as well as that of Sitio.
There is no guarantee that the conclusions Sitio’s E&P operators draw from available data from the wells on Sitio’s acreage, more fully explored locations or producing fields will be applicable to their drilling locations. Further, initial production rates reported by Sitio’s or other E&P operators in the areas in which Sitio’s reserves are located may not be indicative of future or long-term production rates. Additionally, actual production from wells may be less than expected. For example, a number of E&P operators have previously announced that newer wells drilled close in proximity to already producing wells have produced less oil and gas than forecast. Because of these uncertainties, Sitio does not know if the potential drilling locations its E&P operators have identified will ever be drilled or if its E&P operators will be able to produce crude oil, natural gas or NGLs from these or any other potential drilling locations. As such, the actual drilling activities of Sitio’s E&P operators may materially differ from those presently identified, which could adversely affect Sitio’s business, results of operations and cash flows.
Finally, the potential drilling locations Sitio has identified are based on the geologic and other data available to it and its interpretation of such data. As a result, Sitio’s E&P operators may have reached different conclusions about the potential drilling locations on Sitio’s properties, and Sitio’s E&P operators control the ultimate decision as to where and when a well is drilled.
Sitio is unable to determine with certainty which E&P operators will ultimately operate its properties.
When Sitio evaluates acquisition opportunities and the likelihood of the successful and complete development of its properties, Sitio considers which companies it expects to operate its properties. Historically, many of Sitio’s properties have been operated by active, well-capitalized E&P operators that have expressed their intent to execute multi-year, pad-focused development programs. There is no guarantee, however, that such E&P operators will become or remain the E&P operators on Sitio’s properties or that their development plans will not change. To the extent Sitio’s E&P operators fail to perform at the levels projected or the E&P operators of Sitio’s properties sell their working interests to, are merged with, or are acquired by, another E&P operator that lacks the same level of capitalization or experience, it could adversely affect Sitio’s business and expected cash flows.
Sitio relies on its E&P operators, third parties and government databases for information regarding its assets and, to the extent that information is incorrect, incomplete or lost, Sitio’s financial and operational information and projections may be incorrect.
As an owner of mineral and royalty interests, Sitio relies on the E&P operators of the properties to notify it of information regarding production on its properties in a timely and complete manner, as well as the accuracy of information obtained from third parties and government databases. Sitio uses this information to evaluate its operations and cash flows, as well as to predict its expected production and possible future locations. To the extent Sitio does not timely receive this information or the information is incomplete or incorrect, Sitio’s results may be incorrect and its ability to project potential growth may be materially adversely affected. Furthermore, to the extent Sitio has to update any publicly disclosed results or projections made in reliance on this incorrect or incomplete information, investors could lose confidence in its reported financial information. If any of such third-parties’ databases or systems were to fail for any reason, including as a result of a cyber-attack, possible consequences include loss of communication links and inability to automatically process commercial transactions or engage in similar automated or computerized business activities. Any of the foregoing consequences could materially adversely affect Sitio’s business.
Sitio has completed numerous acquisitions of mineral and royalty interests for which separate financial information is not required or provided.
Sitio has completed numerous acquisitions of mineral and royalty interests that are not “significant” under Rule 3-05 of Regulation S-X (“Rule 3-05”). Therefore, Sitio is not required to, and has elected not to, provide separate historical financial information in its public filings relating to those acquisitions. While these acquisitions are not individually or collectively significant for purposes of Rule 3-05, they have or will have an impact on Sitio’s financial results and their aggregated effect on its business and results of operations may be material.
Acquisitions and Sitio’s E&P operators’ development of Sitio’s leases will require substantial capital, and Sitio and its E&P operators may be unable to obtain needed capital or financing on satisfactory terms or at all.
The crude oil and natural gas industry is capital intensive. Sitio makes and may continue to make substantial capital expenditures in connection with the acquisition of mineral and royalty interests. To date, Sitio has financed capital expenditures primarily with funding from capital contributions, cash generated by operations, and borrowings from its revolving credit facilities and the 2028 Senior Notes (defined below).
In the future, Sitio may need capital in excess of the amounts it retains in its business, borrows under the Sitio Revolving Credit Facility or has access to in capital markets. The level of borrowing base available under the Sitio Revolving Credit Facility is largely based on its estimated proved reserves and its lenders’ price decks and underwriting standards in the reserve-based lending space and will be reduced to the extent commodity prices decrease or remain depressed, underwriting standards tighten or the lending syndication market is not sufficiently liquid to obtain lender commitments to a full borrowing base in an amount appropriate for Sitio’s assets.
Furthermore, Sitio cannot assure you that it will be able to access other external capital on terms favorable to it or at all. For example, a significant decline in prices for crude oil, elevated interest rates, inflationary pressure and broader economic turmoil may adversely impact Sitio’s ability to secure financing in the capital markets on favorable terms. Additionally, Sitio’s ability to secure financing or access the capital markets could be adversely affected if financial institutions and institutional lenders elect not to provide funding for fossil fuel energy companies in connection with the adoption of sustainable lending initiatives or are required to adopt policies that have the effect of reducing the funding available to the fossil fuel sector. If Sitio is unable to fund its capital requirements, Sitio may be unable to complete acquisitions, take advantage of business opportunities or respond to competitive pressures, any of which could have a material adverse effect on its results of operation and financial condition.
Most of Sitio’s E&P operators are also dependent on the availability of external debt, equity financing sources and operating cash flows to maintain their drilling programs. If those financing sources are not available to the E&P operators on favorable terms or at all, then Sitio expects the development of its properties to be adversely affected. If the development of Sitio’s properties is adversely affected, then revenues from Sitio’s mineral and royalty interests may decline.
The development of Sitio’s PUDs may take longer and may require higher levels of capital expenditures from the E&P operators of Sitio’s properties than Sitio or they currently anticipate.
As of December 31, 2024, approximately 12% of Sitio’s total estimated proved reserves were PUDs and may not be ultimately developed or produced by the E&P operators of its properties. Recovery of PUDs requires significant capital expenditures and successful drilling operations by the E&P operators of Sitio’s properties. The audited reserves data included in the reserve report of Sitio’s independent petroleum engineer assumes that substantial capital expenditures by the E&P operators of Sitio’s properties are required to develop such reserves. Sitio typically does not have access to the estimated costs of development of these reserves or the scheduled development plans of its E&P operators. Even when Sitio does have such information, Sitio cannot be certain that the estimated costs of the development of these reserves are accurate, that its E&P operators will develop the properties underlying its mineral and royalty interests as scheduled or that the results of such development will be as estimated. The development of such reserves may take longer and may require higher levels of capital expenditures from the E&P operators than Sitio anticipates. Delays in the development of Sitio’s reserves, increases in costs to drill and develop such reserves or decreases or continued volatility in commodity prices will reduce the future net revenues of its estimated PUDs and may result in some projects becoming uneconomical for the E&P operators of its properties. In addition, delays in the development of reserves could force Sitio to downgrade some PUDs.
Declining general economic, business or industry conditions and inflation may have a material adverse effect on Sitio’s results of operations, cash flows and financial position.
Concerns over global economic conditions, global health threats, supply chain disruptions, including as a result of the imposition of tariffs, increased demand, labor shortages associated with a fully employed U.S. labor force, geopolitical issues, inflation, the availability and cost of credit and the United States financial markets and other factors have contributed to increased economic uncertainty. Although inflation in the United States had been relatively low for many years, there was a significant increase in inflation beginning in the second half of 2021, with a general decline beginning in the second half of 2022. Annual inflation for the year ended December 31, 2024 was 2.9%. Our E&P operators may experience supply chain constraints and inflationary pressure on their cost structures. Our E&P operators also may face shortages of equipment, raw materials, supplies, commodities, labor and services. These supply chain constraints and inflationary pressures may continue to adversely impact our E&P operators’ operating costs and, if they are unable to
manage their supply chain, it may impact their ability to procure materials and equipment in a timely and cost-effective manner, if at all, which could materially and adversely affect the revenues received in respect of our E&P operators’ operations.
In addition, increased hostilities related to the Russia-Ukraine war, as well as the Israel-Hamas conflict and increased tensions in the Middle East, including Iran, and the occurrence or threat of terrorist attacks in the United States or other countries could adversely affect the global economy. The resulting political instability and societal disruption and other factors, such as declining business and consumer confidence, may contribute to an economic slowdown and a recession. Crude oil, natural gas and NGL related facilities, including those of Sitio’s E&P operators, could be direct targets of terrorist attacks, and, if infrastructure integral to Sitio's E&P operators is destroyed or damaged, they may experience a significant disruption in their operations. Any such disruption could materially adversely affect Sitio’s financial condition, results of operations and cash flows. Costs for insurance and other security may increase as a result of these threats, and some insurance coverage may become more difficult to obtain, if available at all.
Recent concerns about global economic growth have had a significant adverse impact on global financial markets and commodity prices. If the economic climate in the United States or abroad deteriorates, worldwide demand for oil and natural gas products could diminish, which could impact our E&P operators’ operations, affect the ability of our E&P operators to continue operations and ultimately adversely impact our results of operations, cash flows and financial position.
Sitio’s hedging activities could result in financial losses and reduce earnings.
To achieve a more predictable cash flow and to reduce Sitio’s exposure to adverse fluctuations in the prices of oil, natural gas and NGLs, Sitio currently has entered, and may in the future enter, into derivative contracts for a portion of its future production, including fixed price swaps, collars, and basis swaps. Sitio has not designated and does not plan to designate any of its derivative contracts as hedges for accounting purposes and, as a result, records all derivative contracts on its balance sheet at fair value with changes in fair value recognized in current period earnings. Accordingly, Sitio’s earnings may fluctuate significantly as a result of changes in the fair value of its derivative contracts. Derivative contracts also expose Sitio to the risk of financial loss in some circumstances, including when:
•production is less than expected;
•the counterparty to the derivative contract defaults on its contract obligation; or
•the actual differential between the underlying price in the derivative contract or actual prices received are materially different from those expected.
In addition, these types of derivative contracts can limit the benefit Sitio would receive from increases in the prices for oil, natural gas and NGLs.
Sitio’s estimated reserves are based on many assumptions that may turn out to be inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will materially affect the quantities and present value of its reserves.
It is not possible to measure underground accumulation of crude oil, natural gas or NGLs in an exact way. Crude oil, natural gas and NGL reserve engineering is not an exact science and requires subjective estimates of underground accumulations of crude oil, natural gas and NGLs and assumptions concerning future crude oil, natural gas and NGL prices, production levels, ultimate recoveries and operating and development costs. As a result, estimated quantities of proved reserves, projections of future production rates and the timing of development expenditures may turn out to be incorrect. Over time, Sitio may make material changes to reserve estimates taking into account the results of actual drilling, testing and production and changes in prices. In addition, certain assumptions regarding future crude oil, natural gas and NGL prices, production levels and operating and development costs may prove incorrect. For example, if commodity prices and operator activity deteriorated, the commodity price assumptions used to calculate reserves estimates would decline, which in turn would lower proved reserve estimates. A substantial portion of Sitio’s reserve estimates are made without the benefit of a lengthy production history, which are less reliable than estimates based on a lengthy production history. Any significant variance from these assumptions to actual figures could greatly affect Sitio’s estimates of reserves, the economically recoverable quantities of oil, natural gas and NGLs attributable to any particular group of properties, the classifications of reserves based on risk of recovery and future cash generated from operations.
Furthermore, certain of the operators of Sitio’s properties are not contractually obligated to provide it with information regarding drilling activities or historical production data with respect to the properties underlying its mineral and royalty interests, which may affect Sitio’s estimates of reserves. Numerous changes over time to the assumptions on which Sitio’s reserve estimates are based, as described above, often result in the actual quantities of crude oil, natural gas and NGLs that are ultimately recovered being different from its reserve estimates.
Furthermore, the present value of future net cash flows from Sitio’s proved reserves is not necessarily the same as the current market value of its estimated reserves. In accordance with rules established by the SEC and the Financial Accounting Standards Board (the “FASB”), Sitio bases the estimated discounted future net cash flows from its proved reserves on the twelve-month average oil and gas index prices, calculated as the unweighted arithmetic average for the first-day-of-the-month price for each month, and costs in effect on the date of the estimate, holding the prices and costs constant throughout the life of the properties. Actual future prices and costs may differ materially from those used in the present value estimate, and future net present value estimates using then current prices and costs may be significantly less than the current estimate. In addition, the 10% discount factor Sitio uses when calculating discounted future net cash flows may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with Sitio or the crude oil and natural gas industry in general.
Sitio relies on a small number of key individuals whose absence or loss could adversely affect its business.
Many key responsibilities within Sitio’s business have been assigned to a small number of individuals. Sitio relies on members of its executive management team for their knowledge of the crude oil and natural gas industry, relationships within the industry and experience in identifying, evaluating and completing acquisitions, especially in the Permian Basin. The loss of their services could adversely affect Sitio’s business. In particular, the loss of the services of one or more members of Sitio’s executive team could disrupt its business. Further, Sitio does not maintain “key person” life insurance policies on any of its executive team or other key personnel. As a result, Sitio is not insured against any losses resulting from the death of these key individuals.
Acreage must be drilled before lease expiration, generally within one to three years, in order to hold the acreage by production. Sitio’s E&P operators’ failure to drill sufficient wells to hold acreage may result in the deferral of prospective drilling opportunities. In addition, Sitio’s ORRIs may be lost if the underlying acreage is not drilled before the expiration of the applicable lease or if the lease otherwise terminates.
Leases on crude oil and natural gas properties typically have a term of one to three years, after which they expire unless, prior to expiration, production is established within the spacing units covering the undeveloped acres. In addition, even if production or drilling is established during such primary term, if production or drilling ceases on the leased property, the lease typically terminates, subject to certain exceptions.
Any reduction in Sitio’s E&P operators’ drilling programs, either through a reduction in capital expenditures or the unavailability of drilling rigs, could result in the expiration of existing leases. If the lease governing any of Sitio’s mineral interests expires or terminates, all mineral rights revert back to Sitio and Sitio will have to seek new lessees to explore and develop such mineral interests. If the lease underlying any of Sitio’s ORRIs expires or terminates, Sitio’s ORRIs that are derived from such lease will also terminate. Any such expirations or terminations of Sitio’s leases or its ORRIs could materially and adversely affect its financial condition, results of operations and cash flows.
If an owner of working interests burdened by Sitio’s ORRIs declares bankruptcy and a court determines that all or a portion of such ORRIs were part of the bankruptcy estate, Sitio could be treated as an unsecured creditor with respect to such ORRIs.
In determining whether ORRIs may be treated as part of a bankruptcy estate, a court may take into consideration a variety of factors including, among others, whether ORRIs are typically characterized as a real property interest under applicable state law, the terms conveying the ORRIs and related working interests and the applicable state law procedures required to perfect the interests such parties intend to create. Sitio believes that its ORRIs in the Permian Basin, DJ Basin, and Eagle Ford would be treated as an interest in real property in the states where they are located and, therefore, would not likely be considered a part of the bankruptcy estate. Nevertheless, the outcome is not certain. As such, if an owner of working interests burdened by Sitio’s ORRIs declares bankruptcy, a court may determine that all or a portion of such ORRIs are part of the bankruptcy estate. In that event, Sitio would be treated as a creditor in the bankruptcy case. Although holders of ORRIs may be entitled to statutory liens and/or other protections under applicable state law that could be enforceable in bankruptcy, there is no guarantee that such security interests or other protections would apply. Therefore, Sitio could be treated as an unsecured creditor of the debtor working interest holder and could lose the entire value of such ORRI.
Operating hazards and uninsured risks may result in substantial losses to Sitio or its E&P operators, and any losses could adversely affect Sitio’s results of operations and cash flows.
The operations of Sitio’s E&P operators will be subject to all of the hazards and operating risks associated with drilling for and production of crude oil, natural gas and NGLs, including the risk of fire, explosions, blowouts, surface cratering, uncontrollable flows of crude oil, natural gas, NGLs and formation water, pipe or pipeline failures, abnormally pressured formations, casing collapses and environmental hazards such as crude oil and NGL spills, natural gas leaks and ruptures or discharges of toxic gases. In addition, their operations will be subject to risks associated with hydraulic fracturing, including any mishandling, surface spillage or potential underground migration of fracturing fluids, including chemical additives. The occurrence of any of these events could result in substantial losses to Sitio’s E&P operators due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up responsibilities, regulatory investigations and penalties, suspension of operations and repairs required to resume operations, which in turn could have a material adverse effect on Sitio’s financial condition, results of operations and cash flows.
Risks Related to Sitio’s Industry
If commodity prices decrease to a level such that Sitio’s future undiscounted cash flows from its properties are less than their carrying value, Sitio may be required to take write-downs of the carrying values of its properties.
Accounting rules require that Sitio periodically review the carrying value of its properties for possible impairment. Based on specific market factors and circumstances at the time of prospective impairment reviews, production data, economics and other factors, Sitio may be required to write down the carrying value of its properties. Sitio reviews and evaluates the carrying amount of its proved oil, natural gas and NGLs properties for impairment whenever events or changes in circumstances indicate that a property’s carrying amount may not be recoverable. If the carrying value exceeds the estimated undiscounted future cash flows, Sitio would estimate the fair value of its properties and record an impairment charge for any excess of the carrying value of the properties over the estimated fair value of the properties. Factors used to estimate fair value may include estimates of proved reserves, future commodity prices, future production estimates and a commensurate discount rate. Sitio recognized impairment expense of $25.6 million related to its Appalachian Basin proved properties during the year ended December 31, 2023. Sitio did not record any impairment during the years ended December 31, 2024 or 2022. The risk that Sitio will be required to recognize impairments of its crude oil, natural gas and NGLs properties increases during periods of low commodity prices. In addition, impairments would occur if Sitio were to experience sufficient downward adjustments to its estimated proved reserves or the present value of estimated future net revenues. With respect to estimated unproved reserves, impairments could occur if operators do not drill or sufficiently develop Sitio’s acreage. An impairment recognized in one period may not be reversed in a subsequent period. Sitio may incur additional impairment charges in the future, which could materially adversely affect its results of operations for the periods in which such charges are taken.
The unavailability, high cost or shortages of rigs, oilfield services, equipment, raw materials, supplies or personnel may restrict or result in increased costs for E&P operators related to developing and operating Sitio’s properties.
The crude oil and natural gas industry is cyclical, which can result in shortages of drilling rigs, equipment, raw materials (particularly water and sand and other proppants), supplies and personnel. When shortages occur, the costs and delivery times of rigs, equipment and supplies increase and demand for, and wage rates of, qualified drilling rig crews also rise with increases in demand. Sitio cannot predict whether these conditions will exist in the future and, if so, what their timing and duration will be. In accordance with customary industry practice, Sitio’s E&P operators rely on independent third-party service providers to provide many of the services and equipment necessary to drill new wells. If Sitio’s E&P operators are unable to secure a sufficient number of drilling rigs at reasonable costs, Sitio’s financial condition and results of operations could suffer. In addition, they may not have long term contracts securing the use of their rigs, and the operator of those rigs may choose to cease providing services to them. Shortages of drilling rigs, equipment, raw materials, supplies, personnel, trucking services, tubulars, hydraulic fracturing and completion services and production equipment could delay or restrict Sitio’s E&P operators’ exploration and development operations, which in turn could have a material adverse effect on Sitio’s financial condition, results of operations and cash flows.
The marketability of crude oil, natural gas and NGL production is dependent upon transportation and processing and refining facilities, which neither Sitio nor many of its E&P operators control. Any limitation in the availability of those
facilities could interfere with Sitio’s E&P operators’ ability to market Sitio’s or its E&P operators’ production and could harm Sitio’s business.
The marketability of Sitio’s or its E&P operators’ production depends in part on the operation, availability, proximity, capacity and, in some cases, expansion of gathering and transportation facilities, tanker trucks and other transportation methods, and processing and refining facilities owned by third parties. Neither Sitio nor its E&P operators control these third-party facilities and Sitio’s E&P operators’ access to them may be limited or denied. Insufficient production from the wells on Sitio’s acreage or a significant disruption in the availability of third-party gathering and transportation facilities or other production facilities could adversely impact Sitio’s E&P operators’ ability to deliver, market or produce oil and natural gas and thereby cause a significant interruption in Sitio’s operators’ operations. If they are unable, for any sustained period, to implement acceptable delivery or transportation arrangements or encounter production related difficulties, they may be required to shut in or curtail production. In addition, the amount of crude oil that can be produced and sold is subject to curtailment in certain other circumstances outside of Sitio’s or its operators’ control, such as pipeline interruptions due to scheduled and unscheduled maintenance, excessive pressure, physical damage or lack of available capacity on these systems, tanker truck availability and extreme weather conditions. Also, production from Sitio’s wells may be insufficient to support the construction of pipeline facilities, and the shipment of Sitio’s or its E&P operators’ crude oil, natural gas and NGLs on third-party pipelines may be curtailed or delayed if it does not meet the quality specifications of the pipeline owners. The curtailments arising from these and similar circumstances may last from a few days to several months. In many cases, Sitio and its E&P operators are provided only with limited, if any, notice as to when these circumstances will arise and their duration. Any shut in or significant curtailment in gathering system or transportation, processing or refining-facility capacity, or an inability to obtain favorable terms for delivery of the crude oil and natural gas produced from Sitio’s acreage, could reduce Sitio’s E&P operators’ ability to market the production from Sitio’s properties and have a material adverse effect on Sitio’s financial condition, results of operations and cash flows. Sitio’s E&P operators’ access to transportation options and the prices Sitio or its E&P operators receive can also be affected by federal and state regulation-including regulation of crude oil, natural gas and NGLs production, transportation and pipeline safety-as well by general economic conditions and changes in supply and demand.
In addition, the third parties on whom Sitio or its E&P operators rely for transportation services are subject to complex federal, state, tribal and local laws that could adversely affect the cost, manner or feasibility of conducting Sitio’s business.
Drilling for and producing crude oil, natural gas and NGLs are high-risk activities with many uncertainties that may materially adversely affect Sitio’s business, financial condition, results of operations and cash flows.
The drilling activities of the E&P operators of Sitio’s properties will be subject to many risks. For example, Sitio will not be able to assure you that wells drilled by the E&P operators of its properties will be productive. Drilling for crude oil, natural gas and NGLs often involves unprofitable efforts, not only from dry wells but also from wells that are productive but do not produce sufficient crude oil, natural gas or NGLs to return a profit at then realized prices after deducting drilling, operating and other costs. The seismic data and other technologies used do not provide conclusive knowledge prior to drilling a well that crude oil, natural gas or NGLs are present or that a well can be produced economically. The costs of exploration, exploitation and development activities are subject to numerous uncertainties beyond Sitio’s control and increases in those costs can adversely affect the economics of a project. Further, Sitio’s E&P operators’ drilling and producing operations may be curtailed, delayed, canceled or otherwise negatively impacted as a result of other factors, including:
•unusual or unexpected geological formations;
•loss of drilling fluid circulation;
•title problems;
•facility or equipment malfunctions;
•unexpected operational events;
•shortages or delivery delays of equipment and services;
•compliance with environmental and other governmental requirements; and
•adverse weather conditions, such as the winter storms in February 2021, December 2022, and January 2024 that adversely affected operator activity and production volumes in the United States, including in the Delaware and Williston Basins.
Any of these risks can cause substantial losses, including personal injury or loss of life, damage to or destruction of property, natural resources and equipment, pollution, environmental contamination or loss of wells and other regulatory penalties. In the event that planned operations, including the drilling of development wells, are delayed or canceled, or existing wells or development wells have lower than anticipated production due to one or more of the factors above or for any other reason, Sitio’s financial condition, results of operations and cash flows may be materially adversely affected.
Competition in the crude oil and natural gas industry is intense, which may adversely affect Sitio’s and its E&P operators’ ability to succeed.
The crude oil and natural gas industry is intensely competitive, and the E&P operators of Sitio’s properties compete with other companies that may have greater resources. Many of these companies explore for and produce crude oil, natural gas and NGLs, carry on midstream and refining operations, and market petroleum and other products on a regional, national or worldwide basis. In addition, these companies may have a greater ability to continue exploration activities during periods of low crude oil, natural gas and NGL market prices. Sitio’s E&P operators’ larger competitors may be able to absorb the burden of present and future federal, state, local and other laws and regulations more easily than Sitio’s E&P operators can, which would adversely affect Sitio’s E&P operators’ competitive position. Sitio’s E&P operators may have fewer financial and human resources than many companies in Sitio’s E&P operators’ industry and may be at a disadvantage in bidding for exploratory prospects and producing crude oil and natural gas properties. Furthermore, the crude oil and natural gas industry has experienced significant consolidation among some operators, which has resulted in certain instances of combined companies with larger resources. Such combined companies may compete against Sitio’s E&P operators or, in the case of consolidation among Sitio’s E&P operators, may choose to focus their operations on areas outside of Sitio’s properties. In addition, Sitio’s ability to acquire additional properties and to discover reserves in the future will be dependent upon its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment.
Risks Related to Environmental and Regulatory Matters
The IRA 2022 could accelerate the transition to a low carbon economy and will impose, separately, new costs on the operations of Sitio’s E&P operators.
On August 16, 2022, President Biden signed the IRA 2022 into law pursuant to the budget reconciliation process. The IRA 2022 contains hundreds of billions of dollars in incentives for the development of renewable energy, clean hydrogen, clean fuels, electric vehicles and supporting infrastructure and carbon capture and sequestration, among other provisions. These incentives could further accelerate the transition of the U.S. economy away from the use of fossil fuels towards lower- or zero-carbon emissions alternatives, which could decrease demand for oil and gas and consequently materially and adversely affect Sitio’s business. In addition, the IRA 2022 imposes the first ever federal fee on the emission of GHGs through a methane emissions charge. The IRA 2022 amends the federal CAA to impose a fee on the emission of methane from sources required to report their GHG emissions to the EPA, including those sources in the onshore petroleum and natural gas production and gathering and boosting source categories. The methane emissions charge started calendar year 2024 at $900 per ton of methane, increases to $1,200 in 2025, and will be set at $1,500 for 2026 and each year thereafter. Calculation of the fee is based on certain thresholds established in the IRA 2022. On November 12, 2024, the EPA finalized the methane emissions charge rule, implementing the IRA 2022, which applies to oil and gas facilities emitting more than 25,000 metric tons of CO2 per year. The Trump Administration is likely to challenge, repeal, or revise the EPA rule, although we cannot predict when or to what extent. Additionally, Congress may take action to repeal or revise the IRA 2022, including with respect to the methane charge, which timing or outcome similarly cannot be predicted. To the extent the methane emissions charge rule is implemented as originally promulgated, it could increase the operating costs of Sitio’s E&P operators and adversely affect Sitio’s business. However, compliance with the EPA’s new methane rules may exempt an otherwise covered facility from the requirement to pay the methane emissions charge.
Crude oil, natural gas and NGL operations are subject to various governmental laws and regulations. Compliance with these laws and regulations can be burdensome and expensive for Sitio’s E&P operators, and failure to comply could result in its E&P operators incurring significant liabilities, either of which may impact its E&P operators’ willingness to develop Sitio’s interests.
Sitio’s E&P operators’ activities on the properties in which Sitio holds interests are subject to various federal, state and local governmental regulations that may change from time to time in response to economic and political conditions.
Matters subject to regulation include drilling operations, production and distribution activities, discharges or releases of pollutants or wastes, plugging and abandonment of wells, maintenance and decommissioning of other facilities, the spacing of wells, unitization and pooling of properties and taxation. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of crude oil and natural gas wells below actual production capacity to conserve supplies of crude oil, natural gas and NGLs. For example, in January 2021, President Biden signed an Executive Order that, among other things, instructed the Secretary of the Interior to pause new oil and natural gas leases on public lands or in offshore waters pending completion of a comprehensive review and reconsideration of federal oil and natural gas permitting and leasing practices; however, in June 2021, a federal judge for the U.S. District Court of the Western District of Louisiana issued a nationwide preliminary injunction against the pause of new oil and natural gas leases, an injunction which became permanent in August 2022. Since then, federal oil and gas leasing has resumed, although at a reduced level. In November 2021, the Department of the Interior issued a report recommending various changes to the federal leasing program, and though many such changes would require Congressional action, some recommendations, including royalty rate increases and significant decreases in total offered acreage, have been adopted in recent lease sales. The IRA 2022 also incorporated royalty rate increases, raising onshore royalty rates to 16 ⅔%. According to provisions of the IRA 2022, the Department of the Interior released a final rule revising certain fiscal terms on its onshore federal oil and gas leasing program, to include bonding requirements, royalty rates, minimum bids, and codification of other provisions made in the IRA 2022. Substantially all of Sitio’s interests are located on private lands, but Sitio cannot predict the full impact of these developments or whether the Trump Administration may take action to revise or repeal any of these restrictions. Further, in October 2021, the EPA announced it was reconsidering its 2020 decision to maintain the 2015 National Ambient Air Quality Standards (“NAAQS”) for ground-level ozone. A draft assessment released in April 2022 indicated EPA staff had reached a preliminary conclusion that the December 2020 decision would stand, however, in August 2023, the EPA announced a new review of the ozone NAAQS to reflect updated ozone science in combination with the reconsideration of the December 2020 decision. The review remains ongoing and is not expected to be complete before the EPA’s five-year cycle for NAAQS review in December 2025. State implementation of the new, revised standards could, among other things, require installation of new emission controls on some of Sitio’s operators’ equipment, result in longer permitting timelines, and significantly increase the capital expenditures and operating costs of Sitio’s E&P operators. Future actions, including actions focused on addressing climate change, may negatively impact oil and gas operations and favor renewable energy projects in the United States, which may negatively impact the demand for oil and natural gas. While the incoming presidential administration may take actions to revise or repeal existing environmental laws and regulations, we cannot predict how or when the new administration may take such actions, if at all, or the ultimate impact such changes may have on our business.
In addition, the production, handling, storage and transportation of crude oil, natural gas and NGLs, as well as the remediation, emission and disposal of crude oil, natural gas and NGL wastes, by-products thereof and other substances and materials produced or used in connection with crude oil, natural gas and NGL operations are subject to regulation under federal, state and local laws and regulations primarily relating to protection of worker health and safety, natural resources and the environment. Failure to comply with these laws and regulations may result in the assessment of sanctions on Sitio’s E&P operators, including administrative, civil or criminal penalties, permit revocations, requirements for additional pollution controls and injunctions limiting or prohibiting some or all of Sitio’s E&P operators’ operations on Sitio’s properties. Moreover, these laws and regulations have generally imposed increasingly strict requirements related to water use and disposal, air pollution control, species protection, and waste management, among other matters.
Laws and regulations governing E&P may also affect production levels. Sitio’s E&P operators must comply with federal and state laws and regulations governing conservation matters, including, but not limited to:
•provisions related to the unitization or pooling of the crude oil and natural gas properties;
•the establishment of maximum rates of production from wells;
•the spacing of wells;
•the plugging and abandonment of wells; and
•the removal of related production equipment.
Additionally, federal and state regulatory authorities may expand or alter applicable pipeline-safety laws and regulations, compliance with which may require increased capital costs for third-party crude oil, natural gas and NGL transporters. These transporters may attempt to pass on such costs to Sitio’s E&P operators, which in turn could affect profitability on the properties in which Sitio owns mineral and royalty interests.
Sitio’s E&P operators must also comply with laws and regulations prohibiting fraud and market manipulations in energy markets. To the extent the E&P operators of Sitio’s properties are shippers on interstate pipelines, they must comply with the tariffs of those pipelines and with federal policies related to the use of interstate capacity.
Sitio’s E&P operators may be required to make significant expenditures to comply with the governmental laws and regulations described above and may be subject to potential fines and penalties if they are found to have violated these laws and regulations. Sitio believes the trend of more expansive and stricter environmental legislation and regulations will continue. Please read “Business-Regulation” for a description of the laws and regulations that affect Sitio’s E&P operators and that may affect Sitio. These and other potential regulations could increase the operating costs of Sitio’s E&P operators and delay production and may ultimately impact Sitio’s E&P operators’ ability and willingness to develop Sitio’s properties.
Recent regulatory changes in Colorado relating to oil and natural gas permits could cause Sitio’s E&P operators in Colorado to incur increased costs and experience operational delays and result in fewer potential drilling locations.
Following a mandate from the Colorado legislature, the ECMC adopted broad changes to the regulatory scheme governing the issuance of oil and natural gas permits in the state. The new rules most notably introduce a “cumulative impacts” assessment to the permit review process, requiring new oil and natural gas permits to consider past, present and future impacts of new oil and natural gas development in conjunction with existing operations. The rules also increase buffer requirements around residences and communities and adopt emission intensity standards and best management practices. The new regulations became effective on December 15, 2024 and are expected to increase the time needed to obtain new permits in the state. As a result of these developments, Sitio’s operators may be required to curtail operations, delay projects or adjust development plans, which may adversely impact Sitio’s business.
Separately, other developments in Colorado may further impede oil and natural gas development in the state. Legislators continue to propose bills restricting oil and natural gas development, which, if approved, could have an adverse impact on Sitio’s business. For example, in 2024, Colorado legislators proposed a bill that would phase out the permitting of new oil and gas wells in the state beginning in 2028, and fully prohibit new drilling permits as of 2030. Although that bill was eventually abandoned, any future state laws that prohibit drilling or restrict the methods of drilling may adversely impact Sitio’s business. Additionally, the EPA has found that several permits issued by the Colorado Air Pollution Control Division for oil and natural gas developments are unlawfully flawed. While the impact of these developments on Sitio’s business is not yet known, these or other related developments in Colorado could adversely impact Sitio’s operators’ production and operations.
Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could cause Sitio’s E&P operators to incur increased costs, additional operating restrictions or delays and have fewer potential drilling locations.
Sitio’s E&P operators engage in hydraulic fracturing. Hydraulic fracturing is a common practice that is used to stimulate production of hydrocarbons from tight formations, including shales. The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. Currently, hydraulic fracturing is generally exempt from regulation under the Underground Injection Control program of the SDWA and is typically regulated by state oil and gas commissions or similar agencies.
However, several federal agencies have asserted regulatory authority over certain aspects of the process. For example, in June 2016, the EPA published an effluent limit guideline final rule prohibiting the discharge of wastewater from onshore unconventional oil and gas extraction facilities to publicly owned wastewater treatment plants. In 2022, the EPA published the results of its study of private wastewater treatment facilities (also known as centralized waste treatment (“CWT”) facilities) accepting oil and natural gas extraction wastewater including the extent to which CWT facilities accept such wastewater, available treatment technologies (and their associated costs), discharge characteristics, financial characteristics of CWT facilities, and the environmental impacts of discharges from CWT facilities. The EPA is still determining what, if any, next steps should be taken regarding produced water management. Other government agencies, including the U.S. Department of Energy, the USGS, and the U.S. Government Accountability Office, have evaluated or are evaluating various aspects of hydraulic fracturing. These ongoing or proposed studies could spur initiatives to further regulate hydraulic fracturing and ultimately make it more difficult or costly for Sitio’s E&P operators to perform fracturing activities. Also, from time to time, legislation has been introduced, but not enacted, in the U.S. Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the hydraulic fracturing process. This or other federal legislation related to hydraulic fracturing may be considered again in the future, though Sitio cannot predict the extent of any such legislation at this time.
Moreover, some states and local governments have adopted, and other governmental entities are considering adopting, regulations that could impose more stringent permitting, disclosure and well-construction requirements on hydraulic fracturing operations, including states in which Sitio’s properties are located. For example, Texas, Colorado and North Dakota, among others, have adopted regulations that impose new or more stringent permitting, disclosure, disposal and well construction requirements on hydraulic fracturing operations. In April 2019, Colorado adopted Senate Bill 19-181, which made sweeping changes in Colorado oil and gas law, including among other matters, requiring the ECMC to prioritize public health and environmental concerns in its decisions, instructing the ECMC to adopt rules to minimize emissions of methane and other air contaminants, and delegating considerable new authority to local governments to regulate surface impacts. In keeping with SB 19-181, the ECMC in November 2020 adopted revisions to several regulations to increase protections for public health, safety, welfare, wildlife, and environmental resources. Most significantly, these revisions established more stringent setbacks (2,000 feet, instead of the prior 500 feet) on new oil and gas development and eliminated routine flaring and venting of natural gas at new or existing wells across the state, each subject to only limited exceptions. In October 2024, the ECMC adopted final rules that would apply increased scrutiny to the cumulative impacts of GHG emissions of oil and gas development and set GHG emissions intensity targets for oil and gas operators. Neither New Mexico nor Texas currently have state-wide setback legislation, although the state of New Mexico is considering the establishment of state-wide setbacks, as evidenced by a legislative hearing on the topic in June 2024. Some local communities have adopted, or are considering adopting, further restrictions for oil and gas activities, such as requiring greater setbacks. States could also elect to prohibit high volume hydraulic fracturing altogether. For example, in 2024, Colorado lawmakers proposed a bill that would phase out the permitting of new oil and gas wells in the state beginning in 2028, and fully prohibit new drilling permits as of 2030. Although this bill was eventually abandoned, any future state laws that prohibit drilling or the restrict the methods of drilling may adversely impact our business. In addition to state laws, local land use restrictions, such as city ordinances, may restrict drilling in general and/or hydraulic fracturing in particular. Additionally, on December 17, 2021, the Colorado Air Quality Control Commission adopted regulations aimed at curbing methane emissions from oil and gas operations to include setting methane emission limits per 1,000 BOE produced, more frequent inspections and limits on emissions during maintenance.
Increased regulation and attention given to the hydraulic fracturing process, including the disposal of produced water gathered from drilling and production activities, could lead to greater opposition to, and litigation concerning, crude oil, natural gas and NGL production activities using hydraulic fracturing techniques in areas where Sitio owns mineral and royalty interests. Additional legislation or regulation could also lead to operational delays or increased operating costs for Sitio’s E&P operators in the production of crude oil, natural gas and NGLs, including from the development of shale plays, or could make it more difficult for Sitio’s E&P operators to perform hydraulic fracturing. The adoption of any federal, state or local laws or the implementation of regulations regarding hydraulic fracturing could potentially cause a decrease in Sitio’s E&P operators’ completion of new crude oil and natural gas wells on Sitio’s properties and an associated decrease in the production attributable to Sitio’s interests, which could have a material adverse effect on Sitio’s business, financial condition and results of operations.
Conservation measures, technological advances and increasing attention to ESG matters could materially reduce demand for crude oil, natural gas and NGLs, availability of capital and adversely affect Sitio’s results of operations.
Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to crude oil, natural gas and NGLs, technological advances in fuel economy and energy-generation devices, and passage of incentives or funding for renewable energy projects such as those contained in the IRA 2022 could reduce demand for crude oil, natural gas and NGLs. The impact of the changing demand for crude oil, natural gas and NGL services and products may have a material adverse effect on Sitio’s business, financial condition, results of operations and cash flows. It is also possible that the concerns about the production and use of fossil fuels will reduce the sources of financing available to Sitio. For example, certain segments of the investor community have developed negative sentiment towards investing in the oil and gas industry. Historical equity returns in the sector versus other industry sectors have led to lower oil and gas representation in certain key equity market indices. While these trends began to reverse in 2022, oil and gas representation in certain key equity market indices remains below its historical peak. In addition, some investors, including investment advisors and certain sovereign wealth and pension funds, university endowments and family foundations, have stated policies to reduce or eliminate their investments in the oil and gas sector based on their social and environmental considerations. Furthermore, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. For further information, see the risk factor entitled “Increased attention to ESG matters and conservation measures may adversely impact Sitio’s business or the business of its operators.” Certain other stakeholders have also pressured commercial and investment banks to stop financing oil and gas and related infrastructure projects. Although the impact of future Trump Administration policies is currently unknown, if this negative sentiment continues, it may reduce the availability of capital
funding for potential development projects, which could have a material adverse effect on Sitio’s business, financial condition, results of operations and cash flows.
Legislation or regulatory initiatives intended to address seismic activity could restrict Sitio’s E&P operators’ drilling and production activities, as well as Sitio’s operators’ ability to dispose of produced water gathered from such activities, which could have a material adverse effect on their future business, which in turn could have a material adverse effect on Sitio’s business.
State and federal regulatory agencies have recently focused on a possible connection between hydraulic fracturing related activities, particularly the underground injection of wastewater into disposal wells, and the increased occurrence of seismic activity, and regulatory agencies at all levels are continuing to study the possible linkage between oil and gas activity and induced seismicity. For example, in 2016, the USGS identified six states, including Colorado, New Mexico, and Texas, with areas of increased rates of induced seismicity that could be attributed to fluid injection or oil and gas extraction.
In addition, a number of lawsuits have been filed, alleging that disposal well operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal. In response to these concerns, regulators in some states are seeking to impose additional requirements, including requirements in the permitting of produced water disposal wells or otherwise to assess the relationship between seismicity and the use of such wells. In some instances, regulators may also order that disposal wells be shut in. For example, the Texas Railroad Commission has previously published a rule governing permitting or re-permitting of disposal wells that would require, among other things, the submission of information on seismic events occurring within a specified radius of the disposal well location, as well as logs, geologic cross sections and structure maps relating to the disposal area in question. The Texas Railroad Commission has used this authority to deny permits for waste disposal wells, most recently suspending the permits of all deep disposal wells within the Northern Culberson-Reeves Seismic Response Area in December 2023. Separately, in November 2021, New Mexico implemented protocols requiring operators to take various actions within a specified proximity of certain seismic activity, including a requirement to limit injection rates if a seismic event is of a certain magnitude, and in July 2024, announced the administrative cancellation of 75 pending permit applications for UIC Class II wells within the 10-mile County Line Seismic Response Area due to the potential for increased seismicity. As a result of these developments, Sitio’s operators may be required to curtail operations or adjust development plans, which may adversely impact Sitio’s business. In addition to regulatory developments, an additional consequence of seismic activity is potential lawsuits alleging that produced water handling operations have caused damage to neighboring properties or otherwise violated state and federal rules regulating waste disposal.
Sitio’s E&P operators will likely dispose of large volumes of produced water gathered from their drilling and production operations by injecting it into wells pursuant to permits issued by governmental authorities overseeing such disposal activities. While these permits will be issued pursuant to existing laws and regulations, these legal requirements are subject to change, which could result in the imposition of more stringent operating constraints or new monitoring and reporting requirements, owing to, among other things, concerns of the public or governmental authorities regarding such gathering or disposal activities. The adoption and implementation of any new laws or regulations that restrict Sitio’s E&P operators’ ability to use hydraulic fracturing or dispose of produced water gathered from drilling and production activities by limiting volumes, disposal rates, disposal well locations or otherwise, or requiring them to shut down disposal wells, could have a material adverse effect on Sitio’s business, financial condition and results of operations.
As a result of judicial interpretation of the Relinquishment Act, certain of Sitio’s surface rights entitle it to receive a fixed, lease operating expense and capital cost-free percentage of any oil and natural gas produced from reserves underlying the property. If the Relinquishment Act were to be amended or repealed or Sitio was subject to an unfavorable ruling under the Relinquishment Act, Sitio may no longer be able to derive additional rights to production from its ownership of surface rights, which may have a material adverse effect on its results of operations and cash flows.
Under the Relinquishment Act of 1919, as amended (the “Relinquishment Act”), the State of Texas owns mineral rights in certain lands. As a result of judicial interpretation of the Relinquishment Act, the surface owner of such lands may act as an agent for the state in negotiating and executing mineral leases, and, if the state approves the lease terms, the applicable surface owner receives an interest in the resulting royalty interest. Approximately 5.1% of Sitio’s NRAs as of December 31, 2024 were from the rights it received in this manner. However, if the Relinquishment Act were to be amended or repealed or if Sitio were subject to an unfavorable ruling under the Relinquishment Act, Sitio may no longer be able to derive revenue from the corresponding mineral rights, which may have a material adverse effect on its results of operations and cash flows.
Restrictions on the ability of Sitio’s E&P operators to obtain water may have an adverse effect on Sitio’s financial condition, results of operations and cash flows.
Water is an essential component of crude oil, natural gas and NGL production during both the drilling and hydraulic fracturing processes. Over the past several years, parts of the country, and in particular Texas, have experienced extreme drought conditions. As a result of this severe drought, some local water districts have begun restricting the use of water subject to their jurisdiction for hydraulic fracturing to protect local water supply. Such conditions may be exacerbated by climate change. If Sitio’s E&P operators are unable to obtain water to use in their operations from local sources, or if Sitio’s E&P operators are unable to effectively utilize flowback water, they may be unable to economically drill for or produce crude oil, natural gas and NGLs from Sitio’s properties, which could have an adverse effect on Sitio’s financial condition, results of operations and cash flows.
Sitio’s operations, and those of its E&P operators, are subject to a series of risks arising from climate change, which could result in increased operating costs, limit the areas in which natural gas, oil and NGLs production may occur, and reduce demand for the natural gas, oil and NGLs Sitio’s E&P operators produce.
Climate change continues to attract considerable public and scientific attention. As a result, numerous proposals have been made and are likely to continue to be made at the international, national, regional and state levels of government to monitor and limit emissions of carbon dioxide, methane and other GHGs and mitigate the effects of climate change. These efforts have included consideration of cap-and-trade programs, carbon taxes, GHG reporting and tracking programs and regulations that directly limit GHG emissions from certain sources.
In the United States, no comprehensive climate change legislation has been implemented at the federal level. However, the EPA has adopted regulations that, among other things, establish construction and operating permit reviews for GHG emissions from certain large stationary sources, require the monitoring and annual reporting of GHG emissions from certain petroleum and natural gas system sources in the United States, and together with the DOT, implement GHG emissions limits on vehicles manufactured for operation in the United States. The regulation of methane from oil and gas facilities has been subject to uncertainty in recent years. In response to President Biden’s executive order calling on the EPA to revisit federal regulations regarding methane, the EPA finalized more stringent methane rules for new, modified and reconstructed facilities, known as OOOOb, as well as standards for existing sources, known as OOOOc, in December 2023. Under the final rules, states have two years to prepare and submit their plans to impose methane emissions controls on existing sources. The presumptive standards established under the final rule include enhanced leak detection survey requirements using optical gas imaging and other advanced monitoring to encourage the deployment of innovative technologies to detect and reduce methane emissions, reduction of emissions by 95% through capture and control systems, zero-emission requirements for certain devices, and the establishment of a “super emitter” investigation and repair requirements. The final methane rule is currently being challenged by 23 states and a coalition of industry groups in the U.S. Circuit Court of Appeals for the D.C. Circuit, although OOOOb is already in effect. The new rules could adversely affect operations and, failure to comply, could result in the imposition of substantial fines and penalties, as well as costly injunctive relief.
At the state level, various states and groups of states have adopted or are considering adopting legislation, regulation or other regulatory initiatives that are focused on such areas as GHG cap and trade programs, carbon taxes, reporting and tracking programs, and restriction of emissions. For example, New Mexico has adopted regulations to restrict the venting or flaring of methane from both upstream and midstream operations. Additionally, several states, including Pennsylvania and New York, have proceeded with a number of state and regional efforts aimed at tracking and/or reducing GHG emissions by means of cap-and-trade programs that typically require major sources of GHG emissions, such as electric power plants, to acquire and surrender emission allowances in return for emitting those GHGs. In April 2022, Pennsylvania became the 12th state to join the Regional Greenhouse Gas Initiative ("RGGI"), a multi-state regional cap-and-trade program comprised of several Eastern U.S. states, including New York and Maryland, as the result of an executive order and subsequent rulemaking promulgated by the Pennsylvania Department of Environmental Protection and Environmental Quality Board. In November 2023, the Commonwealth Court of Pennsylvania ruled that RGGI participation violates the state constitution and the governor’s office subsequently appealed this decision to the state Supreme Court. Although this litigation remains pending at the Supreme Court, in May 2024, Pennsylvania lawmakers proposed, with the support of the governor, the Pennsylvania Climate Emissions Reduction Act, which, if passed, would establish a Pennsylvania-specific cap-and-invest program. And, in December 2022, the New York State Climate Action Council approved a Scoping Plan which, among other items, recommends an economy-wide cap-and-invest program to facilitate emission reduction efforts, to include establishment of an enforceable annual cap on GHG emissions for all sectors which would be reduced every year. In January 2023, the Governor of New York directed the Department of Environmental Conservation and the New York State Energy Research and Development Authority to advance such a cap-and-invest program. The New York State
Department of Environmental Conservation conducted multiple stages of pre-proposal outreach and is preparing draft regulations. As a result of these state actions, Sitio’s E&P operators that operate in those areas may experience increased operating costs if they are required to purchase emission allowances in connection with their operations.
At the international level, the United Nations-sponsored “Paris Agreement” requires member states to submit non-binding, individually-determined reduction goals known as Nationally Determined Contributions every five years after 2020. President Biden has recommitted the United States to the Paris Agreement and, in April 2021, announced a goal of reducing the United States’ emissions to 50-52% below 2005 levels by 2030; subsequent United Nations climate conferences have called for additional action to transition away from fossil fuels and control or otherwise reduce GHG emissions, though none have been legally binding. However, on January 20, 2025, President Trump issued an Executive Order re-withdrawing from the Paris Agreement and from other commitments made under the United Nations Convention on Climate Change. The full impact of these actions and the United States’ participation in future United Nations climate-related conferences is uncertain at this time. The full impact of these various orders, pledges, agreements and actions, and any legislation or regulation promulgated to fulfill the United States’ commitments thereunder, is uncertain at this time, and it is unclear what additional initiatives may be adopted or implemented that may have adverse effects upon Sitio’s operations and those of its operators.
The federal government, from time to time, and most recently under the Biden Administration, has taken, and in the future could again attempt to take, various actions related to climate change, including, among other things, the increased use of zero-emission vehicles by the federal government, the elimination of subsidies provided to the fossil fuel industry, and increased emphasis on climate-related risks across government agencies and economic sectors, which have had varying degrees of success. We cannot predict at this time what actions the Trump Administration may take with respect to these matters. The Bureau of Land Management recently finalized rules to update the fiscal terms of the federal oil and gas leasing program, as well as impose additional requirements on operators with regards to methane waste, the latter of which is currently subject to litigation and halted in certain states. Substantially all of Sitio’s interests are located on private lands, but Sitio cannot predict the full impact of these developments or whether a future administration may pursue further restrictions. For example, on January 26, 2024, President Biden announced a temporary pause on pending decisions on new exports of LNG to countries that the United States does not have free trade agreements with pending Department of Energy review of the underlying analysis for authorizations. The pause was challenged by both states and industry groups and was struck down by the U.S. District Court for the Western District of Louisiana in July 2024. Subsequently, in December 2024, the Biden Administration released a study on the economic and environmental impacts of LNG exports, finding, based on a range of scenarios that vary in assumptions about global climate policies and technology availability, that increased U.S. LNG exports are associated with higher global GHG emissions. While President Trump has issued an Executive Order directing the DOE to restart reviews of LNG export applications, we cannot predict what impact the study released by the prior administration may ultimately have. Further, litigation risks are also increasing as a number of entities have sought to bring suit against various oil and natural gas companies in state or federal court, alleging among other things, that such companies created public nuisances by producing fuels that contributed to climate change or alleging that the companies have been aware of the adverse effects of climate change for some time but defrauded their investors or customers by failing to adequately disclose those impacts. Should Sitio be targeted by any such litigation, it may incur liability, which, to the extent that societal pressures or political or other factors are involved, could be imposed without regard to causation or contribution to the asserted damage, or to other mitigating factors. An unfavorable ruling in any such case could significantly impact Sitio’s operations and could have an adverse impact on Sitio’s financial condition.
There are also increasing financial risks for fossil fuel producers as shareholders currently invested in fossil-fuel energy companies may elect in the future to shift some or all of their investments into non-fossil fuel related sectors. Institutional lenders who provide financing to fossil fuel energy companies also have become more attentive to sustainable lending practices and some of them may elect not to provide funding for fossil fuel energy companies. There is also a risk that financial institutions will be required to adopt policies that have the effect of reducing the funding provided to the fossil fuel sector, although this trend has waned in recent years. While we cannot predict how or to what extent sustainable lending and investment practices may impact our operations, the limitation of investments in and financing for fossil fuel energy companies could result in the restriction, delay or cancellation of drilling programs or development or production activities.
Additionally, on March 6, 2024, the SEC adopted a final rule regarding the enhancement and standardization of mandatory climate-related disclosures for investors. The final rule would require registrants to include certain climate-related disclosures in their registration statements and periodic reports, including, but not limited to, information about the registrant’s governance of climate-related risks and relevant risk management processes; climate-related risks that are reasonably likely to have a material impact on the registrant’s business, results of operations, or financial condition and their actual and likely climate-related impacts on the registrant’s business strategy, model, and outlook; climate-related
targets, goals and transition plan (if any); certain climate-related financial statement metrics in a note to their audited financial statements; and material Scope 1 and Scope 2 GHG emissions. The rule’s implementation is currently paused pending litigation, and the SEC under the Trump Administration is expected to repeal or further modify the rule; however, the timeline for any repeal, if at all, is subject to uncertainty and may face additional legal challenges. Notwithstanding the foregoing, the implementation of any similar climate-related disclosure rule in the future, may result in additional legal, accounting and financial compliance costs, make some activities more difficult, time-consuming and costly, and place strain on Sitio’s personnel, systems and resources. The adoption and implementation of new or more stringent international, federal or state legislation, regulations or other regulatory initiatives that impose more stringent standards for GHG emissions from the oil and natural gas sector or otherwise restrict the areas in which this sector may produce oil and natural gas or generate GHG emissions could result in increased costs of compliance or costs of consuming, and thereby reduce demand for oil and natural gas, which could reduce the profitability of Sitio’s interests. Additionally, political, litigation and financial risks may result in Sitio’s E&P operators restricting or canceling production activities, incurring liability for infrastructure damages as a result of climatic changes, or impairing their ability to continue to operate in an economic manner, which also could reduce the profitability of its interests. One or more of these developments could have a material adverse effect on Sitio’s business, financial condition and results of operations.
Climate change may also result in various physical risks, such as the increased frequency or intensity of extreme weather events or changes in meteorological and hydrological patterns, that could adversely impact Sitio’s operations, as well as those of its operators and their supply chains. Such physical risks may result in damage to operators’ facilities or otherwise adversely impact their operations, such as if they become subject to water use curtailments in response to drought, or demand for their products, such as to the extent warmer winters reduce the demand for energy for heating purposes, which may adversely impact the production or attractiveness of Sitio’s interests.
Increased attention to ESG matters and conservation measures may adversely impact Sitio’s business or the business of its operators.
Increasing attention to climate change, societal expectations on companies to address climate change, investor and societal expectations regarding voluntary ESG disclosures, and consumer demand for alternative forms of energy may result in increased costs, reduced demand for Sitio’s operators’ products (and thus in Sitio’s mineral interests), reduced profits, and increased investigations and litigation. Increasing attention to climate change and environmental conservation, for example, may result in demand shifts for oil and natural gas products and additional governmental investigations and private litigation against Sitio or its operators. To the extent that societal pressures or political or other factors are involved, it is possible that such liability could be imposed without regard to Sitio’s causation of, or contribution to, the asserted damage, or to other mitigating factors.
Moreover, while Sitio may create and publish voluntary disclosures regarding ESG matters from time to time, many of the statements in those voluntary disclosures are based on hypothetical expectations and assumptions that may or may not be representative of current or actual risks or events or forecasts of expected risks or events, including the costs associated therewith. Such expectations and assumptions are necessarily uncertain and may be prone to error or subject to misinterpretation given the long timelines involved and the lack of an established single approach to identifying, measuring and reporting on many ESG matters. Additionally, voluntary disclosures regarding ESG matters, as well as any ESG disclosures mandated by law, could result in private litigation or government investigation or enforcement action regarding the sufficiency or validity of such disclosures. In addition, failure or a perception (whether or not valid) of failure to implement ESG strategies or achieve ESG goals or commitments, including any GHG reduction or neutralization goals or commitments, could result in private litigation and damage Sitio’s reputation, cause Sitio’s investors or other stakeholders to lose confidence in Sitio, or otherwise negatively impact its operations.
In addition, organizations that provide information to investors on corporate governance and related matters have developed ratings processes for evaluating companies on their approach to ESG matters. Such ratings are used by some investors to inform their investment and voting decisions. Unfavorable ESG ratings and recent activism directed at shifting funding away from companies with energy-related assets could lead to increased negative investor sentiment toward Sitio and its industry and to the diversion of investment to other industries, which could have a negative impact on Sitio’s or its operators’ access to and costs of capital. Also, institutional lenders may, on their own accord, decide not to provide funding for fossil fuel energy companies based on climate change related concerns, which could affect Sitio’s or its operators’ access to capital for potential growth projects. Similarly, insurers may decide not to provide insurance for fossil fuel energy companies, which could impact the price Sitio or its operators must pay for appropriate insurance. Additionally, to the extent ESG matters negatively impact Sitio’s or its operators’ reputation, Sitio or its operators may not be able to compete as effectively to recruit or retain employees, which may adversely affect Sitio’s or its operators’ operations. ESG matters
may also impact Sitio’s or its operators’ suppliers and customers, which may ultimately have adverse impacts on Sitio’s or its operators’ operations.
Furthermore, public statements with respect to ESG matters, such as emissions reduction goals, other environmental targets, or other commitments addressing certain social or governance issues, are becoming increasingly subject to heightened scrutiny from public and governmental authorities related to the risk of potential “greenwashing,” i.e., misleading information or false claims overstating potential ESG benefits. Certain non-governmental organizations and other private actors have also filed lawsuits under various securities and consumer protection laws alleging that certain ESG-statements, goals, or standards were misleading, false, or otherwise deceptive. As a result, Sitio may face increased litigation risks from private parties and governmental authorities related to its ESG efforts. In addition, any alleged claims of greenwashing against Sitio or others in its industry may lead to further negative sentiment and diversion of investments. Additionally, Sitio could face increasing costs as it attempts to comply with and navigate further regulatory ESG-related focus and scrutiny.
Sitio’s or its E&P operators’ results of operations may be materially impacted by efforts to transition to a lower-carbon economy.
Concerns over the risk of climate change have increased the focus by global, regional, national, state and local regulators on GHG emissions, including carbon dioxide emissions, and on transitioning to a lower-carbon future. A number of countries and states have adopted, or are considering the adoption of, regulatory frameworks to reduce greenhouse gas emissions. These regulatory measures may include, among others, adoption of cap and trade regimes, carbon taxes, increased efficiency standards, prohibitions on the sales of new automobiles with internal combustion engines, and incentives or mandates for battery-powered automobiles and/or wind, solar or other forms of alternative energy. Compliance with changes in laws, regulations and obligations relating to climate change could result in increased costs of compliance for Sitio’s E&P operators or costs of consuming crude oil, natural gas and NGLs for such products, and thereby reduce demand, which could reduce the profitability of Sitio’s interests. For example, Sitio’s E&P operators may be required to install new emission controls, acquire allowances or pay taxes related to their greenhouse gas emissions, or otherwise incur costs to administer and manage a GHG emissions program. Additionally, Sitio or its operators could incur reputational risk tied to changing customer or community perceptions of its, its E&P operators’ or its E&P operators’ customers contribution to, or detraction from, the transition to a lower-carbon economy. These changing perceptions could lower demand for oil and gas products, resulting in lower prices and lower revenues as consumers avoid carbon-intensive industries, and could also pressure banks and investment managers to shift investments and reduce lending.
Separately, banks and other financial institutions, including investors, may decide to adopt policies that restrict or prohibit investment in, or otherwise funding, Sitio or its operators based on climate change-related concerns, which could affect its or its E&P operators’ access to capital for potential growth projects.
Approaches to climate change and the transition to a lower-carbon economy, including government regulation, company policies, and consumer behavior, are continuously evolving. At this time, Sitio cannot predict how such approaches may develop or otherwise reasonably or reliably estimate their impact on its or its operators’ financial condition, results of operations and ability to compete. However, any long-term material adverse effect on the oil and gas industry may adversely affect Sitio’s financial condition, results of operations and cash flows.
Additional restrictions on drilling activities intended to protect certain species of wildlife may adversely affect Sitio’s E&P operators’ ability to conduct drilling activities.
In the United States, the ESA restricts activities that may affect endangered or threatened species or their habitats. Similar protections are offered to migratory birds under the Migratory Bird Treaty Act (the “MBTA”). In August 2019, the FWS and National Marine Fisheries Service (“NMFS”) issued three rules amending implementation of the ESA regulations revising, among other things, the process for listing species and designating critical habitat. A coalition of states challenged the three rules and, after the final rules were remanded, the FWS and NMFS revised the three rules. The revised regulations for classifying species and designating critical habitat, interagency cooperation, and protecting endangered and threatened species were finalized on April 5, 2024. Among other things, these rules reinstate prior language affirming that listing determinations are made “without reference to possible economic or other impacts of such determination,” clarify the standards for delisting species, revise the set of circumstances for when critical habitat may be not prudent, revise the criteria for identifying unoccupied critical habitat, and reinstate general application of the “blanket rule” option for protecting newly listed threatened species. To the extent species that are listed under the ESA or similar state laws, or are protected under the MBTA, live in the areas where Sitio’s E&P operators operate, Sitio’s E&P operators’ abilities to conduct or expand operations could be limited, or Sitio’s E&P operators could be forced to incur material additional costs.
Moreover, Sitio’s E&P operators’ drilling activities may be delayed, restricted or precluded in protected habitat areas or during certain seasons, such as breeding and nesting seasons. For example, in November 2022, following an extensive review, the FWS listed two distinct population segments of the Lesser Prairie Chicken under the ESA. The northern distinct population segment, encompassing southeastern Colorado, southcentral to western Kansas, western Oklahoma, and the northeast Texan Panhandle, is listed as threatened while the southern district population segment, covering eastern New Mexico and the southwest Texas Panhandle, is listed as endangered. Relatedly, in June 2022, FWS approved a habitat conservation plan for the Lesser Prairie Chicken, which allows oil and gas operators to receive an “incidental take” permit in exchange for purchasing credits from a conservation bank and agreeing to certain conservation practices. In June 2024, the FWS issued a final rule listing the dunes sagebrush lizard, whose habitat includes parts of the Permian Basin as endangered under the ESA. The FWS listing decisions for both the lesser prairie chicken and the dunes sagebrush lizard are subject to litigation in the U.S. District Court for the Western District of Texas, and the results of both challenges remain uncertain.
In addition, as a result of one or more settlements approved by the FWS, the agency was required to make a determination on the listing of numerous other species as endangered or threatened under the ESA by the end of the FWS’ 2017 fiscal year. The FWS did not meet that deadline, but continues to evaluate whether to take action with respect to those species. The designation of previously unidentified endangered or threatened species such as the dunes sagebrush lizard or greater sage grouse, which has been proposed for listing as threatened, could cause Sitio’s E&P operators’ operations to become subject to operating restrictions or bans, and limit future development activity in affected areas. The FWS and similar state agencies may designate critical or suitable habitat areas that they believe are necessary for the survival of threatened or endangered species. Such a designation could materially restrict use of or access to federal, state and private lands.
Sitio is subject to extensive government laws and regulations concerning Sitio’s employees, and the cost of compliance with such laws and regulations could be material.
Regulations related to wages and other compensation affect Sitio’s business. Any appreciable increase in applicable employment laws and regulations, including the statutory minimum wage, exemption levels, or overtime regulations, could result in an increase in labor costs. Such cost increases, or the penalties for failing to comply with such statutory minimums, could adversely affect Sitio’s business, financial condition, results of operations and cash available for distribution to its shareholders. In addition, Sitio is directly and indirectly affected by new tax legislation and regulation and the interpretation of tax laws and regulations. Any changes in employment, benefit plan, tax or labor laws or regulations or new regulations proposed from time to time, could have a material adverse effect on Sitio’s employment practices, business, financial condition, results of operations and cash available for distribution to its shareholders.
Sitio has relied on an exclusion from the definition of “investment company” in order to avoid being subject to the Investment Company Act of 1940, or the 1940 Act. To the extent the nature of its business changes in the future, Sitio may become subject to the requirements of the 1940 Act, which would limit its business operations and require it to spend significant resources in order to comply with the 1940 Act.
The 1940 Act defines an “investment company,” among other things, as an issuer that is engaged in the business of investing, reinvesting, owning, holding or trading in securities and owns investment securities having a value exceeding 40 percent of the issuer’s unconsolidated assets, excluding cash items and securities issued by the federal government. The definition of “securities” under the 1940 Act includes “fractional undivided interest in oil, gas, or other mineral rights.” However, the 1940 Act excludes from this definition any person substantially all of whose business consists of owning or holding such oil, gas or other mineral royalties or leases or fractional interests therein, or certificates of interest or participation relating to such mineral royalties or leases. Sitio believes that it satisfies this mineral company exception to the definition of “investment company.” If Sitio’s reliance on the mineral company exclusion from the definition of investment company is misplaced, it may have been in violation of the 1940 Act, the consequences of which can be significant. For example, investment companies that fail to register under the 1940 Act are prohibited from conducting business in interstate commerce, which includes selling securities or entering into other contracts in interstate commerce.
Moreover, Sitio is a holding company and its sole material asset is its equity interest in Sitio OpCo. As the sole general partner of Sitio OpCo, Sitio manages and controls Sitio OpCo. On that basis, Sitio believes that its interest in Sitio OpCo is not an “investment security” under the 1940 Act. However, if Sitio were to lose the right to manage and control Sitio OpCo, interests in Sitio OpCo could be deemed to be “investment securities” under the 1940 Act.
If in the future the nature of Sitio’s business changes, or a regulatory agency would disagree with Sitio's analysis regarding the exclusion from the 1940 Act, such that the mineral company exception to the threshold definition of
investment company is not available to Sitio, and it ceases to manage and control Sitio OpCo and its interest in Sitio OpCo is determined to be an “investment security,” Sitio will be required to register as an investment company with the SEC. The ramifications of becoming an investment company, both in terms of the restrictions it would have on Sitio and the cost of compliance, would be significant. For example, in addition to expenses related to initially registering as an investment company, the 1940 Act also imposes various restrictions with regard to Sitio’s ability to enter into affiliated transactions, the diversification of its assets and its ability to borrow money. If Sitio became subject to the 1940 Act at some point in the future, its ability to continue pursuing its business plan would be severely limited as it would be significantly more difficult for Sitio to raise additional capital in a manner that would comply with the requirements of the 1940 Act.
Risks Related to Sitio’s Financial and Debt Arrangements
Any significant contraction in the reserve-based lending syndication market may negatively impact Sitio’s ability to fund its operations.
Lending institutions have significantly curtailed reserve-based lending or entirely exited the reserve-based lending market. In the prevailing market, it may be difficult for the arrangers under the Sitio Revolving Credit Facility, or under any other potential future reserve-based credit facility, to obtain sufficient commitments for the borrowing base or to do so on terms favorable or acceptable to Sitio. Sitio has funded its operations since inception primarily through capital contributions and cash generated from operations, and it may finance acquisitions, and potentially other working capital needs, with borrowings under the Sitio Revolving Credit Facility. Sitio intends to continue to make significant acquisitions to support its business growth. If the arrangers under the Sitio Revolving Credit Facility, or under any other potential future reserve-based credit facility, are unable to obtain sufficient commitments for the borrowing base Sitio may not have sufficient funds to finance its operations and future growth. If adequate funds are not available, Sitio may be required to reduce expenditures, including curtailing its growth strategies or forgoing acquisitions.
In addition, during previous periods of economic instability, it has been difficult for many companies to obtain financing in the public markets or to obtain debt financing, and during any future period of economic instability Sitio may not be able to obtain additional financing on commercially reasonable terms, if at all, including as a result of increases in cost of capital. If Sitio is unable to obtain adequate financing or financing on terms satisfactory to it, Sitio could experience a material adverse effect on its business, financial condition and results of operations.
Restrictions in Sitio’s Third Amended and Restated Credit Agreement, the Indenture governing the 2028 Senior Notes and future debt agreements of Sitio and Sitio OpCo could limit its growth and its ability to engage in certain activities.
Third Amended and Restated Credit Agreement
On February 3, 2023, Sitio OpCo, as borrower, and certain of its subsidiaries as guarantors entered into the Third Amended and Restated Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Sitio Credit Agreement”) among JPMorgan Chase Bank, N.A., as the administrative agent and as issuing bank, and the lenders and other financial institutions from time to time party thereto (the “Lenders”), which amended, restated and refinanced in its entirety the RBL Credit Agreement (as defined below). The Sitio Credit Agreement matures on June 30, 2027.
Pursuant to the terms and conditions of the Sitio Credit Agreement, the Lenders committed to providing a credit facility to Sitio OpCo in an aggregate principal amount of up to $1.5 billion. The availability under the Sitio Credit Agreement, including availability for letters of credit, is generally limited to a borrowing base, which is determined by the required number of Lenders in good faith by calculating a loan value of the proved reserves of Sitio OpCo and its subsidiaries and elected commitments provided by the Lenders. As of December 31, 2024, the Sitio Credit Agreement has a $925.0 million borrowing base and $925.0 million elected commitment amount. As part of the aggregate commitments under the revolving advances, the Sitio Credit Agreement provides for letters of credit to be issued at the request of the borrower in an aggregate amount not to exceed $15.0 million. The Sitio Credit Agreement contains customary affirmative and negative covenants, including, without limitation, reporting obligations, financial covenants, restrictions on asset sales, restrictions on additional debt and lien incurrence, restrictions on Sitio’s ability to make certain fundamental changes to its business, restrictions on hedging arrangements and restrictions on making investments and distributions. Sitio’s ability to make distributions is subject to satisfaction of certain conditions, including no event of default, no borrowing base deficiency, liquidity of at least 10% of the total commitments under the Sitio Credit Agreement, and a pro forma leverage ratio not to exceed 3.00:1.00.
2028 Senior Notes
On October 3, 2023, Sitio OpCo and Sitio Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Sitio OpCo, the “Issuers”), entered into the indenture (the “Indenture”), by and among the Issuers, solely for purposes of Section 4.16(b) therein, the Company, the guarantors named therein and Citibank, N.A., as trustee (the “Trustee”).
Pursuant to the Indenture, the Issuers issued and sold $600.0 million aggregate principal amount of 7.875% Senior Notes due 2028 (the “2028 Senior Notes”). Sitio OpCo used proceeds from the issuance of the 2028 Senior Notes to repay and redeem the 2026 Senior Notes (as defined below) in full, inclusive of a redemption premium of 3.0%. Remaining proceeds from the 2028 Senior Notes offering were used to repay outstanding borrowings under the Sitio Revolving Credit Facility and for general corporate purposes. The 2028 Senior Notes mature on November 1, 2028.
The Indenture contains covenants that, among other things, limit Sitio OpCo’s ability and the ability of Sitio 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 its 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 its restricted subsidiaries to it or any guarantor; (vii) consolidate, merge or transfer all or substantially all of its assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries. As of December 31, 2024, Sitio OpCo was in compliance with the terms and covenants of the 2028 Senior Notes.
Sitio’s debt levels may limit its flexibility to obtain additional financing and pursue other business opportunities.
Sitio’s existing and any future indebtedness could have important consequences to it, including:
•its ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired, or such financing may not be available on terms acceptable to it;
•covenants in the Sitio Revolving Credit Facility and the 2028 Senior Notes require, and in any future credit and debt arrangement may require, Sitio and certain of its subsidiaries to meet financial tests that may affect its flexibility in planning for and reacting to changes in its business, including possible acquisition opportunities;
•its access to the capital markets may be limited;
•its borrowing costs may increase;
•it will use a portion of its discretionary cash flows to make principal and interest payments on its indebtedness, reducing the funds that would otherwise be available for operations, future business opportunities and payment of dividends to its stockholders; and
•its debt level will make Sitio more vulnerable than its competitors with less debt to competitive pressures or a downturn in its business or the economy generally.
Sitio’s ability to service its indebtedness will depend upon, among other things, Sitio’s future financial and operating performance, which will be affected by prevailing economic conditions and financial, business, regulatory and other factors, some of which are beyond its control. If Sitio’s operating results are not sufficient to service its current or future indebtedness, Sitio will be forced to take actions such as reducing distributions, reducing or delaying business activities, acquisitions, investments and/or capital expenditures, selling assets, restructuring or refinancing its indebtedness, or seeking additional equity capital or bankruptcy protection. Sitio may not be able to effect any of these remedies on satisfactory terms or at all.
Risks Related to Sitio’s Organization and Structure
Sitio is a holding company whose sole material asset is its equity interest in Sitio OpCo. Accordingly, Sitio is dependent upon distributions and other payments from Sitio OpCo to pay taxes, cover its corporate and other overhead expenses and pay any dividends on its Class A Common Stock.
Sitio is a holding company with no material assets other than its equity interest in Sitio OpCo. Sitio has no independent means of generating revenue and to the extent Sitio OpCo has available cash, Sitio OpCo is generally required to make pro rata cash distributions to all its unitholders, including Sitio, in an amount sufficient for Sitio to pay its U.S. federal, state, local and non-U.S. tax liabilities. Sitio OpCo may also make non-pro rata cash distributions and other payments periodically to enable Sitio to cover its corporate and other overhead expenses. In addition, as the sole managing member of Sitio OpCo, Sitio intends to cause Sitio OpCo to make pro rata cash distributions to all of its unitholders, including to Sitio, in an amount sufficient to fund dividends to its stockholders, to the extent Sitio’s Board declares such dividends.
Therefore, although Sitio expects to pay dividends on its Class A Common Stock in amounts determined from time to time by the Board, Sitio’s ability to do so may be limited to the extent Sitio OpCo and its subsidiaries are limited in their ability to make these payments and other distributions to Sitio. To the extent that Sitio needs funds and Sitio OpCo or its subsidiaries are restricted from making such distributions under applicable law or regulation or under the terms of their financing arrangements, or are otherwise unable to provide such funds, it could materially adversely affect Sitio’s liquidity and financial condition. Sitio’s ability to pay dividends to its stockholders may be limited by its holding company structure, contractual restrictions and regulatory requirements.
Although Sitio expects to pay dividends on its Class A Common Stock, the Board will take into account general economic and business conditions, including Sitio’s financial condition and results of operations, capital requirements, contractual restrictions, including restrictions and covenants contained in its debt agreements, business prospects and other factors that Sitio’s Board considers relevant in determining whether, and in what amounts, to pay such dividends.
Sitio’s Sponsors hold a significant amount of the outstanding Class C Common Stock that provides them with significant influence over Sitio, and their interests may conflict with those of Sitio’s other stockholders.
Collectively, (i) KMF DPM HoldCo, LLC, a Delaware limited liability company (“KMF”), and Chambers DPM HoldCo, LLC, a Delaware limited liability company (together with KMF, “Kimmeridge”), (ii) BX Royal Aggregator LP, a Delaware limited partnership (“Royal Aggregator”) and Rock Ridge Royalty Company LLC, a Delaware limited liability company (together with Royal Aggregator, “Blackstone”) and (iii) Source Energy Permian II, LLC, Sierra Energy Royalties, LLC, and Source Energy Partners, LLC, each a Delaware limited liability company (collectively, the “Source Stockholders” and, the Source Stockholders, together with Kimmeridge and Blackstone, the “Sponsors”), hold the substantial majority of the outstanding Class C Common Stock. Each share of Class C Common Stock has no economic rights, but entitles the holder thereof to one vote for each share of Class C Common Stock held by such holder. Holders of Class C Common Stock are entitled to one vote for each share held on all matters to be voted on by Sitio’s stockholders and, with the holders of Class A Common Stock, vote together as a single class on all matters submitted to a vote of Sitio’s stockholders, except as required by law or Sitio’s Amended and Restated Certificate of Incorporation (as amended, the “A&R Charter”). As a result, the Sponsors hold approximately 46.0% of the voting power over Sitio, which may provide them with significant influence over matters requiring stockholder approval, including the election of directors, changes to organizational documents and significant corporate transactions. This concentration of ownership and relationship with the Sponsors makes it unlikely that any other holder or group of holders of Common Stock will be able to affect the way Sitio is managed or the direction of its business. As a result of their significant influence, the Sponsors may support certain decisions that could involve risks to, or that may conflict with the interests of, Sitio’s other stockholders.
The U.S. federal income tax treatment of distributions on Sitio’s Class A Common Stock to a holder will depend upon Sitio’s tax attributes and the holder’s tax basis in its stock, which are not necessarily predictable and can change over time.
Distributions of cash or property on Sitio’s Class A Common Stock, if any, will constitute dividends for U.S. federal income tax purposes to the extent paid from its current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed Sitio’s current and accumulated earnings and profits, the distributions will be treated as a non-taxable return of capital to the extent of the holder’s tax basis in Sitio’s Class A Common Stock and thereafter as capital gain from the sale or exchange of such Common Stock. Also, if any holder sells its Class A Common Stock, the holder will recognize a gain or loss equal to the difference between the amount realized and the holder’s tax basis in such Class A Common Stock.
To the extent that the amount of Sitio’s distributions is treated as a non-taxable return of capital as described above, such distribution will reduce a holder’s tax basis in the Class A Common Stock. Consequently, such excess distributions will result in a corresponding increase in the amount of gain, or a corresponding decrease in the amount of loss, recognized by the holder upon the sale of the Class A Common Stock or subsequent distributions with respect to such stock. Additionally, with regard to U.S. corporate holders of Sitio’s Class A Common Stock, to the extent that a distribution on Sitio’s Class A Common Stock exceeds both its current and accumulated earnings and profits and such holder’s tax basis in such shares, such holders would be unable to utilize the corporate dividends-received deduction (to the extent it would otherwise be applicable to such holder) with respect to the gain resulting from such excess distribution.
Prospective investors in Sitio’s Class A Common Stock are encouraged to consult their tax advisors as to the tax consequences of receiving distributions on its Class A Common Stock that are not treated as dividends for U.S. federal income tax purposes.
If Sitio OpCo were to become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, Sitio and Sitio OpCo might be subject to potentially significant tax inefficiencies.
Section 7704 of the Internal Revenue Code of 1986, as amended, generally provides that a publicly traded partnership will be treated as a corporation for U.S. federal income tax purposes. A “publicly traded partnership” is a partnership, the interests of which are traded on an established securities market or are readily tradable on a secondary market or the substantial equivalent thereof. However, if 90% or more of a partnership’s gross income for every taxable year consists of “qualifying income,” the partnership may continue to be treated as a partnership for U.S. federal income tax purposes. Qualifying income generally includes income earned from royalty interests and other passive ownership interests in oil and gas properties. There can be no assurance that there will not be future changes to U.S. federal income tax laws or the Treasury Department’s interpretations of the qualifying income rules in a manner that could impact Sitio OpCo’s ability to qualify as a partnership for federal income tax purposes. However, Sitio believes that substantially all of Sitio OpCo’s gross income will constitute qualifying income for purposes of Section 7704(d) and intends to operate such that Sitio OpCo does not become a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. In addition, the Second Amended and Restated Agreement of Limited Partnership of Sitio OpCo provides for limitations on the ability of unitholders of Sitio OpCo to transfer common units representing limited partner interests in Sitio OpCo (the “Sitio OpCo Partnership Units”) and provides Sitio, as the managing member of Sitio OpCo, with the right to impose restrictions (in addition to those already in place) on the ability of unitholders of Sitio OpCo to exchange their Sitio OpCo Partnership Units pursuant to a redemption right to the extent Sitio believes it is necessary to ensure that Sitio OpCo will continue to be treated as a partnership for U.S. federal income tax purposes.
If Sitio OpCo becomes a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes, significant tax inefficiencies might result for Sitio and Sitio OpCo. In particular, Sitio OpCo would pay U.S. federal income tax on its taxable income at the corporate tax rate, which is currently a maximum of 21%. Distributions to Sitio would generally be taxed again as corporate distributions. Because a tax would be imposed on Sitio OpCo as a corporation, the amount of cash distributions to Sitio would be substantially reduced, which may cause a substantial reduction in the value of Sitio’s Class A Common Stock.
If additional stock consideration is issued to Royal pursuant to the earn-out provided for in the Contribution Agreement, it would increase the number of shares eligible for future resale in the public market and result in dilution to Sitio’s stockholders.
Pursuant to the Contribution Agreement, dated as of June 3, 2018, by and among Sitio, Royal Resources L.P. (“Royal”), Royal Resources GP L.L.C., Noble Royalties Acquisition Co., LP (“NRAC”), Hooks Ranch Holdings LP (“Hooks Holdings”), DGK ORRI Holdings, LP (“DGK”), DGK ORRI GP LLC (“DGK GP”) and Hooks Holding Company GP, LLC (“Hooks GP,” and collectively with NRAC, Hooks Holdings, DGK, and DGK GP, the “Contributors”) (the “Contribution Agreement”), Royal is entitled to receive earn-out consideration to be paid in the form of Sitio OpCo Partnership Units (and a corresponding number of shares of Class C Common Stock) if the 30-Day VWAP of the Class A Common Stock equals or exceeds certain hurdles set forth in the Contribution Agreement. Royal can potentially receive up to an additional 20.0 million Sitio OpCo Partnership Units as a part of the earn-out consideration. Royal is also entitled to the earn-out consideration described above in connection with certain liquidity events of Sitio, including a merger or sale of all or substantially all of Sitio’s assets, if the consideration paid to holders of the Class A Common Stock in connection with such liquidity event is greater than any of the 30-Day VWAP hurdles. Because any Sitio OpCo Partnership Units issued pursuant to the earn-out are redeemable on a one-for-one basis for shares of Class A Common Stock at the option of the Contributors, the issuance of additional stock consideration pursuant to the earn-out will result in dilution to the then existing holders of Class A Common Stock and increase the number of shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could adversely affect the market price of Class A Common Stock.
A significant portion of Sitio’s total outstanding shares may be sold into the market in the near future. This could cause the market price of its Class A Common Stock to drop significantly, even if Sitio’s business is doing well.
Sales of a substantial number of shares of Class A Common Stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of Sitio’s Class A Common Stock.
Additionally, the Sponsors and Sitio’s executive officers own over 98% of the outstanding Class C Common Stock and hold an equivalent number of Sitio OpCo Partnership Units for each such share of Class C Common Stock. Each share of Class C Common Stock has no economic rights. However, holders of Class C Common Stock are entitled to one vote for
each share held on all matters to be voted on by Sitio’s stockholders and, with the holders of Class A Common Stock, vote together as a single class on all matters submitted to a vote of Sitio’s stockholders, except as required by law or the A&R Charter. Each holder of Sitio OpCo Partnership Units has the right to cause Sitio OpCo to redeem all or a portion of its Sitio OpCo Partnership Units for shares of Class A Common Stock or, under certain circumstances and at Sitio OpCo’s election, an equivalent amount of cash. In connection with any such redemption, a corresponding number of shares of Class C Common Stock will be canceled. If the holders of Sitio OpCo Partnership Units redeem or exchange all of their Sitio OpCo Partnership Units for shares of Class A Common Stock, and no shares of Class A Common Stock are otherwise issued, they will own approximately 47% of Sitio’s Class A Common Stock.
Sitio has filed a registration statement registering shares of Class A Common Stock issued or issuable upon the redemption of common units representing limited partnership interests in Sitio OpCo (together with the cancellation of an equal number of shares Class C Common Stock), held by the parties to (1) a registration rights agreement, dated as of August 23, 2018, entered into by Sitio’s predecessor in connection with Sitio’s predecessor’s initial public offering, (2) a registration rights agreement, dated as of January 11, 2022, entered into in connection with the Falcon Merger, (3) a registration rights agreement, dated as of December 29, 2022, entered into in connection with the Brigham Merger, and (4) a registration rights agreement, dated as of June 14, 2023, entered into in connection with the acquisition of additional mineral and royalty interests.
If securities or industry analysts do not publish research or reports or publish unfavorable research about Sitio’s business, the price and trading volume of Sitio’s Class A Common Stock could decline.
The trading market for Sitio’s Class A Common Stock depends in part on the research and reports that securities or industry analysts publish about Sitio or its business. In the event one or more of the analysts who covers Sitio downgrades its securities, the price of its securities would likely decline. If one or more of these analysts ceases to cover Sitio or fails to publish regular reports on Sitio, interest in the purchase of Sitio’s securities could decrease, which could cause the price of its Class A Common Stock and other securities and their trading volume to decline.
If Sitio fails to develop or maintain an effective system of internal controls over its financial reporting, its financial results may not be reported accurately and timely or prevent fraud, which may result in material misstatements in its financial statements or failure to meet periodic reporting obligations. As a result, current and potential stockholders could lose confidence in Sitio’s financial reporting, which would harm its business and the trading price of its Class A Common Stock.
Sitio’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis.
Effective internal controls are necessary to provide reliable financial reports, prevent fraud and operate successfully as a public company. If Sitio cannot provide reliable financial reports or prevent fraud, its reputation and operating results may be harmed. Sitio cannot be certain that its efforts to maintain its internal controls will be successful, that it will be able to maintain adequate controls over its financial processes and reporting in the future or that it will be able to comply with its obligations under Section 404 of the Sarbanes-Oxley Act. Any failure to develop or maintain effective internal controls, or difficulties encountered in implementing or improving internal controls, could harm Sitio’s operating results or cause it to fail to meet its reporting obligations. Ineffective internal controls could also cause investors to lose confidence in its reported financial information, which would likely have a negative effect on the trading price of Sitio’s Class A Common Stock. Additional material weaknesses may be identified in the future. If Sitio identifies such issues or if it is unable to produce accurate and timely financial statements, the trading price of its Class A Common Stock may decline and Sitio may be unable to maintain compliance with the NYSE listing standards.
Sitio may issue preferred stock whose terms could adversely affect the voting power or value of its Class A Common Stock.
The A&R Charter authorizes the Board to issue, without stockholder approval, one or more classes or series of preferred stock having such designations, preferences, limitations and relative rights, including preferences over Sitio’s Class A Common Stock respecting dividends and distributions, as the Board may determine. The terms of one or more classes or series of preferred stock could adversely impact the voting power or value of Class A Common Stock, and such terms may prevent or delay an acquisition of Sitio. For example, holders of a class or series of Sitio’s preferred stock may
be granted the right to elect some number of directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, holders of preferred stock may be assigned the repurchase or redemption rights or liquidation preferences which could affect the residual value of Sitio’s Class A Common Stock.
The A&R Charter designates the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, any state or the federal court sitting in the State of Delaware with jurisdiction over the matter) as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by stockholders, which could limit their ability to obtain a favorable judicial forum for disputes with Sitio or with Sitio’s directors, officers or employees and may discourage stockholders from bringing such claims.
The A&R Charter designates the Court of Chancery of the State of Delaware (or, if the Court of Chancery of the State of Delaware does not have jurisdiction, any state or the federal court sitting in the State of Delaware with jurisdiction over the matter) to the fullest extent permitted by applicable law, as the sole and exclusive forum for (a) any derivative action or proceeding brought on Sitio’s behalf, (b) any action asserting a claim of breach of a fiduciary duty owed by any of Sitio’s directors, officers, employees or agents to Sitio or Sitio’s stockholders, (c) any action asserting a claim arising pursuant to any provision of Delaware General Corporation Law, the A&R Charter or Sitio’s bylaws or (d) any action asserting a claim against Sitio that is governed by the internal affairs doctrine, in each such case subject to such Court of Chancery having personal jurisdiction over the indispensable parties named as defendants therein. Any person or entity purchasing or otherwise acquiring any interest in shares of Sitio’s capital stock is deemed to have notice of, and consented to, the provisions of the A&R Charter described in the preceding sentence. This provision does not apply to claims brought to enforce a duty or liability created by the Securities Exchange Act of 1934 (the “Exchange Act”), the Securities Act of 1933, as amended, or any other claim for which the federal courts have exclusive jurisdiction. This choice of forum provision may limit the ability of stockholders to obtain a favorable judicial forum for disputes with Sitio or with Sitio’s directors, officers or employees and may discourage stockholders from bringing such claims. Alternatively, if a court were to find these provisions of the A&R Charter inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, Sitio may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect Sitio’s business, financial condition, and results of operations.
General Risk Factors
Increased costs of capital could adversely affect Sitio’s business.
Sitio’s business and ability to make acquisitions could be harmed by factors such as the availability, terms, and cost of capital, increases in interest rates or a reduction in its credit rating. Changes in any one or more of these factors could cause Sitio’s cost of doing business to increase, limit its access to capital, limit its ability to pursue acquisition opportunities, and place it at a competitive disadvantage. A significant reduction in the availability of capital could materially and adversely affect Sitio’s ability to achieve its planned growth and operating results.
Sitio may be involved in legal proceedings that could result in substantial liabilities.
Like many crude oil and natural gas companies, Sitio may from time to time be involved in various legal and other proceedings, such as title, royalty or contractual disputes, regulatory compliance matters and personal injury or property damage matters, in the ordinary course of its business. Such legal proceedings are inherently uncertain and their results cannot be predicted. Regardless of the outcome, such proceedings could have an adverse impact on Sitio because of legal costs, diversion of management and other personnel and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in liability, penalties or sanctions, as well as judgments, consent decrees or orders requiring a change in Sitio’s business practices, which could materially and adversely affect its business, operating results and financial condition. Accruals for such liability, penalties or sanctions may be insufficient. Judgments and estimates to determine accruals or range of losses related to legal and other proceedings could change from one period to the next, and such changes could be material.
Sitio and its operators are subject to cybersecurity risks. A cyber incident or systems failure could occur and result in information theft, data corruption, operational disruption and/or financial loss.
The oil and gas industry, including the mineral and royalty space, has become increasingly dependent on digital technologies to conduct certain activities. For example, Sitio depends on digital technologies to perform many of its services and to process and record financial and operating data. Sitio also relies on providers of third-party products, services, and networks, with whom it may share data and services, and who may be unable to effectively defend their digital technologies and services against attack. At the same time, cyber incidents, including deliberate attacks or unintentional events, have increased in both frequency and magnitude. The U.S. government has issued public warnings
that indicate that energy assets might be specific targets of cybersecurity threats. Sitio’s technologies, systems and networks, and those of its operators, vendors, suppliers and other business partners, may become the target of cyber-attacks or information security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information, or other disruption of business operations. Such a cyber-attack or information security breach could negatively impact Sitio’s or its operators’ operations in a variety of ways, including, but not limited to:
•adversely impacting Sitio’s ability to compete for mineral and royalty interests;
•causing a loss of Sitio’s operators’ production or accidental discharges;
•preventing or causing delays in Sitio’s operators’ ability to produce, transport, process and market their production;
•disrupting supply chains, which could delay or halt Sitio’s operators’ E&P development activities;
•adversely impacting the crude oil, natural gas and NGLs market; and
•damaging Sitio’s or its operators’ reputation, subjecting it or them to financial or legal liability, regulatory fines and penalties and requiring it or them to incur significant costs, including remedial and compliance costs and costs to repair or restore its or their systems and data.
In addition, certain cyber incidents, such as surveillance, may remain undetected for an extended period. Although Sitio has not experienced a material cyber incident, Sitio’s systems for protecting against cybersecurity risks may not be sufficient. While Sitio has implemented controls and multiple layers of security that it believes are reasonable to mitigate the risks of a cybersecurity incident, there can be no assurance that Sitio’s response to a cyber-attack will be successful or effectively address an incident on a timely basis. Laws and regulations governing cybersecurity and data privacy and the unauthorized disclosure of confidential or protected information pose increasingly complex compliance challenges and potential costs, and any failure to comply with these data privacy requirements or other applicable laws and regulations in this area could lead to a loss of sensitive information and result in significant regulatory or other penalties and legal liability.
Further, the frequency and magnitude of cyber-attacks is increasing and attackers have become more sophisticated. Cyber-attacks are similarly evolving and include, without limitation, use of malicious software, ransomware, surveillance, credential stuffing, spear phishing, social engineering, deepfakes (i.e., highly realistic synthetic media generated by artificial intelligence), attempts to gain unauthorized access to data, and other electronic security breaches that could lead to disruptions in critical systems, unauthorized release of confidential or otherwise protected information and corruption of data. We may be unable to anticipate, detect or prevent future attacks, particularly as the methodologies used by attackers change frequently or are not recognized until deployed. We may also be unable to investigate or remediate incidents as attackers are increasingly using techniques and tools designed to circumvent controls, to avoid detection, and to remove or obfuscate forensic evidence. As cyber incidents and applicable laws and regulations continue to evolve, Sitio may be required to expend additional resources to continue to modify or enhance its protective measures or to investigate and remediate any vulnerability to cyber incidents. Sitio’s insurance coverage may not be sufficient to cover any losses it may experience as a result of such cyber-attacks.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2. Properties
Our executive offices are located at 1401 Lawrence Street, Suite 1750, Denver, CO 80202. We have additional leased office space at 9811 Katy Freeway, Suite 700 Houston, TX 77024 and 5914 W. Courtyard Drive, Suite 150, Austin, TX 78730. We believe that these facilities are adequate for our current operations. Additional information regarding our properties is contained in Item 1. “Business” and is incorporated herein.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
From time to time, the Company may be involved in various legal proceedings, lawsuits, and other claims in the ordinary course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Management does not believe that the resolution of these matters will have a material adverse impact on our financial condition, cash flows or results of operations.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market for Common Stock
Our Class A Common Stock is listed on the New York Stock Exchange under the symbol “STR.” Our Class C Common Stock is not listed on any exchange. Our warrants expired in accordance with their terms in August 2023.
Holders of Record
Pursuant to the records of our transfer agent, as of February 24, 2025, there were approximately 46 holders of record of our Class A Common Stock and 38 holders of record of our Class C Common Stock. This number does not include owners or stockholders who beneficially own our shares through a broker or other entity who may hold shares in “street name.” There is no public market for our Class C Common Stock.
Issuer Purchases of Equity Securities
The following table sets forth our share purchase activity for each period presented:
Period Total Number of Shares Purchased(1)
Average Price Paid Per Share(2)
Total Number of Shares Repurchased as Part of Publicly Announced Plans Approximate Dollar Value of Shares that May Yet be Purchased Under the Plan ($ in thousands)(3)
October 1, 2024 - October 31, 2024 53,042 $ 21.88 51,762 $ 93,618
November 1, 2024 - November 30, 2024 6,553 $ 23.00 6,094 $ 93,479
December 1, 2024 - December 31, 2024 612,430 $ 19.82 584,925 $ 81,854
Total 672,025 642,781
(1) The total number of shares purchased includes 29,244 shares repurchased representing shares of our Common Stock transferred to us in order to satisfy tax withholding obligations incurred upon the vesting of share-based compensation awards.
(2) Excludes commissions paid and excise taxes accrued related to stock repurchases.
(3) On February 28, 2024, our Board authorized a share repurchase program that allows us to repurchase up to $200.0 million of our Class A Common Stock and Sitio OpCo Partnership Units. During the three months ended December 31, 2024, we repurchased 642,781 shares of Class A Common Stock for approximately $12.9 million under the Share Repurchase Program.
Dividends
The following table summarizes the quarterly dividends related to the Company’s quarterly financial results (in thousands, except per share data):
Quarter Ended Total Quarterly Dividend per Class A Common Share Class A Cash Dividends Paid Payment Date Stockholder Record Date
September 30, 2024 $ 0.28 $ 22,185 November 27, 2024 November 19, 2024
June 30, 2024 $ 0.30 $ 24,071 August 30, 2024 August 19, 2024
March 31, 2024 $ 0.41 $ 33,066 May 31, 2024 May 21, 2024
December 31, 2023 $ 0.51 $ 41,950 March 28, 2024 March 15, 2024
September 30, 2023 $ 0.49 $ 40,396 November 30, 2023 November 21, 2023
June 30, 2023 $ 0.40 $ 32,705 August 31, 2023 August 18, 2023
March 31, 2023 $ 0.50 $ 40,743 May 31, 2023 May 19, 2023
December 31, 2022 $ 0.60 $ 48,107 March 31, 2023 March 17, 2023
September 30, 2022 $ 0.72 $ 9,148 November 30, 2022 November 21, 2022
June 30, 2022 $ 0.71 $ 9,017 August 31, 2022 August 18, 2022
The Company’s dividend policy is within the discretion of the Board, and all future dividend payments are subject to quarterly review and approval by the Board and will depend upon then-existing conditions, including our results of operations and financial condition, capital requirements, business prospects, statutory and contractual restrictions on our ability to pay dividends, including restrictions contained in the Sitio Revolving Credit Facility and 2028 Senior Notes, and other factors the Board may deem relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
See Item 12. “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding securities authorized for issuance under equity compensation plans.
Stockholder Return Performance Presentation
The performance graph below compares the cumulative total returns of our Class A Common Stock over the period from December 31, 2019 through December 31, 2024 with the cumulative total returns for the same period for the Standard and Poor’s (“S&P”) 500 Index and the SPDR S&P Oil & Gas Exploration & Production ETF (“XOP”). XOP is a weighted composite of 53 oil and gas exploration and production companies. The cumulative total stockholder return assumes that $100 was invested, including reinvestment of dividends, if any, in our Class A Common Stock on December 31, 2019, and in the S&P 500 Index and XOP on the same date. The results shown in the graph below are not necessarily indicative of future performance.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. Reserved

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto included elsewhere in this Annual Report.
The following discussion and analysis primarily focuses on 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 that are not included in this Annual Report can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report on Form 10-K filed with the SEC on February 29, 2024.
The following discussion 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. Actual results and the timing of events may differ materially from those contained in these forward-looking statements due to several factors which include, but are not limited to market prices for oil, natural gas and NGLs, production volumes, estimates of proved reserves, capital for mineral acquisitions, economic and competitive conditions, regulatory changes and other uncertainties, as well as those factors discussed below and those discussed in the sections entitled Item 1A. “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements.” We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
As of December 31, 2024, we owned mineral and royalty interests representing approximately 273,100 NRAs when adjusted to a 1/8th royalty. For the year ended December 31, 2024, the average net daily production associated with our mineral and royalty interests was 38,517 BOE/d, consisting of 19,128 Bbls/d of oil, 64,363 Mcf/d of natural gas and 8,661 Bbls/d of NGLs. Prior to the closing of the Falcon Merger, the Company’s financial statements that were filed with the SEC were derived from the accounting records of Falcon Minerals Corporation. As such, the historical consolidated financial statements for the year ended December 31, 2022 included in this Annual Report are based on the financial statements of our predecessor, Kimmeridge Mineral Fund, LP (the “Predecessor”), prior to our corporate reorganization. Since our Predecessor’s formation in November 2016, we have accumulated our acreage position by making 209 acquisitions as of December 31, 2024. We expect to continue to grow our acreage position by making acquisitions that meet our investment criteria for geologic quality, operator capability, remaining growth potential, cash flow generation, regulatory environment, and, most importantly, rate of return.
Our mineral and royalty interests entitle us to receive a fixed percentage of the revenue from crude oil, natural gas and NGLs produced from the acreage underlying our interests. We are not obligated to fund drilling and completion costs, plugging and abandonment costs or lease operating expenses associated with oil and gas production and we incur only our proportionate share of production and ad valorem taxes and, in some cases, gathering, processing and transportation costs which reduce the amount of revenue we recognize. For the year ended December 31, 2024, our production and ad valorem taxes were approximately $3.29 per BOE, relative to an average realized price of $43.35 per BOE. We do not anticipate engaging in any upstream activities such as drilling and completing oil and natural gas wells that would incur capital costs, lease operating expenses, and plugging and abandonment costs. We believe our cost structure and business model will allow us to return a significant amount of our cash flows to stockholders.
Recent Developments
Share Repurchase Program
On February 28, 2024, our Board authorized a share repurchase program (“Share Repurchase Program”) that allows us to repurchase up to $200.0 million of our Class A Common Stock and Sitio OpCo Partnership Units. The shares may be repurchased from time to time through various methods including but not limited to in the open market transactions, through privately negotiated transactions or by other means in accordance with applicable securities laws, certain of which may be made pursuant to trading plans meeting the requirements of Rule 10b5-1 and 10b-18 under the Exchange Act. The timing of repurchases under the 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 our 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 us is not guaranteed, and the program may be modified, suspended or discontinued at any time without prior notice. The Company is not obligated to repurchase any dollar amount or number of shares under the program.
For the year ended December 31, 2024, the Company repurchased 4,224,814 shares of its Class A Common Stock in connection with the Share Repurchase Program. The shares were recorded at a weighted average price of $22.72, upon repurchase by the Company, inclusive of third-party commissions.
For the year ended December 31, 2024, the Company repurchased and immediately canceled 897,457 Sitio OpCo Partnership Units together with an equivalent number of shares of Class C Common Stock under our Share Repurchase Program. The repurchased Sitio OpCo Partnership Units were recorded at a weighted average price of $24.67.
The IRA 2022 provides for, among other things, the imposition of a 1% non-deductible U.S. federal excise tax on the fair market value of any stock repurchased by a publicly traded domestic corporation during any taxable year, with the fair market value of such repurchased stock reduced by the fair market value of certain stock issued by such corporation during such taxable year (such excise tax, the “Stock Buyback Tax”). In the past, there have been proposals to increase the amount of the Stock Buyback Tax from 1% to 4%; however, it is unclear whether such a change in the amount of the excise tax will be enacted and, if enacted, how soon any such change could take effect. The Stock Buyback Tax first applied to our Share Repurchase Program in the year ended December 31, 2024, and will continue to apply in subsequent taxable years.
Revolving Credit Facility
On February 3, 2023, Sitio OpCo, as borrower, and certain of its subsidiaries as guarantors entered into the Third Amended and Restated Credit Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Sitio Revolving Credit Facility”) among JPMorgan Chase Bank, N.A., as the administrative agent and as issuing bank, and the Lenders, which amended, restated and refinanced in its entirety the RBL Credit Agreement (defined below). On December 16, 2024, Sitio OpCo and the other guarantors party thereto entered into that certain Fourth Amendment to Third Amended and Restated Credit Agreement, pursuant to which the Sitio Credit Agreement was amended to (i) effectuate the scheduled redetermination of the borrowing base intended to be effective on or about November 1, 2024 by increasing the borrowing base under the Sitio Revolving Credit Facility (the “Sitio Borrowing Base”) to $925,000,000, (ii) increase the elected commitment amount to $925,000,000 and (iii) amend certain other terms of the Sitio Credit Agreement, in each case, on the terms and subject to the conditions set forth therein. At December 31, 2024, the Sitio Borrowing Base, as determined by the Lenders, was $925.0 million and the outstanding balance under the Sitio Revolving Credit Facility was $487.8 million.
Acquisitions
For the year ended December 31, 2024, Sitio completed multiple acquisitions totaling approximately 20,600 NRAs in the Delaware, DJ and Midland Basins.
As of December 31, 2024, we have evaluated over 1,000 potential mineral and royalty interest acquisitions and completed 209 acquisitions from landowners and other mineral interest owners. We intend to capitalize on our management team’s expertise and relationships to continue to make value-enhancing mineral and royalty interest acquisitions in premier basins designed to increase our cash flows per share.
Production and Operations
Our average daily production during the years ended December 31, 2024, 2023, and 2022 was 38,517 BOE/d (50% crude oil), 35,457 BOE/d (49% crude oil), and 15,204 BOE/d (52% crude oil), respectively. For the year ended December 31, 2024, we received an average of $75.26 per Bbl of crude oil, $1.02 per Mcf of natural gas and $18.99 per Bbl of NGLs, for an average realized price of $43.35 per BOE. For the year ended December 31, 2023, we received an average of $75.80 per Bbl of crude oil, $1.77 per Mcf of natural gas and $19.21 per Bbl of NGLs, for an average realized price of $44.39 per BOE. For the year ended December 31, 2022, we received an average of $93.05 per Bbl of crude oil, $5.50 per Mcf of natural gas and $33.51 per Bbl of NGLs, for an average realized price of $64.05 per BOE.
As of December 31, 2024, we had 47,317 gross (361.7 net) producing horizontal wells on our acreage. Additionally, as of December 31, 2024, there were 5,047 gross (24.5 net) horizontal wells in various stages of drilling or completion and 3,598 active (20.4 net) horizontal drilling permits on our acreage. As of December 31, 2023, we had 36,915 gross (281.6 net) producing horizontal wells on our acreage. Additionally, as of December 31, 2023, there were 4,086 gross (31.1 net) horizontal wells in various stages of drilling or completion and 3,323 gross (17.3 net) active horizontal drilling permits on our acreage. As of December 31, 2022, we had 32,451 gross (239.9 net) producing horizontal wells on our acreage. Additionally, as of December 31, 2022, there were 4,254 gross (31.1 net) horizontal wells in various stages of drilling or completion and 3,223 (16.8 net) active horizontal drilling permits on our acreage.
Economic Indicators
The economy has experienced elevated inflation levels in recent years. In order to manage the inflation risk in the United States’ economy, the Federal Reserve has utilized monetary policy in the form of elevated interest rates in an effort to decrease inflation on a long-term basis. Our exposure to the impact of interest rates is attributable to balances outstanding on the Sitio Revolving Credit Facility and any potential new debt issuances. Our 2028 Senior Notes are not exposed to interest rate movements as the coupon rate on our 2028 Senior Notes is fixed.
Inflationary pressures could result in increases to our operating expenses that are not fixed such as personnel retention, among other things. Increases in interest rates as a result of inflation and a potentially recessionary economic environment in the United States could also have a negative effect on the demand for oil and natural gas, as well as our borrowing costs. While inflationary pressures in the United States' economy have begun to subside and the Federal Reserve has recently lowered the federal funds rate, we continue to be impacted by the elevated level of interest rates as compared to recent years. Although the Federal Reserve made cuts to benchmark interest rates in 2024 and there is a possibility of additional cuts, there is no guarantee that such additional cuts will occur. Any subsequent increases in benchmark interest rates could have the effect of further raising our borrowing costs.
There is currently significant uncertainty about the future relationship between the United States and various other countries, including changes arising as a result of the new presidential administration, with respect to trade policies, treaties, tariffs, taxes, and other limitations on cross-border operations. Changes in tariffs, trade barriers, price and exchange controls and other regulatory requirements could have an adverse effect on our business, prospects, financial condition and operation results, the extent of which cannot be predicted with certainty at this time.
The global economy also continues to be impacted by geopolitical events such as the February 2022 launch of a large-scale invasion of Ukraine by Russia, the conflict in the Israel-Gaza region and increases in hostilities elsewhere in the Middle East, including tensions with Iran, Lebanon and Yemen. It has also has been impacted by, among other events, the uncertainty regarding global central bank monetary policy. The geopolitical and macroeconomic consequences of the Russian invasion of Ukraine and associated sanctions, the conflict in the Israel-Gaza region and elsewhere in the Middle East, and the uncertainty regarding central bank monetary policy cannot be predicted, and such events, or any escalation of hostilities in Ukraine or the Middle East, or further hostilities elsewhere, could severely impact the world economy and may adversely affect our financial condition. The oil and natural gas industry has also been impacted by announcements of voluntary production cuts by OPEC and others, including OPEC’s recent extensions of its voluntary production cuts. These events and their impacts on the global economy continue to evolve, and the extent to which these events may impact our business, financial condition, liquidity, results of operations, and prospects will depend highly on future developments, which are very uncertain and cannot be predicted with confidence.
How We Evaluate Our Operations
We use a variety of operational and financial measures to assess our performance. Among the measures considered by management are the following:
•volumes of oil, natural gas and NGLs produced;
•number of producing wells, spud wells and permitted wells;
•commodity prices;
•Adjusted EBITDA; and
•Discretionary Cash Flow.
Volumes of Oil, Natural Gas and NGLs Produced
In order to track and assess the performance of our assets, we monitor and analyze our production volumes from our mineral and royalty interests. We also regularly compare projected volumes to actual reported volumes and investigate unexpected variances.
Producing Wells, Spud Wells and Permitted Wells
In order to track and assess the performance of our assets, we also constantly monitor the number of permitted wells, spud wells, completions, and producing wells on our mineral and royal interests in an effort to evaluate near-term production growth.
Commodity Prices
Historically, oil, natural gas and NGL prices have been volatile and may continue to be volatile in the future. During the past five years, the posted price for WTI has ranged from a low of negative $36.98 per barrel in April 2020 to a high of $123.64 per barrel in March 2022. The Henry Hub spot market price for natural gas has ranged from a low of $1.21 per MMBtu in November 2024 to a high of $23.86 per MMBtu in February 2021. Lower prices may not only decrease our revenues, but also potentially the amount of oil, natural gas and NGLs that our operators can produce economically.
Oil. The substantial majority of our oil production is sold at prevailing market prices, which fluctuate in response to many factors that are outside of our control. The majority of our oil production is priced at the prevailing market price with the final realized price affected by both quality and location differentials.
The chemical composition of crude oil plays an important role in its refining and subsequent sale as petroleum products. As a result, variations in chemical composition relative to the benchmark crude oil, usually WTI, will result in price adjustments, which are often referred to as quality differentials. The characteristics that most significantly affect quality differentials include the density of the oil, as characterized by its API gravity, and the presence and concentration of impurities, such as sulfur.
Location differentials generally result from transportation costs based on the produced oil’s proximity to consuming and refining markets and major trading points.
Natural Gas. The New York Mercantile Exchange, Inc. (“NYMEX”) price quoted at Henry Hub is a widely used benchmark for the pricing of natural gas in the United States. The actual prices realized from the sale of natural gas differ from the quoted NYMEX price as a result of quality and location differentials.
Quality differentials result from the heating value of natural gas measured in Btu and the presence of impurities, such as hydrogen sulfide, carbon dioxide and nitrogen. Natural gas containing ethane and heavier hydrocarbons has a higher Btu value and will realize a higher volumetric price than natural gas that is predominantly methane, which has a lower Btu value. Natural gas with a higher concentration of impurities will realize a lower price due to the presence of the impurities in the natural gas when sold or the cost of treating the natural gas to meet pipeline quality specifications.
Natural gas, which currently has limitations on transportation in certain regions, is subject to price variances based on local supply and demand conditions and the cost to transport natural gas to end-user markets.
NGLs. NGL pricing is generally tied to the price of oil, but varies based on differences in liquid components and location.
Non-GAAP Financial Measures
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP supplemental financial measure used by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets and their ability to sustain dividends over the long term.
We define Adjusted EBITDA as net income (loss) plus (a) interest expense, (b) provisions for income taxes, (c) depreciation, depletion and amortization, (d) non-cash share-based compensation expense, (e) impairment of oil and gas properties, (f) gains or losses on unsettled derivative instruments, (g) change in fair value of warrant liability, (h) management fee to affiliates, (i) loss on extinguishment of debt (j) merger-related transaction costs, (k) write off of financing costs, and (l) loss on sale of oil and gas properties. Adjusted EBITDA is not a measure determined by GAAP.
This non-GAAP financial measure does not represent and should not be considered an alternative to, or more meaningful than, its most directly comparable GAAP financial measure or any other measure of financial performance presented in accordance with GAAP as measures of our financial performance. Non-GAAP financial measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly
comparable GAAP financial measure. Our computation of Adjusted EBITDA may differ from computations of similarly titled measures of other companies.
Discretionary Cash Flow
Discretionary Cash Flow is a non-GAAP supplemental financial measure used by our management and by external users of our financial statements such as investors, research analysts and others to assess the financial performance of our assets and their ability to sustain dividends over the long term.
We define Discretionary Cash Flow in 2024 as Adjusted EBITDA, less cash and accrued interest expense and estimated cash taxes.
We define Discretionary Cash Flow for the three months ended December 31, 2023 as Adjusted EBITDA, less cash and accrued interest expense and cash taxes. We revised our definition of Discretionary Cash Flow following this period to reflect our anticipated accrual of taxes period-to-period due to the runoff of tax credits associated with the Brigham Merger.
We define Discretionary Cash Flow for time periods ended prior to December 31, 2023 as Adjusted EBITDA, less cash interest expense and cash taxes. We revised our definition of Discretionary Cash Flow following these periods to reflect quarterly accrual of interest expense on the then-newly issued 2028 Senior Notes, which interest is paid semi-annually. Discretionary Cash Flow is not a measure determined by GAAP.
This non-GAAP financial measure does not represent and should not be considered an alternative to, or more meaningful than, its most directly comparable GAAP financial measure or any other measure of financial performance presented in accordance with GAAP as measures of our financial performance. Non-GAAP financial measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measure. Our computation of Discretionary Cash Flow may differ from computations of similarly titled measures of other companies.
Cash G&A
We define Cash G&A as general and administrative expense less (a) non-cash share-based compensation expense, (b) merger-related transaction costs and (c) rental income.
This non-GAAP financial measure does not represent and should not be considered an alternative to, or more meaningful than, its most directly comparable GAAP financial measure or any other measure of financial performance presented in accordance with GAAP as measures of our financial performance. Non-GAAP financial measures have important limitations as analytical tools because they exclude some but not all items that affect the most directly comparable GAAP financial measure. Our computation of Cash G&A may differ from computations of similarly titled measures of other companies.
Sources of Revenue
Our revenues are primarily derived from mineral and royalty payments received from our E&P operators based on the sale of crude oil, natural gas and NGLs production from our interests. Our revenues may vary significantly from period to period because of changes in commodity prices, production mix and volumes of production sold by our E&P operators. For the years ended December 31, 2024, 2023 and 2022, mineral and royalty revenue made up 98%, 97% and 96%, respectively, of our total revenues. As a result of our royalty income production mix, our income is more sensitive to fluctuations in crude oil prices than it is to fluctuations in natural gas or NGLs prices. Crude oil, natural gas and NGL prices have historically been volatile, and we expect this volatility to continue. Additionally, we earn lease bonus income by leasing our mineral interests to exploration and production companies and income from delay rentals and easements.
The following table presents the breakout of our revenues for the following periods:
Year Ended December 31,
2024 2023 2022
Crude oil sales 84 % 81 % 72 %
Natural gas sales 4 % 7 % 14 %
NGL sales 10 % 9 % 10 %
Lease bonus and other income 2 % 3 % 4 %
Total revenues 100 % 100 % 100 %
Principal Components of Our Cost Structure
The following is a description of the principal components of our cost structure. As a mineral and royalty owner, we incur only our proportionate share of production and ad valorem taxes and, in some cases, gathering, processing and transportation costs, which reduce the amount of revenue we recognize. Unlike E&P operators and owners of working interests in oil and gas properties, we are not obligated to fund drilling and completion costs, plugging and abandonment costs or lease operating expenses associated with oil and gas production.
Production and Ad Valorem Taxes
Production taxes are paid at fixed rates on produced crude oil, natural gas, and NGLs based on a percentage of revenues from our volume of products sold, established by federal, state or local taxing authorities. The E&P companies who operate on our interests withhold and pay our pro rata share of production taxes on our behalf. We directly pay ad valorem taxes in the counties where our properties are located. Ad valorem taxes are generally based on the appraised value of our crude oil, natural gas and NGLs properties.
General and Administrative
General and administrative expenses consist of costs incurred related to overhead, including executive and other employee compensation and related benefits, office expenses and fees for professional services such as audit, tax, legal and other consulting services. During the year ended December 31, 2022, some of those costs were incurred on our behalf by the Predecessor’s general partner and its affiliates and reimbursed by the Predecessor. For example, the Predecessor reimbursed an affiliate of its general partner for personnel costs on our behalf. As a result of the Falcon Merger, we incur incremental general and administrative expenses relating to SEC reporting requirements, including annual and quarterly reports, increased tax return preparation expenses, Sarbanes-Oxley Act compliance expenses, expenses associated with listing our Class A Common Stock, increased independent auditor fees, increased legal expenses and investor relations expenses. These incremental general and administrative expenses are not reflected in the Predecessor financial statements.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization (“DD&A”) is the systematic expensing of capitalized costs. Under the successful efforts method of accounting, capitalized costs of our proved crude oil, natural gas and NGLs mineral interest properties are depleted on a unit-of-production basis based on proved crude oil, natural gas and NGLs reserve quantities. Our estimates of crude oil, natural gas and NGLs reserves are, by necessity, projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production. Any significant variance in the assumptions could materially affect the estimated quantity of the reserves, which could affect the rate of depletion related to our crude oil, natural gas and NGLs properties. DD&A also includes the expensing of office leasehold costs and equipment.
Interest Expense
We have financed a portion of our working capital requirements and acquisitions with borrowings under our revolving credit facilities, the 2026 Senior Notes (which were retired in October 2023), and the 2028 Senior Notes. As a result, we incur interest expense that is affected by both fluctuations in interest rates and our financing decisions. We reflect interest paid to the lenders under our revolving credit facilities, the 2026 Senior Notes, the 2028 Senior Notes, and amortization of debt issuance costs in interest expense in our consolidated statements of operations.
Income Tax Expense
As a corporation, we are subject to U.S. federal income taxes. We are also subject to the Texas margin tax, which is a state franchise tax, and certain state income taxes.
Factors Affecting the Comparability of Our Financial Results
Our future results of operations may not be comparable to our Predecessor’s results of operations for the periods presented, primarily for the reasons described below.
Acquisitions
Our and our Predecessor’s financial statements for the year ended December 31, 2022 do not include the results of operations for the assets acquired in the Chambers acquisition, Rock Ridge acquisition, Source acquisition, the Falcon Merger, Foundation acquisition, Momentum acquisition, and Brigham Merger (described in “Note 7 - Acquisitions and Divestitures” included elsewhere in this Form 10-K) prior to the respective dates of acquisition. As a result, our Predecessor’s financial results do not give an accurate indication of what the actual results would have been if such acquisitions had been completed at the beginning of the periods presented or of what our future results are likely to be.
In addition, we plan to pursue potential accretive acquisitions of additional mineral and royalty interests. We believe we will be well positioned to acquire such assets and, should such opportunities arise, identifying and executing acquisitions will be a key part of our strategy. However, if we are unable to make acquisitions on economically acceptable terms, our future growth may be limited, and any acquisitions we may make may reduce, rather than increase, our cash flows and ability to pay dividends to stockholders in the short-term.
Debt and Interest Expense
As a public company, we may finance a portion of our acquisitions with borrowings under the Sitio Revolving Credit Facility or other debt instruments. As a result, we will incur interest expense that is affected by both fluctuations in interest rates and our financing decisions.
Public Company Expenses
We incur incremental general and administrative expenses as a result of operating as a publicly traded company, such as expenses associated with SEC reporting requirements, including annual and quarterly reports, Sarbanes-Oxley Act compliance expenses, expenses associated with listing our Class A Common Stock, increased independent auditor fees, independent reserve engineer fees, increased legal fees, investor relations expenses, registrar and transfer agent fees, director and officer insurance expenses and director and officer compensation expenses. These incremental general and administrative expenses are not reflected in our Predecessor’s financial statements. Additionally, as a result of the Falcon Merger and Brigham Merger, we have hired additional employees, including accounting, engineering and land personnel, in order to comply with requirements of being a publicly traded company.
Income Taxes
We are subject to U.S. federal and state income taxes as a corporation. The Predecessor was generally not subject to U.S. federal income tax at the entity level. As such, our Predecessor’s financial statements did not contain a provision for U.S. federal income taxes. The only tax expense that appeared in our Predecessor’s financial statements was the Texas margin tax and certain state income taxes, to which we continue to be subject as a corporation.
Surface Rights
The Predecessor’s historical consolidated financial statements are based on our financial statements prior to the Falcon Merger. The assets acquired in connection with the Falcon Merger did not include the Predecessor’s surface rights, which generate revenue from the sale of water, payments for rights-of-way and other rights associated with the ownership of the surface acreage, which are included in our Predecessor’s historical financial statements but were not contributed to the post-combination company following the closing of the Falcon Merger. Subsequent to the Falcon Merger, we have acquired additional surface rights in connection with multiple acquisitions. As a result, the historical consolidated financial data may not give you an accurate indication of what the actual results would have been if the Falcon Merger had been completed at the beginning of the periods presented or of what our future results of operations are likely to be.
Management Fees
The Predecessor incurred and paid annual fees under an investment management agreement with Kimmeridge Energy Management Company, LLC, an affiliate of Kimmeridge, of which Noam Lockshin, Sitio’s Chairman, is a managing member. Fees incurred under the agreement totaled approximately $3.2 million for the year ended December 31, 2022. No such fees were incurred for the years ended December 31, 2024 and 2023 or will be incurred in the future.
Results of Operations
Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023
Consolidated Results
The following tables summarize our consolidated revenue and expenses and production data for the years ended December 31, 2024 and 2023 (in thousands):
Year Ended
December 31,
2024 2023 Variance
Statement of Operations Data:
Revenue:
Crude oil revenue $ 526,910 $ 480,843 $ 46,067 10 %
Natural gas revenue 23,954 41,034 (17,080) (42) %
NGLs revenue 60,206 52,665 7,541 14 %
Lease bonus 8,550 13,383 (4,833) (36) %
Other revenue 4,794 5,431 (637) (12) %
Total revenues $ 624,414 $ 593,356 $ 31,058 5 %
Operating Expenses:
Depreciation, depletion and amortization 320,297 291,320 28,977 10 %
General and administrative 54,725 49,620 5,105 10 %
Production taxes and other 46,383 46,939 (556) (1) %
Impairment of oil and gas properties - 25,617 (25,617) *
Loss on sale of oil and gas properties - 144,471 (144,471) *
Total operating expenses 421,405 557,967 (136,562) (24) %
Net income from operations 203,009 35,389 167,620 474 %
Interest expense, net(1)
(85,240) (93,413) 8,173 (9) %
Change in fair value of warrant liability - 2,950 (2,950) *
Loss on extinguishment of debt - (21,566) 21,566 *
Commodity derivatives gains (losses)
(4,905) 15,199 (20,104) *
Interest rate derivatives gains - 462 (462) *
Net income (loss) before taxes 112,864 (60,979) 173,843 *
Income tax benefit (expense) (17,935) 14,284 (32,219) *
Net income (loss) 94,929 (46,695) 141,624 *
Net (income) loss attributable to noncontrolling interest
(53,983) 31,159 (85,142) *
Net income (loss) attributable to Class A stockholders $ 40,946 $ (15,536) $ 56,482 *
(1)Interest expense is presented net of interest income.
*Not applicable or meaningful
Year Ended
December 31,
2024 2023 Variance
Production Data:
Crude oil (MBbls) 7,001 6,344 657 10%
Natural gas (MMcf) 23,557 23,136 421 2%
NGLs (MBbls) 3,170 2,742 428 16%
Total (MBOE)(6:1) 14,097 12,942 1,155 9%
Average daily production (BOE/d)(6:1) 38,517 35,457 3,060 9%
Average Realized Prices:
Crude oil (per Bbl) $ 75.26 $ 75.80 $ (0.54) (1)%
Natural gas (per Mcf) $ 1.02 $ 1.77 $ (0.75) (42)%
NGLs (per Bbl) $ 18.99 $ 19.21 $ (0.22) (1)%
Combined (per BOE) $ 43.35 $ 44.39 $ (1.04) (2)%
Average Realized Prices After Effects of Derivative Settlements:
Crude oil (per Bbl) $ 76.46 $ 78.62 $ (2.16) (3)%
Natural gas (per Mcf) $ 1.33 $ 2.06 $ (0.73) (35)%
NGLs (per Bbl) $ 18.99 $ 19.21 $ (0.22) (1)%
Combined (per BOE) $ 44.47 $ 46.30 $ (1.83) (4)%
Revenue
Our consolidated revenues for the year ended December 31, 2024 increased as compared to the year ended December 31, 2023. The increase in revenues was primarily due an increase in oil and NGL revenues, partially offset by a decrease in natural gas and lease bonus revenues. The increase in mineral and royalty revenues was primarily due to an increase in our production volumes of 9% from the acquisitions of additional mineral and royalty interests and from our existing interests, partially offset by the sale of certain non-core properties in December 2023.
Oil revenue for the year ended December 31, 2024 increased as compared to the year ended December 31, 2023 due to a 10% increase in oil production volumes, partially offset by a 1% decrease in our average realized oil price.
Natural gas revenue for the year ended December 31, 2024 decreased as compared to the year ended December 31, 2023 due to a 42% decrease in our average realized natural gas price, partially offset by a 2% increase in production volumes. The decrease in our average realized price for natural gas was largely due to pipeline capacity constraints in the Permian Basin in 2024, which caused downward pressure on natural gas prices in the region.
NGLs revenue for the year ended December 31, 2024 increased as compared to the year ended December 31, 2023 due to a 16% increase in NGLs production volumes, partially offset by a 1% decrease in our average realized NGLs price.
Lease bonus revenue decreased for the year ended December 31, 2024 as compared to the year ended December 31, 2023. When we lease our acreage to an E&P operator, we generally receive a lease bonus payment at the time a lease is executed. These bonus payments are subject to significant variability from period to period based on the particular tracts of land that become available for releasing.
Other revenues include payments for right-of-way and surface damages, which are also subject to significant variability.
Operating Expenses
Depreciation, depletion and amortization expense increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023. The increase was due to a 9% increase in year-over-year production volumes as well as a higher depletion rate, which increased from $22.47 per BOE for the year ended December 31, 2023 to $22.68 per BOE for the year ended December 31, 2024.
General and administrative expense increased for the year ended December 31, 2024 as compared to the year ended December 31, 2023. The increase was primarily due to $7.8 million of additional employee compensation and benefits due to increased share-based compensation expenses as a result of more outstanding share-based compensation awards, as well as an increase in headcount. These increases were partially offset by a decrease in merger-related transaction costs of $2.7 million.
Production taxes and other decreased slightly for the year ended December 31, 2024 as compared to the year ended December 31, 2023. The decrease was primarily due to a decrease in ad valorem taxes in 2024, which was offset by an increase in severance taxes due to the increase in oil, natural gas and NGLs revenues.
During the year ended December 31, 2023, the Company recognized impairment expense of $25.6 million attributable to its proved properties in the Appalachian Basin due to a decrease in natural gas and NGLs prices. No such expense was recognized by the Company for the year ended December 31, 2024.
Loss on sale of oil and gas properties was $144.5 million for the year ended December 31, 2023, whereas there was no loss on sale of oil and gas properties recognized for the year ended December 31, 2024. During the year ended December 31, 2023, the Company divested all of its mineral and royalty interests in the Appalachian and Anadarko Basins for $113.3 million, net of third-party transaction costs. The assets sold had a carrying value of $257.8 million.
Other Income and Expenses
Interest expense relates to interest incurred on borrowings under our revolving credit facilities, the 2028 Senior Notes and the 2026 Senior Notes. The decrease for the year ended December 31, 2024 as compared to the year ended December 31, 2023 was primarily due to a lower average interest rate incurred on our 2028 Senior Notes during the year ended December 31, 2024 as compared to the interest rates incurred on our 2026 Senior Notes during the year ended December 31, 2023.
For the year ended December 31, 2023 losses on extinguishment of debt totaled $21.6 million. No such expense was incurred for the year ended December 31, 2024. During the year ended December 31, 2023, $1.5 million of previously capitalized deferred financing costs were written off for certain lenders that did not elect to remain a party to the Sitio Revolving Credit Facility in connection with amendments in February and September 2023. The Company redeemed and repaid the 2026 Senior Notes in full during the year ended December 31, 2023 and incurred an additional loss on extinguishment of $20.1 million related to the write-off of unamortized debt issuance costs and debt discount and a redemption premium of 3.0%.
Commodity derivatives losses totaled $4.9 million for the year ended December 31, 2024 as compared to gains of $15.2 million for the year ended December 31, 2023. The decrease of $20.1 million for the year ended December 31, 2024 as compared to the year ended December 31, 2023 is due to a decrease in volumes outstanding under our commodity swaps and two-way collar contracts as of December 31, 2024 as compared to December 31, 2023, as well as changes in commodity prices.
Interest rate derivative gains totaled $462,000 for the year ended December 31, 2023. There were no interest rate derivatives for the year ended December 31, 2024. In 2022, we entered into an interest rate swap to manage exposures to changes in interest rates from variable rate borrowings. The interest rate swap expired on December 31, 2023.
Income taxes changed from a benefit of $14.3 million for the year ended December 31, 2023 to an expense of $17.9 million for the year ended December 31, 2024. This was primarily due to the recognition of a pre-tax net loss for the year ended December 31, 2023 as compared to pre-tax net income for the year ended December 31, 2024.
For a discussion of our results of operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022, see Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.
Overview
Prior to the completion of the Falcon Merger, our Predecessor’s primary sources of liquidity were contributions of capital from its limited partners, cash flows from operations and borrowings under our revolving credit facility. After the closing of the Falcon Merger, cash flows from operations and borrowings under the Sitio Revolving Credit Facility, the 2026 Senior Notes, and the 2028 Senior Notes are the primary day-to-day sources of our funds. Future sources of liquidity
may also include other credit facilities we may enter into in the future and additional issuances of debt or equity securities. Our primary uses of cash have been, and are expected to continue to be, the acquisition of mineral and royalty interests, the reduction of outstanding debt balances and the payment of dividends and distributions. Our ability to generate cash is subject to several factors, some of which are beyond our control, including commodity prices and general economic, financial, legislative, regulatory and other factors.
We believe internally generated cash flows from operations, available borrowing capacity under the Sitio Revolving Credit Facility, and access to capital markets will provide us with sufficient liquidity and financial flexibility to meet our cash requirements, including normal operating needs, debt service obligations, our return of capital program, and capital expenditures, for at least the next 12 months and allow us to continue to execute our strategy of acquiring attractive mineral and royalty interests that will position us to grow our cash flows and return capital to our stockholders. As an owner of mineral and royalty interests, we incur the initial cost to acquire our interests but thereafter do not incur any development or maintenance capital expenditures, which are entirely borne by the E&P operator and the other working interest owners. As a result, our only capital expenditures are related to our acquisition of additional mineral and royalty interests, and we have no subsequent capital expenditure requirements related to acquired properties. The amount and allocation of future acquisition-related capital expenditures will depend upon a number of factors, including the number and size of acquisition opportunities, our cash flows from operating, investing and financing activities and our ability to integrate acquisitions. We periodically assess changes in current and projected cash flows, acquisition and divestiture activities, and other factors to determine the effects on our liquidity. Our ability to generate cash is subject to a number of factors, many of which are beyond our control, including commodity prices, weather and general economic, financial and competitive, legislative, regulatory and other factors. If we require additional capital for acquisitions or other reasons, we may raise such capital through additional borrowings, asset sales, offerings of equity and debt securities or other means. If we are unable to obtain funds needed or on acceptable terms, we may not be able to complete acquisitions that are favorable to us.
As of December 31, 2024, our liquidity was $440.5 million, comprised of $3.3 million of cash and cash equivalents and $437.2 million of availability under the Sitio Revolving Credit Facility.
Cash Flows for the Year Ended December 31, 2024 Compared to the Year Ended December 31, 2023 (in thousands):
Year Ended
December 31,
2024 2023 Variance
Statement of Cash Flows Data:
Net cash provided by (used in):
Operating activities $ 462,428 $ 487,500 $ (25,072) (5) %
Investing activities (329,959) (59,726) (270,233) 452 %
Financing activities (144,374) (431,397) 287,023 (67) %
Net increase (decrease) in cash and cash equivalents $ (11,905) $ (3,623) $ (8,282) 229 %
Operating Activities
Our operating cash flows are impacted by the variability in our revenues and operating expenses, as well as the timing of the related cash receipts and disbursements. Royalty payments may vary significantly from period to period as a result of changes in commodity prices, production mix and volumes of production sold by our E&P operators, as well as the timeliness and accuracy of payments from our E&P operators. These factors are beyond our control and are difficult to predict. Cash flows provided by operating activities for the year ended December 31, 2024 were $462.4 million as compared to $487.5 million for the year ended December 31, 2023. The decrease was primarily a result of variability in timing of cash receipts for our royalty revenue.
Investing Activities
Cash flows used in investing activities totaled $330.0 million for the year ended December 31, 2024 as compared to $59.7 million for the year ended December 31, 2023, an increase of $270.2 million due to acquisitions of oil and gas properties, net of purchase price adjustments. Our expenditures for purchases of oil and gas properties were $329.9 million for the year ended December 31, 2024, as compared to $170.5 million for the year ended December 31, 2023, an increase
of $159.3 million. We realized a net increase in cash of $113.3 million during the year ended December 31, 2023 due to the sale of our mineral and royalty interests in the Appalachian and Anadarko Basins.
Financing Activities
Cash flows used in financing activities for the year ended December 31, 2024 totaled $144.4 million as compared to cash flows used in financing activities of $431.4 million for the year ended December 31, 2023. Borrowings under our credit facilities for the years ended December 31, 2024 and 2023 were $474.4 million and $644.5 million, respectively, which were used to fund acquisitions of mineral and royalty interests. Repayments on our credit facilities for the years ended December 31, 2024 and 2023 were $263.6 million and $877.5 million, respectively, largely provided by cash flows from operations as well as from divestitures of oil and gas properties during the year ended December 31, 2023. During the year ended December 31, 2023, we received gross proceeds of $600.0 million from the issuance of the 2028 Senior Notes, which were used to repay and extinguish the 2026 Senior Notes and for other general corporate purposes. During the year ended December 31, 2024 we had a $40.7 million decrease in dividends paid to holders of Class A Common Stock and a $46.5 million decrease in distributions paid to noncontrolling interest holders. These decreases were offset by $117.4 million in repurchases of Class A Common Stock and Sitio OpCo Partnership Units during the year ended December 31, 2024, whereas there were no repurchases in 2023. Financing cash outflows during the year ended December 31, 2024 also included $2.4 million related to cash paid for taxes related to net settlement of share-based compensation awards, and $1.2 million of dividend equivalent rights.
Financing cash outflows during the year ended December 31, 2023 included $22.1 million of debt issuance costs incurred in connection with amendments and restatements to the Sitio Revolving Credit Facility and issuance of the 2028 Senior Notes, $12.2 million of debt extinguishment costs incurred in connection with the redemption of the 2026 Senior Notes, dividends of $162.0 million paid to holders of Class A Common Stock, $159.0 million of distributions paid to noncontrolling interest, $3.4 million related to cash paid for taxes related to net settlement of share-based compensation awards, and $1.0 million of dividend equivalent rights.
For a discussion of our cash flows for the year ended December 31, 2023 as compared to the year ended December 31, 2022, see Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 29, 2024.
Sitio Revolving Credit Facility
On February 3, 2023, Sitio OpCo, as borrower, and certain of its subsidiaries as guarantors entered into the Sitio Revolving Credit Facility among JPMorgan Chase Bank, N.A., as the administrative agent and as issuing bank, and the Lenders, which amended, restated and refinanced in its entirety the Second Amended and Restated Credit Agreement, led by Bank of America, N.A. as Administrative Agent, Issuing Bank and Syndication Agent (the “RBL Credit Agreement”). The availability under the Sitio Credit Revolving Credit Facility, including availability for letters of credit, is generally limited to a borrowing base, which is determined by the required number of Lenders in good faith by calculating a loan value of the proved reserves of Sitio OpCo and its subsidiaries and elected commitments provided by the Lenders. As part of the aggregate commitments under the revolving advances, the Sitio Revolving Credit Facility provides for letters of credit to be issued at the request of the borrower in an aggregate amount not to exceed $15.0 million.
As of December 31, 2024, the Sitio Borrowing Base as determined by the Lenders was $925.0 million and the outstanding balance under the Sitio Revolving Credit Facility was $487.8 million. As of December 31, 2023, the Sitio Borrowing Base as determined by the Lenders was $850.0 million and the outstanding balance under the Sitio Revolving Credit Facility was $277.0 million.
The Sitio Revolving Credit Facility bears interest at a rate per annum equal to, at our option, at an adjusted Term SOFR rate or a base rate, plus an applicable margin and credit spread adjustment. The applicable margin is based on utilization of the Sitio Revolving Credit Facility and ranges from (a) in the case of adjusted base rate loans, 1.500% to 2.500% and (b) in the case of Term SOFR rate loans and letters of credit, 2.500% to 3.500%. The credit spread adjustment for Term SOFR rate loans ranges from 0.100% to 0.250% depending on the applicable interest rate period. Sitio OpCo may elect an interest period of one, three or six months. Interest is payable in arrears at the end of each interest period, but no less frequently than quarterly. A commitment fee is payable quarterly in arrears on the daily undrawn available commitments under the Sitio Revolving Credit Facility in an amount ranging from 0.375% to 0.500% based on utilization of the Sitio Revolving Credit Facility. The Sitio Revolving Credit Facility is subject to other customary fee, interest, and expense reimbursement provisions.
As of December 31, 2024 and 2023, the weighted average interest rate related to our outstanding borrowings under the Sitio Revolving Credit Facility was 7.50% and 8.21%, respectively. As of December 31, 2024 and 2023, the Company had unamortized debt issuance costs of $8.5 million and $11.2 million, respectively, in connection with its entry into the Sitio Revolving Credit Facility, including amendments. Such costs are capitalized as deferred financing costs within other long-term assets and are amortized over the life of the facility. For the years ended December 31, 2024, 2023 and 2022, the Company recognized $3.2 million, $2.9 million, and $1.2 million, respectively, in interest expense related to the amortization of deferred financing costs under its revolving credit facilities. In connection with the amendment and restatement of the Sitio Revolving Credit Facility in February 2023 and the First Amendment to Third Amended and Restated Credit Agreement in September 2023, certain lenders did not elect to remain a party to the Sitio Revolving Credit Facility. As such, $1.5 million of previously capitalized deferred financing costs were written off to Loss on debt extinguishment during the year ended December 31, 2023.
The Sitio Revolving Credit Facility matures on June 30, 2027. Loans drawn under the Sitio Revolving Credit Facility may be prepaid at any time without premium or penalty (other than customary breakage costs for Term SOFR rate loans) and must be prepaid in the event that exposure exceeds the lesser of the Sitio Borrowing Base and the elected commitments of the Lenders at such time. The principal amount of loans that are prepaid are required to be accompanied by accrued and unpaid interest and fees on such amounts. Loans that are prepaid may be reborrowed, subject to compliance with the Sitio Revolving Credit Facility. In addition, Sitio OpCo may permanently reduce or terminate in full the commitments under the Sitio Revolving Credit Facility prior to maturity. Any excess exposure resulting from such permanent reduction or termination must be prepaid and may not be reborrowed. Upon the occurrence of an event of default under the Sitio Revolving Credit Facility, the administrative agent acting at the direction of the Lenders holding a majority of the aggregate commitments at such time may accelerate outstanding loans and terminate all commitments under the Sitio Revolving Credit Facility, provided that such acceleration and termination occurs automatically upon the occurrence of a bankruptcy or insolvency event of default.
The Sitio Revolving Credit Facility is subject to a borrowing base established by the Lenders to reflect the loan value of our oil and gas mineral interests. The Sitio Borrowing Base is redetermined by the Lenders on a semi-annual basis. Additionally, Lenders holding two-thirds of the aggregate commitments are able to request one additional redetermination between regularly scheduled redeterminations. Sitio OpCo could also request one additional redetermination between regularly scheduled redeterminations and may request additional redeterminations as appropriate after significant acquisitions of oil and gas properties. The Sitio Borrowing Base is subject to adjustments for asset dispositions, material title deficiencies, certain terminations of hedge agreements and issuances of certain additional indebtedness. The Sitio Revolving Credit Facility is collateralized by substantially all of the assets of Sitio OpCo and its restricted subsidiaries.
The Sitio Revolving Credit Facility contains customary affirmative and negative covenants, including, without limitation, reporting obligations, restrictions on asset sales, restrictions on additional debt and lien incurrence and restrictions on making dividends or distributions, restrictions on paying other debt and restrictions on certain investments. The Sitio Credit Agreement requires us to maintain (a) a current ratio of not less than 1.00 to 1.00 and (b) a ratio of total net funded debt to consolidated EBITDA of not more than 3.50 to 1.00, with cash netting capped at $25.0 million for purposes of the calculation of total net funded debt. EBITDA for the period ending on December 31, 2024 is calculated as EBITDA for the period beginning on January 1, 2024 and ending on December 31, 2024, as adjusted for material acquisitions and dispositions completed during the reference period. The Company was in compliance with the terms and covenants of the Sitio Revolving Credit Facility at December 31, 2024 and 2023.
2028 Senior Notes
On October 3, 2023, Sitio OpCo and Sitio Finance Corp., a Delaware corporation, issued and sold $600.0 million aggregate principal amount of 7.875% Senior Notes due 2028. The 2028 Senior Notes were issued at par. Sitio OpCo used proceeds from the issuance of the 2028 Senior Notes to repay and redeem Sitio OpCo’s senior notes due 2026 (the “2026 Senior Notes”) in full, inclusive of a redemption premium of 3.0%. Remaining proceeds from the 2028 Senior Notes offering were used to repay outstanding borrowings under the Sitio Revolving Credit Facility and for general corporate purposes.
The 2028 Senior Notes are governed by the indenture, dated as of October 3, 2023 (the “Indenture”), by and among the Issuers, solely for purposes of Section 4.16(b) therein, the Company, the guarantors named therein and Citibank, N.A., as trustee (the “Trustee”). The 2028 Senior Notes are senior unsecured obligations of the Issuers, and are fully and unconditionally guaranteed on a senior unsecured basis by all of Sitio OpCo’s subsidiaries, other than Sitio Finance Corp. The 2028 Senior Notes will mature on November 1, 2028 and bear interest at an annual rate of 7.875%, which accrues
from October 3, 2023 and is payable semi-annually in arrears on May 1 and November 1 of each year, commencing on May 1, 2024.
At any time prior to November 1, 2025, the Issuers may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of the 2028 Senior Notes (including any additional notes issued under the Indenture) at a redemption price equal to 107.875% of the principal amount of the 2028 Senior Notes redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption, with an amount of cash not greater than the net cash proceeds of certain equity offerings, if at least 65% of the aggregate principal amount of the 2028 Senior Notes originally issued on the Issue Date (as defined in the Indenture) 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 November 1, 2025, the Issuers may, on any one or more occasions, redeem all or a part of the 2028 Senior Notes at a redemption price equal to 100% of the principal amount of the 2028 Senior Notes redeemed, plus the Applicable Premium (as defined in the Indenture) as of, and accrued and unpaid interest, if any, to, but excluding, the redemption date.
On or after November 1, 2025, the Issuers may, on any one or more occasions, redeem all or a part of the 2028 Senior Notes at the redemption prices (expressed as percentages of the principal amount) set forth below, plus accrued and unpaid interest, if any, to, but excluding the redemption date, if redeemed during the twelve-month period beginning on November 1 of the years indicated below:
Year Percentage
2025 103.938 %
2026 101.969 %
2027 and thereafter 100.000 %
If Sitio OpCo experiences certain kinds of changes of control (and, in some cases, followed by a ratings decline), each holder of 2028 Senior Notes may have the right to require the Issuers to repurchase all or any part of such holder’s 2028 Senior Notes at 101% of the aggregate principal amount of the 2028 Senior Notes, plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.
The Indenture contains covenants that, among other things, limit Sitio OpCo’s ability and the ability of Sitio 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 its 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 its restricted subsidiaries to it or any guarantor; (vii) consolidate, merge or transfer all or substantially all of its assets; (viii) engage in transactions with affiliates; and (ix) create unrestricted subsidiaries.
If an Event of Default (as defined in the Indenture) occurs and is continuing under the Indenture, the Trustee or the holders of at least 25% in aggregate principal amount of the then total outstanding 2028 Senior Notes (with a copy to the Trustee) may declare the principal of, and accrued and unpaid interest, if any, on all outstanding 2028 Senior Notes to be due and payable immediately; provided that the 2028 Senior Notes will be due and payable immediately without further action or notice if such an Event of Default arises from certain events of bankruptcy or insolvency described in the Indenture with respect to the Issuers, any restricted subsidiary of Sitio OpCo that is a significant subsidiary or any group of restricted subsidiaries of Sitio OpCo that, taken together, would constitute a significant subsidiary.
As of December 31, 2024 and 2023, the Company had $600.0 million of 2028 Senior Notes outstanding. As of December 31, 2024 and 2023, the Company had unamortized debt issuance costs of $9.6 million and $11.7 million in connection with the issuance of the 2028 Senior Notes, respectively. Debt issuance costs are reported as a reduction to long-term debt on our consolidated balance sheets and are amortized over the life of the 2028 Senior Notes. For the year ended December 31, 2024 and 2023, the Company recognized $2.0 million and $474,000, respectively, of interest expense attributable to the amortization of debt issuance costs related to the 2028 Senior Notes. No such expense was recognized for the year ended December 31, 2022.
New and Revised Financial Accounting Standards
Refer to “Recent Accounting Pronouncements” in “Note 2 - Summary of Significant Accounting Policies” to our consolidated financial statements for the years ended December 31, 2024, 2023, and 2022 for a discussion of recent accounting pronouncements.
Contractual Obligations
As of December 31, 2024, we did not have any material capital lease obligations, operating lease obligations, debt, or long-term liabilities, other than borrowings under the Sitio Revolving Credit Facility, borrowings under the 2028 Senior Notes and operating lease agreements for office space. Please see “-Sitio Revolving Credit Facility” for a description of the Sitio Revolving Credit Facility, and “-2028 Senior Notes” for a description of the 2028 Senior Notes.
Critical Accounting Policies and Related Estimates
The discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. Our critical accounting policies are described below to provide a better understanding of how we develop our assumptions and judgments about future events and related estimates and how they can impact our financial statements. A critical accounting estimate is one that requires our most difficult, subjective or complex estimates and assessments and is fundamental to our results of operations.
We base our estimates on historical experience and on various other assumptions we believe to be reasonable according to the facts and circumstances at the time the estimates are made. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements. There can be no assurance that actual results will not differ from those estimates and assumptions. This discussion and analysis should be read in conjunction with our consolidated financial statements and related notes.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Changes in estimates are accounted for prospectively.
Our estimates and classification of oil and natural gas reserves are, by necessity, projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production. Reserve engineering is a subjective process of estimating underground accumulations of oil and natural gas that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering, and geological interpretation and judgment. Estimates of economically recoverable oil and natural gas reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions. These factors and assumptions include historical production from the area compared with production from other producing areas, the assumed effect of regulations by governmental agencies, and assumptions governing future oil and natural gas prices. For these reasons, estimates of the economically recoverable quantities of expected oil and natural gas and estimates of the future net cash flows may vary substantially.
Any significant variance in the assumptions could materially affect the estimated quantity of reserves, which could affect the carrying value of our oil and natural gas properties and/or the rate of depletion related to oil and natural gas properties.
Oil and Gas Properties
We use the successful efforts method of accounting for oil and natural gas producing properties, as further defined under Accounting Standards Codification 932, Extractive Activities-Oil and Natural Gas. Under this method, costs to acquire mineral interests in oil and natural gas properties are capitalized. The costs of non-producing mineral interests and associated acquisition costs are capitalized as unproved properties pending the results of leasing efforts and drilling activities of E&P operators on our interests. As unproved properties are determined to have proved reserves, the related costs are transferred to proved oil and gas properties. Capitalized costs for proved oil and natural gas mineral interests are depleted on a unit-of-production basis over total proved reserves. For depletion of proved oil and gas properties, interests are grouped in a reasonable aggregation of properties with common geological structural features or stratigraphic conditions.
Impairment of Oil and Gas Properties
We evaluate our proved properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When assessing proved properties for impairment, we compare the expected undiscounted future cash flows of the proved properties to the carrying amount of the proved properties to
determine recoverability. If the carrying amount of proved properties exceeds the expected undiscounted future net cash flows, the carrying amount is written down to the properties’ estimated fair value, which is measured as the present value of the expected future net cash flows of such properties. The factors used to determine fair value include estimates of proved reserves, future commodity prices, timing of future production, and a risk-adjusted discount rate. The proved property impairment test is primarily impacted by future commodity prices, changes in estimated reserve quantities, estimates of future production, overall proved property balances, and depletion expense. If pricing conditions decline or are depressed, or if there is a negative impact on one or more of the other components of the calculation, we may incur proved property impairments in future periods.
Unproved oil and gas properties are assessed periodically for impairment of value, and a loss is recognized at the time of impairment by charging capitalized costs to expense. Impairment is assessed based on when facts and circumstances indicate that the carrying value may not be recoverable, at which point an impairment loss is recognized to the extent the carrying value exceeds the estimated recoverable value. Factors used in the assessment include, but are not limited to, commodity price outlooks, current and future operator activity, and analysis of recent mineral transactions in the surrounding area.
Crude Oil, Natural Gas and NGLs Reserve Quantities and Standardized Measure of Oil and Gas
Our estimates of crude oil, natural gas and NGLs reserves and associated future net cash flows are prepared or audited by our independent reservoir engineers. The SEC has defined proved reserves as the estimated quantities of oil and gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. The process of estimating crude oil, natural gas and NGLs reserves is complex, requiring significant decisions in the evaluation of available geological, geophysical, engineering and economic data. The data for a given property may also change substantially over time as a result of numerous factors, including additional development activity, evolving production history and a continual reassessment of the viability of production under changing economic conditions. As a result, material revisions to existing reserve estimates occur from time to time. Although every reasonable effort is made to ensure that reserve estimates reported represent the most accurate assessments possible, the decisions and variances in available data for various properties increase the likelihood of significant changes in these estimates. If such changes are material, they could significantly affect future amortization of capitalized costs and result in impairment of assets that may be material.
There are numerous uncertainties inherent in estimating quantities of proved crude oil, natural gas and NGLs reserves. Crude oil, natural gas and NGLs reserve engineering is a process of estimating underground accumulations of crude oil, natural gas and NGLs that cannot be precisely measured and the accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. Results of drilling, testing and production subsequent to the date of the estimate may justify positive or negative revisions of reserve estimates.
Revenue Recognition
Mineral and royalty interests represent the right to receive revenues from the sale of oil, natural gas and NGLs, less production taxes and post-production expenses. The prices of oil, natural gas, and NGLs from the properties in which we own a mineral or royalty interest are primarily determined by supply and demand in the marketplace and can fluctuate considerably. As an owner of mineral and royalty interests, we have no working interest or operational control over the volumes and methods of sale of the oil, natural gas, and NGL produced and sold from our properties. We do not explore, develop, or operate the properties and, accordingly, do not incur any of the associated costs. As we do not operate any of the wells for which we receive royalties, we have limited visibility into the timing of when new wells start producing and production statements may not be received for 30 to 90 days or more after the date production is delivered. As a result, we are required to estimate the amount of production delivered to the purchaser and the price that we will receive for the sale of the product. The expected sales volumes and prices for these properties are estimated and recorded within the Accrued revenue and accounts receivable line item in the accompanying consolidated balance sheets. Differences between our estimates and the actual amounts received for oil and natural gas sales are recorded in the month that payment is received from the third party.
Oil, natural gas, and NGLs revenues from our mineral and royalty interests are recognized when control transfers at the wellhead.
We also earn revenue related to lease bonuses by leasing our mineral interests to E&P companies. We recognize lease bonus revenue when the lease agreement has been executed and payment is determined to be collectible.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risk, including the effects of adverse changes in commodity prices and interest rates 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 term “market risk” refers to the risk of loss arising from adverse changes in oil, natural gas and NGLs prices and interest rates. The disclosures are not meant to be precise indicators of expected future losses, but rather indicators of reasonably possible losses. This forward-looking information provides indicators of how we view and manage our ongoing market risk exposures. All of our market risk sensitive instruments were entered into for purposes other than speculative trading.
Commodity Price Risk
Our major market risk exposure is in the pricing applicable to the crude oil, natural gas and NGLs production of our E&P operators, which affects the royalty payments we receive from our E&P operators. Realized pricing is primarily driven by the prevailing worldwide price for crude oil and spot market prices applicable to our natural gas production. Pricing for crude oil, natural gas and NGL production has been volatile historically and we expect this volatility to continue in the future. The prices that our E&P operators receive for production depend on many factors outside of our or their control.
A $1.00 per Bbl change in our realized oil price would have resulted in a $7.0 million change in our oil revenues for the year ended December 31, 2024. A $0.10 per Mcf change in our realized natural gas price would have resulted in a $2.4 million change in our natural gas revenues for the year ended December 31, 2024. A $1.00 per Bbl change in NGL prices would have resulted in a $3.2 million change in our NGL revenues for the year ended December 31, 2024. Royalties on oil sales contributed 86% of our mineral and royalty revenues for the year ended December 31, 2024. Royalties on natural gas sales contributed 4% and royalties on NGL sales contributed 10% of our total mineral and royalty revenues for the year ended December 31, 2024.
We may enter into derivative instruments from time to time, such as collars, swaps and basis swaps, to partially mitigate the impact of commodity price volatility. These hedging instruments allow us to reduce, but not eliminate, the potential effects of the variability in cash flow from operations due to fluctuations in oil, natural gas and NGL prices and provide increased certainty of cash flows related to certain of our acquisitions. However, these instruments provide only partial price protection against declines in oil, natural gas and NGL prices and may partially limit our potential gains from future increases in prices. Refer to “Note 13 - Derivative Instruments” for further information.
Credit Risk
Our derivative contracts expose us to credit risk in the event of nonperformance by counterparties. While we do not require counterparties to our derivative contracts to post collateral, we evaluate the credit standing of such counterparties as we deem appropriate. All counterparties have high credit ratings and are current lenders under the Sitio Revolving Credit Facility. For these contracts, we are not required to provide any credit support to our counterparties other than cross collateralization with the properties securing the Sitio Revolving Credit Facility. Our derivative contracts are documented with industry standard contracts known as a Schedule to the Master Agreement and ISDAs. Typical terms for the ISDAs include credit support requirements, cross default provisions, termination events, and set-off provisions. We have set-off provisions with the Sitio Revolving Credit Facility lenders that, in the event of counterparty default, allow us to set-off amounts owed under the Sitio Revolving Credit Facility or other general obligations against amounts owed to the Company for derivative contract assets. Our principal exposures to credit risk are through receivables generated by the production activities of our operators.
Although we are exposed to a concentration of credit risk, we do not believe the loss of any single purchaser would materially impact our operating results as crude oil and natural gas are fungible products with well-established markets and numerous purchasers. If multiple purchasers were to cease making purchases at or around the same time, we believe there would be challenges initially, but there would be ample markets to handle the disruption. Additionally, recent rulings in bankruptcy cases involving our E&P operators have stipulated that royalty owners must still be paid for oil, gas and NGLs extracted from their mineral acreage during the bankruptcy process. In light of this, we do not expect the entry of one of our operators into bankruptcy proceedings to materially affect our operating results.
Interest Rate Risk
Our primary exposure to interest rate risk results from outstanding borrowings under the Sitio Revolving Credit Facility which bears interest at a floating rate and the 2028 Senior Notes, which bear interest at a fixed rate. The average
annual interest rate incurred on our borrowings under the Sitio Revolving Credit Facility during the year ended December 31, 2024 was 8.2%. We estimate that an increase of 1.0% in the average interest rate during the year ended December 31, 2024 would have resulted in an approximately $3.9 million increase in interest expense.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
The Company’s consolidated financial statements required by this item are included in this Annual Report beginning on page and are incorporated herein by reference.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Internal Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Exchange Act is properly and timely reported and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
An effective internal control system, no matter how well designed and operated, has inherent limitations, including the possibility of human error and circumvention or overriding of controls and therefore can provide only reasonable assurance with respect to reliable financial reporting. Furthermore, effectiveness of an internal control system in future periods cannot be guaranteed because the design of any system of internal controls is based in part upon assumptions about the likelihood of future events. There can be no assurance that any control design will succeed in achieving its stated goals under all potential future conditions. Over time, certain controls may become inadequate because of changes in business conditions, or the degree of compliance with policies and procedures may deteriorate. As such, misstatements due to error or fraud may occur and not be detected.
We have evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2024 with the participation, and under the supervision, of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2024, our disclosure controls and procedures were effective at a reasonable level of assurance.
Management’s Report on Internal Control Over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control over financial reporting is a process designed by and/or under the supervision of our Chief Executive Officer and Chief Financial Officer, and effected by the Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our consolidated financial statements for external purposes in accordance with GAAP.
Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Also, projections of any evaluation of the effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework Scope of the Controls Evaluation. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2024. Our management has included a report of their assessment of the design and effectiveness of our internal controls over financial reporting as part of this Annual Report for the year ended December 31, 2024, as required by Item 308(a) of Regulation S-K. KPMG LLP, an independent registered public accounting firm, audited the effectiveness of our internal
control over financial reporting as of December 31, 2024, and has issued an attestation report on the Company’s internal control over financial reporting, included in this Annual Report.
Changes in Internal Control Over Financial Reporting
Except as described above, there has been no change in our internal control over financial reporting that occurred during the quarter ended December 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
During the three months ended December 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information required by this item is incorporated by reference from the information under the captions “Board of Directors’ Nominees,” “Committees of the Board of Directors,” “2024 Director Compensation,” and “Delinquent Section 16(A) Reports” in our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2024.
Our Board has adopted a Code of Business Conduct and Ethics applicable to all officers, directors and employees, which is available on the Investor Relations section of our website (http://investors.sitio.com) under “Governance Documents.” We intend to satisfy the disclosure requirement under Item 5.05 of Form 8-K regarding amendment to, or waiver from, a provision of our Code of Business Conduct and Ethics by posting such information on the website address and location specified above.
Policy Prohibiting Insider Trading and Related Procedures
We have adopted an insider trading policy governing the purchase, sale, and other dispositions of the registrant’s securities by directors, senior management, and employees. A copy of the insider trading policy is filed as an exhibit to this Annual Report.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information required by this item is incorporated by reference from the information under the captions “Compensation Committee Interlocks and Insider Participation,” “Executive Compensation” and “2024 Director Compensation” in our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2024.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is incorporated by reference from the information under the captions “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2024.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated by reference from the information under the captions “Certain Relationships and Interested Transactions,” “Board of Directors’ Nominees,” and “Director Independence” in our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2024.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated by reference from the information under the caption “Principal Accountant Fees and Services” in our Proxy Statement for the 2025 Annual Meeting of Stockholders to be filed with the SEC within 120 days of the fiscal year ended December 31, 2024.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits and Financial Statement Schedules
(a)(1) Financial Statements
See “Index to Consolidated Financial Statements” set forth on Page.
(a)(2) Financial Statement Schedules
All schedules have been omitted because they are either not applicable, not required or the information called for therein appears in the consolidated financial statements or notes hereto.
(a)(3) Exhibits
The following documents are filed as part of this Annual Report and incorporated by reference:
Exhibit Number Description
2.1# Agreement and Plan of Merger, dated as of January 11, 2022, by and among Falcon Minerals Corporation, Falcon Minerals Operating Partnership, LP, Ferrari Merger Sub A LLC, and DPM HoldCo, LLC (incorporated by reference to Exhibit 2.1 to our predecessor's Current Report on Form 8-K filed on January 12, 2022).
2.2# Agreement and Plan of Merger, dated as of September 6, 2022, by and among Sitio Royalties Corp., Sitio Royalties Operating Partnership, LP, Snapper Merger Sub I, Inc., Snapper Merger Sub II, LLC, Brigham Minerals, Inc. and Brigham Minerals Holdings LLC (incorporated by reference to Exhibit 2.1 to our predecessor’s Current Report on Form 8-K filed on September 12, 2022).
2.3 Contribution Agreement, dated as of June 3, 2018, by and among Royal Resources L.P., Royal Resources GP L.L.C., Noble Royalties Acquisition Co. LP, Hooks Ranch Holdings LP, DGK ORRI Holdings, LP, DGK ORRI GP LLC, Hooks Holding Company GP, LLC and Osprey Energy Acquisition Corp. (incorporated by reference to Exhibit 2.1 to our predecessor’s Current Report on Form 8-K filed with the SEC on June 4, 2018).
3.1 Amended and Restated Certificate of Incorporation of the Company, dated as of December 28, 2022, effective as of December 29, 2022 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on December 29, 2022).
3.2 Amendment to the Restated Certificate of Incorporation of Sitio Royalties Corp., dated as of May 17, 2024 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 17, 2024).
3.3 Second Amended and Restated Bylaws of the Company, adopted on December 29, 2022 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on December 29, 2022).
4.1 Indenture, dated as of October 3, 2023, among Sitio Royalties Operating Partnership, LP, Sitio Finance Corp., solely for purposes of Section 4.16(b) therein, Sitio Royalties Corp., the guarantors named therein and Citibank, N.A., as trustee (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on October 4, 2023).
4.2 Registration Rights Agreement, dated as of June 14, 2023, by and among Sitio Royalties Corp., Sierra Energy Royalties, LLC and Source Energy Permian II, LLC (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on June 15, 2023).
4.3 Form of Registration Rights Agreement, dated as of December 29, 2022, by and among Sitio Royalties Corp., STR Sub Inc. and each of the other parties listed on the signature pages thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 29, 2022).
4.4 Registration Rights Agreement, dated as of January 11, 2022, by and among Falcon Minerals Corporation, Chambers DPM HoldCo, LLC, KMF DPM HoldCo, LLC, Source Energy Leasehold, LP, Permian Mineral Acquisitions, LP, Rock Ridge Royalty Company, LLC and Royal Resources L.P. (incorporated by reference to Exhibit 10.2 to our predecessor’s Current Report on Form 8-K filed on January 12, 2022).
4.5 Registration Rights Agreement dated as of August 23, 2018 by and among Falcon Minerals Corporation, Royal Resources L.P., Noble Royalties Acquisition Co., L.P., Hooks Ranch Holdings LP, DGK ORRI Holdings, LP, DGK ORRI GP LLC and Hooks Holdings Company GP, LLC (incorporated by reference to Exhibit 4.2 to our predecessor’s Current Report on Form 8-K filed on August 29, 2018).
4.6 Description of Sitio Royalties Corp.’s registered securities (incorporated by reference to Exhibit 4.11 to the Company’s Annual Report on Form 10-K filed on February 29, 2024).
10.1 Director Designation Agreement, dated as of January 11, 2022, by and among Falcon Minerals Corporation, Chambers DPM HoldCo, LLC, KMF DPM HoldCo, LLC, Source Energy Leasehold, LP, Permian Mineral Acquisitions, LP, Rock Ridge Royalty Company, LLC and Royal Resources L.P. (incorporated by reference to Exhibit 10.3 to our predecessor’s Current Report on Form 8-K filed on January 12, 2022).
10.2 Assignment, Assumption and Amendment of Director Designation Agreement, dated as of December 29, 2022, by and among Sitio Royalties Corp., STR Sub Inc. and certain principal stockholders (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on December 29, 2022).
10.3 Second Amended and Restated Agreement of Limited Partnership of Sitio Royalties Operating Partnership, LP, dated as of June 7, 2022 (incorporated by reference to Exhibit 10.3 to our predecessor’s Current Report on Form 8-K filed on June 10, 2022).
10.4 First Amendment to Second Amended and Restated Agreement of Limited Partnership of Sitio Royalties Operating Partnership, LP, dated as of December 28, 2022 (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December 29, 2022).
10.5 Second Amendment to Second Amended and Restated Agreement of Limited Partnership of Sitio Royalties Operating Partnership, LP, dated as of June 14, 2023 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on June 15, 2023).
10.6†
Sitio Royalties Corp. Long Term Incentive Plan (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-8 filed on January 3, 2023).
10.7†
Brigham Minerals, Inc. 2019 Long Term Incentive Plan (incorporated by reference to Exhibit 4.5 to the Company’s Registration Statement on Form S-8 filed on January 3, 2023).
10.8 Form of DPM HoldCo, LLC Assignment and Allocation Agreement (incorporated by reference to Exhibit 4.4 to the Company’s Registration Statement on Form S-8 filed on January 3, 2023).
10.9†
Sitio Royalties Corp. Amended and Restated Severance Plan (incorporated by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2024).
10.10†
Form of Restricted Stock Unit Agreement under the Sitio Royalties Corp. Long Term Incentive Plan (incorporated by reference to Exhibit 10.7 to our predecessor’s Quarterly Report on Form 10-Q filed on August 8, 2022).
10.11†
Form of Performance Stock Unit Agreement under the Sitio Royalties Corp. Long Term Incentive Plan (incorporated by reference to Exhibit 10.8 to our predecessor’s Quarterly Report on Form 10-Q filed on August 8, 2022).
10.12†
Form of Deferred Share Unit Agreement under the Sitio Royalties Corp. Long Term Incentive Plan (incorporated by reference to Exhibit 10.9 to our predecessor’s Quarterly Report on Form 10-Q filed on August 8, 2022).
10.13†
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.7 to our predecessor’s Current Report on Form 8-K filed on June 10, 2022).
10.14†
Form of Participation Agreement (incorporated by reference to Exhibit 10.6 to the Company's Quarterly Report on Form 10-Q filed on August 7, 2024).
10.15†
Form of Notice of Restrictive Covenants, Including Covenant Not to Compete (incorporated by reference to Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q filed on August 7, 2024).
10.16#
Third Amended and Restated Credit Agreement, dated as of February 3, 2023, by and among Sitio Royalties Operating Partnership, LP, as borrower, each lender from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and any other parties from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 8, 2023).
10.17#
First Amendment to Third Amended and Restated Credit Agreement, dated as of September 22, 2023, by and among Sitio Royalties Operating Partnership, LP, as borrower, each lender from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and any other parties from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 26, 2023).
10.18 Second Amendment to Third Amended and Restated Credit Agreement, dated as of December 20, 2023, by and among Sitio Royalties Operating Partnership, LP, as borrower, each lender from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and any other parties from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 27, 2023).
10.19 Third Amendment to Third Amended and Restated Credit Agreement, dated as of May 3, 2024, by and among Sitio Royalties Operating Partnership, LP, as borrower, each lender from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and any other parties from time to time party thereto (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed on May 8, 2024).
10.20#
Fourth Amendment to Third Amended and Restated Credit Agreement, dated as of December 16, 2024, by and among Sitio Royalties Operating Partnership, LP, as borrower, each lender from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, and any other parties from time to time party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 19, 2024).
10.21 Support Agreement, dated as of September 6, 2022, by and among Sitio Royalties Corp., BX Royal Aggregator LP, Rock Ridge Royalty Company LLC and Brigham Minerals, Inc. (incorporated by reference to Exhibit 10.1 to our predecessor’s Current Report on Form 8-K filed on September 12, 2022).
10.22 Support Agreement, dated as of September 6, 2022, by and among Sitio Royalties Corp., KMF DPM HoldCo, LLC, Chambers DPM HoldCo, LLC and Brigham Minerals, Inc. (incorporated by reference to Exhibit 10.2 to our predecessor’s Current Report on Form 8-K filed on September 12, 2022).
10.23 Support Agreement, dated as of September 6, 2022, by and among Sitio Royalties Corp., Source Energy Leasehold, LP, Permian Mineral Acquisitions, LP and Brigham Minerals, Inc. (incorporated by reference to Exhibit 10.3 to our predecessor's Current Report on Form 8-K filed on September 12, 2022).
10.24 Support Agreement, dated as of January 11, 2022, by and among Falcon Minerals Corporation, DPM Holdco, LLC and Royal Resources L.P. (incorporated by reference to Exhibit 10.1 to our predecessor’s Current Report on Form 8-K filed January 12, 2022).
19.1*
Insider Trading Policy, adopted as of February 25, 2025.
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to the Company’s Annual Report on Form 10-K filed on February 29, 2024).
23.1* Consent of KPMG LLP.
23.2* Consent of Cawley, Gillespie & Associates, Inc.
31.1* Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2* Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
97.1 Sitio Royalties Corp. Clawback Policy (incorporated by reference to Exhibit 97.1 to the Company’s Annual Report on Form 10-K filed on February 29, 2024).
99.1* Cawley, Gillespie & Associates, Inc. Summary of Reserves of Sitio Royalties Corp. at December 31, 2024.
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*Filed herewith.
**Furnished herewith.
†Identifies management contracts and compensatory plans or arrangements.
#Certain schedules, annexes or exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K, but will be furnished supplementally to the SEC upon request.