Commitments and Contingencies

12 Months Ended

Dec. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

Processing, Transportation and Produced Water Disposal Commitments

Firm Commitments    

From time to time, the Company enters into agreements with third parties whereby the Company commits to deliver anticipated natural gas and oil production and produced water from certain portions of its acreage for gathering, transportation, processing, fractionation, sales and disposal. The Company paid approximately $46.0 million and $28.7 million for deliveries under these agreements during the years ended December 31, 2020 and 2019, respectively. Certain of these agreements contain minimum volume commitments. If the Company does not meet the minimum volume commitments under these agreements, it will be required to pay certain deficiency fees. If the Company ceased operations in the areas subject to these agreements at December 31, 2020, the total deficiencies required to be paid by the Company under these agreements would be approximately $523.1 million, in addition to the future commitments and the San Mateo commitments described below.

Future Commitments

In October 2019, the Company entered into a 15-year, fixed-fee natural gas transportation agreement whereby the Company committed to deliver a portion of the residue gas production at the tailgate of the Black River Processing Plant to transport through the counterparty’s pipeline. The agreement began when the counterparty’s pipeline was placed in service, which occurred during the first quarter of 2021. Now that the pipeline has been placed in service, the Company owes the fees to transport the committed volume whether or not the committed volume is transported through the counterparty’s pipeline. The minimum contractual obligation was approximately $106.9 million when the pipeline was placed in service.

San Mateo Commitments

In February 2017, the Company dedicated its current and certain future leasehold interests in the Rustler Breaks and Wolf asset areas pursuant to 15-year, fixed-fee oil, natural gas and produced water gathering and produced water disposal agreements with subsidiaries of San Mateo I. In addition, the Company dedicated its current and certain future leasehold interests in the Rustler Breaks asset area pursuant to a 15-year, fixed-fee natural gas processing agreement (collectively with the gathering and produced water disposal agreements, the “Operational Agreements”). San Mateo provides the Company with firm service under each of the Operational Agreements in exchange for certain minimum volume commitments. The remaining minimum contractual obligation under the Operational Agreements at December 31, 2020 was approximately $153.5 million.

In connection with the February 2019 formation of San Mateo II, the Company dedicated to San Mateo acreage in the Greater Stebbins Area and the Stateline asset area pursuant to 15-year, fixed-fee oil, natural gas and produced water gathering, natural gas processing and produced water disposal agreements (collectively, the “San Mateo II Operational Agreements”). San Mateo provides the Company with firm service under each of the San Mateo II Operational Agreements in exchange for certain minimum volume commitments. The remaining minimum contractual obligation under the San Mateo II Operational Agreements at December 31, 2020 was approximately $340.3 million.

In June 2019, a subsidiary of San Mateo entered into an agreement with third parties for the engineering, procurement, construction and installation of an expansion of the Black River Processing Plant, including required compression. The expansion was placed in service in the third quarter of 2020. San Mateo’s total commitments under this agreement were $81.3 million. San Mateo paid approximately $41.2 million under this agreement during the year ended December 31, 2020. As of December 31, 2020, there were no remaining obligations under this agreement.

Other Commitments

The Company does not own or operate its own drilling rigs, but instead enters into contracts with third parties for such drilling rigs. These contracts establish daily rates for the drilling rigs and the term of the Company’s commitment for the drilling services to be provided. The Company would incur a termination obligation if the Company elected to terminate a contract and if the drilling contractor were unable to secure replacement work for the contracted drilling rigs at the same daily rates being charged to the Company prior to the end of their respective contract terms. The Company’s undiscounted minimum outstanding aggregate termination obligations under its drilling rig contracts were approximately $20.6 million at December 31, 2020.

At December 31, 2020, the Company had outstanding commitments to drill and complete and to participate in the drilling and completion of various operated and non-operated wells. If all of these wells are drilled and completed as proposed, the Company’s undiscounted minimum outstanding aggregate commitments for its participation in these operated and non-operated wells were approximately $44.6 million at December 31, 2020. The Company expects these costs to be incurred within the next three to five years.

Legal Proceedings

The Company is a party to several legal proceedings encountered in the ordinary course of its business. While the ultimate outcome and impact to the Company cannot be predicted with certainty, in the opinion of management, it is remote that these legal proceedings will have a material adverse impact on the Company’s financial condition, results of operations or cash flows.