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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FormFORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022March 31, 2023
ORor
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File Number 1-9260
Image1.jpg
UNIT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware73-1283193
(State or other jurisdiction of incorporation)(I.R.S. Employer Identification No.)
8200 South Unit Drive,Tulsa,Oklahoma74132
(Address of principal executive offices)(Zip Code)
(918) 493-7700
(Registrant’s telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
N/AN/AN/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                Yes ☐          No ☒ *

* Effective January 1, 2021, the registrant’s obligation to file reports under Section 15(d) of the Securities Exchange Act of 1934 was automatically suspended.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).                            Yes ☒            No ☐                                     
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐                Accelerated filer ☐                Non-accelerated filer ☒
Smaller reporting company ☒☐                Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐      
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐            No ☒         
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒   No ☐            
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐            No ☒         
As of November 10, 2022, 9,612,096May 11, 2023, 9,633,428 shares of the registrant's common stock were outstanding.

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TABLE OF CONTENTS
 
  Page
Number
PART I. Financial Information
Item 1.
4
119
Item 2.
3528
Item 3.
4737
Item 4.
4838
PART II. Other Information
Item 1.
4939
Item 1A.
4939
Item 2.
4939
Item 3.
4939
Item 4.
5039
Item 5.
5039
Item 6.
5040
5141

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Forward-Looking Statements

This report contains “forward-looking statements” – meaning, statements related to future events within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included or incorporated by reference in this document that address activities, events or developments we expect or anticipate will or may occur, are forward-looking statements. The words “believes,” “intends,” “expects,” “anticipates,” “projects,” “estimates,” “predicts,” and similar expressions are used to identify forward-looking statements. This report modifies and supersedes documents filed by us before this report. In addition, certain information we file with the United States Securities and Exchange Commission (SEC) will automatically update and supersede information in this report.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions. Future actions, conditions or events, and future results may differ materially from those expressed in our forward-looking statements. Many factors that will determine these results are beyond our ability to control or accurately predict. Specific factors that could cause actual results to differ from those in our forward-looking statements include:

•the amount and nature of our future capital expenditures and how we expect to fund our capital expenditures;
•prices for oil, NGLs, and natural gas;
•demand for oil, NGLs, and natural gas;
•our exploration and drilling prospects;
•the estimates of our proved oil, NGLs, and natural gas reserves;
•oil, NGLs, and natural gas reserve potential;
•development and infill drilling potential;
•expansion and other development trends in the oil and natural gas industry;
•our business strategy;
•our plans to maintain or increase the production of oil, NGLs, and natural gas;
•our ability to utilize the benefits of net operating losses and other deferred tax assets against potential future taxable income;
•the number of gathering systems and processing plants our mid-stream investment may plan to construct or acquire;
•volumes and prices for the natural gas our mid-stream investment gathers and processes;
•expansion and growth of our business and operations;
•demand for our drilling rigs and the rates we charge for the rigs;
•our belief that the outcome of our legal proceedings will not materially affect our financial results;
•our ability to timely secure third-party services used in completing our wells;
•our mid-stream investment's ability to transport or convey our oil, NGLs, or natural gas production to existing pipeline systems;
•the impact of federal and state legislative and regulatory actions affecting our costs and increasing operating restrictions or delays and other adverse impacts on our business;
•the possibility of security threats, including terrorist attacks and cybersecurity breaches, against or otherwise affecting our facilities and systems;
•any projected production guidelines we may issue;
•our anticipated capital budgets;
•our financial condition and liquidity;
•the number of wells our oil and natural gas segment plans to drill; and
•our estimates of any ceiling test write-downs or other potential asset impairments we may have to record in future periods.
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These statements are based on our assumptions and analyses considering our experience and our perception of historical trends, current conditions, expected future developments, and other factors we believe are appropriate in the circumstances. Whether actual results and developments will meet our expectations and predictions is subject to risks and uncertainties, any one or combination of which could cause our actual results to differ materially from our expectations and predictions. Some of these risks and uncertainties are:
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•the risk factors discussed in this document and the documents (if any) we incorporate by reference;
•general economic, market, or business conditions;
•the availability and nature of (or lack of) business opportunities we pursue;
•demand for our land drilling services;
•changes in laws and regulations;
•changes in the current geopolitical situation, such as the current conflict occurring between Russia and Ukraine;
•risks relating to financing, including restrictions in our debt agreements and availability and cost of credit;
•risks associated with future weather conditions;
•decreases or increases in commodity prices;
•the amount and terms of our debt;
•future compliance with covenants under our credit agreements;
•our ability to pay dividends and make share repurchases;
•pandemics, epidemics, outbreaks, or other public health events, such as COVID-19; and
•other factors, most of which are beyond our control.
You should not construe this list to be exhaustive. We believe the forward-looking statements in this report are reasonable. However, there is no assurance that the actions, events, or results expressed in forward-looking statements will occur, or if any of them do, of their timing or what impact they will have on our results of operations or financial condition. Because of these uncertainties, you should not put undue reliance on any forward-looking statements. Except as required by law, we disclaim any obligation to update forward-looking information and to release publicly the results of any future revisions we may make to forward-looking statements to reflect events or circumstances after this document to reflect incorrect assumptions or unanticipated events.

Additional discussion of factors that may affect our forward-looking statements appear elsewhere in this report, including in Item 1A “Risk Factors,” Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 3 "Quantitative and Qualitative Disclosures About Market Risk - Commodity Price Risk.”

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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements

UNIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30,
2022		December 31,
2021
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$179,063 $64,140 
Accounts receivable, net of allowance for credit losses of $2,355 and $2,511 at September 30, 2022 and December 31, 2021, respectively66,461 87,248 
Prepaid expenses and other4,608 5,542 
Total current assets250,132 156,930 
Property and equipment:
Oil and natural gas properties, on the full cost method:
Proved properties173,413 225,014 
Unproved properties not being amortized4,735 422 
Drilling equipment72,410 66,058 
Gas gathering and processing equipment— 274,748 
Transportation equipment2,712 4,550 
Other8,970 8,631 
262,240 579,423 
Less accumulated depreciation, depletion, amortization, and impairment91,783 128,880 
Net property and equipment170,457 450,543 
Equity method investment (Note 15)1,658 — 
Right of use asset (Note 14)6,951 12,445 
Other assets9,528 9,559 
Total assets (1)
$438,726 $629,477 
1.Unit Corporation no longer consolidates the balance sheet of Superior Pipeline Company, L.L.C. (Superior) as of September 30, 2022, as discussed in Note 2 - Summary Of Significant Accounting Policies and Note 15 - Superior Investment. Unit Corporation's consolidated total assets as of December 31, 2021 included current and long-term assets of Superior of $61.1 million and $229.5 million, respectively, which can only be used to settle obligations of Superior. Unit Corporation's consolidated cash and cash equivalents of $64.1 million as of December 31, 2021 included $17.2 million held by Superior.















March 31,
2023		December 31,
2022
 (In thousands)
ASSETS
Current assets:
Cash and cash equivalents$170,912 $213,975 
Accounts receivable, net of allowance for credit losses of $2.8 million and $2.7 million at March 31, 2023 and December 31, 2022, respectively49,145 57,776 
Prepaid expenses and other2,819 3,718 
Total current assets222,876 275,469 
Property and equipment:
Oil and natural gas properties, on the full cost method:
Proved properties182,919 176,986 
Unproved properties not being amortized1,889 6,953 
Drilling equipment77,041 76,640 
Other11,281 11,319 
Property and equipment, gross273,130 271,898 
Less: accumulated depreciation, depletion, amortization, and impairment100,762 96,605 
Property and equipment, net172,368 175,293 
Deferred tax assets, net (Note 17)74,836 — 
Equity method investment (Note 15)1,658 1,658 
Right of use asset (Note 14)9,002 6,551 
Other assets10,086 10,284 
Total assets$490,826 $469,255 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$17,894 $20,356 
Accrued liabilities (Note 8)10,573 18,716 
Current operating lease liability (Note 14)3,196 1,605 
Current derivative liabilities (Note 12)12,571 23,566 
Current portion of other long-term liabilities (Note 9)5,280 3,989 
Total current liabilities49,514 68,232 
Operating lease liability (Note 14)5,905 5,035 
Other long-term liabilities (Note 9)34,732 33,362 
Commitments and contingencies (Note 16)
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued— — 
Common stock, $0.01 par value, 25,000,000 shares authorized; 12,105,297 shares issued and 9,632,905 outstanding at March 31, 2023, and 12,100,356 shares issued and 9,627,964 outstanding at December 31, 2022121 121 
Treasury stock (Note 5)(79,399)(79,399)
Capital in excess of par value253,956 252,464 
Retained earnings225,997 189,440 
Total shareholders' equity400,675 362,626 
Total liabilities and shareholders' equity$490,826 $469,255 


The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
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UNIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETSSTATEMENTS OF OPERATIONS (UNAUDITED) - CONTINUED
September 30,
2022		December 31,
2021
 (In thousands)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable$22,395 $58,625 
Accrued liabilities (Note 8)20,088 22,450 
Current operating lease liability (Note 14)1,581 3,791 
Current derivative liabilities (Note 12)41,498 40,876 
Warrant liability (Note 12)— 19,822 
Current portion of other long-term liabilities (Note 9)4,144 5,574 
Total current liabilities89,706 151,138 
Long-term debt (Note 9)— 19,200 
Non-current derivative liabilities (Note 12)8,316 17,855 
Operating lease liability (Note 14)5,449 8,677 
Other long-term liabilities (Note 9)31,923 32,939 
Commitments and contingencies (Note 16)
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued— — 
Common stock, $0.01 par value, 25,000,000 shares authorized; 12,083,965 shares issued and 9,611,573 outstanding at September 30, 2022, and 12,000,000 shares issued and 10,050,037 outstanding at December 31, 2021121 120 
Treasury stock (Note 5)(79,399)(51,965)
Capital in excess of par value252,505 198,171 
Retained earnings130,105 41,071 
Total shareholders' equity attributable to Unit Corporation303,332 187,397 
Non-controlling interests in consolidated subsidiaries— 212,271 
Total shareholders' equity303,332 399,668 
Total liabilities and shareholders' equity (1)
$438,726 $629,477 
1.Unit Corporation no longer consolidates the balance sheet of Superior as of September 30, 2022, as discussed in Note 2 - Summary Of Significant Accounting Policies and Note 15 - Superior Investment. Unit Corporation's consolidated total liabilities as of December 31, 2021 included current and long-term liabilities of Superior of $42.3 million and $21.2 million, respectively. All of Unit Corporation's consolidated long-term debt of $19.2 million as of December 31, 2021 was held by Superior.










Three Months Ended March 31,
 20232022
(In thousands except per share amounts)
Revenues:
Oil and natural gas$48,026 $76,810 
Contract drilling45,903 28,882 
Gas gathering and processing— 82,673 
Total revenues93,929 188,365 
Expenses:
Operating costs:
Oil and natural gas17,164 23,475 
Contract drilling26,872 26,237 
Gas gathering and processing— 62,388 
Total operating costs44,036 112,100 
Depreciation, depletion, and amortization3,891 11,270 
General and administrative5,090 6,526 
Gain on disposition of assets (Note 4)(3,753)(2,175)
Total operating expenses49,264 127,721 
Income from operations44,665 60,644 
Other income (expense):
Interest income1,757 10 
Interest expense(39)(274)
Gain (loss) on derivatives, net (Note 12)13,595 (64,076)
Loss on change in fair value of warrants (Note 13)— (36,612)
Loss on deconsolidation of Superior (Note 15)— (13,141)
Reorganization items, net(81)(3)
Other, net107 747 
Total other income (expense)15,339 (113,349)
Income (loss) before income taxes60,004 (52,705)
Income tax expense (benefit), net:
Current190 — 
Deferred(74,836)— 
Total income tax expense (benefit), net(74,646)— 
Net income (loss)134,650 (52,705)
Net loss attributable to non-controlling interests (Note 15)— (5,828)
Net income (loss) attributable to Unit Corporation$134,650 $(46,877)
Net income (loss) attributable to Unit Corporation per common share (Note 7):
Basic$13.93 $(4.66)
Diluted$13.75 $(4.66)







The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
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UNIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
(In thousands except per share amounts)
Revenues:
Oil and natural gas$80,026 $52,880 $257,748 $149,874 
Contract drilling40,256 19,158 102,780 52,893 
Gas gathering and processing— 91,210 82,673 215,435 
Total revenues120,282 163,248 443,201 418,202 
Expenses:
Operating costs:
Oil and natural gas21,235 21,210 72,329 55,846 
Contract drilling25,823 15,357 77,823 41,308 
Gas gathering and processing— 62,621 62,388 147,340 
Total operating costs47,058 99,188 212,540 244,494 
Depreciation, depletion, and amortization3,521 15,294 20,452 49,169 
General and administrative5,601 5,126 19,548 18,046 
Gain on disposition of assets (Note 4)(2,158)(4,031)(6,399)(6,213)
Total operating expenses54,022 115,577 246,141 305,496 
Income from operations66,260 47,671 197,060 112,706 
Other income (expense):
Interest expense, net(37)(702)(408)(3,895)
Loss on derivatives (Note 12)(12,381)(39,742)(73,848)(104,973)
Loss on change in fair value of warrants (Note 12)— (9,054)(29,323)(12,628)
Loss on deconsolidation of Superior (Note 15)— — (13,141)— 
Reorganization items, net(48)(971)(90)(3,959)
Other, net2,024 (7)2,956 (762)
Total other income (expense)(10,442)(50,476)(113,854)(126,217)
Income (loss) before income taxes55,818 (2,805)83,206 (13,511)
Income tax expense, net:
Current— — — — 
Deferred— — — — 
Total income tax expense, net— — — — 
Net income (loss)55,818 (2,805)83,206 (13,511)
Net loss attributable to non-controlling interests (Note 15)— (9,100)(5,828)(4,875)
Net income (loss) attributable to Unit Corporation$55,818 $6,295 $89,034 $(8,636)
Net income (loss) attributable to Unit Corporation per common share (Note 7):
Basic$5.70 $0.56 $8.94 $(0.74)
Diluted$5.60 $0.55 $8.79 $(0.74)








The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
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UNIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

Shareholders' Equity Attributable to Unit Corporation
Common
Stock		Treasury
Stock		Capital in Excess
of Par Value		Retained
Earnings (Deficit)		Non-controlling Interest in Consolidated SubsidiariesTotal
 (In thousands)
Balances as of December 31, 2021$120 $(51,965)$198,171 $41,071 $212,271 $399,668 
Net loss— — — (46,877)(5,828)(52,705)
Distributions to non-controlling interests— — — — (9,479)(9,479)
Deconsolidation of Superior— — — — (196,964)(196,964)
Stock-based compensation— — 1,038 — — 1,038 
Balances as of March 31, 2022$120 $(51,965)$199,209 $(5,806)$— $141,558 
Net income— — — 80,093 — 80,093 
Stock-based compensation— — 2,848 — — 2,848 
Repurchases of common stock— (13,276)— — — (13,276)
Warrant liability reclassification— — 49,145 — — 49,145 
Balances as of June 30, 2022$120 $(65,241)$251,202 $74,287 $— $260,368 
Net income— — — 55,818 — 55,818 
Stock-based compensation— — 1,872 — — 1,872 
Vesting of restricted stock units, net of shares withheld for employee taxes1 — (569)— — (568)
Repurchases of common stock— (14,158)— — — (14,158)
Balances as of September 30, 2022$121 $(79,399)$252,505 $130,105 $— $303,332 
Common
Stock		Treasury
Stock		Capital in Excess
of Par Value		Retained
Earnings (Deficit)		Total
 (In thousands)
Balances as of December 31, 2022$121 $(79,399)$252,464 $189,440 $362,626 
Net income— — — 134,650 134,650 
Dividends declared (Note 5)— — — (98,093)(98,093)
Stock-based compensation— — 1,408 — 1,408 
Exercise of stock options, net of shares withheld for taxes and exercise price— — (108)— (108)
Exercise of warrants, net of shares withheld for exercise price— — 192 — 192 
Balances as of March 31, 2023$121 $(79,399)$253,956 $225,997 $400,675 

Common
Stock		Treasury
Stock		Capital in Excess
of Par Value		Retained
Earnings (Deficit)		Non-controlling Interest in Consolidated SubsidiariesTotal
 (In thousands)
Balances as of December 31, 2021$120 $(51,965)$198,171 $41,071 $212,271 $399,668 
Net loss— — — (46,877)(5,828)(52,705)
Distributions to non-controlling interests— — — — (9,479)(9,479)
Deconsolidation of Superior— — — — (196,964)(196,964)
Stock-based compensation— — 1,038 — — 1,038 
Balances as of March 31, 2022$120 $(51,965)$199,209 $(5,806)$— $141,558 
























The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
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UNIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITYCASH FLOWS (UNAUDITED) - CONTINUED

Shareholders' Equity Attributable to Unit Corporation
Common
Stock		Treasury
Stock		Capital in Excess
of Par Value		Retained
Earnings (Deficit)		Non-controlling Interest in Consolidated SubsidiariesTotal
 (In thousands)
Balances as of December 31, 2020$120 $— $197,242 $(18,140)$246,371 $425,593 
Net income (loss)— — — (1,937)1,346 (591)
Stock-based compensation— — 74 — 16 90 
Balances as of March 31, 2021$120 $— $197,316 $(20,077)$247,733 $425,092 
Net income (loss)— — — (12,994)2,879 (10,115)
Stock-based compensation— — 245 — 15 260 
Distributions to non-controlling interests— — — — (12,344)(12,344)
Repurchases of common stock— (9,048)— — — (9,048)
Balances as of June 30, 2021$120 $(9,048)$197,561 $(33,071)$238,283 $393,845 
Net income (loss) (1)
— — — 6,295 (9,100)(2,805)
Balance correction (Note 2)— — — (1,437)1,437 — 
Stock-based compensation— — (82)— — (82)
Distributions to non-controlling interests— — — — (3,834)(3,834)
Repurchases of common stock— (10,834)— — — (10,834)
Balances as of September 30, 2021$120 $(19,882)$197,479 $(28,213)$226,786 $376,290 
1.Includes a one-time adjustment to correct an error discovered in our second quarter 2021 allocation of earnings from consolidated subsidiaries, as described in Note 2 - Summary Of Significant Accounting Policies.
















 Three Months Ended March 31,
 20232022
(In thousands)
OPERATING ACTIVITIES:
Net income (loss)$134,650 $(52,705)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization3,891 11,270 
(Gain) loss on derivatives, net (Note 12)(13,595)64,076 
Gain (loss) on derivatives settled (Note 12)2,601 (21,239)
Deferred tax benefit(74,836)— 
Loss on change in fair value of warrants (Note 12)— 36,612 
Loss on deconsolidation of Superior (Note 15)— 13,141 
Gain on disposition of assets (Note 4)(3,753)(2,175)
Stock-based compensation plans (Note 6)1,408 1,038 
Change in credit loss reserve62 (29)
ARO liability accretion (Note 10)467 493 
Contract assets and liabilities, net (Note 3)816 199 
Noncash reorganization items(70)(77)
Other, net(226)(401)
Changes in operating assets and liabilities increasing (decreasing) cash:
Accounts receivable8,569 (12,532)
Prepaid expenses and other1,061 1,466 
Accounts payable(1,058)4,107 
Accrued liabilities(2,587)2,566 
Net change in operating assets and liabilities5,985 (4,393)
Net cash provided by operating activities57,400 45,810 
INVESTING ACTIVITIES:
Capital expenditures(8,886)(8,784)
Deconsolidation of Superior cash and cash equivalents (Note 15)— (10,119)
Proceeds from disposition of property and equipment (Note 4)4,797 6,691 
Net cash used in investing activities(4,089)(12,212)
FINANCING ACTIVITIES:
Dividend and dividend equivalent payments(96,458)— 
Payments for employee taxes on net settlement of equity awards (Note 6)(108)— 
Proceeds from exercise of warrants192 — 
Distributions to non-controlling interests (Note 15)— (9,479)
Net cash used in financing activities(96,374)(9,479)
Net increase (decrease) in cash and cash equivalents(43,063)24,119 
Cash and cash equivalents, beginning of period213,975 64,140 
Cash and cash equivalents, end of period$170,912 $88,259 









The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
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UNIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

 Nine Months Ended September 30,
 20222021
(In thousands)
OPERATING ACTIVITIES:
Net income (loss)$83,206 $(13,511)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization20,452 49,169 
Loss on derivatives (Note 12)73,848 104,973 
Cash payments on derivatives settled (Note 12)(82,764)(22,647)
Loss on change in fair value of warrants (Note 12)29,323 12,628 
Loss on deconsolidation of Superior (Note 15)13,141 — 
Gain on disposition of assets (Note 4)(6,399)(6,213)
Stock-based compensation plans (Note 6)5,759 268 
Change in credit loss reserve(156)1,695 
ARO liability accretion (Note 10)1,366 1,381 
Contract assets and liabilities, net (Note 3)(244)2,462 
Noncash reorganization items(77)(67)
Other, net2,339 (2,303)
Changes in operating assets and liabilities increasing (decreasing) cash:
Accounts receivable(19,050)(16,255)
Prepaid expenses and other(3,127)1,063 
Accounts payable(174)12,350 
Accrued liabilities4,203 (1,607)
Income taxes(178)1,128 
Contract advances(158)(88)
Net change in operating assets and liabilities(18,484)(3,409)
Net cash provided by operating activities121,310 124,426 
INVESTING ACTIVITIES:
Capital expenditures(23,759)(21,117)
Deconsolidation of Superior cash and cash equivalents (Note 15)(10,119)— 
Proceeds from disposition of property and equipment (Note 4)64,973 71,350 
Net cash provided by investing activities31,095 50,233 
FINANCING ACTIVITIES:
Borrowings under line of credit (Note 9)— 30,700 
Payments under line of credit (Note 9)— (126,600)
Net payments on finance leases (Note 14)— (3,216)
Payments for employee taxes on net settlement of equity awards (Note 6)(569)— 
Distributions to non-controlling interests (Note 15)(9,479)(16,178)
Repurchases of common stock (Note 5)(27,434)(19,882)
Bank overdrafts— (2,631)
Net cash used in financing activities(37,482)(137,807)
Net increase in cash and cash equivalents114,923 36,852 
Cash and cash equivalents, beginning of period64,140 12,714 
Cash and cash equivalents, end of period$179,063 $49,566 





The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
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UNIT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - CONTINUED

Nine Months Ended September 30, Three Months Ended March 31,
20222021 20232022
(In thousands) (In thousands)
Supplemental disclosure of cash flow information:Supplemental disclosure of cash flow information:Supplemental disclosure of cash flow information:
Cash paid (received) for:Cash paid (received) for:Cash paid (received) for:
Interest paidInterest paid$553 $4,307 Interest paid$39 $285 
Income taxesIncome taxes178 (1,128)Income taxes— — 
Reorganization items(13)4,026 
Changes in accounts payable and accrued liabilities related to purchases of property and equipmentChanges in accounts payable and accrued liabilities related to purchases of property and equipment(214)(3,356)Changes in accounts payable and accrued liabilities related to purchases of property and equipment(7,134)(161)
Changes in accrued liabilities related to dividends declared, but not yet paidChanges in accrued liabilities related to dividends declared, but not yet paid1,636 — 
Non-cash additions to oil and natural gas properties related to asset retirement obligation additions and estimate revisionsNon-cash additions to oil and natural gas properties related to asset retirement obligation additions and estimate revisions(3,304)(4,412)Non-cash additions to oil and natural gas properties related to asset retirement obligation additions and estimate revisions(271)(1,483)
Non-cash reductions to oil and natural gas properties related to net changes in asset retirement obligations, accounts receivable, accounts payable, and accrued liabilities resulting from divestituresNon-cash reductions to oil and natural gas properties related to net changes in asset retirement obligations, accounts receivable, accounts payable, and accrued liabilities resulting from divestitures8,984 2,218 Non-cash reductions to oil and natural gas properties related to net changes in asset retirement obligations, accounts receivable, accounts payable, and accrued liabilities resulting from divestitures14 2,688 





































The accompanying notes are an integral part of these
unaudited condensed consolidated financial statements.
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UNIT CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND BUSINESS

Unless the context clearly indicates otherwise, references in this report to “Unit”, “Company”, “we”, “our”, “us”, or like terms refer to Unit Corporation or, as appropriate, one or more of its subsidiaries. References to "Superior" or our mid-stream segment"mid-stream segment" refer to our 50% ownership interest in Superior Pipeline Company, L.L.C. (Superior) of which we own 50%.

We are primarily engaged in the development, acquisition, and production of oil and natural gas properties, the landonshore contract drilling of natural gas and oil wells, and the buying, selling, gathering, processing, and treating of natural gas. Our operations are all located in the United States and are organized inas the following three reporting segments: (1) Oil and Natural Gas, (2) Contract Drilling, and (3) Mid-Stream.

Oil and Natural Gas. Carried out by our subsidiary, Unit Petroleum Company (UPC), we develop, acquire, and produce oil and natural gas properties for our own account. Our producing oil and natural gas properties, unproved properties, and related assets are primarily located in Oklahoma and Texas, and to a lesser extent, in Arkansas, Kansas, Louisiana, and North Dakota.Texas.

Contract Drilling. Carried out by our subsidiary, Unit Drilling Company (UDC), we drill onshore oil and natural gas wells for a wide range of other oil and natural gas companies as well as for our own account. Our drilling operations are primarily located in Oklahoma, Texas, New Mexico, Wyoming, and North Dakota.

Mid-Stream. Carried out by Superior of which we own 50%.Superior. Superior buys, sells, gathers, transports, processes, and treats natural gas for UPC and for third parties. Mid-StreamSuperior's operations are primarily located in Oklahoma, Texas, Kansas, Pennsylvania, and West Virginia. We held a 50% ownership interest in Superior as of March 31, 2023, but subsequently sold our interest as discussed in Note 15 - Superior Investment.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

These interim financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States (GAAP) for complete consolidated financial statements, and should be read in conjunction with the audited consolidated financial statements and notes thereto for the year ended December 31, 20212022 included in the Company’s Annual Report on Form 10-K as filed with the SEC on March 31, 2022.17, 2023.

In the opinion of management, the unaudited condensed consolidated financial statements are fairly stated and contain all normal recurring adjustments (including the elimination of all intercompany transactions). Our financial statements are prepared in conformity with GAAP, which requires us to make certain estimates and assumptions that may affect the amounts reported in our unaudited condensed consolidated financial statements and notes. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results. The Company evaluates subsequent events through the date the financial statements are issued.

The unaudited condensed consolidated financial statements include the accounts of Unit Corporation and its subsidiaries. We consolidated the financial position, operating results, and cash flows of Superior prior to March 1, 2022, on which date the Master Services and Operating Agreement (MSA) was amended and restated, with the result that we no longer consolidate Superior's financial position, operating results, and cash flows during periods subsequent to March 1, 2022. Accordingly, the unaudited condensed consolidated financial statements and notes reflect Superior activity on a consolidated basis for the two months prior to March 1, 2022. See Note 15 – Superior Investment for more information on the Superior investment and consolidation conclusions. All intercompany transactions and accounts between consolidated entities have been eliminated, including activity between Unit and Superior during the two months prior to March 1, 2022. Intercompany transactions and accounts between Unit and Superior subsequent to March 1, 2022 are not eliminated.

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During third quarter 2021, management identified an error in the allocation of earnings from Superior between Unit Corporation and non-controlling interests related to the three months ended June 30, 2021 as well as an unrelated error in the initial allocation of equity between Unit Corporation and non-controlling interests as of September 1, 2020 (Fresh Start Reporting Date). The impact of the errors were not material to any of our prior period financial statements and both errors were corrected with one-time adjustments in the three months ended September 30, 2021. As a result, during the three months ended September 30, 2021, net income (loss) attributable to Unit Corporation was increased by $12.2 million with a corresponding decrease to net income (loss) attributable to non-controlling interest, and retained earnings (deficit) was reduced by $1.4 million with a corresponding decrease to non-controlling interest in consolidated subsidiaries.

During second quarter 2021, management identified errors in our inter-segment eliminations presentation between oil and natural gas revenues and gas gathering and processing revenues as well as between gas gathering and processing operating costs and general and administrative expenses. The impacts of the errors were not material to any of our prior period financial statements and the current year impacts on the three months ended March 31, 2021 were corrected with a one-time adjustment in the three months ended June 30, 2021. As a result, during the three months ended June 30, 2021, oil and natural gas revenues were decreased by $8.6 million with a corresponding increase to gas gathering and processing revenues while general and administrative expenses were increased by $0.9 million with a corresponding decrease to gas gathering and processing operating costs.

Also during second quarter 2021, management identified separate errors in our prior period accrual of oil and natural gas revenues as well as oil and natural gas operating costs. The impacts of the errors were not material to any of our prior period financial statements and the errors were corrected with a one-time adjustment in the three months ended June 30, 2021. As a result, during the three months ended June 30, 2021, oil and natural gas revenues were increased by $3.9 million and oil and natural gas operating costs were decreased by $3.4 million.

Certain amounts in this report for prior periods have been reclassified to conform to current year presentation. There was no impact from these reclassifications to consolidated net income/(loss) or shareholders' equity.

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NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS

Our revenue streams are reported under three segments: oil and natural gas, contract drilling, and mid-stream which is consistent with how we report our segment revenue in Note 19 – Industry Segment Information. Revenue from the oil and natural gas segment is from sales of our oil and natural gas production. Revenue from the contract drilling segment comes from contracting with upstream companies to drill an agreed-on number of wells or provide drilling rigs and services over an agreed-on period. Revenues from the mid-stream segment are generated from the fees earned for gas gathering and processing services provided to a customer or by selling of hydrocarbons to other mid-stream companies.

Oil and Natural Gas Revenue

Typical types of revenue contracts entered into by our oil and gas segment are Oil Sales Contracts,oil sales contracts, North American Energy Standards Board (NAESB) Contracts, Gas Gatheringgas gathering and Processing Agreements,processing agreements, and revenues earned as the non-operated party with the operator serving as an agent on our behalf under joint operating agreements. Consideration received is variable and settled monthly while contract terms can range from a single month or evergreen to terms of a decade or more. Revenues from oil and natural gas sales are recognized when the customer obtains control of the sold product which typically occurs at the point of delivery to the customer.

Certain costs, as either a deduction from revenue or as an expense, are determined based on when control of the commodity is transferred to our customer, which would affect our total revenue recognized, but will not affect gross profit. For example, gathering, processing and transportation costs are included as part of the contract price with the customer on transfer of control of the commodity are included in the transaction price, while costs incurred while we are in control of the commodity represent operating costs.

Contract Drilling Revenue

Contract drilling revenues and expenses are primarily recognized as services are performed and collection is reasonably assured. Payments for mobilization and demobilization activities do not relate to a distinct good or service within the contract and are deferred for ratable recognition when material. Costs incurred to relocate rigs and other drilling equipment to areas in which a contract has not been secured are expensed as incurred and any reimbursements received for out-of-pocket expenses are recorded as both revenues and direct costs.

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Most of our drilling contracts have a term of one year or less and the remaining performance obligations under the contracts without a fixed term are not material.

Mid-Stream Revenue

The typical revenue contracts used by this segment are gas gathering and processing agreements as well as product sales. Superior recognizes sales revenue at the point in time when control transfers to the purchaser, typically at a specified delivery point, based on the contractually agreed upon fixed or index-based price received. Contracts for gas gathering and processing services may include terms for demand fees or shortfall fees. Demand fees or shortfall fees exist in arrangements where a customer agrees to pay a fixed fee for a contractually agreed upon pipeline capacity or shortfall fees for any minimum volumes not utilized, which create performance obligations for each individual period of reservation. Revenue for these fees is recognized once the services have been completed, the customer no longer has access to the contracted capacity, or the likelihood of the customer exercising all or a portion of their remaining rights becomes remote.

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Contract Assets and Liabilities

The table below showspresents the changes in our contract asset and contract liability balances during periods presented:indicated:

Classification on the unaudited condensed consolidated balance sheetsSeptember 30,
2022		December 31,
2021		Change
(In thousands)
Assets
Current contract assetsPrepaid expenses and other$— $174 $(174)
Non-current contract assetsOther assets— — — 
Total contract assets$— $174 $(174)
Liabilities
Current contract liabilitiesCurrent portion of other long-term liabilities$239 $1,588 $(1,349)
Non-current contract liabilitiesOther long-term liabilities182 200 (18)
Total contract liabilities421 1,788 (1,367)
Contract assets (liabilities), net$(421)$(1,614)$1,193 
Classification on the unaudited condensed consolidated balance sheetsMarch 31,
2023		December 31,
2022		Change
(In thousands)
Liabilities
Current contract liabilitiesCurrent portion of other long-term liabilities$840 $24 $816 
Non-current contract liabilitiesOther long-term liabilities176 176 — 
Total contract liabilities$1,016 $200 $816 

NOTE 4 – DIVESTITURESDISPOSITION OF PROPERTY AND EQUIPMENT

Oil and Natural Gas

The Company initiated an asset divestiture program at the beginning of 2021 to sell certain non-core oil and gas properties and reserves (the Divestiture Program). On October 4, 2021, the Company announced that it was expanding the Divestiture Program to include the potential sale of additional properties, including up to all of UPC’s oil and gas properties and reserves, and on January 20, 2022, the Company announced that it had retained a financial advisor and launched the process. On June 10, 2022, the Company announced that it had ended its engagement with the financial advisor and terminated the process. During the process, the Company entered into an agreement to sell its Texas Gulf Coast oil and gas properties.

On July 1, 2022, the Company closed on the sale of certain wells and related leases near the Texas Gulf Coast for cash proceeds of $45.4 million, net of customary closing and post-closing adjustments based on an effective date of April 1, 2022. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sale did not result in a significant alteration of the full cost pool.

On March 8, 2022, the Company closed on the sale of certain non-core wells and related leases located near the Oklahoma Panhandle for cash proceeds of $3.6 million, net of customary closing and post-closing adjustments based on an effective date of December 1, 2021. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sale did not result in a significant alteration of the full cost pool.
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On August 16, 2021, the Company closed on the sale of substantially all of our wells and related leases located near Oklahoma City, Oklahoma for cash proceeds of $16.1 million, net of customary closing and post-closing adjustments based on an effective date of August 1, 2021. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sale did not result in a significant alteration of the full cost pool.

On May 6, 2021, the Company closed on the sale of substantially all of our wells and the leases related thereto located in Reno and Stafford Counties, Kansas for cash proceeds of $7.3 million, net of customary closing and post-closing adjustments based on an effective date of February 1, 2021. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sale did not result in a significant alteration of the full cost pool.

Net proceeds for the sale of other non-core oil and natural gas assets totaled $3.9$0.7 million and $0.6$0.5 million during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $6.6 million and $5.0 million during the nine months ended September 30, 2022 and 2021, respectively. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sales did not result in a significant alteration of the full cost pool.

Contract Drilling

Proceeds for the sale of non-core contract drilling assets totaled $3.0$4.2 million and $4.3$2.2 million during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $9.4 million and $8.2 million during the nine months ended September 30, 2022 and 2021, respectively. These proceeds resulted in net gains of $2.5$3.7 million and $3.1$2.1 million during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $6.7 million and $5.2 million during the nine months ended September 30, 2022 and 2021, respectively. The net gains are presented within gain on disposition of assets in the unaudited condensed consolidated statements of operations.

Corporate and Other
NOTE 5 – SHAREHOLDERS' EQUITY AND DIVIDENDS

Common Stock

On September 17, 2021, we closed3, 2020 (Emergence Date), the saleCompany emerged from Chapter 11 bankruptcy and issued a total of our corporate headquarters building and land for $35.012.0 million resultingshares of common stock at a par value of $0.01 per share (New Common Stock) to be subsequently distributed in a gain of $0.9 million, net of $2.2 million of transaction costs. In conjunctionaccordance with the closing, we entered intoChapter 11 plan of reorganization filed with the bankruptcy court on June 9, 2020 (as amended, supplemented and modified from time to time, the “Plan”). On February 21, 2023, a multi-year lease forfinal decree was approved to close the remaining Chapter 11 case and grant related relief. As a portionresult, any shares of common stock not yet claimed were deemed unclaimed property and have been treated as reductions to the building.number of shares of common stock issued and outstanding as of February 21, 2023.

All shares of New Common Stock are subject to the transfer restrictions in the Company’s Amended and Restated Certificate of Incorporation (Charter). Article XIV of the Charter provides that, subject to the exceptions provided in Article XIV, any attempted transfer of the Company's common stock will be prohibited and void ab initio if (i) because of the transfer, any person becomes a Substantial Stockholder (as defined below) other than by reason of Treasury Regulations section 1.382-2T(j)(3) or (ii) the Percentage Stock Ownership (as defined in the Charter) interest of any Substantial Stockholder will be increased. A “Substantial Stockholder” means a person with a Percentage Stock Ownership of 4.75% or more.
NOTE 5 – CAPITAL STOCK
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Common Stock Repurchases

In June 2021,There were no repurchases of common stock made during the three months ended March 31, 2023. As of March 31, 2023, we had repurchased an aggregatea total of 600,0002,472,392 shares of our common stock from the Lenders (as defined in Note 9 - Long-Term Debt and Other Long-Term Liabilities) which received these shares asat an exit fee during our reorganization. The Lenders were paid $15.00 peraverage share for their respective shares,price of $32.09 for an aggregate cash purchase pricecost of $9.0 million.$79.3 million through privately negotiated transactions, the repurchase program authorized the Board of Directors in June 2021, and open market purchases. The purchase cost and any direct acquisition costs are reflected as treasury stock on the unaudited condensed consolidated balance sheets.

In June 2021,The remaining value of shares that may yet be purchased under the Company's boardrepurchase program authorization was $31.1 million as of directors (the Board) authorized repurchasing up to $25.0 million of the Company’s outstanding common stock. The Board subsequently authorized increases to the authorized repurchases up to $50.0 million in October 2021 and then up to $100.0 million in June 2022.March 31, 2023. The repurchases aremay be made through open market purchases, privately negotiated transactions, or other available means. The Company has no obligation to repurchase any shares under the repurchase program and may suspend or discontinue it at any time without prior notice. During the third quarter of 2022, we repurchased 275,000 shares under the repurchase program at an average share price of $51.46 for an aggregate purchase price of $14.2 million. As of September 30, 2022, we had repurchased a total of 1,794,392 shares under the repurchase program at an average share price of $38.37 for an aggregate purchase price of $68.9 million.

During the year ended December 31, 2021, we also repurchased 78,000 shares in a privately negotiated transaction at a share price of $19.07 which was not part of the repurchase program.Dividends

The cumulative numberOn January 5, 2023, the Company announced the declaration of shares repurchased asa special cash dividend of September 30, 2022 totaled 2,472,392. The $10.00 per share and approval of a quarterly cash purchase price and any direct acquisition costs are reflected as treasury stock ondividend policy beginning in the unaudited condensed consolidated balance sheetsCompany’s second quarter. On January 31, 2023, the Company paid the special cash dividend of $10.00 per share totaling $96.1 million to stockholders of record as of September 30,the close of business on January 20, 2023. We have accrued liabilities for dividend equivalent payments to be made upon the vesting of restricted stock units outstanding as of the dividend record date, but not yet vested. There were no dividends paid by the Company during the three months ended March 31, 2022.


The initial quarterly dividend will be $2.50 per share to be paid during the Company’s second quarter with record date and payment date yet to be determined. The declaration and payment of any future dividend, whether fixed, special, or variable, will remain at the full discretion of the Company’s Board of Directors and will depend upon the Company’s financial position, results of operations, cash flows, capital requirements, business conditions, future expectations, the requirements of applicable law, and other factors that the Company’s Board of Directors finds relevant at the time of considering any potential dividend declaration.



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Warrants

Each holder of Unit common stock outstanding (Old Common Stock) before the September 3, 2020 emergence from bankruptcy (Emergence Date)Emergence Date that did not opt out of the release under the Chapter 11 plan (as amended, supplemented and modified from time to time, the “Plan”) of reorganization filed with the bankruptcy court on June 9, 2020Plan is entitled to receive 0.03460447 warrants for every share of Old Common Stock owned. Each warrant is exercisable for one share of common stock, subject to adjustment as provided in the Warrant Agreement. The warrants expire on the earliest of (i) September 3, 2027, (ii) consummation of a Cash Sale (as defined in the Warrant Agreement), or (iii) the consummation of a liquidation, dissolution or winding up of the Company.

As of September 30, 2022,March 31, 2023, the Company had authorized 1,822,2031,822,231 warrants and noneof which 21,219 had been exercised.exercised or canceled.

Among other provisions, the Warrant Agreement outlines potential adjustments to the warrants if certain events occur, including (i) stock dividends payable in shares of common stock or stock splits, (ii) reverse stock splits or similar combination events, (iii) Liquidity Events (as defined in the Warrant Agreement), and (iv) other events not explicitly contemplated which may have an adverse impact to the intent and purpose of the warrants as set forth in the Plan, provided, however, the warrants will not be adjusted for (a) any issuances of securities in connection with a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination, (b) the issuance of any securities by Unit on or after the Effective Date (as defined in the Plan)September 3, 2020 (the "Effective Date") pursuant to the Plan or upon the issuance of shares of common stock upon the exercise of such securities, (c) the issuance of any shares of common stock pursuant to the exercise of the warrants, (d) the issuance of shares of common stock pursuant to any management stock option incentive or similar plan, (e) a dividend or distribution to holders of common stock of cash, property, or securities (other than common stock), and/or (f) any change in the par value of the common stock.
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Pursuant to the terms of the Warrant Agreement, the Company determined the initial exercise price of the warrants to be $63.74. On April 7, 2022, the Company delivered notice of the initial exercise price to the Warrant Agent and the warrants became exercisable for shares of the Company’s common stock. On or about April 25, 2022, the warrants began trading over-the-counter under the symbol "UNTCW". On March 31, 2023, the warrants began trading on the OTCQX Best Market.

See Note 12 - Derivatives for more information on how the warrants are treated in our unaudited condensed consolidated financial statements.

NOTE 6 – STOCK-BASED COMPENSATION

On the Effective Date, the Board adopted the Unit Corporation Long Term Incentive Plan (LTIP) to incentivize employees, officers, directors and other service providers of the Company and its affiliates. The LTIP will beis administered by the Board or a committee thereofCompensation Committee and provides for the grant, from time to time, at the discretion of the Board or a committee thereof, of stock options, stock appreciation rights, restricted stock, restricted stock units, (RSUs), stock awards, dividend equivalents, other stock-based awards, cash awards, performance awards, substitute awards or any combination of the foregoing. Subject to adjustment in the event of certain transactions or changes of capitalization in accordance with the LTIP, 903,226903,266 shares of New Common Stock have beenwere reserved for issuance pursuant to awards under the LTIP. New Common Stock subject to an award that expires or is canceled, forfeited, exchanged, settled in cash, or otherwise terminated without delivery of shares and shares withheld to pay the exercise price of, or to satisfy the withholding obligations with respect to, an award will again be available for delivery pursuant to other awards under the LTIP.

The following table below summarizespresents the stock-based compensation expense activity recognized during the following periods:periods indicated:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(In thousands)
Stock-based compensation expense$1,872 $(81)$5,757 $135 
Capitalized stock compensation cost for our oil and natural gas properties— — — — 
Tax benefit (loss) on stock-based compensation$459 $(20)$1,410 $33 
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Three Months Ended March 31,
20232022
(In thousands)
Stock-based compensation expense$1,408 $1,038 
Tax benefit on stock-based compensation$331 $254 

The tablestable below summarize thesummarizes activity pertaining to nonvested RSUsoutstanding stock options during the three and nine months ended September 30, 2022 and 2021:periods indicated:

Three Months Ended September 30,
20222021
Number
of Shares
Weighted
Average Grant Date
Fair Value
Number
of Shares
Weighted
Average Grant Date
Fair Value
Nonvested RSUs, beginning of period294,818 $28.07 109,008 $12.90 
Granted— — — — 
Vested(65,705)25.21 — — 
Forfeited(1,725)34.00 — — 
Nonvested RSUs, end of period227,388 $28.85 109,008 $12.90 

Nine Months Ended September 30,Three Months Ended March 31,
2022202120232022
Number
of Shares
Weighted
Average Grant Date
Fair Value
Number
of Shares
Weighted
Average Grant Date
Fair Value
Number
of Shares
Weighted
Average Grant Date
Fair Value
Number
of Shares
Weighted
Average Grant Date
Fair Value
Nonvested RSUs, beginning of periodNonvested RSUs, beginning of period315,529 $26.71 — $— Nonvested RSUs, beginning of period170,313 $27.15 315,529 $26.71 
Granted (1)
Granted (1)
7,850 30.50 109,008 12.90 
Granted (1)
— — 7,850 30.50 
VestedVested(94,266)21.72 — — Vested(6,359)33.57 (524)30.50 
ForfeitedForfeited(1,725)34.00 — — Forfeited(15,059)34.00 — — 
Nonvested RSUs, end of period (2)
Nonvested RSUs, end of period (2)
227,388 $28.85 109,008 $12.90 
Nonvested RSUs, end of period (2)
148,895 $26.18 322,855 $26.80 
1.RSUs granted in January 2022 had an aggregate grant date fair value of $0.2 million and vest equally each month for thirty months. RSUs granted in April 2021 had an aggregate grant date fair value of $1.4 million and vest 25% on each of the following dates: May 27, 2022, September 3, 2022, September 3, 2023, and September 3, 2024.
2.The aggregate compensation cost related to nonvested RSUs not yet recognized as of September 30, 2022March 31, 2023 was $4.8$3.0 million with a weighted average remaining service period of 1.11.0 years.

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The tablestable below summarize thesummarizes activity pertaining to outstanding stock options during the three and nine months ended September 30, 2022 and 2021:periods indicated:

Three Months Ended September 30,
20222021
Number
of Shares
Weighted Average
Exercise Price
Number
of Shares
Weighted Average
Exercise Price
Outstanding stock options, beginning of period374,834 $45.00 — $— 
Granted— — — — 
Exercised— — — — 
Forfeited or expired— — — — 
Outstanding stock options, end of period374,834 $45.00 — $— 

Nine Months Ended September 30,Three Months Ended March 31,
2022202120232022
Number
of Shares
Weighted Average
Exercise Price
Number
of Shares
Weighted Average
Exercise Price
Number
of Shares
Weighted Average
Exercise Price (4)
Number
of Shares
Weighted Average
Exercise Price
Outstanding stock options, beginning of periodOutstanding stock options, beginning of period361,418 $45.00 — $— Outstanding stock options, beginning of period319,166 $45.00 361,418 $45.00 
Granted (1)
Granted (1)
13,416 45.00 — — 
Granted (1)
— — 13,416 45.00 
ExercisedExercised— — — — Exercised(18,093)45.00 — — 
Forfeited or expiredForfeited or expired— — — — Forfeited or expired(29,373)35.00 — — 
Outstanding stock options, end of period (2)
Outstanding stock options, end of period (2)
374,834 $45.00 — $— 
Outstanding stock options, end of period (2)
271,700 $35.00 374,834 $45.00 
Exercisable stock options, end of period (3)
Exercisable stock options, end of period (3)
65,920 $45.00 — $— 
Exercisable stock options, end of period (3)
84,460 $35.00 — $45.00 
1.Stock options granted in January 2022 had an aggregate grant date fair value of $0.1 million and 100% vestvested on the first anniversary of the grant date.
2.Stock options outstanding as of September 30, 2022March 31, 2023 had a weighted average remaining contractual term of 4.03.5 years and an aggregate intrinsic value of $3.1$2.4 million. The aggregate compensation cost related to outstanding options not yet recognized as of September 30, 2022March 31, 2023 was $3.1$2.1 million with a weighted average remaining service period of 1.0 years.
3.Stock options exercisable as of September 30, 2022March 31, 2023 had a weighted average remaining contractual term of 4.13.1 years and an aggregate intrinsic value of $0.5$0.7 million.
4.On January 6, 2023, in accordance with the provisions allowed under the LTIP, the Compensation Committee adjusted the exercise price of all outstanding stock options to $35.00 per share effective January 31, 2023 to account for the special dividend paid on that date.

NOTE 7 – EARNINGS (LOSS) PER SHARE

The tablestable below showpresents the calculation of earnings (loss) per share attributable to Unit Corporation using the treasury stock method forduring the periods indicated:

Earnings (Loss)
(Numerator)		Weighted
Shares
(Denominator)		Per-Share
Amount		Earnings (Loss)
(Numerator)		Weighted
Shares
(Denominator)		Per-Share
Amount
(In thousands except per share amounts) (In thousands except per share amounts)
Three months ended September 30, 2022
Three months ended March 31, 2023Three months ended March 31, 2023
Basic earnings attributable to Unit Corporation per common shareBasic earnings attributable to Unit Corporation per common share$55,818 9,787 $5.70 Basic earnings attributable to Unit Corporation per common share$134,650 9,667 $13.93 
Effect of dilutive restricted stock units and stock options (1)
Effect of dilutive restricted stock units and stock options (1)
— 178 (0.10)
Effect of dilutive restricted stock units and stock options (1)
— 128 (0.18)
Diluted earnings attributable to Unit Corporation per common shareDiluted earnings attributable to Unit Corporation per common share$55,818 9,965 $5.60 Diluted earnings attributable to Unit Corporation per common share$134,650 9,795 $13.75 
Three months ended September 30, 2021
Basic earnings attributable to Unit Corporation per common share$6,295 11,311 $0.56 
Effect of dilutive restricted stock units— 109 (0.01)
Diluted earnings attributable to Unit Corporation per common share$6,295 11,420 $0.55 
Three months ended March 31, 2022Three months ended March 31, 2022
Basic loss attributable to Unit Corporation per common shareBasic loss attributable to Unit Corporation per common share$(46,877)10,050 $(4.66)
Effect of dilutive potential common shares (2)
Effect of dilutive potential common shares (2)
— — — 
Diluted loss attributable to Unit Corporation per common shareDiluted loss attributable to Unit Corporation per common share$(46,877)10,050 $(4.66)
1.The diluted earnings per share calculation for the three months ended March 31, 2023 excludes the effects related to 1,815,410 average warrants with a $63.74 exercise price because their inclusion would be antidilutive.
2.The diluted earnings per share calculation for the three months ended March 31, 2022 excludes the effects related to 1,822,203 average warrants with a $63.74 exercise price, 319,192 average outstanding restricted stock units, and 368,126 average outstanding stock options with a $45.00 exercise price because their inclusion would be antidilutive.
1.The diluted earnings per share calculation for the three months ended March 31, 2023 excludes the effects related to 1,815,410 average warrants with a $63.74 exercise price because their inclusion would be antidilutive.
2.The diluted earnings per share calculation for the three months ended March 31, 2022 excludes the effects related to 1,822,203 average warrants with a $63.74 exercise price, 319,192 average outstanding restricted stock units, and 368,126 average outstanding stock options with a $45.00 exercise price because their inclusion would be antidilutive.
1.
The diluted earnings per share calculation for the three months ended September 30, 2022 excludes the effects related to 1,822,203 average warrants with a $63.74 exercise price because their inclusion would be antidilutive.
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Earnings (Loss)
(Numerator)		Weighted
Shares
(Denominator)		Per-Share
Amount
 (In thousands except per share amounts)
Nine months ended September 30, 2022
Basic earnings attributable to Unit Corporation per common share$89,034 9,954 $8.94 
Effect of dilutive restricted stock units and stock options (1)
— 177 (0.15)
Diluted earnings attributable to Unit Corporation per common share$89,034 10,131 $8.79 
Nine months ended September 30, 2021
Basic loss attributable to Unit Corporation per common share$(8,636)11,735 $(0.74)
Effect of dilutive restricted stock units (2)
— — — 
Diluted loss attributable to Unit Corporation per common share$(8,636)11,735 $(0.74)
1.The diluted earnings per share calculation for the nine months ended September 30, 2022 excludes the effects related to 361,418 average outstanding stock options with a $45.00 exercise price and 1,822,203 average warrants with a $63.74 exercise price because their inclusion would be antidilutive.
2.The diluted loss per share calculation for the nine months ended September 30, 2021 excludes the effect related to 62,690 average outstanding restricted stock units because their inclusion would be antidilutive.

NOTE 8 – ACCRUED LIABILITIES

The table below provides detail on ourpresents the components of accrued liabilities as of the dates indicated:

September 30,
2022		December 31,
2021		March 31,
2023		December 31,
2022
(In thousands) (In thousands)
Employee costsEmployee costs$9,058 $10,005 Employee costs$3,886 $5,905 
Lease operating expensesLease operating expenses3,490 3,451 Lease operating expenses3,463 3,383 
Capital expendituresCapital expenditures4,102 3,962 Capital expenditures628 6,359 
TaxesTaxes2,192 3,320 Taxes1,488 1,035 
Interest payableInterest payable37 296 Interest payable40 40 
OtherOther1,209 1,416 Other1,068 1,994 
Total accrued liabilitiesTotal accrued liabilities$20,088 $22,450 Total accrued liabilities$10,573 $18,716 

NOTE 9 – LONG-TERM DEBT AND OTHER LONG-TERM LIABILITIES

Long-Term Debt

The table below provides detail on our outstandingpresents the individual components of long-term debt as of the dates indicated:

September 30,March 31,
20222023		December 31,
20212022
 (In thousands)
Long-term debt:
Exit credit agreement$— $— 
Superior credit agreement (1)
$19,200 
1.Unit Corporation no longer consolidates the balance sheet of Superior as of September 30, 2022, as discussed in Note 2 - Summary Of Significant Accounting Policies and Note 15 - Superior Investment.

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Exit Credit Agreement. On the Emergence Date, the Company entered into an amended and restated credit agreement (the Exit credit agreement), providing for a $140.0 million senior secured revolving credit facility (RBL Facility) and a $40.0 million senior secured term loan facility, among (i) the Company, UDC, and UPC (together, the Borrowers), (ii) the guarantors party thereto, including the Company and all of its subsidiaries existing as of the Effective Date (other than Superior and its subsidiaries), (iii) the lenders party thereto from time to time (Emergence Lenders), and (iv) BOKF, NA dba Bank of Oklahoma as administrative agent and collateral agent (in such capacity, the Administrative Agent). The maturity date of borrowings under the Exit credit agreement is March 1, 2024. The Exit credit agreement is secured by first-priority liens on substantially all of the personal and real property assets of the Borrowers and the Guarantors, including the Company’s ownership interests in Superior.

Prior to the November 1, 2022 amendment described below, Revolving Loans and Term Loans (each as defined in the Exit credit agreement) were able to be Eurodollar Loans or ABR Loans (each as defined in the Exit credit agreement). Revolving Loans that were Eurodollar Loans bore interest at a rate per annum equal to the Adjusted LIBO Rate (as defined in the Exit credit agreement) for the applicable interest period plus 525 basis points while Revolving Loans that were ABR Loans bore interest at a rate per annum equal to the Alternate Base Rate (as defined in the Exit credit agreement) plus 425 basis points. Term Loans that were Eurodollar Loans bore interest at a rate per annum equal to the Adjusted LIBO Rate for the applicable interest period plus 625 basis points while Term Loans that were ABR Loans bore interest at a rate per annum equal to the Alternate Base Rate plus 525 basis points.

On April 6, 2021, the Company finalized the first amendment to the Exit credit agreement. Under the first amendment, the Company reaffirmed its borrowing base of $140.0 million of the RBL Facility, amended certain financial covenants, and received less restrictive terms, among others, as it relates to the disposition of assets and the use of proceeds from those dispositions.

On July 27, 2021, the Company finalized the second amendment to the Exit credit agreement. Under the second amendment, the Company obtained confirmation that the Term Loan had been paid in full prior to the amendment date and received one-time waivers related to the disposition of assets.

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On October 19, 2021, the Company finalized the third amendment to the Exit credit agreement. Under the third amendment, the Company requested, and was granted, a reduction in the RBL Facility borrowing base from $140.0 million to $80.0 million in addition to less restrictive terms as it relates to capital expenditures, required hedges, and the use of proceeds from the disposition of certain assets, while also amending certain financial covenants.

On March 30, 2022, the RBL Facility borrowing base of $80.0 million was reaffirmed.

On July 1, 2022, the RBL Facility borrowing base was automatically reduced to $31.3 million as a result of closing the Texas Gulf Coast properties sale discussed in Note 4 - Divestitures.Disposition Of Property And Equipment.

On November 1, 2022, the Company finalized the fourth amendment to the Exit credit agreement. Under the fourth amendment, (i) the RBL Facility borrowing base was increased to $35.0 million, (ii) the lenders party to the agreement were revised to only BOKF, NA dba Bank of Oklahoma, and (iii) the Eurodollar Loan borrowing option was amended to a secured overnight financing rate (SOFR) option. Subsequent to the fourth amendment, Revolving Loans are able to be SOFR Loans or ABR Loans (each as defined in the Exit credit agreement). Revolving Loans that are SOFR Loans bear interest at a rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Exit credit agreement) for the applicable interest period plus 525 basis points while Revolving Loans that are ABR Loans bear interest at a rate per annum equal to the Alternate Base Rate plus 425 basis points.

On March 24, 2023, the Company finalized the fifth amendment to the Exit credit agreement. Under the fifth amendment, the RBL Facility borrowing base of $35.0 million was reaffirmed and certain references to the Company's equity ownership interests in Superior were removed in anticipation of the sale of our ownership interests in Superior.

The Exit credit agreement requires the Company to comply with certain financial ratios, including: the Net Leverage Ratio (as defined in the Exit credit agreement) as of the last day of any fiscal quarter cannot be greater than 3.25 to 1.00, the Current Ratio (as defined in the Exit credit agreement) as of the last day of any fiscal quarter cannot be less than 1.00 to 1.00, and the Interest Coverage Ratio (as defined in the Exit credit agreement) as of the last day of any fiscal quarter cannot be less than 2.50 to 1.00. The Exit credit agreement also contains provisions, among others, that limit certain capital expenditures, and require certain hedging activities. The Exit credit agreement further requires the Company to provide quarterly financial statements within 45 days after the end of each of the first three quarters of each fiscal year and annual financial statements within 90 days after the end of each fiscal year. As of September 30, 2022,March 31, 2023, the Company was in compliance with these covenants.

As of September 30, 2022,March 31, 2023, we had no long-term borrowings and $2.7 million of letters of credit outstanding under the Exit credit agreement.

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Superior Credit Agreement. On May 10, 2018, Superior entered into a five-year, $200.0 million senior secured revolving credit facility with an option to increase the credit amount up to $250.0 million, subject to certain conditions (Superior credit agreement). The amounts borrowed under the Superior credit agreement bore annual interest at a rate, at Superior’s option, equal to (a) LIBOR plus the applicable margin of 2.00% to 3.25% or (b) the alternate base rate (greater of (i) the federal funds rate plus 0.5%, (ii) the prime rate, and (iii) the Thirty-Day LIBOR Rate (as defined in the Superior credit agreement)) plus the applicable margin of 1.00% to 2.25%.

On April 29, 2022, Superior entered into an Amended and Restated Credit Agreement for a four-year, $135.0 million senior secured revolving credit facility with an option to increase the credit amount up to $200.0 million, subject to certain conditions (Amended Superior credit agreement). The amounts borrowed under the Amended Superior credit agreement bear annual interest at a rate, at Superior’s option, equal to (a) SOFR plus the applicable margin of 2.75% to 3.75% or (b) the alternate base rate (greater of (i) the federal funds rate plus 0.5%, (ii) the prime rate, and (iii) SOFR plus 0.10%). The obligations under the Amended Superior credit agreement are secured by, among other things, mortgage liens on certain of Superior’s processing plants and gathering systems. Unit is not a party to and does not guarantee the Amended Superior credit agreement.

Other Long-Term Liabilities

The table below provides detail on ourpresents the components of other long-term liabilities as of the dates indicated:

September 30,
2022		December 31,
2021		March 31,
2023		December 31,
2022
(In thousands) (In thousands)
Asset retirement obligation (ARO) liabilityAsset retirement obligation (ARO) liability$22,518 $25,688 Asset retirement obligation (ARO) liability$23,919 $23,440 
Workers’ compensationWorkers’ compensation7,435 7,925 Workers’ compensation8,112 8,344 
Contract liabilityContract liability421 1,788 Contract liability1,016 200 
Separation benefit plansSeparation benefit plans1,437 2,022 Separation benefit plans1,074 1,110 
Gas balancing liabilityGas balancing liability4,256 1,090 Gas balancing liability4,256 4,257 
Dividend equivalents payableDividend equivalents payable1,635 — 
36,067 38,513 40,012 37,351 
Less: current portionLess: current portion4,144 5,574 Less: current portion5,280 3,989 
Total other long-term liabilitiesTotal other long-term liabilities$31,923 $32,939 Total other long-term liabilities$34,732 $33,362 

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NOTE 10 – ASSET RETIREMENT OBLIGATIONS

We are required to record the estimated fair value of the liabilities relating to the future retirement of our long-lived assets. Our oil and natural gas wells are plugged and abandoned when the oil and natural gas reserves in those wells are depleted or the wells are no longer able to produce. The plugging and abandonment liability for a well is recorded when the well is drilled or acquired and the obligation is incurred. None of our assets are restricted for purposes of settling these AROs. All our AROs relate to the plugging costs associated with our oil and gas wells.
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The following table shows certain information aboutpresents activity for our estimated AROs forduring the periods indicated:

Nine Months Ended September 30,Three Months Ended March 31,
2022202120232022
(In thousands)(In thousands)
ARO liability, beginning of periodARO liability, beginning of period$25,688 $23,356 ARO liability, beginning of period$23,440 $25,688 
Accretion of discountAccretion of discount1,366 1,381 Accretion of discount467 493 
Liability incurredLiability incurred22 4 Liability incurred10 — 
Liability settledLiability settled(556)(852)Liability settled(245)(55)
Liability soldLiability sold(7,284)(1,925)Liability sold(14)(2,670)
Revision of estimates (1)
Revision of estimates (1)
3,282 4,408 
Revision of estimates (1)
261 1,483 
ARO liability, end of periodARO liability, end of period22,518 26,372 ARO liability, end of period23,919 24,939 
Less: current portionLess: current portion2,532 2,455 Less: current portion2,631 2,654 
Long-term ARO liabilityLong-term ARO liability$19,986 $23,917 Long-term ARO liability$21,288 $22,285 
1.Plugging liability estimates were revised in 20222023 and 20212022 for updates in the cost of services used to plug wells over the preceding year as well as estimated inflation and discount rates. We had various upward and downward adjustments.

NOTE 11 – WORKERS' COMPENSATION

We are liable for workers' compensation benefits for traumatic injuries through our self-insured program to provide income replacement and medical treatment for work-related traumatic injury claims as required by applicable state laws. Workers' compensation laws also compensate survivors of workers who suffer employment related deaths. Our liability for traumatic injury claims is the estimated present value of current workers' compensation benefits, based on our actuarial estimates. Our actuarial calculations are based on a blend of actuarial projection methods and numerous assumptions including claim development patterns, mortality, medical costs and interest rates.

The following table summarizespresents activity for our workers' compensation liability during the periods indicated:

Nine Months Ended September 30,Three Months Ended March 31,
20222021 20232022
(In thousands) (In thousands)
Workers' compensation liability, beginning of periodWorkers' compensation liability, beginning of period$7,925 $10,164 Workers' compensation liability, beginning of period$8,344 $7,925 
Claims and valuation adjustmentsClaims and valuation adjustments(150)1,403 Claims and valuation adjustments(58)(160)
PaymentsPayments(340)(254)Payments(174)(92)
Workers' compensation liability, end of periodWorkers' compensation liability, end of period7,435 11,313 Workers' compensation liability, end of period8,112 7,673 
Less: current portionLess: current portion967 1,239 Less: current portion1,046 1,169 
Long-term workers' compensation liabilityLong-term workers' compensation liability$6,468 $10,074 Long-term workers' compensation liability$7,066 $6,504 

Our workers' compensation liability above is presented on a gross basis and does not include our expected receivables on our insurance policy. Our receivables for traumatic injury claims under these policies as of September 30, 2022March 31, 2023 and December 31, 20212022 are $3.8$4.8 million and $4.0$4.8 million, respectively, and are included in other assets on our unaudited condensed consolidated balance sheets.

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NOTE 12 – DERIVATIVES

Commodity Derivatives

We have entered into various types of derivative transactions covering some of our projected natural gas, NGLs, and oil production. These transactions are intended to reduce our exposure to market price volatility by setting the price(s) we will receive for that production. Our decisions on the price(s), type, and quantity of our production subject to a derivative contract are based, in part, on our view of current and future market conditions as well as certain requirements stipulated in the Exit credit agreement. Our commodity derivative transactions consisted of the following types of hedges as of September 30, 2022:
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March 31, 2023:

•Swaps. We receive or pay a fixed price for the commodity and pay or receive a floating market price to the counterparty. The fixed-price payment and the floating-price payment are netted, resulting in a net amount due to or from the counterparty.
•Collars. A collar contains a fixed floor price (put) and a ceiling price (call). If the market price exceeds the call strike price or falls below the put strike price, we receive the fixed price and pay the market price. If the market price is between the call and the put strike price, no payments are due from either party.

We do not engage in derivative transactions for speculative purposes and have not designated any of our hedges for hedge accounting purposes. We are not required to post any cash collateral with our counterparties and no collateral has been posted as of September 30, 2022.March 31, 2023.

The following non-designated commodity hedges were outstanding as of September 30, 2022:March 31, 2023:

Remaining TermCommodityContracted Volume
Weighted Average 
Fixed Price for Swaps
Contracted Market
Oct'22Apr'23 - Dec'22Dec'23 (1)
Natural gas - swap5,000 MMBtu/day$2.61IF - NYMEX (HH)
Oct'22 - Feb'23Natural gas - swap21,656 MMBtu/day$9.14IF - NYMEX (HH)
Jan'23 - Dec'23Natural gas - swap22,000 MMBtu/day$2.46IF - NYMEX (HH)
Oct'22 - Dec'22Natural gas - collar35,000 MMBtu/day$2.50 - $2.68IF - NYMEX (HH)
Oct'22 - Dec'22Crude oil - swap2,300 Bbl/day$42.25WTI - NYMEX
Oct'22 - Dec'22Crude oil - swap495 Bbl/day$103.98WTI - NYMEX
Jan'23 - Feb'23Crude oil - swap1,339 Bbl/day$95.40WTI - NYMEX
Jan'23Apr'23 - Dec'23Crude oil - swap1,300 Bbl/day$43.60WTI - NYMEX
1.During April 2023, we entered into NYMEX (HH) natural gas - swap agreements averaging 22,000 MMBtu/day for October 2023, November 2023, and December 2023 at a weighted average fixed price of $3.14 per MMBtu which effectively locked in the settlement price of our outstanding positions for those periods.

Warrants

Prior to the determination of the initial exercise price, we recognized the fair value of the warrants as a derivative liability on our unaudited condensed consolidated balance sheets with changes in the liability reported as gain (loss) on change in fair value of warrants in our unaudited condensed consolidated statements of operations. On April 7, 2022, the Company delivered notice of the initial $63.74 exercise price resulting in the warrants meeting the definition of an equity instrument. Accordingly, we recognized the change in the fair value of the warrant liability in our unaudited condensed consolidated statements of operations and reclassified the $49.1 million warrant liability to capital in excess of par value on the unaudited condensed consolidated balance sheets as of April 7, 2022. The warrants will continue to be reported as capital in excess of par value and are no longer subject to future fair value adjustments.

The following tables present the recognized derivative assets and liabilities on our unaudited condensed consolidated balance sheets:sheets as of the dates indicated:

Balances as of September 30, 2022
Balance Sheet ClassificationPresented
Gross		Effects of
Netting		Presented
Net
  (In thousands)
Assets:
Current Commodity DerivativesCurrent derivative assets$9,507 $(9,507)$— 
Long-term Commodity DerivativesNon-current derivative assets— — — 
Total derivative assets$9,507 $(9,507)$— 
Liabilities:
Current Commodity DerivativesCurrent derivative liabilities$51,005 $(9,507)$41,498 
Long-term Commodity DerivativesNon-current derivative liabilities8,316 — 8,316 
Total derivative liabilities$59,321 $(9,507)$49,814 
Balances as of March 31, 2023
Balance Sheet ClassificationPresented
Gross		Effects of
Netting		Presented
Net
  (In thousands)
Liabilities:
Current commodity derivativesCurrent derivative liabilities$12,571 $— $12,571 
Total derivative liabilities$12,571 $— $12,571 

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Balances as of December 31, 2021
Balance Sheet ClassificationPresented
Gross		Effects of
Netting		Presented
Net
  (In thousands)
Liabilities:
Current Commodity DerivativesCurrent derivative liabilities$40,876 $— $40,876 
Long-term Commodity DerivativesNon-current derivative liabilities17,855 — 17,855 
Warrant LiabilityWarrant liability19,822 — 19,822 
Total derivative liabilities$78,553 $— $78,553 
Balances as of December 31, 2022
Balance Sheet ClassificationPresented
Gross		Effects of
Netting		Presented
Net
  (In thousands)
Assets:
Current commodity derivativesCurrent derivative assets$8,547 $(8,547)$— 
Total derivative assets$8,547 $(8,547)$— 
Liabilities:
Current commodity derivativesCurrent derivative liabilities$32,113 $(8,547)$23,566 
Total derivative liabilities$32,113 $(8,547)$23,566 

The following table shows the activity related to derivative instruments in the unaudited condensed consolidated statements of operations for the periods indicated:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
 (In thousands)
Loss on derivatives$(12,381)$(39,742)$(73,848)$(104,973)
Cash settlements paid on commodity derivatives(28,641)(12,940)(82,764)(22,647)
Gain (loss) on derivatives less cash settlements paid on commodity derivatives$16,260 $(26,802)$8,916 $(82,326)
Loss on change in fair value of warrants$— $(9,054)$(29,323)$(12,628)
Three Months Ended March 31,
20232022
 (In thousands)
Gain (loss) on derivatives, net$13,595 $(64,076)
Gain (loss) on commodity derivatives settled2,601 (21,239)
Gain (loss) on derivatives, net less gain (loss) on commodity derivatives settled$10,994 $(42,837)
Loss on change in fair value of warrants$— $(36,612)

NOTE 13 – FAIR VALUE MEASUREMENTS

This disclosure of the estimated fair value of financial instruments is made under accounting guidance for financial instruments. We have determined the estimated fair values by using market information and certain valuation methodologies. Considerable judgment is required in interpreting market data to develop the estimates of fair value. Using different market assumptions or valuation methodologies may have a material effect on our estimated fair value amounts.

The inputs available determine the valuation technique that we use to measure the fair value of the assets and liabilities presented in our unaudited condensed consolidated financial statements. Fair value measurements are categorized into one of three different levels depending on the observability of the inputs used in the measurement. The levels are summarized as follows:

•Level 1—observable inputs such as quoted prices in active markets for identical assets and liabilities.
•Level 2—other observable pricing inputs, such as quoted prices in inactive markets, or other inputs that are either directly or indirectly observable as of the reporting date, including inputs that are derived from or corroborated by observable market data.
•Level 3—generally unobservable inputs which are developed based on the best information available and may include our own internal data or estimates about how market participants would value such assets and liabilities.

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Recurring Fair Value Measurements

The following tables set forthpresent our recurring fair value measurements by level:level as of the dates indicated:

Balances as of September 30, 2022Balances as of March 31, 2023
Level 1Level 2Level 3Total Level 1Level 2Level 3Total
(In thousands) (In thousands)
Financial liabilities:Financial liabilities:Financial liabilities:
Commodity derivative liabilitiesCommodity derivative liabilities$— $49,814 $— $49,814 Commodity derivative liabilities$— $12,571 $— $12,571 
$— $49,814 $— $49,814 $— $12,571 $— $12,571 

Balances as of December 31, 2021Balances as of December 31, 2022
Level 1Level 2Level 3Total Level 1Level 2Level 3Total
(In thousands) (In thousands)
Financial liabilities:Financial liabilities:Financial liabilities:
Commodity derivative liabilitiesCommodity derivative liabilities$— $58,731 $— $58,731 Commodity derivative liabilities$— $23,566 $— $23,566 
Warrant liability— — 19,822 19,822 
$— $58,731 $19,822 $78,553 
$— $23,566 $— $23,566 

The carrying values on the unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, accounts payable, other current assets, and current liabilities approximate their fair value because of their short-term nature. The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table above. There were no transfers between Level 2 and Level 3 financial liabilities.

Commodity Derivatives. We measure the fair values of our crude oil and natural gas swaps and collars using estimated discounted cash flow calculations based on the NYMEX futures index. We consider these Level 2 measurements within the fair value hierarchy as the inputs in the model are substantially observable over the term of the commodity derivative contract and there is a wide availability of quoted market prices for similar commodity derivative contracts.

We determined that the non-performance risk regarding our commodity derivative counterparties was immaterial based on our valuation at September 30, 2022.
March 31, 2023.

Warrant Liability. We used the Black-Scholes option pricing model to measure the fair value of the warrants. Key inputs for the Black-Scholes model include the stock price, exercise price, expected term, risk-free rate, volatility, and dividend yield. We consider this a Level 3 measurement within the fair value hierarchy as estimated volatility is generally unobservable and requires management's estimation.

The following table summarizespresents the activity of our recurring Level 3 fair value measurements during the periods presented:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
 (In thousands)
Beginning of period$— $4,459 $19,822 $885 
Loss on change in warrant liability— 9,054 29,323 12,628 
Reclassification of warrant liability to capital in excess of par value— — (49,145)— 
End of period$— $13,513 $— $13,513 
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Three Months Ended March 31,
20232022
 (In thousands)
Beginning of period$— $19,822 
Loss on change in warrant liability— 36,612 
End of period$— $56,434 

Nonrecurring Fair Value Measurements

ARO. The initial measurement of ARO at fair value is calculated using discounted cash flow techniques and based on internal estimates of future retirement costs associated with property and equipment. Significant Level 3 inputs used in the calculation of AROs include plugging costs and remaining reserve lives. A summary of the Company’s ARO activity is presented in Note 10 – Asset Retirement Obligations.

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Stock-Based Compensation. We use the Black-Scholes option pricing model to estimate the fair value of stock option grants and modifications while the value of our restricted stock unit grants is based on the grant date closing stock price. Key assumptions for the Black-Scholes models include the stock price, exercise price, expected term, risk-free rate, volatility, and dividend yield. We consider this a Level 3 measurement within the fair value hierarchy as estimated volatility is generally unobservable and requires management's estimation.

See Note 15 - Superior Investment for discussion on the estimated fair value of our retained equity method investment in Superior as of March 1, 2022.

NOTE 14 – LEASES

Operating Leases. We are a lessee through noncancellable lease agreements for property and equipment consisting primarily of office space, land, vehicles, and equipment used in both our operations and administrative functions.

During the three months ended September 30, 2021, we entered into an operating lease agreement for our headquarters office space which generated right of use assets and liabilities at lease inception of $8.4 million.

The following table sets forthpresents the maturities, the weighted average remaining lease term, and the weighted average discount rate of our operating lease liabilities as of September 30, 2022:March 31, 2023:

AmountAmount
(In thousands)(In thousands)
Ending September 30,
2023$2,001 
Ending March 31,Ending March 31,
202420241,999 2024$3,723 
202520252,034 20253,342 
202620261,990 20262,055 
20272027— 2027954 
2028 and beyond— 
20282028— 
2029 and beyond2029 and beyond— 
Total future paymentsTotal future payments8,024 Total future payments10,074 
Less: InterestLess: Interest994 Less: Interest973 
Present value of future minimum operating lease paymentsPresent value of future minimum operating lease payments7,030 Present value of future minimum operating lease payments9,101 
Less: Current portionLess: Current portion1,581 Less: Current portion3,196 
Total long-term operating lease paymentsTotal long-term operating lease payments$5,449 Total long-term operating lease payments$5,905 
Weighted average remaining lease term (years)Weighted average remaining lease term (years)4.0Weighted average remaining lease term (years)3.0
Weighted average discount rate (1)
Weighted average discount rate (1)
6.65 %
Weighted average discount rate (1)
6.92 %
1.Our weighted average discount rates represent the rate implicit in the lease or our incremental borrowing rate for a term equal to the remaining term of the lease.

Finance Leases. During 2014, Superior entered into financeThe following table presents our operating lease agreements for 20 compressors with initial terms of seven yearsassets and an option to purchase the assets at 10% of their then fair market value at the endliabilities as of the term. These finance leases were discounted using annual rates of 4.0% and the underlying assets were included in gas gathering and processing equipment. Superior purchased the leased assets for $3.0 million in May 2021.dates indicated:

Classification on the unaudited condensed consolidated balance sheetsMarch 31,
2023		December 31,
2022
(In thousands)
Assets
Operating lease right of use assetsRight of use assets$9,002 $6,551 
Total right of use assets$9,002 $6,551 
Liabilities
Current liabilities:
Operating lease liabilitiesCurrent operating lease liabilities$3,196 $1,605 
Non-current liabilities:
Operating lease liabilitiesOperating lease liabilities5,905 5,035 
Total lease liabilities$9,101 $6,640 
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The following table shows information about our lease assets and liabilities on our unaudited condensed consolidated balance sheets:

Classification on the unaudited condensed consolidated balance sheetsSeptember 30,
2022		December 31,
2021
(In thousands)
Assets
Operating lease right of use assetsRight of use assets$6,951 $12,445 
Total right of use assets$6,951 $12,445 
Liabilities
Current liabilities:
Operating lease liabilitiesCurrent operating lease liabilities$1,581 $3,791 
Non-current liabilities:
Operating lease liabilitiesOperating lease liabilities5,449 8,677 
Total lease liabilities$7,030 $12,468 

The following table shows certain information related topresents the components of total lease costs for our finance and operating leases forduring the periods indicated:

Three Months Ended September 30,Nine Months Ended September 30,Three Months Ended March 31,
202220212022202120232022
(In thousands)(In thousands)
Components of total lease cost:Components of total lease cost:Components of total lease cost:
Amortization of finance leased assets$— $— $— $1,248 
Interest on finance lease liabilities— — — 33 
Short-term lease cost (1)
Short-term lease cost (1)
$2,181 $3,536 
Operating lease costOperating lease cost532 1,043 2,763 3,053 Operating lease cost920 1,308 
Short-term lease cost (1)
2,231 3,120 8,049 7,893 
Variable lease cost— — — — 
Total lease costTotal lease cost$2,763 $4,163 $10,812 $12,227 Total lease cost$3,101 $4,844 
1.Short-term lease cost includes amounts capitalized related to our oil and natural gas segment of $0.2$0.6 million and $0.8$0.5 million during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively, and $1.4 million and $1.0 million during the nine months ended September 30, 2022 and 2021, respectively.

The following table showspresents supplemental cash flow information related to our operating leases forduring the periods indicated:

Nine Months Ended September 30,Three Months Ended March 31,
2022202120232022
(In thousands)(In thousands)
Cash payments made on operating leasesCash payments made on operating leases$2,705 $3,125 Cash payments made on operating leases$920 $1,284 
Cash payments made on finance leases$— $3,216 
Lease liabilities recognized in exchange for operating lease right of use assetsLease liabilities recognized in exchange for operating lease right of use assets$909 $11,155 Lease liabilities recognized in exchange for operating lease right of use assets$3,273 $909 

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NOTE 15 – SUPERIOR INVESTMENT

On April 3, 2018, we sold 50% of the ownership interest in Superior to SP Investor Holdings, LLC (SP Investor), a holding company jointly owned by OPTrust, and funds managed and/or advised by Partners Group, a global private markets investment manager. Superior is governed and managed under the Amended and Restated Limited Liability Company Agreement (Agreement) and Amended and Restated Master Services and Operating Agreement (MSA). The MSA was between our wholly-owned subsidiary, SPC Midstream Operating, L.L.C. (the Operator), and Superior. As the Operator, we provided services, such as operations and maintenance support, accounting, legal, and human resources to Superior for a monthly service fee of $0.3 million. Superior's creditors have no recourse to our general credit. Unit is not a party to and does not guarantee Superior's credit agreement. The obligations under Superior's credit agreement are secured by, among other things, mortgage liens on certain of Superior’s processing plants and gathering systems.

Distributions. The Agreement specifiesspecified how future distributions arewere to be allocated among Unit Corporation and SP Investor (the Members). Distributions from Available Cash (as defined in the Agreement) were generally split evenly between the Members prior to December 31, 2021, when the three-year period for Unit's commitment to spend $150.0 million (Drilling Commitment Amount) to drill wells in the Granite Wash/Buffalo Wallow area ended. The total amount spent by Unit towards the Drilling Commitment Amount was $24.6 million. Accordingly, SP Investor willwas entitled to receive 100% of Available Cash distributions related to periods subsequent to December 31, 2021 until the $72.7 million Drilling Commitment Adjustment Amount (as defined in the Agreement) is satisfied.

The following table presents the distributions paid by Superior paid cash distributions of $9.5 million to each of the Members in January 2022 representing Available Cash generatedmembers during the three months ended December 31, 2021, and paid distributions to SP Investor of $10.5 million in April 2022 representing Available Cash generated during the three months ended March 31, 2022, $13.9 million in July 2022 representing Available Cash generated during the three months ended June 30, 2022, and $16.2 million in October 2022 representing Available Cash generated during the three months ended September 30, 2022. periods indicated:

DateRecipientAmount
Three months ended March 31, 2023
January 31, 2023SP Investor$11.1 million
Three months ended March 31, 2022
January 31, 2022Unit Corporation$9.5 million
January 31, 2022SP Investor$9.5 million

The January 2023 distributions paid to SP Investor in October 2022by Superior reduced the remaining Drilling Commitment Adjustment Amount to $32.0$20.9 million.

Superior paid cash distributions totaling $24.7 million in April 2021 related to cumulative available cash as
22
Table of March 31, 2021, $7.7 million in July 2021 related to available cash generated during the three months ended June 30, 2021, and $13.9 million in October 2021 related to available cash generated during the three months ended September 30, 2021. Unit and SP Investor each received 50% of these distributions.Contents

Sale Event. After April 1, 2023, either Member mayhad the right to initiate a sale process of Superior to a third-party or a liquidation of Superior's assets (Sale Event). In a Sale Event, the Agreement generally requiresrequired cumulative distributions to SP Investor in excess of its original $300.0 million investment sufficient to provide SP Investor a 7% internal rate of return on its capital contributions to Superior before any liquidation distribution is made to Unit. As of September 30, 2022,March 31, 2023, liquidation distributions paid first to SP Investor of $345.6$329.5 million would behave been required for SP Investor to reach its 7% Liquidation IRR Hurdle at which point Unit would then behave been entitled to receive up to $345.6$329.5 million of the remaining liquidation distributions to satisfy Unit's 7% Liquidation IRR Hurdle with any remaining liquidation distributions paid as outlined within the Agreement.

Sale Event. On April 24, 2023 (the "Superior Sale Date"), we entered into a purchase and sale agreement (the "Superior PSA") with SP Investor under which the Company closed on the sale of its 50% ownership interest in Superior for $20.0 million. Unit received proceeds of $12.0 million at closing and is entitled to receive $8.0 million in deferred proceeds at the earlier of twelve months following the Superior Sale Date or the consummation of a Sale Transaction by SP Investor (as defined in the Superior PSA), subject to Unit's satisfaction of certain ongoing covenant obligations and other customary conditions.

Consolidation. From April 3, 2018 to March 1, 2022, we treated Superior as a variable interest entity (VIE) because the equity holders as a group (Unit Corporation and SP Investor) lacked the power to control without the Operator. The Agreement and MSA gave us the power to direct the activities that most significantly affect Superior's operating performance through common control of the Operator. Accordingly, Unit was considered the primary beneficiary and consolidated the financial position, operating results, and cash flows of Superior.

Effective March 1, 2022, the employees of the Operator were transferred to Superior and the MSA was amended and restated to remove the operating services the Operator was providing to Superior. There was no change to the monthly service fee for shared services. The power to direct the activities that most significantly affect Superior's operating performance is now shared by the equity holders (Unit Corporation and SP Investor) rather than held by the Operator. Superior no longer qualifies as a VIE subsequent to these amendments and we no longer consolidate the financial position, operating results, and cash flows of Superior as of, and subsequent to, March 1, 2022.

We subsequently accountaccounted for our investment in Superior as an equity method investment using the hypothetical liquidation book value (HLBV) method, which is a balance sheet approach that calculates the change in the hypothetical amount Unit and SP Investor would be entitled to receive if Superior were liquidated at book value at the end of each period, adjusted for any contributions made and distributions received during the period. We recognized no equity earnings from our investment in Superior during the three and nine months ended September 30, 2022.March 31, 2023.

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Estimated Fair Value of Equity Method Investment in Superior. As of the Effective Date, in conjunction with fresh start accounting under ASC Topic 852, Reorganizations, the estimated fair value of the net equity attributable to Unit's ownership interest in Superior was $14.8 million. Since then, Unit has received cumulative distributions from Superior of $32.6 million, which were recognized as net income attributable to Unit under the HLBV method. As of March 1, 2022, upon deconsolidation of Superior, the fair value of our retained equity method investment in Superior was estimated at $1.7 million. To estimate this fair value, we simulated paths for Superior's total equity value through the potential sales process initiation date using a Geometric Brownian Motion. The expected value (i.e., average of all simulations) of each security class was then discounted to present value using the relevant risk-free rate. The simulations reflect forecasted future cash distributions as impacted by the Drilling Commitment Adjustment Amount described above, as well as the future liquidation preference of each investor in a potential Sale Event also as described above. We consider this a Level 3 measurement within the fair value hierarchy as the discounted simulation models require the use of significant unobservable inputs.

We recognized a $13.1 million loss on deconsolidation during the three months ended March 31, 2022 as the difference between the $1.7 million estimated fair value of our retained equity method investment in Superior as of March 1, 2022 and Superior's net equity attributable to Unit's ownership interest prior to deconsolidation.

Affiliate Activity. The table below presents UPC's affiliate activity with Superior during the periods indicated:

Three Months Ended March 31,
20232022
(In thousands)
Oil and natural gas revenues$9,757 $16,298 
Oil and natural gas operating costs$528 $767 
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Superior Balance Sheet Disclosure. The amounts below reflect the Superior balance sheet accounts, without elimination of intercompany receivables from and payables to Unit, consolidated in our unaudited condensed consolidated balance sheets as of December 31, 2021 which was the last reporting date as of which we consolidated the financial position of Superior:

December 31,
2021
(In thousands)
Current assets:
Cash and cash equivalents$17,246 
Accounts receivable42,628 
Prepaid expenses and other1,263 
Total current assets61,137 
Property and equipment:
Gas gathering and processing equipment274,748 
Transportation equipment2,801 
277,549 
Less accumulated depreciation, depletion, amortization, and impairment53,792 
Net property and equipment223,757 
Right of use asset3,485 
Other assets2,226 
Total assets$290,605 
Current liabilities:
Accounts payable$34,010 
Accrued liabilities5,292 
Current operating lease liability1,450 
Current portion of other long-term liabilities1,548 
Total current liabilities42,300 
Long-term debt19,200 
Operating lease liability2,036 
Total liabilities$63,536 

Affiliate Activity. UPC's oil and natural gas revenues with Superior totaled $18.9 million and $13.3 million during the three months ended September 30, 2022 and 2021, respectively, and $38.5 million and $31.2 million during the nine months ended September 30, 2022 and 2021, respectively. UPC's gas gathering and processing expenses with Superior totaled $0.6 million and $0.8 million during the three months ended September 30, 2022 and 2021, respectively, and $1.4 million and $2.5 million during the nine months ended September 30, 2022 and 2021, respectively. Portions of thisthe affiliate activity was eliminated for the periods during which Superior was consolidated by Unit.

NOTE 16 – COMMITMENTS AND CONTINGENCIES

Environmental

We manage our exposure to environmental liabilities on properties to be acquired by identifying existing problems and assessing the potential liability. We also conduct periodic reviews, on a company-wide basis, to identify changes in our environmental risk profile. These reviews evaluate whether there is a probable liability, its amount, and the likelihood that the liability will be incurred. Any potential liability is determined by considering, among other matters, incremental direct costs of any likely remediation and the proportionate cost of employees expected to devote significant time directly to any possible remediation effort. As it relates to evaluations of purchased properties, depending on the extent of an identified environmental problem, we may exclude a property from the acquisition, require the seller to remediate the property to our satisfaction, or agree to assume liability for the remediation of the property.

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We have not historically experienced significant environmental liability while being a contract driller since the greatest portion of that risk is borne by the operator. Any liabilities we have incurred have been small and were resolved while the drilling rig was on the location. Those costs were in the direct cost of drilling the well.

Litigation

The Company is subject to litigation and claims arising in the ordinary course of business which may include environmental, health and safety matters, commercial disputes with customers, or more routine employment related claims. The Company accrues for such items when a liability is both probable and the amount can be reasonably estimated. As new information becomes available or because of legal or administrative rulings in similar matters or a change in applicable law, the Company's conclusions regarding the probability of outcomes and the amount of estimated loss, if any, may change. Although we are insured against various risks, there is no assurance that the nature and amount of that insurance will be adequate, in every case, to indemnify us against liabilities arising from future legal proceedings.

In February 2021, UPC finalized a settlement agreement for $2.1 million related to a well drilled in Beaver County, Oklahoma during 2013. Certain operational issues arose and one of the working interest owners in the well filed a lawsuit claiming that UPC’s actions violated its duties under the joint operating agreement and caused damages to the owners in the well. The case went to trial in January 2019 and the jury issued a verdict in favor of the working interest owner, awarding $2.4 million in damages, including pre- and post-judgment interest. UPC appealed the verdict and finalized the settlement agreement while the case was pending review in the Oklahoma Court of Civil Appeals.

NOTE 17 – INCOME TAXES

ForThe following table presents a reconciliation between the threeincome tax provision computed by applying the federal statutory rate to income before income taxes and nine months ended September 30,our effective income tax expense (benefit) during the periods indicated:

Three Months Ended March 31,
20232022
 (In thousands)
Income tax expense at statutory rate$12,556 $(9,844)
State income tax expense, net of federal benefit1,685 (1,641)
Non-controlling interest in Superior— (850)
Change in valuation allowance (1)
(94,728)17,974 
Revaluation of deferred tax assets and liabilities due to state income tax rate change5,698 — 
Warrant liability revaluation— (5,339)
Other permanent items143 (300)
Income tax expense (benefit)$(74,646)$— 
1. The Company reviews available positive and negative evidence to assess the need for a valuation allowance against the Company's deferred tax assets. On the basis of this assessment, a full valuation allowance was recorded against the Company's net deferred tax assets in 2020 and maintained through December 31, 2022. The Company subsequently recorded net income attributable to Unit Corporation of $148.4 million and $60.6 million during 2022 and 2021, respectively,respectively. After considering these positive results, the Company’s effectiveresulting significant three-year cumulative income tax rate was 0.0% which differs fromposition, and other available positive and negative evidence, the statutory rate of 21.0% primarily due to changes in, and continued need of, our full valuation allowance, changes in the warrant liability valuation, and state income taxes.

We concludedCompany determined that it is more likely than not that the net deferred tax asset will not be realized and have recorded a full valuation allowance, reducing the net deferred tax asset to zero. We maintained this conclusion asportion of September 30, 2022 and December 31, 2021. We will continue to evaluate whether the valuation allowance is needed in future reporting periods and it will remain until we can conclude that the net deferred tax assets are more likely than not towould be realized. Future events or new evidence which may lead usAccordingly, the Company released a portion of its valuation allowance contributing to conclude that it is more likely than nota $94.7 million net change in the valuation allowance during the three months ended March 31, 2023 with a corresponding income tax benefit recorded in our netunaudited condensed consolidated statements of operations.

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The following table presents the components of our deferred tax assets will be realized include, but are not limited to, cumulative historical pre-tax earnings, sustained significant improvements in commodity prices, a sustained significant increase in rig utilization and/or rates, a material and sizable asset acquisition or disposition, and taxable events that could result from one or more future potential transactions. The valuation allowance does not prohibit the Company from utilizing the tax attributes if the Company recognizes taxable income. As long as we continue to conclude that the valuation allowance against the net deferred tax assets is necessary, the Company will not have significant deferred income tax expense or benefit.liabilities:

March 31,
2023		December 31,
2022
 (In thousands)
Deferred tax assets:
Allowance for losses and nondeductible accruals$14,048 $15,662 
Net operating loss carryforward (1)
71,519 81,199 
Non-producing oil and natural gas properties36,416 37,493 
Producing oil and natural gas properties10,495 17,044 
Alternative minimum tax and research and development tax credit carryforward1,738 1,738 
Gross deferred tax assets134,216 153,136 
Valuation allowance (2)
(46,637)(141,365)
Total deferred tax assets87,579 11,771 
Deferred tax liabilities:
Contract drilling and other equipment(12,354)(11,365)
Investment in Superior(389)(406)
Total deferred tax liabilities(12,743)(11,771)
Deferred tax assets, net$74,836 $— 
1.As of December 31, 2021,2022, the Company had an expected federal net operating loss carryforward of $386.2 million after consideration of the tax attribute reductions of IRC Section 108 and finalization of the Company’s 2021 federal income tax return. $191.2$331.4 million of the Company's expected federal net operating loss carryforwardwhich $136.4 million is subject to expiration between 2036 and 2037. As
2.The Company has retained a partial valuation allowance on its deferred tax assets as of DecemberMarch 31, 2021, our2023 primarily due to uncertainty in forecasting the timing of future tax basis in UPC'sbenefit recognition related to certain non-producing oil and gas properties was approximately $476.0 million.and allowance for losses and nondeductible accruals.

NOTE 18 – TRANSACTIONS WITH RELATED PARTIES

One current director, Robert Anderson, also serves as an executive with GBK Corporation, a holding company with numerous energy and industry subsidiaries and affiliates, including Kaiser Francis Oil Company. The Company in the ordinary course of business, made payments for working interests, joint interest billings, and product purchases to, and received payments for working interests, drilling services, and joint interest billings, from, Kaiser Francis Oil Company. Payments made to Kaiser Francis Oil Company totaled $0.9 million and $0.5 million while payments received totaled $3.3 million and $0.3 million

The table below presents the payment activity with this related party during the three months ended September 30, 2022 and 2021, respectively, and payments made to Kaiser Francis Oil Company totaled $5.1 million and $1.6 million while payments received totaled $10.8 million and $1.6 million during the nine months ended September 30, 2022 and 2021, respectively.periods indicated:

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One former director, G. Bailey Peyton IV, also serves as Manager and 99.5% owner of Peyton Royalties, LP, a family-controlled limited partnership that owns royalty rights in wells in several states. The Company in the ordinary course of business, paid royalties, or lease bonuses, primarily due to its status as successor in interest to prior transactions and as operator of the wells involved and, sometimes, as lessee, regarding certain wells in which Mr. Peyton, members of Mr. Peyton's family, and Peyton Royalties, LP have an interest. Such payments totaled $0.2 million and $0.1 million during the three months ended September 30, 2022 and 2021, respectively, and $0.4 million and $0.3 million during the nine months ended September 30, 2022 and 2021, respectively.
Three Months Ended March 31,
20232022
(In thousands)
Payments made to:
Kaiser Francis Oil Company$1,166 $3,382 
Payments received from:
Kaiser Francis Oil Company$1,801 $3,949 

NOTE 19 – INDUSTRY SEGMENT INFORMATION

We have three main business segments offering different products and services within the energy industry:
 
•Oil and natural gas - the oil and natural gas segment is engaged in the acquisition, development, and production of oil, NGLs, and natural gas properties.
•Contract drilling - the contract drilling segment is engaged in the land contract drilling of oil and natural gas wells.
•Mid-Stream - the mid-stream segment buys, sells, gathers, processes, and treats natural gas and NGLs for third parties and for our own account. We presently ownheld a 50% ownership interest in Superior as of this subsidiary, and subsequentMarch 31, 2023, but subsequently sold our interest as discussed in Note 15 - Superior Investment. Subsequent to the deconsolidation of Superior as of March 1, 2022 (as discussed in Note 2 - Summary Of Significant Accounting Policies and Note 15 - Superior Investment), we will continue to include our equity method investment in Superior and related earnings in our mid-stream segment.
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We evaluate each consolidated segment’s performance based on its operating income, which is defined as operating revenues less operating expenses and depreciation, depletion, amortization, and impairment. We have no oil and natural gas production or other operations outside the United States.

The following tables provide certain information about the operations of each of our segments:

Three Months Ended September 30, 2022Three Months Ended March 31, 2023
Oil and Natural GasContract DrillingMid-StreamCorporate and OtherEliminationsTotal Consolidated Oil and Natural GasContract DrillingMid-StreamCorporate and OtherEliminationsTotal Consolidated
(In thousands) (In thousands)
Revenues: (1)
Revenues: (1)
Revenues: (1)
Oil and natural gasOil and natural gas$80,026 $— $— $— $— $80,026 Oil and natural gas$48,026 $— $— $— $— $48,026 
Contract drillingContract drilling— 40,256 — — — 40,256 Contract drilling— 45,903 — — — 45,903 
Total revenuesTotal revenues80,026 40,256 — — — 120,282 Total revenues48,026 45,903 — — — 93,929 
Expenses:Expenses:Expenses:
Operating costs:Operating costs:Operating costs:
Oil and natural gasOil and natural gas21,235 — — — — 21,235 Oil and natural gas17,164 — — — — 17,164 
Contract drillingContract drilling— 25,823 — — — 25,823 Contract drilling— 26,872 — — — 26,872 
Total operating costsTotal operating costs21,235 25,823 — — — 47,058 Total operating costs17,164 26,872 — — — 44,036 
Depreciation, depletion, and amortizationDepreciation, depletion, and amortization1,840 1,590 — 91 — 3,521 Depreciation, depletion, and amortization2,136 1,659 — 96 — 3,891 
Total expenses23,075 27,413 — 91 — 50,579 
General and administrativeGeneral and administrative— — — 5,601 — 5,601 General and administrative— — — 5,090 — 5,090 
(Gain) loss on disposition of assets335 (2,528)— 35 — (2,158)
Gain on disposition of assetsGain on disposition of assets(97)(3,656)— — — (3,753)
Total operating expensesTotal operating expenses19,203 24,875 — 5,186 — 49,264 
Income (loss) from operationsIncome (loss) from operations56,616 15,371 — (5,727)— 66,260 Income (loss) from operations28,823 21,028 — (5,186)— 44,665 
Loss on derivatives— — — (12,381)— (12,381)
Gain on change in fair value of warrants— — — — — — 
Other income (expense):Other income (expense):
Interest incomeInterest income— — — 1,757 — 1,757 
Interest expenseInterest expense— — — (39)— (39)
Gain on derivativesGain on derivatives— — — 13,595 — 13,595 
Reorganization items, netReorganization items, net— — — (48)— (48)Reorganization items, net— — — (81)— (81)
Interest, net— — — (37)— (37)
OtherOther18 12 — 1,994 — 2,024 Other(20)125 — 2 — 107 
Income (loss) before income taxes$56,634 $15,383 $— $(16,199)$— $55,818 
Total other income (expense)Total other income (expense)(20)125 — 15,234 — 15,339 
Income before income taxesIncome before income taxes$28,803 $21,153 $— $10,048 $— $60,004 
1.The revenues for oil and natural gas occur at a point in time. The revenues for contract drilling and gas gathering and processing occur over time.
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Three Months Ended September 30, 2021
 Oil and Natural GasContract DrillingMid-StreamCorporate and OtherEliminationsTotal Consolidated
 (In thousands)
Revenues: (1)
Oil and natural gas$66,202 $— $— $— $(13,322)$52,880 
Contract drilling— 19,158 — — — 19,158 
Gas gathering and processing— — 92,022 — (812)91,210 
Total revenues66,202 19,158 92,022 — (14,134)163,248 
Expenses:
Operating costs:
Oil and natural gas22,022 — — — (812)21,210 
Contract drilling— 15,357 — — — 15,357 
Gas gathering and processing— — 76,823 — (14,202)62,621 
Total operating costs22,022 15,357 76,823 — (15,014)99,188 
Depreciation, depletion, and amortization5,311 1,576 8,143 264 — 15,294 
Total expenses27,333 16,933 84,966 264 (15,014)114,482 
General and administrative— — — 4,246 880 5,126 
Gain on disposition of assets(14)(3,091)— (926)— (4,031)
Income (loss) from operations38,883 5,316 7,056 (3,584)— 47,671 
Loss on derivatives— — — (39,742)— (39,742)
Loss on change in fair value of warrants— — — (9,054)— (9,054)
Reorganization items, net— — — (971)— (971)
Interest, net— — (250)(452)— (702)
Other51 (34)(24)— — (7)
Income (loss) before income taxes$38,934 $5,282 $6,782 $(53,803)$— $(2,805)
1.The revenues for oil and natural gas occur at a point in time. The revenues for contract drilling and gas gathering and processing occur over time.

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Nine Months Ended September 30, 2022Three Months Ended March 31, 2022
Oil and Natural GasContract Drilling
Mid-Stream (2)
Corporate and Other
Eliminations (2)
Total Consolidated Oil and Natural GasContract Drilling
Mid-Stream (2)
Corporate and OtherEliminationsTotal Consolidated
(In thousands) (In thousands)
Revenues: (1)
Revenues: (1)
Revenues: (1)
Oil and natural gasOil and natural gas$268,504 $— $— $— $(10,756)$257,748 Oil and natural gas$87,582 $— $— $— $(10,772)$76,810 
Contract drillingContract drilling— 102,780 — — 102,780 Contract drilling— 28,882 — — — 28,882 
Gas gathering and processingGas gathering and processing— 83,198 — (525)82,673 Gas gathering and processing— — 83,198 — (525)82,673 
Total revenuesTotal revenues268,504 102,780 83,198 — (11,281)443,201 Total revenues87,582 28,882 83,198 — (11,297)188,365 
Expenses:Expenses:Expenses:
Operating costs:Operating costs:Operating costs:
Oil and natural gasOil and natural gas72,838 — — — (509)72,329 Oil and natural gas24,000 — — — (525)23,475 
Contract drillingContract drilling— 77,823 — — — 77,823 Contract drilling— 26,237 — — — 26,237 
Gas gathering and processingGas gathering and processing— — 73,771 — (11,383)62,388 Gas gathering and processing— — 73,771 — (11,383)62,388 
Total operating costsTotal operating costs72,838 77,823 73,771 — (11,892)212,540 Total operating costs24,000 26,237 73,771 — (11,908)112,100 
Depreciation, depletion, and amortizationDepreciation, depletion, and amortization9,915 4,682 5,614 241 — 20,452 Depreciation, depletion, and amortization4,048 1,534 5,614 74 — 11,270 
Impairment— — — — — — 
Total expenses82,753 82,505 79,385 241 (11,892)232,992 
General and administrativeGeneral and administrative— — — 18,937 611 19,548 General and administrative— — — 5,915 611 6,526 
(Gain) loss on disposition of assets257 (6,693)— 37 — (6,399)
Gain on disposition of assetsGain on disposition of assets(53)(2,125)— 3 — (2,175)
Total operating expensesTotal operating expenses27,995 25,646 79,385 5,992 (11,297)127,721 
Income (loss) from operationsIncome (loss) from operations185,494 26,968 3,813 (19,215)— 197,060 Income (loss) from operations59,587 3,236 3,813 (5,992)— 60,644 
Other income (expense):Other income (expense):
Interest incomeInterest income— — — 10 — 10 
Interest expenseInterest expense— — (178)(96)— (274)
Loss on derivativesLoss on derivatives— — — (73,848)— (73,848)Loss on derivatives— — — (64,076)— (64,076)
Loss on change in fair value of warrantsLoss on change in fair value of warrants— — — (29,323)— (29,323)Loss on change in fair value of warrants— — — (36,612)— (36,612)
Loss on deconsolidation of SuperiorLoss on deconsolidation of Superior— — — (13,141)— (13,141)Loss on deconsolidation of Superior— — — (13,141)— (13,141)
Reorganization items, netReorganization items, net— — — (90)— (90)Reorganization items, net— — — (3)— (3)
Interest, net— — (179)(229)— (408)
OtherOther738 40 17 2,161 — 2,956 Other708 20 17 2 — 747 
Total other income (expense)Total other income (expense)708 20 (161)(113,916)— (113,349)
Income (loss) before income taxesIncome (loss) before income taxes$186,232 $27,008 $3,651 $(133,685)$— $83,206 Income (loss) before income taxes$60,295 $3,256 $3,652 $(119,908)$— $(52,705)
1.The revenues for oil and natural gas occur at a point in time. The revenues for contract drilling and gas gathering and processing occur over time.
2.Includes Superior activity for the two months prior to the March 1, 2022 deconsolidation, as discussed in Note 2 - Summary Of Significant Accounting Policies and Note 15 - Superior Investment.


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Nine Months Ended September 30, 2021
Oil and Natural GasContract DrillingMid-StreamCorporate and OtherEliminationsTotal Consolidated
(In thousands)
Revenues: (1)
Oil and natural gas$181,003 $— $— $— $(31,129)$149,874 
Contract drilling— 52,893 — — — 52,893 
Gas gathering and processing— — 217,954 — (2,519)215,435 
Total revenues181,003 52,893 217,954 — (33,648)418,202 
Expenses:
Operating costs:
Oil and natural gas58,365 — — — (2,519)55,846 
Contract drilling— 41,308 — — — 41,308 
Gas gathering and processing— — 181,109 — (33,769)147,340 
Total operating costs58,365 41,308 181,109 — (36,288)244,494 
Depreciation, depletion, and amortization19,442 4,721 24,238 768 — 49,169 
Impairment— — — — — — 
Total expenses77,807 46,029 205,347 768 (36,288)293,663 
Loss on abandonment of assets— — — — — — 
General and administrative— — — 15,406 2,640 18,046 
(Gain) loss on disposition of assets(101)(5,237)75 (950)— (6,213)
Income (loss) from operations103,297 12,101 12,532 (15,224)— 112,706 
Loss on derivatives— — — (104,973)— (104,973)
Loss on change in fair value of warrants— — — (12,628)— (12,628)
Reorganization items, net— — — (3,959)— (3,959)
Interest, net— — (666)(3,229)— (3,895)
Other140 (17)(863)(22)— (762)
Income (loss) before income taxes$103,437 $12,084 $11,003 $(140,035)$— $(13,511)
1.The revenues for oil and natural gas occur at a point in time. The revenues for contract drilling and gas gathering and processing occur over time.

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

Introduction

The following discussion should be read together with the condensed consolidated financial statements included in Item 1 of Part I of this report and in Item 8 of our 20212022 Form 10-K filed with the SEC on March 31, 2022.17, 2023.

We operate, manage, and analyze the results of our operations through our three principal business segments:

•Oil and Natural Gas – carried out by our subsidiary UPC.Unit Petroleum Company. This segment produces,explores, develops, acquires, and acquiresproduces oil and natural gas properties for our own account.
•Contract Drilling – carried out by our subsidiary UDC.Unit Drilling Company. This segment contracts to drill onshore oil and natural gas wells for others and for our oil and natural gas segment.own account.
•Mid-Stream – carried out by Superior and its subsidiaries. This segment buys, sells, gathers, processes, and treats natural gas and NGLs for third parties and for our own account. We holdheld a 50% investmentownership interest in Superior.Superior as of March 31, 2023, but subsequently sold our ownership interests on April 24, 2023 as discussed in Recent Developments below.

Oil and Natural Gas

In our oil and natural gas segment, we are optimizing production and converting non-producing reserves to producing with selective drilling activities. We also anticipate continuing to hedge a portion of our future production depending on future market pricing among other factors.
Contract Drilling

In our contract drilling segment, we are focused on maintaining utilization of our BOSS and SCR drilling rigs in a safe and efficient manner. All 14 of our BOSS drilling rigs are currently operating in addition to three of our SCR drilling rigs as we continue to evaluate opportunities to place one or more of our four non-operating SCR drilling rigs back in service. Given the improving drilling rig dayrate environment, mostoperating. Most of our drilling rigs are contracted for periods of 12 months or less. During the thirdfirst quarter of 2022,2023, contracts on eightfour BOSS drilling rigs and one SCR drilling rig repriced at higher dayrates. We expect that contractsContracts on 12three BOSS drilling rigs repriced at higher rates during April 2023 and one SCRfive BOSS drilling rig will berigs are up for change or renegotiation between September 30,during the second quarter. Effective December 31, 2022, and March 31, 2023.we reduced the number of total rigs available for use from 21 to 18, reflecting the current market outlook for utilization of SCR rigs.

Mid-Stream

In our mid-stream segment, Superior is focused on continuing to generategenerating predictable free cash flows with limited exposure to commodity prices in addition to seeking business development opportunities in its core areas utilizing the Superior credit agreement (which Unit is not a party to and does not guarantee) or other financing sources that are available to it. We holdheld a 50% investmentownership interest in Superior and subsequent to the deconsolidationas of March 31, 2023, but subsequently sold our ownership interests on April 24, 2023 as discussed in Recent Developments below. We deconsolidated Superior as of March 1, 2022 we reportand subsequently reported our ownership interest as an equity method investment. The part of the following discussion of financial condition and results of operations pertaining to our mid-stream segment as ofduring the third quarter ofended March 31, 2022 relates toincludes the two months of consolidated results prior to deconsolidation as of March 1, 2022.

Recent Developments

Commodity Price Environment and COVID-19 Pandemic

Our success depends, among other things, onThe prices we receive for our oil and natural gas production, the demand for oil, natural gas, and NGLs, and the demand for our drilling rigs, which influences the amounts we can charge for those drilling rigs.rigs, are all significant drivers of our results. While our operations are all within the United States, events outside the United States affect us and our industry, including political and economic uncertainty as well asand geopolitical activity.

We are continuously monitoring the current and potential impacts of the COVID-19 pandemic, including any new variants, on our business. This includes how it has and may continue to impact our operations, financial results, liquidity, customers, employees, and vendors as new COVID-19 variants may have undetermined impacts to our business.

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DuringOil, natural gas, and NGL pricing generally improved during 2021 and much of 2022 as demand recovered from the last two years commodityCOVID-19 pandemic while oil supply was negatively impacted by the conflict between Russia and Ukraine as well as restrained production growth from OPEC+, among other factors. Prices generally declined later in 2022 and into 2023 due to growing economic uncertainty and recession concerns, among other factors. Commodity prices have been volatile in recent years and the outlook for future oil and gas prices remains uncertain and subject to many factors. The following chart reflects the significant fluctuations in the historical prices for oil and natural gas:

unt-20220930_g2.jpg549755823505

The following chart reflects the significant fluctuations in the prices for NGLs(1):

unt-20220930_g3.jpg549755823509
1.NGL prices reflect the monthly average Mont Belvieu price.



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Common Stock RepurchasesDividends

On January 5, 2023, the Company announced the declaration of a special cash dividend of $10.00 per share and has approved a quarterly cash dividend policy beginning in the Company’s second quarter. The special dividend was paid on January 31, 2023, to stockholders of record as of the close of business on January 20, 2023. The initial quarterly dividend will be $2.50 per share to be paid on a date in the Company’s second quarter that is yet to be determined. Subsequent quarterly dividends will be issued on a variable rate per share basis as determined by the Company. The special and quarterly cash dividends will be funded by cash on the Company’s balance sheet.

The declaration and payment of any future dividend, whether fixed, special, or variable, will remain at the full discretion of the Company’s Board of Directors and will depend upon the Company’s financial position, results of operations, cash flows, capital requirements, business conditions, future expectations, the requirements of applicable law, and other factors that the Company’s Board of Directors finds relevant at the time of considering any potential dividend declaration.

Sale of Superior Investment

On April 24, 2023, we entered into a purchase and sale agreement (the "Superior PSA") with SP Investor under which the Company closed on the sale of its 50% ownership interest in Superior for $20.0 million. Unit received proceeds of $12.0 million at closing and is entitled to receive $8.0 million in deferred proceeds at the earlier of twelve months following the Superior Sale Date or the consummation of a Sale Transaction by SP Investor (as defined in the Superior PSA), subject to Unit's satisfaction of certain ongoing covenant obligations and other customary conditions.

Officer Departure and Appointments

On February 23, 2023, Philip B. Smith notified the Company’s Board of Directors of his decision to step down as President and Chief Executive Officer of the Company effective March 31, 2023. His decision to step down was due to his desire to spend more time working on his nonprofit projects and other endeavors. Mr. Smith will continue to serve as Chairman of the Board of Directors.

In June 2021, we repurchased an aggregateconnection with Mr. Smith stepping down as President and CEO, the Board of 600,000 sharesDirectors approved (i) a pro-rated vesting of our common stock fromhis outstanding time-based equity awards scheduled to vest on the Lenders (as definednext applicable vesting date based on the number of days worked during the then-current vesting period, and (ii) extending the time that Mr. Smith can exercise his options to the expiration date set forth in Note 9 - Long-Term Debt and Other Long-Term Liabilities) which received these shares as an exit fee during our reorganization. The Lenders were paid $15.00 per share for their respective shares, for an aggregate cash purchase price of $9.0 million.his award agreement governing the options.

In June 2021,To fill the Company's boardvacancy created by Mr. Smith’s resignation, on February 28, 2023, the Board of directors (the Board) authorized repurchasing up to $25.0 millionDirectors appointed Phil Frohlich as interim Chief Executive Officer, effective April 1, 2023, until the Board of Directors names a successor. Mr. Frohlich has been a member of the Company’s outstanding common stock. The Board subsequently authorized increases to the authorized repurchases up to $50.0 million in October 2021 and then up to $100.0 million in June 2022. The repurchases are made through open market purchases, privately negotiated transactions, or other available means. The Company has no obligation to repurchase any shares under the repurchase program and may suspend or discontinue it at any time without prior notice. During the third quarter of 2022, we repurchased 275,000 shares under the repurchase program at an average share price of $51.46 for an aggregate purchase price of $14.2 million. As of September 30, 2022, we had repurchased a total of 1,794,392 shares under the repurchase program at an average share price of $38.37 for an aggregate purchase price of $68.9 million.

During the year ended December 31, 2021, we also repurchased 78,000 shares in a privately negotiated transaction at a share price of $19.07 which was not part of the repurchase program.

The cumulative number of shares repurchased as of September 30, 2022 totaled 2,472,392.

Superior MSA and LLCA amendments

Effective March 1, 2022, the employees of the Operator were transferred to Superior and the MSA was amended and restated to remove the operating services the Operator was providing to Superior. There was no change to the monthly service fee for shared services. We no longer consolidate the financial position, operating results, and cash flows of Superior as of, and subsequent to, March 1, 2022. We recognized a $13.1 million loss on deconsolidation during the nine months ended September 30, 2022 as the difference between the $1.7 million estimated fair value of our retained equity method investment in Superior as of March 1, 2022 and Superior's net equity attributable to Unit's ownership interest prior to deconsolidation. We subsequently account for our investment in Superior as an equity method investment using the hypothetical liquidation book value (HLBV) method which is a balance sheet approach that calculates the change in the hypothetical amount Unit and SP Investor would be entitled to receive if Superior were liquidated at book value at the end of each period, adjusted for any contributions made and distributions received during the period.

Warrants

Each holder of Unit common stock outstanding (Old Common Stock) before the Emergence Date that did not opt out of the release under the Chapter 11 plan of reorganization filed with the bankruptcy court on June 9, 2020 is entitled to receive 0.03460447 warrants for every share of Old Common Stock owned. Each warrant is exercisable for one share of Company common stock, subject to adjustment as provided in the Warrant Agreement. The warrants expire on the earliest of (i)Directors since September 3, 2027, (ii) consummation of a Cash Sale (as defined in the Warrant Agreement), or (iii) the consummation of a liquidation, dissolution or winding up of the Company. As of September 30, 2022, the Company had authorized 1,822,203 warrants and none had been exercised. See Note 5 - Capital Stock for additional discussion on warrant provisions.

Pursuant to the terms of the Warrant Agreement, the Company determined the initial exercise price of the warrants to be $63.74. On April 7, 2022, the Company delivered notice of the initial exercise price to the Warrant Agent and the warrants became exercisable for shares of the Company’s common stock. On or about April 25, 2022, the warrants began trading over-the-counter under the symbol "UNTCW".2020.

Financial Condition and Liquidity

Summary

Our near-term and long-term financial condition and liquidity primarily depend on the cash flow from our operations and credit agreement borrowings. The principal factors determining our cash flow from operations are:

•the amountvolume of natural gas, oil, and NGLs we produce;
•the prices we receive for our natural gas, oil, and NGLs production;
•the utilization of our drilling rigs and the rates we receive for those drilling rigs; and
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•the fees and margins that Superior obtains from its natural gas gathering and processing contracts.dayrates we receive for utilization of our drilling rigs.

We currently expect that cash and cash equivalents, cash flowgenerated from operations, and available borrowing capacityfunds under the Exitour credit agreementfacility will be adequate to support our working capital, capital expenditures, potential dividend distributions, discretionary stock repurchases, and other cash requirements for at least the next 12 months and we are not aware of any indications that they will not be adequate for the foreseeable periods thereafter.

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The table below summarizes cash flow activity during the periods indicated:

Nine Months Ended September 30,
Percent
Change
 Three Months Ended March 31,
Percent
Change
20222021 20232022
(In thousands except percentages) (In thousands except percentages)
Net cash provided by operating activitiesNet cash provided by operating activities$121,310 $124,426 (3)%Net cash provided by operating activities$57,400 $45,810 25 %
Net cash provided by investing activities31,095 50,233 (38)%
Net cash used in investing activitiesNet cash used in investing activities(4,089)(12,212)67 %
Net cash used in financing activitiesNet cash used in financing activities(37,482)(137,807)73 %Net cash used in financing activities(96,374)(9,479)NM
Net increase in cash and cash equivalents$114,923 $36,852 
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents$(43,063)$24,119 
1.NM – A percentage calculation is not meaningful due to a zero-value denominator or a percentage change greater than 200.

Cash Flows from Operating Activities

Our operating cash flow is primarily influenced by the prices we receive for our oil, NGLs, and natural gas production, the volume of oil, NGLs, and natural gas we produce, settlements of commodity derivative contracts, and third-party dayrates and utilization of our drilling rigs and Superior's mid-stream services, and the rates charged for those drilling and mid-stream services.rigs. Our cash flows from operating activities are also affected by changes in working capital.

Net cash provided by operating activities during the first ninethree months of 2022 decreased2023 increased by $3.1$11.6 million as compared to the first ninethree months of 20212022 primarily due to higher payments ona favorable change in derivative settlements, higher operating profit from our contract drilling segment, and favorable net changes in operating assets and liabilities related to the timing of cash receipts and disbursements, partially offset by lower operating profit from our oil and lowernatural gas segment and the absence of operating profit from our mid-stream segment reflecting the March 1, 2022 deconsolidation of Superior, partially offset by increased operating profit from our oil and natural gas and contract drilling segments.Superior.

Cash Flows from Investing Activities

We anticipate using a portion of our free cash flows for capital expenditures related to our development and production of oil, NGLs, and natural gas as well as the maintenance of our existing drilling rig fleet.

Net cash provided byused in investing activities decreased by $19.1$8.1 million during the first ninethree months of 20222023 compared to the first ninethree months of 20212022 primarily due to the absence of the 2022 deconsolidation of Superior's cash and cash equivalents, higher capital expenditures, andpartially offset by lower proceeds received from the disposition of non-core property and equipment.

Cash Flows from Financing Activities

Net cash used in financing activities decreasedincreased by $100.3$86.9 million forduring the first ninethree months of 20222023 compared to the first ninethree months of 20212022 primarily due to the January 2023 special dividend and dividend equivalents paid, partially offset by the absence of net payments on credit agreements and finance leases as well as lower2022 distributions made by Superior to non-controlling interests, partially offset by higher repurchases of common stock.interests. A portion of future cash flows and cash and cash equivalents may be used for future shareholder return activities, including stock repurchases and cash distributions.dividends.

As of September 30, 2022,March 31, 2023, we had unrestricted cash and cash equivalents totaling $179.1$170.9 million and no outstanding borrowings under the Exit credit agreement.

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The following table summarizes certain financial condition and liquidity information as of the dates identified:

September 30,
2022		September 30,
2021		 March 31,
2023		March 31,
2022
(In thousands) (In thousands)
Working capitalWorking capital$160,426 $(30,367)Working capital$173,362 $(37,421)
Current portion of long-term debtCurrent portion of long-term debt$— $— Current portion of long-term debt$— $— 
Long-term debtLong-term debt$— $3,100 Long-term debt$— $— 
Shareholders’ equity attributable to Unit CorporationShareholders’ equity attributable to Unit Corporation$303,332 $149,504 Shareholders’ equity attributable to Unit Corporation$400,675 $141,558 

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Working Capital

Our working capital balance typicallyprimarily fluctuates due to the increase or use of our cash and cash equivalents balance, the timing of our trade accounts receivable and accounts payable, and the fluctuation in current assets and liabilities associated with the fair values of our derivative positions. We had positive working capital of $160.4$173.4 million as of September 30, 2022March 31, 2023 compared to negative working capital of $30.4$37.4 million as of September 30, 2021.March 31, 2022. The increase in working capital is primarily due to increases inhigher cash and cash equivalents, the absence of the warrant liability, lower current commodity derivative liabilities, and lower accrued liabilities and payables, partially offset by lower accounts receivable. Our commodity derivative contracts decreasedThe Exit credit agreement may be used for working capital by $41.5 million as of September 30, 2022 and decreased working capital by $60.0 million as of September 30, 2021.capital.

Credit AgreementsAgreement

Exit Credit Agreement. On the Effective Date, the Company entered into an amended and restated credit agreement (the Exit credit agreement), providing for a $140.0 million senior secured revolving credit facility (RBL Facility) and a $40.0 million senior secured term loan facility, among (i) the Company, UDC, and UPC (together, the Borrowers), (ii) the guarantors party thereto, including the Company and all of its subsidiaries existing as of the Effective Date (other than Superior Pipeline Company, L.L.C. and its subsidiaries), (iii) the lenders party thereto from time to time (Lenders), and (iv) BOKF, NA dba Bank of Oklahoma as administrative agent and collateral agent (in such capacity, the Administrative Agent). The maturity date of borrowings under this Exit credit agreement is March 1, 2024.

Our Exit credit agreement is primarily used for working capital purposes as it limits the amount that can be borrowed for capital expenditures. These limitations restrict future capital projects using the Exit credit agreement. The Exit credit agreement also requires that proceeds from the disposition of certain assets be used to repay amounts outstanding.

On April 6, 2021, the Company finalized the first amendment to the Exit credit agreement. Under the first amendment, the Company reaffirmed its borrowing base of $140.0 million of the RBL, amended certain financial covenants, and received less restrictive terms, among others, as it relates to the disposition of assets and the use of proceeds from those dispositions.

On July 27, 2021, the Company finalized the second amendment to the Exit credit agreement. Under the second amendment, the Company obtained confirmation that the Term Loan had been paid in full prior to the amendment date and received one-time waivers related to the disposition of assets.

On October 19, 2021, the Company finalized the third amendment to the Exit credit agreement. Under the third amendment, the Company requested, and was granted, a reduction in the RBL borrowing base from $140.0 million to $80.0 million in addition to less restrictive terms as it relates to capital expenditures, required hedges, and the use of proceeds from the disposition of certain assets, while also amending certain financial covenants.

On March 30, 2022, the RBL Facility borrowing base of $80.0 million was reaffirmed.

On July 1, 2022, the RBL Facility borrowing base was automatically reduced to $31.3 million as a result of closing the Texas Gulf Coast properties sale discussed in Note 4 - Divestitures.Disposition Of Property And Equipment.

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On November 1, 2022, the Company finalized the fourth amendment to the Exit credit agreement. Under the fourth amendment, (i) the RBL Facility borrowing base was increased to $35.0 million, (ii) the lenders party to the agreement were revised to only BOKF, NA dba Bank of Oklahoma, and (iii) the Eurodollar Loan borrowing option was amended to a secured overnight financing rate (SOFR) option. Subsequent to the fourth amendment, Revolving Loans are able to be SOFR Loans or ABR Loans (each as defined in the Exit credit agreement). Revolving Loans that are SOFR Loans bear interest at a rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Exit credit agreement) for the applicable interest period plus 525 basis points while Revolving Loans that are ABR Loans bear interest at a rate per annum equal to the Alternate Base Rate plus 425 basis points.

On March 24, 2023, the Company finalized the fifth amendment to the Exit credit agreement. Under the fifth amendment, the RBL Facility borrowing base of $35.0 million was reaffirmed and certain references to the Company's equity ownership interests in Superior Credit Agreement. On May 10, 2018, Superior signed a five-year, $200.0 million senior secured revolving credit facility with an option to increasewere removed in anticipation of the credit amount up to $250.0 million, subject to certain conditions (Superior credit agreement). On April 29, 2022, Superior entered into an Amended and Restated Credit Agreement for a four-year, $135.0 million senior secured revolving credit facility with an option to increase the credit amount up to $200.0 million, subject to certain conditions (Amended Superior credit agreement).sale of our ownership interests in Superior.
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Capital Requirements

Oil and Natural Gas Segment Dispositions, Acquisitions, Capital Expenditures, and Capital Expenditures.Dispositions. Most of our capital expenditures for this segment are discretionary and directed toward growth. Our decisions to increase our oil, NGLs, and natural gas reserves through acquisitions or through drilling depends on the prevailing or expected market conditions, potential return on investment, future drilling potential, and opportunities to obtain financing, which provide us flexibility in deciding when and if to incur these costs. We participated in the completion of 188 gross wells (1.03(0.59 net wells) drilled by other operators during the first ninethree months of 20222023 compared to 105 gross wells (0.77(0.06 net wells) during the first ninethree months of 2021.2022.

Oil and natural gas segment capital expenditures, including oil and gas properties on the full cost method, for the first ninethree months of 20222023 totaled $15.2$1.2 million, excluding a $2.5$0.3 million increase in the ARO liability, compared to $7.1$6.4 million, excluding a $1.6$1.4 million increase in the ARO liability, during the first ninethree months of 2021.2022.

On July 1, 2022, the Company closed on the sale of certain wells and related leases near the Texas Gulf Coast for cash proceeds of $45.4 million, net of customary closing and post-closing adjustments based on an effective date of April 1, 2022. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sale did not result in a significant alteration of the full cost pool.

On March 8, 2022, the Company closed on the sale of certain non-core wells and related leases located near the Oklahoma Panhandle for cash proceeds of $3.6 million, net of customary closing and post-closing adjustments based on an effective date of December 1, 2021. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sale did not result in a significant alteration of the full cost pool.

On August 16, 2021, the company closed on the sale of substantially all of our wells and related leases located near Oklahoma City, Oklahoma for $16.1 million, net of customary closing and post-closing adjustments based on an effective date of August 1, 2021. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sale did not result in a significant alteration of the full cost pool.

On May 6, 2021, the Company closed on the sale of substantially all of our wells and the leases related thereto located in Reno and Stafford Counties, Kansas for proceeds of $7.3 million, net of customary closing and post-closing adjustments. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sale did not result in a significant alteration of the full cost pool.

Net proceeds for the sale of other non-core oil and natural gas assets totaled $6.6$0.7 million and $5.0$0.5 million during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. These proceeds reduced the net book value of our full cost pool with no gain or loss recognized as the sales did not result in a significant alteration of the full cost pool.

Contract Drilling Segment Dispositions, Acquisitions, and Capital Expenditures. Near term capital expenditures are expected to primarily be for maintenance capital on operating drilling rigs. We also continue to pursue the disposal or sale of our non-core, idle drilling rig fleet. Contract drilling capital expenditures totaled $6.8$0.5 million during the first ninethree months of 20222023 compared to $0.9$1.0 million during the first ninethree months of 2021.2022.

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We sold non-core contract drilling assets for proceeds of $9.4$4.2 million and $8.2$2.2 million during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. These proceeds resulted in net gains of $6.7$3.7 million and $5.2$2.1 million during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively.

Mid-Stream Dispositions, Acquisitions, and Capital Expenditures and Acquisitions. Superior incurred $1.2 million inof consolidated capital expenditures during the first ninetwo months ofprior to its March 1, 2022 compared to $8.6 million during the first nine months of 2021.deconsolidation. 

Derivative Activities

Commodity Derivatives. Our commodity derivatives are intended to reduce our exposure to price volatility and manage price risks. Those contracts limit the risk of downward price movements for commodities subject to derivative contracts, but they also limit increases in future revenues that would otherwise result from price movements above the contracted prices. Our decision on the type and quantity of our production and the price(s) of our derivative(s) is based, in part, on our view of current and future market conditions. As of September 30, 2022,March 31, 2023, based on our thirdfirst quarter 20222023 average daily production, the approximated percentages of our production under derivative contracts are as follows:
20222023
Daily oil production93%50%
Daily natural gas production97%44%

2023 (1)
2024 and beyond
Daily oil production40%—%
Daily natural gas production38%—%
1.During April 2023, we entered into NYMEX (HH) natural gas - swap agreements averaging 22,000 MMBtu/day for October 2023, November 2023, and December 2023 at a weighted average fixed price of $3.14 per MMBtu which effectively locked in the settlement price of our outstanding positions for those periods.

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Using derivative instruments involves the risk that the counterparties cannot meet the financial terms of the transactions. We considered this non-performance risk regarding our counterparties and our own non-performance risk in our derivative valuation at September 30, 2022March 31, 2023 and determined there was no material risk at that time. The fair value of the net assets (liabilities)liabilities we had with Bank of Oklahoma, our only commodity derivative counterparty, was $49.8$12.6 million as of September 30, 2022.March 31, 2023.

Warrants. Prior to the determination of the initial exercise price, we recognized the fair value of the warrants as a derivative liability on our unaudited condensed consolidated balance sheets with changes in the liability reported as gain (loss)loss on change in fair value of warrants in our unaudited condensed consolidated statements of operations. On April 7, 2022, the Company delivered notice of the initial $63.74 exercise price resulting in the warrants meeting the definition of an equity instrument. Accordingly, we recognized the change in the fair value of the warrant liability in our unaudited condensed consolidated statements of operations and reclassified the $49.1 million warrant liability to capital in excess of par value on the unaudited condensed consolidated balance sheets as of April 7, 2022. The warrants will continue to be reported as capital in excess of par and are no longer subject to future fair value adjustments. On or about April 25, 2022, the warrants began trading over-the-counter under the symbol "UNTCW". On March 31, 2023, the warrants began trading on the OTCQX Best Market.

Below is the effect of derivative instruments on the unaudited condensed consolidated statements of operations for the periods indicated:

Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
 (In thousands)
Loss on derivatives$(12,381)$(39,742)$(73,848)$(104,973)
Cash settlements paid on commodity derivatives(28,641)(12,940)(82,764)(22,647)
Gain (loss) on derivatives less cash settlements paid on commodity derivatives$16,260 $(26,802)$8,916 $(82,326)
Loss on change in fair value of warrants$— $(9,054)$(29,323)$(12,628)
Three Months Ended March 31,
20232022
 (In thousands)
Gain (loss) on derivatives, net$13,595 $(64,076)
Gain (loss) on commodity derivatives settled2,601 (21,239)
Gain (loss) on derivatives, net less gain (loss) on commodity derivatives settled$10,994 $(42,837)
Loss on change in fair value of warrants$— $(36,612)

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Results of Operations
Three months ended September 30, 2022March 31, 2023 versus three months ended September 30, 2021March 31, 2022
Provided below is a comparison of selected operating and financial data:
Three Months Ended September 30,Change
Percent
Change (1)
 Three Months Ended March 31,Change
Percent
Change (1)
20222021 20232022
(In thousands unless otherwise specified)(In thousands except rig and day amounts, and as otherwise specified)
Total revenue, before inter-segment eliminationsTotal revenue, before inter-segment eliminations$120,282 $177,382 $(57,100)(32)%Total revenue, before inter-segment eliminations$93,929 $199,662 $(105,733)(53)%
Total revenue, after inter-segment eliminationsTotal revenue, after inter-segment eliminations$120,282 $163,248 $(42,966)(26)%Total revenue, after inter-segment eliminations$93,929 $188,365 $(94,436)(50)%
Net income (loss)Net income (loss)$55,818 $(2,805)$58,623 NMNet income (loss)$134,650 $(52,705)$187,355 NM
Net income (loss) attributable to non-controlling interestNet income (loss) attributable to non-controlling interest$— $(9,100)$9,100 (100)%Net income (loss) attributable to non-controlling interest$— $(5,828)$5,828 100 %
Net income attributable to Unit Corporation$55,818 $6,295 $49,523 NM
Net income (loss) attributable to Unit CorporationNet income (loss) attributable to Unit Corporation$134,650 $(46,877)$181,527 NM
Oil and Natural Gas:Oil and Natural Gas:Oil and Natural Gas:
Revenue, before inter-segment eliminationsRevenue, before inter-segment eliminations$80,026 $66,202 $13,824 21 %Revenue, before inter-segment eliminations$48,026 $87,582 $(39,556)(45)%
Operating costs, before inter-segment eliminationsOperating costs, before inter-segment eliminations$21,235 $22,022 $(787)(4)%Operating costs, before inter-segment eliminations$17,164 $24,000 $(6,836)(28)%
Average oil price (Bbl)$56.75 $47.66 $9.09 19 %
Average oil price excluding derivatives (Bbl)$91.81 $70.53 $21.28 30 %
Average NGLs price (Bbl)$29.39 $27.42 $1.97 7 %
Average NGLs price excluding derivatives (Bbl)$29.39 $27.42 $1.97 7 %
Average natural gas price (Mcf)$3.57 $2.88 $0.69 24 %
Average natural gas price excluding derivatives (Mcf)$7.04 $3.69 $3.35 91 %
Average oil price ($/Bbl)Average oil price ($/Bbl)$65.96 $59.72 $6.24 10 %
Average oil price excluding derivatives ($/Bbl)Average oil price excluding derivatives ($/Bbl)$73.94 $92.22 $(18.28)(20)%
Average NGLs price ($/Bbl)Average NGLs price ($/Bbl)$21.37 $32.91 $(11.54)(35)%
Average NGLs price excluding derivatives ($/Bbl)Average NGLs price excluding derivatives ($/Bbl)$21.37 $32.91 $(11.54)(35)%
Average natural gas price ($/Mcf)Average natural gas price ($/Mcf)$4.04 $3.31 $0.73 22 %
Average natural gas price excluding derivatives ($/Mcf)Average natural gas price excluding derivatives ($/Mcf)$3.11 $4.54 $(1.43)(31)%
Oil production (MBbls)Oil production (MBbls)276 329 (53)(16)%Oil production (MBbls)300 406 (106)(26)%
NGL production (MBbls)NGL production (MBbls)547 649 (102)(16)%NGL production (MBbls)419 613 (194)(32)%
Natural gas production (MMcf)Natural gas production (MMcf)5,452 6,805 (1,353)(20)%Natural gas production (MMcf)5,369 6,514 (1,145)(18)%
Contract Drilling:Contract Drilling:Contract Drilling:
Revenue, before inter-segment eliminationsRevenue, before inter-segment eliminations$40,256 $19,158 $21,098 110 %Revenue, before inter-segment eliminations$45,903 $28,882 $17,021 59 %
Operating costs, before inter-segment eliminationsOperating costs, before inter-segment eliminations$25,823 $15,357 $10,466 68 %Operating costs, before inter-segment eliminations$26,872 $26,237 $635 2 %
Total drilling rigs available for use at the end of the periodTotal drilling rigs available for use at the end of the period18 21 (3)(14)%
Average number of drilling rigs in useAverage number of drilling rigs in use17.0 11.0 6.0 55 %Average number of drilling rigs in use16.8 15.5 1.3 8 %
Total drilling rigs available for use at the end of the period21 21 — — %
Average dayrate on daywork contracts - BOSS Rigs$24,258 $18,832 $5,426 29 %
Average dayrate on daywork contracts - SCR Rigs$19,370 $14,007 $5,363 38 %
Average dayrate on daywork contracts ($/day)Average dayrate on daywork contracts ($/day)$29,592 $19,756 $9,836 50 %
Average dayrate on daywork contracts - BOSS Rigs ($/day)Average dayrate on daywork contracts - BOSS Rigs ($/day)$30,845 $20,661 $10,184 49 %
Average dayrate on daywork contracts - SCR Rigs ($/day)Average dayrate on daywork contracts - SCR Rigs ($/day)$24,056 $16,012 $8,044 50 %
Mid-Stream: (2)
Mid-Stream: (2)
Mid-Stream: (2)
Revenue, before inter-segment eliminationsRevenue, before inter-segment eliminations$— $92,022 $(92,022)(100)%Revenue, before inter-segment eliminations$— $83,198 $(83,198)(100)%
Operating costs, before inter-segment eliminationsOperating costs, before inter-segment eliminations$— $76,823 $(76,823)(100)%Operating costs, before inter-segment eliminations$— $73,771 $(73,771)(100)%
Corporate and Other:Corporate and Other:Corporate and Other:
General and administrative expense, before inter-segment eliminationsGeneral and administrative expense, before inter-segment eliminations$5,601 $4,246 $1,355 32 %General and administrative expense, before inter-segment eliminations$5,090 $5,915 $(825)(14)%
Other income (expense):Other income (expense):Other income (expense):
Interest expense, net$(37)$(702)$665 (95)%
Interest incomeInterest income$1,757 $10 $1,747 NM
Interest expenseInterest expense$(39)$(274)$235 (86)%
Reorganization items, netReorganization items, net$(48)$(971)$923 (95)%Reorganization items, net$(81)$(3)$(78)NM
Loss on derivatives$(12,381)$(39,742)$27,361 69 %
Gain (loss) on derivativesGain (loss) on derivatives$13,595 $(64,076)$77,671 121 %
Loss on change in fair value of warrantsLoss on change in fair value of warrants$— $(9,054)$9,054 (100)%Loss on change in fair value of warrants$— $(36,612)$36,612 100 %
Income tax expense, net$— $— $— — %
Loss on deconsolidation of SuperiorLoss on deconsolidation of Superior$— $(13,141)$13,141 100 %
Income tax benefit, netIncome tax benefit, net$(74,646)$— $(74,646)— %
Average interest rate on long-term debt outstandingAverage interest rate on long-term debt outstanding— %6.5 %(6.5)%(100)%Average interest rate on long-term debt outstanding— %0.3 %(0.3)%(100)%
Average long-term debt outstandingAverage long-term debt outstanding$— $18,393 $(18,393)(100)%Average long-term debt outstanding$— $12,747 $(12,747)(100)%
1.NM – A percentage calculation is not meaningful due to a zero-value denominator or a percentage change greater than 200.
2.Absence of mid-stream activity during the three months ended September 30, 2022March 31, 2023 reflects the March 1, 2022 deconsolidation of Superior.
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Oil and Natural Gas

Oil and natural gas revenues increased $13.8decreased $39.6 million or 21%45% during the thirdfirst quarter of 20222023 as compared to the thirdfirst quarter of 20212022 primarily due to higher commodity prices, partially offset by lower production volumes. Including derivatives settled, average oil prices increased 19% to $56.75 per barrel, average natural gas prices increased 24% to $3.57 per Mcf,volumes and NGLs prices increased 7% to $29.39 per barrel.lower commodity realization excluding derivatives. Oil production decreased 16%26%, natural gas production decreased 20%18%, and NGLs production decreased 16%32%. The decrease in volumes was primarily due to the divestiture of certain producing properties during 2022 as well as normal well production declines and divestitures of producing properties which have not been offset by new drilling or acquisitions. Excluding derivatives settled, average oil prices decreased 20% to $73.94 per barrel, average natural gas prices decreased 31% to $3.11 per Mcf, and NGLs prices decreased 35% to $21.37 per barrel.

Oil and natural gas operating costs increased $0.8decreased $6.8 million or 4%28% between the comparative thirdfirst quarters of 20222023 and 20212022 primarily due to higher production taxes on increased revenues and employee compensation and separation benefits, partially offset by lower lease operating expenses on lower production volumes, as described above.lower production taxes on lower revenues, and lower employee compensation.

Contract Drilling

Drilling revenues increased $21.1$17.0 million or 110%59% during the thirdfirst quarter of 2023 compared to the first quarter of 2022 compared to the third quarter of 2021 primarily due to a 55%an 8% increase in the average number of rigs in use to 17.0 in16.8 during the thirdfirst quarter of 20222023 as well as increases to the average dayrates on daywork contracts of 29%49% and 38%50% on BOSS rigs and SCR rigs, respectively.

Drilling operating costs increased $10.5$0.6 million or 68%2% between the comparative thirdfirst quarters of 20222023 and 20212022 primarily due to an increase in the average number of operating rigs.rigs, partially offset by lower transportation and start up costs associated with bringing stacked rigs back into service.

Mid-Stream

Our mid-stream revenues decreased $92.0$83.2 million or 100% during the thirdfirst quarter of 20222023 as compared to the thirdfirst quarter of 20212022 due to the absence of activity as a result of the March 1, 2022 deconsolidation of Superior.

Operating costs decreased $76.8$73.8 million or 100% during the thirdfirst quarter of 20222023 compared to the thirdfirst quarter of 20212022 due to the absence of activity as a result of the March 1, 2022 deconsolidation of Superior.

General and Administrative

Corporate general and administrative expenses increased $1.4decreased $0.8 million or 32%14% during the thirdfirst quarter of 2023 compared to the first quarter of 2022 primarily due to lower employee compensation, partially offset by higher stock compensation expense.

Interest Income

Interest income increased $1.7 million during the first quarter of 2023 compared to the thirdfirst quarter of 20212022 primarily due to higher employee compensation.average cash equivalents held as well as higher average interest rates during the quarter ended March 31, 2023 compared to the quarter ended March 31, 2022.

Interest Expense Net

Interest expense net decreased $0.7$0.2 million between the comparative thirdfirst quarters of 20222023 and 20212022 primarily due to a 100% decrease in average long-term debt outstanding. Our average debt outstanding decreased $18.4$12.7 million during the thirdfirst quarter of 2023 compared to the first quarter of 2022 compared to the third quarter of 2021 primarily due to payments made under the Exit credit agreement and the deconsolidation of Superior's outstanding long-term debt.

Reorganization Items, Net

Reorganization items, net represent any of the expenses, gains, and losses incurred subsequent to and as a direct result of the Chapter 11 proceedings.

Loss on Derivatives

The $27.4 million favorable change in loss on derivatives between the comparative third quarters of 2022 and 2021 is primarily due to favorable pricing changes on unsettled commodity derivative positions and new commodity derivative positions executed during the third quarter of 2022, partially offset by higher settlement payments driven by higher average pricing.

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Loss on Change in Fair Value of Warrants

The $9.1 million favorable change in loss on change in fair value of warrants between the comparative third quarters of 2022 and 2021 is due to the absence of gain or loss on change in the fair value of the warrants during the third quarter of 2022 following the second quarter 2022 warrant strike price determination and reclassification of the warrant liability to shareholders' equity.

Income Tax Expense, Net

We did not record any income tax expense, net during the third quarter of 2022 or during the third quarter of 2021 due to the Company's full valuation allowance against our net deferred tax asset.

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Nine months ended September 30, 2022 versus nine months ended September 30, 2021
Provided below is a comparison of selected operating and financial data:
 Nine Months Ended September 30,Change
Percent
Change (1)
 20222021
(In thousands unless otherwise specified)
Total revenue, before inter-segment eliminations$454,482 $451,850 $2,632 1 %
Total revenue, after inter-segment eliminations$443,201 $418,202 $24,999 6 %
Net income (loss)$83,206 $(13,511)$96,717 NM
Net loss attributable to non-controlling interest$(5,828)$(4,875)$(953)20 %
Net income (loss) attributable to Unit Corporation$89,034 $(8,636)$97,670 NM
Oil and Natural Gas:
Revenue, before inter-segment eliminations$268,504 $181,003 $87,501 48 %
Operating costs, before inter-segment eliminations$72,838 $58,365 $14,473 25 %
Average oil price (Bbl)$57.82 $47.77 $10.05 21 %
Average oil price excluding derivatives (Bbl)$97.74 $63.15 $34.59 55 %
Average NGLs price (Bbl)$32.46 $21.10 $11.36 54 %
Average NGLs price excluding derivatives (Bbl)$32.46 $21.10 $11.36 54 %
Average natural gas price (Mcf)$3.72 $2.87 $0.85 30 %
Average natural gas price excluding derivatives (Mcf)$6.02 $3.12 $2.90 93 %
Oil production (MBbls)991 1,130 (139)(12)%
NGL production (MBbls)1,781 1,952 (171)(9)%
Natural gas production (MMcf)18,788 21,750 (2,962)(14)%
Contract Drilling:
Revenue, before inter-segment eliminations$102,780 $52,893 $49,887 94 %
Operating costs, before inter-segment eliminations$77,823 $41,308 $36,515 88 %
Average number of drilling rigs in use16.3 10.1 6.2 61 %
Total drilling rigs available for use at the end of the period21 21 — — %
Average dayrate on daywork contracts - BOSS Rigs$22,378 $19,682 $2,696 14 %
Average dayrate on daywork contracts - SCR Rigs$17,900 $13,774 $4,126 30 %
Mid-Stream: (2)
Revenue, before inter-segment eliminations$83,198 $217,954 $(134,756)(62)%
Operating costs, before inter-segment eliminations$73,771 $181,109 $(107,338)(59)%
Gas gathered--Mcf/day348,859 300,484 48,375 16 %
Gas processed--Mcf/day146,368 124,263 22,105 18 %
Gas liquids sold--gallons/day456,700 431,474 25,226 6 %
Corporate and Other:
General and administrative expense, before inter-segment eliminations$18,937 $15,406 $3,531 23 %
Other income (expense):
Interest expense, net$(229)$(3,895)$3,666 (94)%
Reorganization items, net$(90)$(3,959)$3,869 98 %
Loss on derivatives$(73,848)$(104,973)$31,125 30 %
Loss on change in fair value of warrants$(29,323)$(12,628)$(16,695)132 %
Loss on deconsolidation of Superior$(13,141)$— $(13,141)— %
Income tax expense, net$— $— $— — %
Average interest rate on long-term debt outstanding2.2 %6.7 %(4.5)%(67)%
Average long-term debt outstanding$4,202 $57,815 $(53,613)(93)%
1.NM – A percentage calculation is not meaningful due to a zero-value denominator or a percentage change greater than 200.
2.Mid-Stream activity and metrics shown in this table for the nine months ended September 30, 2022 reflect Superior activity on a consolidated basis for the two months prior to March 1, 2022.
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Oil and Natural Gas

Oil and natural gas revenues increased $87.5 million or 48% during the first nine months of 2022 as compared to the first nine months of 2021 primarily due to higher commodity prices, partially offset by lower production volumes. Including derivatives settled, average oil prices increased 21% to $57.82 per barrel, average natural gas prices increased 30% to $3.72 per Mcf, and NGLs prices increased 54% to $32.46 per barrel. Oil production decreased 12%, natural gas production decreased 14%, and NGLs production decreased 9%. The decrease in volumes was due to normal well production declines and divestitures of producing properties which have not been offset by new drilling or acquisitions.

Oil and natural gas operating costs increased $14.5 million or 25% between the comparative first nine months of 2022 and 2021 primarily due to higher production taxes on increased revenues, higher lease operating expenses, and higher employee compensation and separation benefits.

Contract Drilling

Drilling revenues increased $49.9 million or 94% during the first nine months of 2022 compared to the first nine months of 2021 primarily due to a 61% increase in the average number of rigs in use to 16.3 during the first nine months of 2022 as well as increases to the average dayrates on daywork contracts of 14% and 30% on BOSS rigs and SCR rigs, respectively.

Drilling operating costs increased $36.5 million or 88% between the comparative first nine months of 2022 and 2021 primarily due to an increase in the average number of operating rigs as well as $6.7 million of transportation and start up costs associated with bringing stacked rigs back into service.

Mid-Stream

Our mid-stream revenues decreased $134.8 million or 62% during the first nine months of 2022 as compared to the first nine months of 2021 primarily due to the absence of activity subsequent to March 1, 2022 as a result of the deconsolidation of Superior, partially offset by higher gas, NGL, and condensate prices as well as higher volumes during the consolidated period. Gas processed volumes per day increased 18% while gas gathered volumes per day increased 16% between the comparative first nine months of 2022 and 2021 primarily due to connecting new wells as well as new volumes from the processing plant and gathering system acquired in November 2021.

Operating costs decreased $107.3 million or 59% during the first nine months of 2022 compared to the first nine months of 2021 primarily due to the absence of activity subsequent to March 1, 2022 as a result of the deconsolidation of Superior, partially offset by higher gas, NGL, and condensate prices as well as higher purchase volumes related to the processing plant and gathering system acquired in November 2021.

General and Administrative

Corporate general and administrative expenses increased $3.5 million or 23% during the first nine months of 2022 as compared to the first nine months of 2021 primarily due to higher employee and director compensation.

Interest Expense, Net

Interest expense, net decreased $3.7 million between the comparative first nine months of 2022 and 2021 primarily due to a 93% decrease in average long-term debt outstanding and a decrease in the average interest rate from 6.7% during the first nine months of 2021 to 2.2% during the first nine months of 2022. Our average debt outstanding decreased $53.6 million during the first nine months of 2022 compared to the first nine months of 2021 primarily due to payments made under the Exit credit agreement and the deconsolidation of Superior's outstanding long-term debt, partially offset by borrowings under the Superior credit agreement prior to deconsolidation.

Reorganization Items, Net

Reorganization items, net represent any of the expenses, gains, and losses incurred subsequent to and as a direct result of the Chapter 11 proceedings.

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LossGain (Loss) on Derivatives

The $31.1$77.7 million favorable change in lossgain (loss) on derivatives between the comparative first nine monthsquarters of 20222023 and 20212022 is primarily due to favorablemarket pricing changes on unsettled commodity derivative positions and newnet receipts from commodity derivative positions executed during the second quarter of 2022, partially offset by higher settlement paymentssettlements driven by higherlower average market pricing.

Loss on Change in Fair Value of Warrants

The $16.7$36.6 million unfavorablefavorable change in loss on change in fair value of warrants between the comparative first nine monthsquarters of 2023 and 2022 and 2021 is primarily due to changesthe absence of loss on change in the underlying assumptions used to estimate the fair value including entity value, volatility, durationof the warrants during the first quarter of 2023 following the second quarter 2022 warrant exercise price determination and reclassification of the warrant liability to exercise, and other inputs.shareholders' equity.

Loss on Deconsolidation of Superior

LossThe $13.1 million favorable change in loss on deconsolidation between the comparative first quarters of $13.1 million during2023 and 2022 is due to the absence of the first nine months of 2022 represents the loss recognized on the March 1, 2022 deconsolidation of Superior.

Income Tax Expense,Benefit, Net

The $74.6 million favorable change in income tax benefit, net between the comparative first quarters of 2023 and 2022 is primarily due to a $94.7 million decrease in the deferred tax asset valuation allowance primarily driven by a partial valuation allowance release during the first quarter of 2023, partially offset by income tax expense of $14.2 million, and a $5.7 million revaluation of deferred tax assets and liabilities due to state income tax rate change. We did not record any income tax expense, net during the first nine monthsquarter of 2022 or during the first nine months of 2021 due to the Company's full valuation allowance against our net deferred tax asset.assets.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our operations are exposed to market risks primarily because of changes in commodity prices and interest rates.

Commodity Price Risk. Our major market risk exposure is in the prices we receive for our oil, NGLs, and natural gas production. These prices are primarily driven by the prevailing worldwide price for crude oil and market prices applicable to our NGLs and natural gas production. Historically, these prices have fluctuated and we expect this to continue. The prices for oil, NGLs, and natural gas also affect the demand for our drilling rigs and the amount we can charge for the use of our drilling rigs. Based on our first ninethree months of 20222023 production, a $0.10 per Mcf change in what we are paid for our natural gas production, without the effect of hedging, would result in a corresponding $0.2 million per month ($2.2 million annualized) change in our pre-tax operating cash flow. A $1.00 per barrel change in our oil price, without the effect of hedging, would have a $0.1 million per month ($1.2 million annualized) change in our pre-tax operating cash flow and a $1.00 per barrel change in our NGLs prices, without the effect of hedging, would have a $0.2$0.1 million per month ($2.31.7 million annualized) change in our pre-tax operating cash flow.

We use derivative transactions to manage the risk associated with price volatility. Our decisions regarding the amount and prices at which we choose to enter into a contract for certain of our products is based, in part, on our view of current and future market conditions. The transactions we use include financial price swaps under which we will receive a fixed price for our production and pay a variable market price to the contract counterparty. We do not hold or issue derivative instruments for speculative trading purposes.

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As of September 30, 2022,March 31, 2023, we had the following commodity derivatives outstanding:

Remaining TermCommodityContracted Volume
Weighted Average 
Fixed Price for Swaps
Contracted Market
Oct'22Apr'23 - Dec'22Dec'23 (1)
Natural gas - swap5,000 MMBtu/day$2.61IF - NYMEX (HH)
Oct'22 - Feb'23Natural gas - swap21,656 MMBtu/day$9.14IF - NYMEX (HH)
Jan'23 - Dec'23Natural gas - swap22,000 MMBtu/day$2.46IF - NYMEX (HH)
Oct'22 - Dec'22Natural gas - collar35,000 MMBtu/day$2.50 - $2.68IF - NYMEX (HH)
Oct'22 - Dec'22Crude oil - swap2,300 Bbl/day$42.25WTI - NYMEX
Oct'22 - Dec'22Crude oil - swap495 Bbl/day$103.98WTI - NYMEX
Jan'23 - Feb'23Crude oil - swap1,339 Bbl/day$95.40WTI - NYMEX
Jan'23Apr'23 - Dec'23Crude oil - swap1,300 Bbl/day$43.60WTI - NYMEX
1.During April 2023, we entered into NYMEX (HH) natural gas - swap agreements averaging 22,000 MMBtu/day for October 2023, November 2023, and December 2023 at a weighted average fixed price of $3.14 per MMBtu which effectively locked in the settlement price of our outstanding positions for those periods.
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Interest Rate Risk. Our interest rate exposure primarily relates to our cash equivalents held in money market funds comprised of U.S. Government and U.S. Treasury securities and our long-term debt under our credit agreement. Our money market fund holdings accrue interest at variable interest rates. Based on our average cash equivalents subject to a variable rate during the first quarter of 2023, a 1% change in the average effective interest rate on these holdings would change our annual pre-tax cash flow by approximately $1.5 million. Borrowings under our Exit credit agreement as its borrowings carryalso bear interest at variable interest rates. We had no outstanding borrowings under this facility as of September 30, 2022. See Note 9 – Long-Term Debt and Other Long-Term Liabilities for more information on the Exit credit agreement.March 31, 2023.

Item 4. Controls and Procedures

Our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), does not expect that our disclosure controls and procedures (as defined in Rules 13a - 15(e) and 15d - 15(e) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) (Disclosure Controls) or our internal control over financial reporting (as defined in Rules 13a - 15(f) and 15d - 15(f) of the Exchange Act) will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part on certain assumptions about the likelihood of future events, and there is no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to an error or fraud may occur and not be detected. We monitor our Disclosure Controls and internal control over financial reporting and make modifications as necessary; our intent in this regard is that the Disclosure Controls and internal control over financial reporting will be modified as systems change, and conditions warrant.

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures under Exchange Act Rule 13a-15. Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective as of September 30, 2022.March 31, 2023.

Changes in Internal Controls. There were no changes in our internal control over financial reporting during the quarter ended September 30, 2022,March 31, 2023, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

For further information about the outstanding legal proceedings, please see Note 16 – Commitments Andand Contingencies.

Item 1A. Risk Factors

In addition to the other information set forth in this quarterly report, you should carefully consider the factors discussed below, if any, and in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, which could materially affect our business, financial condition, or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, and/or operating results.

There have been no material changes to the risk factors disclosed in Item 1A in our Form 10-K for the year ended December 31, 2021.2022.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In June 2021,As of March 31, 2023, we had repurchased a total of 2,472,392 shares at an aggregateaverage share price of 600,000 shares of our common stock from the Lenders (as defined in Note 9 - Long-Term Debt and Other Long-Term Liabilities) which received these shares as an exit fee during our reorganization. The Lenders were paid $15.00 per share for their respective shares,$32.09 for an aggregate cash purchase pricecost of $9.0 million.$79.3 million through privately negotiated transactions, the repurchase program authorized by the Board of Directors in June 2021, and open market purchases. The purchase cost and any direct acquisition costs are reflected as treasury stock on the unaudited condensed consolidated balance sheets.

In June 2021,The remaining value of shares that may yet be purchased under the Company's boardrepurchase program authorization was $31.1 million as of directors (the Board) authorized repurchasing up to $25.0 million of the Company’s outstanding common stock. The Board subsequently authorized increases to the authorized repurchases up to $50.0 million in October 2021 and then up to $100.0 million in June 2022.March 31, 2023. The repurchases aremay be made through open market purchases, privately negotiated transactions, or other available means. The Company has no obligation to repurchase any shares under the repurchase program and may suspend or discontinue it at any time without prior notice. During the third quarter of 2022, we repurchased 275,000 shares under the repurchase program at an average share price of $51.46 for an aggregate purchase price of $14.2 million. As of September 30, 2022, we had repurchased a total of 1,794,392 shares under the repurchase program at an average share price of $38.37 for an aggregate purchase price of $68.9 million.

During the year ended December 31, 2021, we also repurchased 78,000 shares in a privately negotiated transaction at a share price of $19.07 which was not part of the repurchase program.

The cumulative number of shares repurchased as of September 30, 2022 totaled 2,472,392. The cash purchase price and any direct acquisition costs are reflected as treasury stock on the unaudited condensed consolidated balance sheets as of September 30, 2022.

The table below shows share repurchase activity for the three months ended September 30, 2022:March 31, 2023:

PeriodTotal number of shares purchasedAverage price paid per shareTotal number of
shares purchased
as part of publicly
announced program
Approximate dollar
value of shares that
may yet be purchased
under the program
(in thousands)
July 1, 2022 through July 31, 202275,000 $50.00 75,000 $41,549 
August 1, 2022 through August 31, 2022— $— — $41,549 
September 1, 2022 through September 30, 2022200,000 $52.00 200,000 $31,149 
PeriodTotal number of shares purchasedAverage price paid per shareTotal number of
shares purchased
as part of publicly
announced program
Approximate dollar
value of shares that
may yet be purchased
under the program
(in thousands)
January 1, 2023 through January 31, 2023— $— — $31,149 
February 1, 2023 through February 28, 2023— $— — $31,149 
March 1, 2023 through March 31, 2023— $— — $31,149 

Item 3. Defaults Upon Senior Securities

Not applicable.

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Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

Not applicable.

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Item 6. Exhibits

Exhibits: 
10.1
31.1
31.2
32
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document.
101.LABXBRL Taxonomy Extension Labels Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File. The cover page interactive data file does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document (contained in Exhibit 101).

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 Unit Corporation
Date:November 10, 2022May 11, 2023
By: /s/ Philip B. SmithPhil Frohlich
PHILIP B. SMITHPHIL FROHLICH
President and Chief Executive Officer
Date:November 10, 2022May 11, 2023
By: /s/ Thomas D. Sell
THOMAS D. SELL
Chief Financial Officer

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