Attached files
file | filename |
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EX-99.7 - EX-99.7 - TALOS ENERGY INC. | d48998dex997.htm |
EX-99.6 - EX-99.6 - TALOS ENERGY INC. | d48998dex996.htm |
EX-99.5 - EX-99.5 - TALOS ENERGY INC. | d48998dex995.htm |
EX-99.4 - EX-99.4 - TALOS ENERGY INC. | d48998dex994.htm |
EX-99.3 - EX-99.3 - TALOS ENERGY INC. | d48998dex993.htm |
EX-99.2 - EX-99.2 - TALOS ENERGY INC. | d48998dex992.htm |
EX-23.6 - EX-23.6 - TALOS ENERGY INC. | d48998dex236.htm |
EX-23.5 - EX-23.5 - TALOS ENERGY INC. | d48998dex235.htm |
EX-23.4 - EX-23.4 - TALOS ENERGY INC. | d48998dex234.htm |
EX-23.3 - EX-23.3 - TALOS ENERGY INC. | d48998dex233.htm |
EX-23.2 - EX-23.2 - TALOS ENERGY INC. | d48998dex232.htm |
EX-23.1 - EX-23.1 - TALOS ENERGY INC. | d48998dex231.htm |
8-K - 8-K - TALOS ENERGY INC. | d48998d8k.htm |
Exhibit 99.1
ILX HOLDINGS, LLC
AND SUBSIDIARIES
Independent Auditors Report
Consolidated Financial Statements
as of and for the Year Ended
December 31, 2019
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE | ||||
Independent Auditors Report |
1 | |||
Consolidated Balance Sheet as of December 31, 2019 |
2 | |||
Consolidated Statement of Operations for the year ended December 31, 2019 |
3 | |||
Consolidated Statement of Changes in Members Capital for the year ended December 31, 2019 |
4 | |||
Consolidated Statement of Cash Flows for the year ended December 31, 2019 |
5 | |||
Notes to Consolidated Financial Statements |
6 | |||
Supplementary Financial Information Information about Oil and Gas Producing Activities Unaudited |
17 |
INDEPENDENT AUDITORS REPORT
To ILX Holdings, LLC and Subsidiaries:
We have audited the accompanying consolidated financial statements of ILX Holdings, LLC and its subsidiaries (the Company), which comprise the consolidated balance sheet as of December 31, 2019, and the related consolidated statement of operations, changes in members capital, and cash flows for the year then ended, and the related notes to the consolidated financial statements (the financial statements).
Managements Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditors Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Companys preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ILX Holdings, LLC and its subsidiaries as of December 31, 2019, and the results of their operations, changes in their members capital and their cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter
As discussed in Note 3 to the financial statements, on December 10, 2019, the Company entered into a purchase and sale agreement to sell the limited liability company interests in the Companys wholly-owned subsidiaries that hold the Companys working interests in all of its producing oil and gas properties, primary term acreage and prospects to Talos Production, Inc. in exchange for consideration comprising cash and newly issued convertible preferred stock of the parent company of Talos Production, Inc. The transaction closed on February 28, 2020. As a result, the Company classified the assets and liabilities of the subject interests as held for sale on the Companys balance sheet as of December 31, 2019. Our opinion is not modified in respect of this matter.
Other Matter
Accounting principles generally accepted in the United States of America require that the Supplemental Oil, Natural Gas, and NGL Information be presented to supplement the financial statements. Such information, although not a part of the financial statements, is required by the Financial Accounting Standards Board who considers it to be an essential part of financial reporting for placing the financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with managements responses to our inquiries, the financial statements, and other knowledge we obtained during our audits of the financial statements. We do not express an opinion or provide any assurance on the supplemental information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
/s/ Deloitte & Touche LLP
Parsippany, NJ
April 28, 2020
1
ILX HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31, 2019 | ||||
Assets |
||||
Current assets: |
||||
Cash and cash equivalents |
$ | 25,589 | ||
Production receivable |
11,892 | |||
Due from affiliate (Note 4) |
51 | |||
Other current assets |
490 | |||
Current assets held for sale (Note 3) |
104,245 | |||
|
|
|||
Total current assets |
142,267 | |||
Other assets |
281 | |||
|
|
|||
Total assets |
$ | 142,548 | ||
|
|
|||
Liabilities and Members Capital |
||||
Current liabilities: |
||||
Due to operator |
$ | 7,398 | ||
Accrued expenses |
3,244 | |||
Derivative instrument liabilities |
2,580 | |||
Other current liabilities |
896 | |||
Current liabilities held for sale (Note 3) |
5,854 | |||
|
|
|||
Total current liabilities |
19,972 | |||
|
|
|||
Total liabilities |
19,972 | |||
|
|
|||
Commitments and contingencies (Note 8) |
||||
Members capital |
||||
Capital contributions |
330,108 | |||
Distributions |
(269,002 | ) | ||
Retained earnings |
61,470 | |||
|
|
|||
Total members capital |
122,576 | |||
|
|
|||
Total liabilities and members capital |
$ | 142,548 | ||
|
|
The accompanying notes are an integral part of these consolidated financial statements.
2
ILX HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands)
Year ended December 31, 2019 |
||||
Revenue |
||||
Oil and gas revenue |
$ | 106,161 | ||
Overriding royalty interest revenue |
4,959 | |||
Other revenue |
890 | |||
|
|
|||
Total revenue |
112,010 | |||
|
|
|||
Expenses |
||||
Depletion and amortization |
26,282 | |||
Operating expenses |
36,796 | |||
Overhead reimbursement (Note 6) |
3,350 | |||
General and administrative expenses |
3,173 | |||
Other general expense |
625 | |||
|
|
|||
Total expenses |
70,226 | |||
|
|
|||
Income from operations |
41,784 | |||
Other income (loss) |
||||
Dividend income |
597 | |||
Derivative instrument loss, net |
(6,014 | ) | ||
|
|
|||
Total other loss |
(5,417 | ) | ||
|
|
|||
Net income |
$ | 36,367 | ||
|
|
The accompanying notes are an integral part of these consolidated financial statements.
3
ILX HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
CHANGES IN MEMBERS CAPITAL
(in thousands)
Year ended December 31, 2019 |
||||
Balance, January 1, 2019 |
$ | 154,609 | ||
Capital contributions, net |
124 | |||
Distributions |
(68,524 | ) | ||
Net income |
36,367 | |||
|
|
|||
Balance, December 31, 2019 |
$ | 122,576 | ||
|
|
The accompanying notes are an integral part of these consolidated financial statements.
4
ILX HOLDINGS, LLC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
Year ended December 31, 2019 |
||||
Cash flows from operating activities |
||||
Net income |
$ | 36,367 | ||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||
Depletion and amortization |
26,282 | |||
Accretion expense |
357 | |||
Unrealized derivative instrument loss, net |
2,927 | |||
Changes in assets and liabilities: |
||||
Increase in production receivable |
(1,738 | ) | ||
Increase in due from affiliate |
(3 | ) | ||
Decrease in other current assets and other assets |
2,459 | |||
Increase in due to operator |
1,759 | |||
Increase in accrued expenses |
1,937 | |||
Increase in other current liabilities |
839 | |||
|
|
|||
Net cash provided by operating activities |
71,186 | |||
|
|
|||
Cash flows from investing activities |
||||
Capital expenditures for oil and gas properties |
(11,460 | ) | ||
Reimbursement from operator for capital expenditures |
1,759 | |||
Decrease in salvage fund |
13,514 | |||
|
|
|||
Net cash provided by investing activities |
3,813 | |||
|
|
|||
Cash flows from financing activities |
||||
Return of capital contributions |
(14,923 | ) | ||
Distributions |
(53,477 | ) | ||
|
|
|||
Net cash used in financing activities |
(68,400 | ) | ||
|
|
|||
Net increase in cash and cash equivalents |
6,599 | |||
Cash and cash equivalents, beginning of year |
18,990 | |||
|
|
|||
Cash and cash equivalents, end of year |
$ | 25,589 | ||
|
|
|||
Supplemental disclosure of non-cash investing activities |
||||
Due to operators for accrued capital expenditures for oil and gas properties |
$ | 2,272 | ||
|
|
|||
Supplemental disclosure of non-cash financing activities |
||||
Distributions recycled as capital contributions |
$ | 15,047 | ||
|
|
The accompanying notes are an integral part of these consolidated financial statements.
5
ILX HOLDINGS, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Company Structure
ILX Holdings, LLC (ILX or the Company), a Delaware limited liability company, was formed on July 27, 2010 and operates pursuant to the fourth amended and restated limited liability company agreement (the LLC Agreement) as of January 1, 2016 by and among Riverstone/Carlyle Global Energy and Power Fund IV (RW), L.P., a Delaware limited partnership, R/C Energy IV Ridgewood Partnership, L.P., a Delaware limited partnership, Riverstone Energy Coinvestment IV (U.S.), L.P., a Delaware limited partnership, and Carlyle Energy Coinvestment IV (U.S.), L.P., a Delaware limited partnership (each a Member and collectively, the Members). Pursuant to the LLC Agreement, the managing committee (the Managing Committee) of the Company has the power and authority to manage, direct and control the business, affairs and properties of the Company. The members of the Managing Committee are affiliates of Riverstone Holdings, LLC.
The Company entered into a participation agreement, as amended and restated on February 10, 2016, (the Participation Agreement) with Ridgewood Energy Corporation (Ridgewood or the Manager) to acquire certain interests in offshore Gulf of Mexico Federal oil and gas leases (the ILX Leasehold Interests) from and participate in joint exploration and development of such interests with, Ridgewood. Other than certain enumerated ILX Leasehold Interests, the Company is not required under the Participation Agreement to acquire from or make any investments with the Manager.
Ridgewood, ILX-Ridgewood I, LLC (IREC I), an affiliate of the Manager, and the Company entered into a management services agreement, as amended and restated on February 10, 2016 (the Management Services Agreement) pursuant to which Ridgewood provides certain management, administrative and technical services to the Company in connection with the ILX Leasehold Interests and is paid overhead reimbursement for such services. The Management Services Agreement does not require Ridgewood to provide any services to, or give it any authority to make decisions for, the Company related to the Companys governance or management issues, including, without limitation, the Companys distributions of cash or property, issuance or sales of membership interests, tax management, liquidations or mergers, appointment of officers or managers, compensation benefits or other employee related matters, or changes to governing documents.
With respect to the ILX Leasehold Interests, the Manager locates potential projects, conducts due diligence, negotiates and completes the transactions subject to the approval of the Companys Managing Committee. The Manager manages the ILX Leasehold Interests, including exploration and development of oil and gas prospects on such ILX Leasehold Interests and performs all customary management related responsibilities regarding the ILX Leasehold Interests. The Manager also manages contractual relations with unaffiliated custodians, depositories, accountants, attorneys, corporate fiduciaries, insurers, banks and others as required. See Notes 6 and 8.
On February 28, 2020, the Company and Ridgewood entered into a side letter agreement (Ridgewood Side Letter Agreement) pursuant to which the Management Services Agreement was terminated as it relates to the ILX Leasehold Interests that were sold as described in Note 3 but remained in full force and effect as it relates to the Company and Ridgewood in order to assist the Company in satisfying its obligations relating to the ILX Leasehold Interests that were sold pursuant to the sale and purchase agreement described in Note 3. On March 24, 2020, Ridgewood, IREC I and the Company entered into a side letter agreement (MSA Side Letter) to memorialize the Ridgewood Side Letter Agreement and pursuant to which Ridgewood will continue to provide the services and other support to the Company required under the terms and conditions of the Management Services Agreement subsequent to the closing of the sale of the ILX Leasehold Interests on February 28, 2020 as described in Note 3. The MSA Side Letter also provided for the payment of $16.0 million to IREC I in complete satisfaction of the obligations of the Company under the Management Services Agreement to pay IREC I a profit participation upon the sale of the ILX Leasehold Interests, which constituted as disposition and complete exit under the terms of the Management Services Agreement. In addition, pursuant to the MSA Side Letter, the Company will no longer pay overhead reimbursement to the Manager effective July 1, 2020. The MSA Side Letter will remain in effect until the termination of the Management Services Agreement or the mutual written agreement of the parties. See Note 3. Assets Held for Sale for additional information on the sale of the ILX Leasehold Interests.
6
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The Companys consolidated financial statements include the accounts of ILX and its subsidiaries. All intercompany balances and transactions have been eliminated. Unless otherwise specified or the context otherwise requires, all references in these notes to the Company or ILX are to ILX Holdings, LLC and its subsidiaries.
Use of Estimates
The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expense during the reporting period. Estimates included in the Companys consolidated financial statements include those related to the fair value of financial instruments, depletion and amortization, determination of proved reserves, impairment of long-lived assets and asset retirement obligations. Actual results may differ from those estimates.
Fair Value Measurements
The Company follows the accounting guidance for fair value measurement for measuring fair value of assets and liabilities in its consolidated financial statements. The fair value measurement guidance provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value. The fair value hierarchy gives the highest priority to Level 1 inputs, which consist of unadjusted quoted prices for identical instruments in active markets. Level 2 inputs consist of quoted prices for similar instruments. Level 3 inputs are unobservable inputs and include situations where there is little, if any, market activity for the instrument; hence, these inputs have the lowest priority. The Companys derivative instruments are recorded at fair value based on Level 2 inputs. See Derivative Instruments below and Note 7. Derivative Instruments for additional information. The Company also applies the provisions of the fair value measurement accounting guidance to its non-financial assets and liabilities, such as oil and gas properties and asset retirement obligations, on a non-recurring basis.
Cash and Cash Equivalents
All highly liquid investments with maturities, when purchased, of three months or less, are considered cash equivalents. These balances, as well as cash on hand, are included in Cash and cash equivalents on the consolidated balance sheet. As of December 31, 2019, the Company had no cash equivalents. At times, deposits may be in excess of federally insured limits, which are $250 thousand per insured financial institution. As of December 31, 2019, the Companys bank balances, which were maintained at Wells Fargo Bank, N.A, exceeded federally insured limits by $25.3 million. During 2019, the Company reclassified the salvage fund to cash and cash equivalents as a result of the sale of assets discussed in Note 3.
Salvage Fund
The Company deposits cash in a separate account, or salvage fund, to provide for the dismantling and removal of production platforms and facilities and plugging and abandoning its oil and gas properties at the end of their useful lives in accordance with applicable federal and state laws and regulations. The salvage fund is expected to be funded through amounts withheld from operating income. There are no restrictions on withdrawals from the salvage fund.
Investment in Delta House
The Company has investments in Delta House Oil and Gas Lateral, LLC and Delta House FPS, LLC (collectively Delta House), legal entities that own interests in a deepwater floating production system operated by Murphy Exploration & Production CompanyUSA. The investment in Delta House is valued using the measurement alternative to record the investment at cost, less impairment and plus or minus subsequent adjustments for observable price changes with change in basis reported in current earnings. At each reporting period, the Company reviews its investment in Delta House to evaluate whether the investment is impaired. Additionally, upon classifying the investment in Delta House as held for sale, the Company reviewed its investment for impairment. During the year ended December 31, 2019, there were no impairments of the Companys investment in Delta House.
7
Oil and Gas Properties
Through its consolidated wholly-owned subsidiaries, the Company invests in oil and gas properties, which are operated by unaffiliated entities that are responsible for drilling, administering and producing activities pursuant to the terms of the applicable operating agreements with working interest owners. The Companys portion of exploration, drilling, operating and capital equipment expenditures is billed by operators.
Acquisition, exploration and development costs are accounted for using the successful efforts method. Costs of acquiring unproved and proved oil and natural gas leasehold acreage, including lease bonuses, brokers fees and other related costs are capitalized. Costs of drilling and equipping productive wells and related production facilities are capitalized. The costs of exploratory wells are capitalized pending determination of whether proved reserves have been found. If proved commercial reserves are not found, exploratory well costs are expensed as dry-hole costs. At times, the Company receives adjustments to certain projects from their respective operators upon review and audit of the projects costs. Annual lease rentals and exploration expenses are expensed as incurred. All costs related to production activity, transportation expense and workover efforts are expensed as incurred.
Once a property has been determined to be fully depleted or upon the sale, retirement or abandonment of a property, the cost and related accumulated depletion and amortization, if any, is eliminated from the property accounts, and the resultant gain or loss is recognized.
The Company may be required to advance its share of the estimated succeeding months expenditures to the operator for its oil and gas properties. As the costs are incurred, the advances are reclassified to proved properties.
Overriding Royalty Interest (ORRI)
The Company has investments in the ORRIs of certain oil and natural gas properties. Such investments are classified as proved properties.
The Companys oil and gas properties, including ORRIs, that are subject to the sale discussed in Note 3 are classified as Current assets held for sale on the Companys consolidated balance sheet.
Accrued Expenses
Accrued expenses consist of the following:
December 31, 2019 | ||||
(in thousands) | ||||
Accrued transaction costs |
$ | 2,322 | ||
Accrued royalty |
595 | |||
Accrued transportation expense |
259 | |||
Accrued accounting and legal fees |
68 | |||
|
|
|||
$ | 3,244 | |||
|
|
Asset Retirement Obligations
For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. Upon the determination that a property is either proved or dry, a retirement obligation is incurred. The Company recognizes the fair value of a liability for an asset retirement obligation in the period incurred based on expected future cash outflows required to satisfy the obligation discounted at the Companys credit-adjusted risk-free rate. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. Annually, or more frequently if an event occurs that would dictate a change in assumptions or estimates underlying the obligations, the Company reassesses its asset retirement obligations to determine whether any revisions to the obligations are necessary. The following table presents changes in asset retirement obligations during the year ended December 31, 2019:
December 31, 2019 | ||||
(in thousands) | ||||
Balance, beginning of year |
$ | 5,362 | ||
Accretion expense |
357 | |||
Revision of estimates |
135 | |||
|
|
|||
Balance, end of year |
$ | 5,854 | ||
|
|
8
Accretion expense is included in the consolidated statement of operations within Operating expenses. The Companys asset retirement obligations associated with the Companys oil and gas properties that are the subject of the sale discussed in Note 3 are classified within Current liabilities held for sale on the Companys consolidated balance sheet.
Revenue Recognition
The Company recognizes oil and gas revenue from contracts with customers at the point when control of oil and natural gas is transferred to the customer at an amount that reflects the consideration the Company expects to be entitled to in accordance with Accounting Standard Codification 606 Revenue from Contracts with Customers (ASC 606). The Companys revenue recognition policies, performance obligations and significant judgements in applying ASC 606 are described below.
Oil and Gas Revenue
Generally, the Company sells oil and natural gas under two types of agreements, which are common in the oil and gas industry. Natural gas liquid (NGL) sales are included within gas sales. The Companys oil and natural gas generally are sold to its customers at prevailing market prices based on an index in which the prices are published, adjusted for pricing differentials, quality of oil and pipeline allowances.
In the first type of agreement, a netback agreement, the Company receives a price, net of pricing differentials as well as transportation expense incurred by the customer, and the Company records revenue at the wellhead at the net price received where control transfers to the customer. In the second type of agreement, the Company delivers oil and natural gas to the customer at a contractually agreed-upon delivery point where the customer takes control. The Company pays a third-party to transport the oil and natural gas and receives a specific market price from the customer net of pricing adjustments. The Company records the transportation expense within operating expenses in the consolidated statement of operations.
Under the Companys natural gas processing contracts, the Company delivers natural gas to a midstream processing company at the inlet of the midstream processing companys facility. The midstream processing company gathers and processes the natural gas and remits the proceeds to the Company for the sale of NGLs. In this type of arrangement, the Company evaluates whether it is the principal or agent in the transaction. The Company concluded that it is the principal and the ultimate third-party purchaser is the customer; therefore, the Company recognizes revenue on a gross basis, with transportation, gathering and processing fees recorded within operating expenses in the consolidated statement of operations.
In certain instances, the Company may elect to take its residue gas and NGLs in-kind at the tailgate of the midstream companys processing plant and subsequently market such volumes. Through its marketing process, the Company delivers the residue gas and NGLs to the ultimate third-party customer at a contractually agreed-upon delivery point and receives a specified market price from the customer. In this arrangement, the Company recognizes revenue when control transfers to the customer at the delivery point based on the market price received from the customer. The transportation, gathering and processing fees are recorded within operating expenses in the consolidated statement of operations.
The Company assesses the performance obligations promised in its oil and natural gas contracts based on each unit of oil and natural gas that will be transferred to its customer because each unit is capable of being distinct. The Company satisfies its performance obligation when control transfers at a point in time when its customer is able to direct the use of, and obtain substantially all of the benefits from, the oil and natural gas delivered. Under each of the Companys oil and natural gas contracts, contract prices are variable and based on an index in which the prices are published, which fluctuate as a result of related industry variables, adjusted for pricing differentials, quality of the oil and pipeline allowances. The use of index-based pricing with predictable differentials reduces the level of uncertainty related to oil and gas prices. Additionally, any variable consideration is not constrained. Payments are received in the month following the oil and natural gas production month. Adjustments that occur after delivery are reflected in revenue in the month payments are received.
Transaction Price Allocated to Remaining Performance Obligations
Under the Companys oil and natural gas contracts, each unit of oil and natural gas represents a separate performance obligation; therefore, future volumes are wholly unsatisfied and the transaction price related to the remaining performance obligations is the variable index-based price attributable to each unit of oil and natural gas that is transferred to the customer.
9
Contract Balances
The Company invoices customers once its performance obligations have been satisfied, at which point the payment is unconditional. Accordingly, the Companys oil and natural gas contracts do not give rise to contract assets or liabilities under the new revenue standard. The receivables related to the Companys oil and gas revenue are included within Production receivable on the Companys consolidated balance sheet.
Other Revenue
Other revenue is generated from the Companys production handling, gathering and operating services agreement with an affiliated entity and other third parties. The Company earns a fee for its services and recognizes these fees as revenue at the time its performance obligations are satisfied as the control of oil and natural gas is never transferred to the Company, thus there are no unsatisfied performance obligations. The Companys project operator performs joint interest billing once the performance obligations have been satisfied, at which point the payment is unconditional. Accordingly, the Companys production handling, gathering and operating services agreement with an affiliated entity and other third parties does not give rise to contract assets or liabilities. The receivables related to the Companys proportionate share of revenue from an affiliate are included within Due from affiliate on the Companys consolidated balance sheet. The receivables related to the Companys proportionate share of revenue from third parties are presented as a reduction from Due to operator on the Companys consolidated balance sheet. The receivables are settled by issuance of a non-cash credit from the Beta Project operator to the Company when the operator performs the joint interest billing of the lease operating expenses due from the Company.
Prior Period Performance Obligations
The Company records oil and gas revenue in the month production is delivered to its customers. However, settlement statements for residue gas and NGLs sales may not be received for 30 to 60 days after the date production is delivered. As a result, the Company is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the residue gas and NGLs. The Company records the differences between its estimates and the actual amounts received in the month that the payment is received from the customer. The Company has an estimation process for revenue and related accruals, and any identified difference between its revenue estimates and actual revenue historically have not been significant. During the year ended December 31, 2019, revenue recognized from performance obligations satisfied in previous periods was not significant.
Overriding Royalty Interest Revenue
Overriding royalty interest revenue is generated from the Companys override interests in certain oil and natural gas properties. ORRI revenue is recognized at the net amount of proceeds to be received by the Company during the month in which production occurs and such proceeds are generally received by the Company within two to three months after the month in which production occurs. The Company is required to estimate the amount of ORRI revenue to be received based upon the Companys ORRI interest. The Company records the difference between its estimates and the actual amounts received in the month that the payment is received from the producer. The Company has an estimation process for revenue and related accruals, and any identified difference between its ORRI revenue estimates and actual ORRI revenue historically has not been significant. The receivables related to the Companys ORRI revenue are included within Production receivable on the Companys consolidated balance sheet. During the year ended December 31, 2019, ORRI revenue recognized from performance obligations satisfied in previous periods was not significant.
Derivative Instruments
The Company may periodically utilize derivative instruments to manage the commodity price risk inherent in its oil and natural gas production. Derivative instruments are carried on the consolidated balance sheet at fair value and recorded as either an asset or liability. Changes in the fair value of the derivative instruments are recorded in earnings unless specific hedge accounting criteria are met. At this time, the Company has elected not to use hedge accounting for its derivative instruments and, accordingly, the derivative instruments are marked-to-market each reporting period with fair value gains and losses recognized as derivative instrument gain or loss on the consolidated statement of operations. The related cash flow impact of the derivative activities is reflected as cash flows from operating activities on the consolidated statement of cash flows. See Note 7. Derivative Instruments for additional information.
10
Impairment of Long-Lived Assets
The Company reviews the carrying value of its oil and gas properties for impairment whenever events and circumstances indicate that the recorded carrying value of the oil and gas properties may not be recoverable. Additionally, upon classifying its assets as held for sale, the Company reviewed its oil and gas properties for impairment. Impairments are determined by comparing estimated future net undiscounted cash flows to the carrying value of the assets at the time of the review. If the carrying value exceeds the estimated future net undiscounted cash flows, the carrying value of the asset is written down to fair value, which is determined using valuation techniques that include both market and income approaches and use Level 3 inputs. The fair value determinations require considerable judgment and are sensitive to change. Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment.
There were no impairments of oil and gas properties during the year ended December 31, 2019.
Depletion and Amortization
Depletion and amortization of the cost of proved oil and gas properties and investments in ORRIs are calculated using the units-of-production method. Proved developed reserves are used as the base for depleting capitalized costs associated with successful exploratory well costs, development costs and related facilities, other than offshore platforms. The sum of proved developed and proved undeveloped reserves is used as the base for depleting or amortizing leasehold acquisition costs, costs to construct offshore platform and associated asset retirement costs, and investments in ORRIs.
Depletion and amortization was recorded through the date at which the Companys oil and gas properties met held for sale criteria, which was December 10, 2019. Accumulated depletion and amortization associated with the Companys oil and gas properties that are the subject of the sale discussed in Note 3 are classified within Current assets held for sale on the Companys consolidated balance sheet.
Income Taxes
No provision is made for income taxes in the consolidated financial statements. The Company is a limited liability company, and as such, the Companys income or loss is passed through and included in the tax returns of the Companys Members. The Company files U.S. Federal and State tax returns and the 2016 through 2018 tax returns remain open for examination by tax authorities.
Income and Expense Allocation
Profits and losses are allocated to the Members in accordance with the LLC Agreement.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (FASB) issued accounting guidance on measurement of credit losses, which introduces, among other things, a new expected loss impairment model that applies to most financial assets measured at amortized cost and certain other instruments including trade and other receivables and other financial assets. Under the new accounting guidance, entities are required to estimate expected credit loss over the life of financial assets and record an allowance against the assets amortized cost basis to present the financial asset at the amount expected to be collected. The estimate of expected credit losses will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. The accounting guidance and the most recent update issued in February 2020 are effective for the Company in the first quarter of 2023 with early adoption permitted. The Company early adopted this accounting guidance and related updates on January 1, 2020 and the adoption did not have a material impact on the Companys consolidated financial statements.
In February 2016, the FASB issued accounting guidance on leases as amended on January 2018 and July 2018, which requires an entity to recognize all lease assets and liabilities with a term greater than one year on the consolidated balance sheet, disclose key quantitative and qualitative information about leasing arrangements, and permits an entity not to evaluate existing or expired land easements that were not previously assessed under the existing lease guidance. The accounting guidance does not apply to leases of mineral rights to explore for or use of oil and natural gas. The accounting guidance is effective for the Company beginning with the fiscal year ending December 31, 2021 with early adoption permitted. Although the Company, as a non-operator, does not enter into lease agreements to support its operations, the Company completed its evaluation of existing contracts that may have
11
a lease impact and embedded lease features to determine the contracts to which the new guidance applies. Based on this evaluation, the Company early adopted this accounting guidance for the fiscal year ended December 31, 2019 and determined its existing contracts did not meet the definition of leases under the new accounting guidance and therefore, did not qualify for lease accounting.
2. Oil and Gas Properties
The Company as well as Ridgewood-managed entities that co-invested alongside with the Company in the Beta Project elected not to participate in the drilling of the 8th well proposed by Walter Oil and Gas Corporation. As a result, the Company was due reimbursement for a portion of the cost relating to the slot on the Beta Project platform that was utilized by the other third-party working interest owners for the 8th well. On July 17, 2019, the Company and the other third-party working interest owners in the Beta Project agreed to a reimbursement to the Company of $1.8 million, which was recorded as a reduction to the Companys oil and gas properties and classified within Current assets held for sale on the consolidated balance sheet as of December 31, 2019 and presented as Reimbursement from operator for capital expenditures in the investing section of the Companys consolidated statement of cash flows for the year ended December 31, 2019.
3. Assets Held for Sale
On December 10, 2019, the Company entered into a purchase and sale agreement (the PSA) to sell the limited liability company interests in the Companys wholly-owned subsidiaries that hold the Companys working interests in all of its producing oil and gas properties, primary term acreage and prospects (the Sold Assets) to Talos Production, Inc. (the Buyer) for an unadjusted purchase price of $286.0 million, subject to purchase price and customary post-closing adjustments. The unadjusted purchase price consisted of $173.3 million in cash and 4,960,000 shares of common stock of the Buyers parent company. Pursuant to the PSA, the sale excluded financial instruments and working capital of the Company. The PSA was amended on February 24, 2020 to replace the common stock of the Buyers parent company with 49,600 Series A Convertible Preferred Stock (Preferred Stock) convertible into the Buyers parent common stock immediately at a rate of one share of Preferred Stock to 100 shares of common stock. The sale closed on February 28, 2020 and the Company received $128.6 million in cash net of purchase price adjustments as well as Preferred Stock with a value of $70.4 million. The Preferred Stock automatically converted into common stock on March 30, 2020. The sale resulted in a gain to the Company of approximately $100.3 million, subject to further post-closing adjustments.
The following table presents the details of the gain on the sale as of the closing date.
February 28, 2020 | ||||
(in thousands) | ||||
Cash, net of purchase price adjustments |
$ | 128,554 | ||
Preferred stock |
70,432 | |||
|
|
|||
Total purchase price |
$ | 198,986 | ||
Oil and gas properties, net |
$ | 102,660 | ||
Investment in Delta House |
1,974 | |||
Less: Asset retirement obligations |
(5,920 | ) | ||
|
|
|||
Assets held for sale less related liabilities |
$ | 98,714 | ||
|
|
|||
Gain on Sale |
$ | 100,272 | ||
|
|
The Company has classified the Sold Assets and related liabilities as held for sale on the Companys consolidated balance sheet as of December 31, 2019. General and administrative expenses totaling $2.3 million consist of financial advisory and legal fees related to the transaction are included within General and administrative expenses on the Companys consolidated statement of operations.
The following table presents the carrying amounts of the Sold Assets and related liabilities classified as held for sale on the Companys consolidated balance sheet.
December 31, 2019 | ||||
(in thousands) | ||||
Assets: |
||||
Investment in Delta House |
$ | 1,974 | ||
Oil and gas properties: |
||||
Proved properties |
269,396 | |||
Less: accumulated depletion and amortization |
(167,125 | ) | ||
|
|
|||
Total oil and gas properties, net |
102,271 | |||
|
|
|||
Total current assets held for sale |
$ | 104,245 | ||
|
|
|||
Liabilities: |
||||
Asset retirement obligations |
$ | 5,854 | ||
|
|
|||
Total current liabilities held for sale |
$ | 5,854 | ||
|
|
12
4. Related Party Transaction
On December 10, 2019, as amended on February 24, 2020, the Company entered into a PSA with the Buyer to sell the limited liability company interests in the Companys wholly-owned subsidiaries that hold the Companys working interests in all of its producing oil and gas properties, primary term acreage and prospects as described in Note 3. The parties to the PSA are related parties. As described in Note 1, the Company is a controlled affiliate of Riverstone Holdings, LLC. As of December 10, 2019, certain entities controlled or affiliated with Riverstone Energy Partners V, L.P., an affiliate of Riverstone Holdings, LLC, beneficially owned and possessed voting power over approximately 27.5% of the issued and outstanding common stock of the Buyers parent company. Further, two directors that currently serve on the board of directors of the parent of the Buyer were appointed by affiliates of Riverstone Holdings, LLC. In addition, affiliates of the Company are party to certain other agreements with the parent of the Buyer.
A wholly-owned subsidiary of the Company and other third-party working interest owners in the Beta Project (collectively, the Beta Project Owners) are parties to a production handling, gathering and operating services agreement (PHA) with ILX Prospect Claiborne, LLC, a wholly-owned subsidiary of ILX Holdings II, LLC (ILX II) and an affiliate of the Company, and other third-party working interest owners in the Claiborne Project (collectively, the Producers), whereby the Beta Project Owners provide services related to the production handling and delivery of oil and natural gas production from the Claiborne Project via their owned Beta Project production facility. The PHA was effective on December 12, 2016 and will continue in effect unless terminated by default, the Beta Project Owners or the Producers pursuant to the terms of the PHA (as amended on February 10, 2017, March 9, 2017, September 19, 2018, November 30, 2018 and December 1, 2018). Under the terms of the PHA, the Producers have agreed to pay the Beta Project Owners a fixed production handling fee for each barrel of oil and mcf of natural gas processed through the Beta Project production facility.
During the year ended December 31, 2019, the Company earned $0.2 million, representing its proportionate share of the production handling fees earned from ILX II, which is included within Other revenue on the Companys consolidated statement of operations. As of December 31, 2019, the Companys receivable of $0.1 million, related to the Companys proportionate share of revenue from ILX II is included within Due from affiliate on the Companys consolidated balance sheet. The receivable is settled by issuance of a non-cash credit from the Beta Project operator to the Company on behalf of the Producers when the operator performs the joint interest billing of the lease operating expenses due from the Company.
At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business.
5. Members Capital and Distributions
Capital Contribution
Pursuant to the LLC Agreement, the Members may make capital contributions to the Company from time to time but will not be required to make any capital contributions. Additionally, certain distributable cash may be retained by the Company and recycled as capital contributions.
As of December 31, 2019, capital contributions totaled $330.1 million, which include $15.0 million of distributions that were recycled as capital contributions during 2019. During the year ended December 31, 2019, based upon the Companys cash position and capital commitments, the Company returned capital totaling $14.9 million, which is presented as Return of capital in the financing section of the Companys consolidated statement of cash flows for the year ended December 31, 2019.
Distributions
The Management Services Agreement requires that upon final determination of the amount of available cash as of the end of each calendar month, the Manager should promptly distribute such distributable cash. In accordance with the Management Services Agreement, distributions, if any, will be paid to the Companys Members until such Members have received a return equal to the (i) capital investment in all of the ILX Leasehold Interests, plus (ii) the total of all management fees paid, plus (iii) a preferred eight percent compounded annual return on the amounts in (i) and (ii). Once the preferred return is received, IREC I will be entitled to twenty percent of the Companys distributions, payable monthly (see Ridgewood Profit Participation below). During the year ended December 31, 2019, distributions to the Companys Members of $15.0 million were recycled as capital contributions to the Company.
13
Ridgewood Profit Participation
The Management Services Agreement provides that IREC I is entitled to a share of the Companys distributions only after certain conditions have been met. As of December 31, 2019, such conditions have not been met. See Distributions above for additional information.
On March 31, 2020, pursuant to the MSA Side Letter, the Company paid $16.0 million to IREC I in complete satisfaction of the obligations of the Company under the Management Services Agreement to pay IREC I a profit participation upon the sale of the ILX Leasehold Interests on February 28, 2020 as described in Note 3, which constituted as disposition and complete exit under the terms of the Management Services Agreement. See Note 1 for additional information on the MSA Side Letter.
6. Overhead Reimbursement
The Management Services Agreement provides that the Manager render management, administrative and technical services, for which it receives an annual overhead reimbursement, payable quarterly. During the year ended December 31, 2019, overhead reimbursement was $3.4 million. Pursuant to the MSA Side Letter, the Company will no longer pay overhead reimbursement to the Manager effective July 1, 2020. See Note 1 for additional information on the MSA Side Letter.
7. Derivative Instruments
In October 2017, the Company entered into fixed price swap contracts (Swap) with BP Energy Company (BP) and Shell Trading Risk Management LLC (Shell), effective October 1, 2017 through December 31, 2020 and November 1, 2017 through December 31, 2020, respectively, and with Shell in April 2019, effective May 1, 2019 through December 31, 2020 (collectively, the Counterparties), to hedge the Companys exposure to commodity price fluctuations on a portion of oil production from the Companys producing projects. The Company has elected not to use hedge accounting for its Swap and consequently, the Swap is marked-to-market each reporting period with fair value gains and losses recognized as derivative instrument gain or loss on the consolidated statement of operations. The estimated fair value of the Swap is based upon closing exchange prices for Light Louisiana Sweet Crude Oil available from Argus Media Group (Argus LLS). The Company has exposure to credit risk to the extent the derivative instrument counterparty is unable to satisfy its settlement commitment. The Company actively monitors the creditworthiness of each counterparty and assesses the impact, if any, on its derivative positions.
The Swap is carried at its fair value on the consolidated balance sheet and the assets and liabilities are netted where derivatives with both gain and loss positions are held by a single counterparty with the same current and noncurrent classification, and where the Company has master netting arrangements. The master netting arrangements allow for set-off that may be exercised in the event of default and provides for contract termination and net settlement. The Company determines the current and noncurrent classification of the Swap based on the timing of expected settlement of individual trades. The Swap is settled based upon reported prices on Argus LLS. The Swap is settled on a monthly basis.
As of December 31, 2019, the Company had outstanding position under the Swap as detailed in the following table.
Production Period |
Index | Volume in barrels |
Weighted Average Fixed Price Swap per barrel |
Estimated Fair Value |
||||||||||||
(in thousands) | ||||||||||||||||
Liabilities: |
||||||||||||||||
January 1, 2020 to December 31, 2020 |
Argus LLS | 548,300 | $ | 57.22 | $ | 2,580 |
14
The following table presents the fair value and classification of the outstanding position under the Swap on the Companys consolidated balance sheet as of December 31, 2019 on a gross basis and after same-counterparty netting:
December 31, 2019 | ||||||||||||
Gross Amounts Recognized |
Gross Amounts Offset |
Net Amounts Presented |
||||||||||
(in thousands) | ||||||||||||
Current liabilities: |
||||||||||||
Derivative instrument liabilities |
$ | 2,580 | $ | | $ | 2,580 |
None of the Companys derivative instruments have been designated as hedges. As such, all changes in fair value are immediately recognized in earnings. The following table summarizes the realized and unrealized losses on derivative instruments, which are included within Derivative instrument loss, net on the Companys consolidated statement of operations.
Year Ended December 31, 2019 |
||||
(in thousands) | ||||
Unrealized loss on derivative instruments, net |
$ | (2,927) | ||
Realized loss on derivative instruments, net |
(3,087 | ) | ||
|
|
|||
Derivative instrument loss, net |
$ | (6,014) | ||
|
|
On January 10, 2020, the Company terminated its Swap with BP and Shell by making payment of $2.3 million to BP and receiving payment of $10 thousand from Shell. There is no Swap outstanding as a result of these terminations.
8. Commitments and Contingencies
Capital Commitments
As a result of the Companys asset sale on February 28, 2020, the Company no longer has any capital commitments related to its oil and gas properties. See Note 3. Assets Held for Sale for additional information on asset sale. Based upon its current cash position, the Company expects it will have sufficient cash to cover its obligations and ongoing operations through the 12-month period from the issuance of the consolidated financial statements.
Other Contingencies
The operator was subject to litigation with a third-party, relating to change order requests for the Beta Project platform. The Company was not a named party to the lawsuit filed and was not a party to the litigation; however, under the operating agreement (OA) the Company is responsible for its proportionate share of costs of the litigation as well as any settlements made or judgement imposed upon the operator if the claim is based upon or arises from operations on the Beta Project. Under the OA, the settlement required the Companys approval. In February 2020, the Company approved its proportionate share of the proposed settlement amount. The Company determined that the approval of the proposed settlement represented the culmination of conditions existing as of December 31, 2019, and as a result, the Company recorded its proportionate share of the settlement totaling $0.6 million within Other general expense on its consolidated statement of operations during the year ended December 31, 2019.
Environmental and Governmental Regulations
Many aspects of the oil and gas industry are subject to federal, state and local environmental laws and regulations. As of December 31, 2019, there were no known environmental contingencies that required adjustment to, or disclosure in, the Companys consolidated financial statements.
Neidermeyer Project Incident
In October 2017, the Neidermeyer Project was shut-in due to a leak in a subsea flowline caused by a fracture in a jumper pipe associated with one of the projects wells. The incident resulted in an oil spill, however through the operators coordinated efforts with the Bureau of Safety and Environment Enforcement (BSEE), it was confirmed that the oil spill was fully contained. The Company has considered its potential for liabilities related to penalties and fines under the Clean Water Act and from BSEE and has concluded that a reasonable estimate of penalties and fines cannot be made at this time. As of December 31, 2019, there were no additional liability that required adjustment to, or disclosure in, the Companys consolidated financial statements.
15
BOEM Notice to Lessees on Supplemental Bonding
On July 14, 2016, the Bureau of Ocean Energy Management (BOEM) issued a Notice to Lessees (NTL 2016-N01) that discontinued and materially replaced existing policies and procedures regarding financial security (i.e. supplemental bonding) for decommissioning obligations of lessees of federal oil and gas leases and owners of pipeline rights-of-way, rights-of use and easements on the Outer Continental Shelf (Lessees). Generally, NTL 2016-N01 (i) ended the practice of excusing Lessees from providing such additional security where co-lessees had sufficient financial strength to meet such decommissioning obligations, (ii) established new criteria for determining financial strength and additional security requirements of such Lessees, (iii) provided acceptable forms of such additional security, and (iv) replaced the waiver system with one of self-insurance. The rule became effective as of September 12, 2016; however, on January 6, 2017, the BOEM announced that it was suspending the implementation timeline for six months in certain circumstances. On May 1, 2017, the Secretary of the U.S. Department of the Interior (Interior) directed the BOEM to complete a review of NTL 2016-01, to provide a report to certain Interior personnel describing the results of the review and options for revising or rescinding NTL 2016-N01, and to keep the implementation timeline extension in effect pending the completion of the review of NTL 2016-N01 by the identified Interior personnel. On June 22, 2017, the BOEM announced that the implementation timeline extension will remain in effect pending the completion of the review of NTL 2016-N01. As of December 31, 2019, the BOEM has not lifted its suspension of the implementation of NTL 2016-N01.
Insurance Coverage
The Company is subject to all risks inherent in the oil and natural gas business. Insurance coverage as is customary for entities engaged in similar operations is maintained, but losses may occur from uninsurable risks or amounts in excess of existing insurance coverage. Insurance coverage for the Companys oil and gas properties that are the subject of the sale discussed in Note 3 was terminated on February 28, 2020.
9. Subsequent Events
The Company has assessed the impact of subsequent events through the issuance of the consolidated financial statements on April 28, 2020 and has concluded that there were no such events, other than as noted in Note 1. Organization and Summary of Significant Accounting Policies Company Structure related to the MSA Side Letter, Note 3. Assets Held for Sale, Note 5. Members Capital and Distributions Ridgewood Profit Participation, Note 7. Derivative Instruments, Note 8. Commitment and Contingencies Other Contingencies and below, that require adjustment to, or disclosure in, the consolidated financial statements.
Impact from the Coronavirus
The extent of the impact of the coronavirus (COVID-19) outbreak on the financial performance of the Companys investment in the common stock of the parent of the Buyer it received as consideration for the Sold Assets and that it continues to hold will depend on future developments, including the duration and spread of the outbreak and related advisories and restrictions and the impact of COVID-19 on the financial markets and the overall economy, all of which are highly uncertain and cannot be predicted. As of April 28, 2020, the price of the common stock has significantly declined since December 31, 2019. If the financial markets and/or the overall economy are impacted for an extended period, the Companys future investment results may be further materially adversely affected. The effect of this impact has not been reflected in these consolidated financial statements.
Distributions
On April 8, 2020, the Company made a distribution to its Members totaling $137.6 million, which included proceeds from the sale of assets discussed in Note 3.
16
ILX Holdings, LLC and Subsidiaries
Supplementary Financial Information
Information about Oil and Gas Producing Activities - Unaudited
In accordance with the FASB guidance on disclosures of oil and gas producing activities, this section provides supplementary information on oil and gas exploration and producing activities of the Company. The Company is engaged solely in oil and gas activities, all of which are located in the United States offshore waters of the Gulf of Mexico.
Table I - Capitalized Costs Relating to Oil and Gas Producing Activities
December 31, 2019 | ||||
(in thousands) | ||||
Proved properties |
$ | 269,396 | ||
Accumulated depletion and amortization |
(167,125 | ) | ||
|
|
|||
Oil and gas properties, net |
$ | 102,271 | ||
|
|
Table II - Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development
Year Ended December 31, 2019 |
||||
(in thousands) | ||||
Exploration costs |
$ | (18 | ) | |
Development costs |
9,575 | |||
|
|
|||
$ | 9,557 | |||
|
|
Table III - Reserve Quantity Information
Oil and gas reserves of the Company have been estimated by independent petroleum engineers, Netherland, Sewell & Associates, Inc. at December 31, 2019. These reserve disclosures have been prepared in compliance with the Securities and Exchange Commission rules. Due to inherent uncertainties and the limited nature of recovery data, estimates of reserve information are subject to change as additional information becomes available.
Oil (MBBL) |
NGL (MBBL) |
Gas (MMCF) |
Total (MBOE) (a) |
|||||||||||||
Total proved reserves at December 31, 2018 |
8,583.8 | 3,016.3 | 27,266.4 | 16,144.5 | ||||||||||||
Revisions of previous estimates (b) |
262.7 | (534.2 | ) | (5,228.3 | ) | (1,142.9 | ) | |||||||||
Production |
(1,625.8 | ) | (246.8 | ) | (2,137.9 | ) | (2,228.9 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total proved reserves at December 31, 2019 |
7,220.7 | 2,235.3 | 19,900.2 | 12,772.7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total proved developed reserves as of: |
||||||||||||||||
December 31, 2019 |
5,843.3 | 1,336.8 | 11,869.0 | 9,158.3 | ||||||||||||
Total proved undeveloped reserves as of: |
||||||||||||||||
December 31, 2019 |
1,377.4 | 898.5 | 8,031.2 | 3,614.4 |
(a) | BOE refers to barrel of oil equivalent. Barrel of oil equivalent is based on six MCF of natural gas to one barrel of oil or one barrel of NGL, which reflects an energy content equivalency and not a price or revenue equivalency. |
(b) | Revisions of previous estimates were attributable to well performance. |
17
Table IV - Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserve
Summarized in the following table is information for the Company with respect to the standardized measure of discounted future net cash flows relating to proved oil and gas reserves. Future cash inflows were determined based on average first-of-the-month pricing for the prior twelve month period. Future production and development costs are derived based on current costs assuming continuation of existing economic conditions.
December 31, 2019 | ||||
(in thousands) | ||||
Future cash inflows |
$ | 487,684 | ||
Future production costs |
(122,571 | ) | ||
Future development costs |
(40,941 | ) | ||
|
|
|||
Future net cash flows |
324,172 | |||
10% annual discount for estimated timing of cash flows |
(76,969 | ) | ||
|
|
|||
Standardized measure of discounted future net cash flows |
$ | 247,203 | ||
|
|
Table V - Changes in the Standardized Measure for Discounted Cash Flows
The changes in present values between years, which can be significant, reflect changes in estimated proved reserve quantities and prices and assumptions used in forecasting production volumes and costs.
Year ended December 31, 2019 |
||||
(in thousands) | ||||
Net change in sales and transfer prices and in production costs related to future production |
$ | (63,569) | ||
Sales and transfers of oil and gas produced during the period |
(84,757 | ) | ||
Changes in estimated future development costs |
13 | |||
Net change due to revisions in quantities estimates |
(24,911 | ) | ||
Accretion of discount |
37,561 | |||
Other |
7,255 | |||
|
|
|||
Aggregate change in the standardized measure of discounted future net cash flows for the year |
$ | (128,408) | ||
|
|
It is necessary to emphasize that the data presented should not be viewed as representing the expected cash flow from or current value of, existing proved reserves as the computations are based on a number of estimates. Reserve quantities cannot be measured with precision and their estimation requires many judgmental determinations and frequent revisions. The required projection of production and related expenditures over time requires further estimates with respect to pipeline availability, rates and governmental control. Actual future prices and costs are likely to be substantially different from the current price and cost estimates utilized in the computation of reported amounts. Any analysis or evaluation of the reported amounts should give specific recognition to the computational methods utilized and the limitation inherent therein.
18