☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2021
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Large Accelerated Filer | ☐ | Accelerated Filer | ☐ | |||
Non-Accelerated Filer | Smaller Reporting Company | ☒ | ||||
Emerging growth company | ☐ |
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Item 1. | FINANCIAL STATEMENTS |
September 30, | December 31, | |||||||
2020 | 2019 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 4,086 | $ | 1,015 | ||||
Accounts receivable, net | 5,287 | 14,360 | ||||||
Prepaid obligations | 687 | 625 | ||||||
Derivative asset short-term | 131 | 272 | ||||||
Other current assets | 110 | 127 | ||||||
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Total Current Assets | 10,301 | 16,399 | ||||||
Property and Equipment, at cost | ||||||||
Oil and gas properties (successful efforts method), net | 191,492 | 205,320 | ||||||
Field and office equipment, net | 6,427 | 6,780 | ||||||
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Total Property and Equipment, Net | 197,919 | 212,100 | ||||||
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Other assets | 461 | 866 | ||||||
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Total Assets | $ | 208,681 | $ | 229,365 | ||||
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LIABILITIES AND EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 6,196 | $ | 6,634 | ||||
Accrued liabilities | 5,543 | 6,836 | ||||||
Current portion of long-term debt | 40,292 | — | ||||||
Current portion of asset retirement and other long-term obligations | 1,028 | 1,369 | ||||||
Derivative liability short-term | 648 | 753 | ||||||
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Total Current Liabilities | 53,707 | 15,592 | ||||||
Long-Term Bank Debt | 1,463 | 53,500 | ||||||
Asset Retirement Obligations | 14,743 | 20,330 | ||||||
Derivative Liability Long-Term | 118 | — | ||||||
Deferred Income Taxes | 35,248 | 35,924 | ||||||
Other Long-Term Obligations | 794 | 656 | ||||||
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Total Liabilities | 106,073 | 126,002 | ||||||
Commitments and Contingencies | ||||||||
Equity | ||||||||
Common stock, $.10 par value; 2020 and 2019: Authorized and Issued: 2,810,000 shares; outstanding 2020: 1,994,177 shares; 2019: 1,998,978 shares | 281 | 281 | ||||||
Paid-in capital | 7,505 | 7,505 | ||||||
Retained earnings | 129,185 | 129,120 | ||||||
Treasury stock, at cost; 2020: 815,823 shares; 2019: 811,022 shares | (37,501 | ) | (36,792 | ) | ||||
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Total Stockholders’ Equity – PrimeEnergy Resources | 99,470 | 100,114 | ||||||
Non-controlling interest | 3,138 | 3,249 | ||||||
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Total Equity | 102,608 | 103,363 | ||||||
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Total Liabilities and Equity | $ | 208,681 | $ | 229,365 | ||||
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September 30, 2021 | December 31, 2020 | |||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 3,624 | $ | 996 | ||||
Accounts receivable, net | 14,341 | 7,221 | ||||||
Prepaid obligations | 781 | 590 | ||||||
Other current assets | 568 | 104 | ||||||
Total Current Assets | 19,314 | 8,911 | ||||||
Property and Equipment, at cost | ||||||||
Oil and gas properties (successful efforts method), net | 176,497 | 185,098 | ||||||
Field and office equipment, net | 5,774 | 5,955 | ||||||
Total Property and Equipment, Net | 182,271 | 191,053 | ||||||
Other assets | 593 | 520 | ||||||
Total Assets | $ | 202,178 | $ | 200,484 | ||||
LIABILITIES AND EQUITY | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | 11,387 | $ | 5,217 | ||||
Accrued liabilities | 6,896 | 6,787 | ||||||
Due to Related Parties | 34 | 38 | ||||||
Current portion of long-term debt | 1,365 | 487 | ||||||
Current portion of asset retirement and other long-term obligations | 816 | 867 | ||||||
Derivative liability short-term | 6,177 | 724 | ||||||
Total Current Liabilities | 26,675 | 14,120 | ||||||
Long-Term Bank Debt | 32,164 | 38,267 | ||||||
Asset Retirement Obligations | 13,281 | 12,891 | ||||||
Derivative Liability Long-Term | 1,657 | 44 | ||||||
Deferred Income Taxes | 34,667 | 36,367 | ||||||
Other Long-Term Obligations | 759 | 797 | ||||||
Total Liabilities | 109,203 | 102,486 | ||||||
Commitments and Contingencies | 0 | 0 | ||||||
Equity | ||||||||
Common stock, $.10 par value; Authorized: 2,810,000 shares; Outstanding: 1,994,177 shares | 281 | 281 | ||||||
Paid-in capital | 7,560 | 7,541 | ||||||
Retained earnings | 121,783 | 126,804 | ||||||
Treasury stock, at cost; 815,823 shares | (37,502 | ) | (37,502 | ) | ||||
Total Stockholders’ Equity – PrimeEnergy Resources | 92,122 | 97,124 | ||||||
Non-controlling interest | 853 | 874 | ||||||
Total Equity | 92,975 | 97,998 | ||||||
Total Liabilities and Equity | $ | 202,178 | $ | 200,484 | ||||
2020
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||||||
Revenues | ||||||||||||||||
Oil sales | $ | 6,339 | $ | 16,928 | $ | 20,663 | $ | 55,370 | ||||||||
Natural gas sales | 1,052 | 1,467 | 3,212 | 5,057 | ||||||||||||
Natural gas liquids sales | 1,474 | 1,687 | 2,441 | 6,906 | ||||||||||||
Realized gain (loss) on derivative instruments, net | 222 | (195 | ) | 6,176 | (968 | ) | ||||||||||
Field service income | 2,567 | 4,866 | 9,248 | 14,356 | ||||||||||||
Administrative overhead fees | 1,066 | 1,356 | 3,260 | 4,168 | ||||||||||||
Unrealized gain (loss) on derivative instruments, net | (1,003 | ) | 2,071 | (62 | ) | (819 | ) | |||||||||
Other income | 75 | 2 | 240 | 65 | ||||||||||||
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Total Revenues | 11,792 | 28,182 | 45,178 | 84,135 | ||||||||||||
Costs and Expenses | ||||||||||||||||
Lease operating expense | 3,804 | 8,207 | 16,378 | 24,432 | ||||||||||||
Field service expense | 1,974 | 3,972 | 7,448 | 11,616 | ||||||||||||
Depreciation, depletion, amortization and accretion on discounted liabilities | 9,431 | 9,255 | 24,524 | 27,805 | ||||||||||||
General and administrative expense | 2,571 | 2,854 | 12,877 | 12,625 | ||||||||||||
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Total Costs and Expenses | 17,780 | 24,288 | 61,227 | 76,478 | ||||||||||||
Gain on Sale and Exchange of Assets | 14,773 | 114 | 14,967 | 1,803 | ||||||||||||
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Income (Loss) from Operations | 8,785 | 4,008 | (1,082 | ) | 9,460 | |||||||||||
Other Income (Expense) | ||||||||||||||||
Interest Income | 1 | 7 | 1 | 17 | ||||||||||||
Interest Expense | (470 | ) | (919 | ) | (1,629 | ) | (2,907 | ) | ||||||||
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Income (Loss) Before Income Taxes | 8,316 | 3,096 | (2,710 | ) | 6,570 | |||||||||||
Income Taxes Expense (Benefit) | 1,372 | 569 | (2,664 | ) | 1,252 | |||||||||||
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Net Income (Loss) | 6,944 | 2,527 | (46 | ) | 5,318 | |||||||||||
Less: Net Income (Loss) Attributable to Non-Controlling Interests | 443 | 15 | (111 | ) | 69 | |||||||||||
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Net Income Attributable to PrimeEnergy | $ | 6,501 | $ | 2,512 | $ | 65 | $ | 5,249 | ||||||||
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Basic Income Per Common Share | $ | 3.26 | $ | 1.25 | $ | 0.03 | $ | 2.61 | ||||||||
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Diluted Income Per Common Share | $ | 2.36 | $ | 0.91 | $ | 0.02 | $ | 1.90 | ||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | ||||||||||||||||
Oil sales | $ | 10,442 | $ | 6,339 | $ | 30,376 | $ | 20,663 | ||||||||
Natural gas sales | 3,998 | 1,052 | 7,948 | 3,212 | ||||||||||||
Natural gas liquids sales | 3,632 | 1,474 | 7,781 | 2,441 | ||||||||||||
Realized (loss) gain on derivative instruments, net | (1,983 | ) | 222 | (2,896 | ) | 6,176 | ||||||||||
Field service income | 2,975 | 2,567 | 8,138 | 9,248 | ||||||||||||
Administrative overhead fees | 1,164 | 1,066 | 3,455 | 3,260 | ||||||||||||
Unrealized (loss) on derivative instruments, net | (1,194 | ) | (1,003 | ) | (7,162 | ) | (62 | ) | ||||||||
Other income | 1 | 75 | 30 | 240 | ||||||||||||
Total Revenues | 19,035 | 11,792 | 47,670 | 45,178 | ||||||||||||
Costs and Expenses | ||||||||||||||||
Lease operating expense | 7,248 | 3,804 | 17,820 | 16,378 | ||||||||||||
Field service expense | 3,413 | 1,974 | 7,744 | 7,448 | ||||||||||||
Depreciation, depletion, amortization and accretion on discounted liabilities | 6,883 | 9,431 | 19,990 | 24,524 | ||||||||||||
General and administrative expense | 2,368 | 2,571 | 7,475 | 12,877 | ||||||||||||
Total Costs and Expenses | 19,912 | 17,780 | 53,029 | 61,227 | ||||||||||||
Gain on Sale and Exchange of Assets | 5 | 14,773 | 111 | 14,967 | ||||||||||||
(Loss) Income from Operations | (872 | ) | 8,785 | (5,248 | ) | (1,082 | ) | |||||||||
Other Income (Expense) | ||||||||||||||||
Interest Income | — | 1 | — | 1 | ||||||||||||
Interest Expense | (462 | ) | (470 | ) | (1,469) | (1,629 | ) | |||||||||
(Loss) Income Before Income Taxes | (1,334 | ) | 8,316 | (6,717 | ) | (2,710 | ) | |||||||||
Income Taxes Expense (Benefit) | (186 | ) | 1,372 | (1,700 | ) | (2,664 | ) | |||||||||
Net (Loss) Income | (1,148 | ) | 6,944 | (5,017 | ) | (46 | ) | |||||||||
Less: Net Income (Loss) Attributable to Non-Controlling Interests | 15 | 443 | 4 | (111 | ) | |||||||||||
Net (Loss) Income Attributable to PrimeEnergy | $ | (1,163 | ) | $ | 6,501 | $ | (5,021 | ) | $ | 65 | ||||||
Basic (Loss) Income Per Common Share | $ | (0.58 | ) | $ | 3.26 | $ | (2.52 | ) | $ | 0.03 | ||||||
Diluted (Loss) Income Per Common Share | $ | (0.58 | ) | $ | 2.36 | $ | (2.52 | ) | $ | 0.02 | ||||||
2020
Total | ||||||||||||||||||||||||||||||||
Common Stock | Additional | Stockholders’ | Non- | |||||||||||||||||||||||||||||
Paid-In | Retained | Treasury | Equity – | Controlling | Total | |||||||||||||||||||||||||||
Shares | Amount | Capital | Earnings | Stock | PrimeEnergy | Interest | Equity | |||||||||||||||||||||||||
Balance at December 31, 2019 | 2,810,000 | $ | 281 | $ | 7,505 | $ | 129,120 | $ | (36,792 | ) | $ | 100,114 | $ | 3,249 | $ | 103,363 | ||||||||||||||||
Purchase 4,801 shares of common stock | — | — | — | — | (709 | ) | (709 | ) | — | (709 | ) | |||||||||||||||||||||
Net Income (Loss) | — | — | — | 65 | — | 65 | (111 | ) | (46 | ) | ||||||||||||||||||||||
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Balance at September 30, 2020 | 2,810,000 | $ | 281 | $ | 7,505 | $ | 129,185 | $ | (37,501 | ) | $ | 99,470 | $ | 3,138 | $ | 102,608 | ||||||||||||||||
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Balance at December 31, 2018 | 2,810,000 | $ | 281 | $ | 7,388 | $ | 125,644 | $ | (31,304 | ) | $ | 102,009 | $ | 3,994 | $ | 106,003 | ||||||||||||||||
Purchase 31,226 shares of common stock | — | — | — | — | (4,108 | ) | (4,108 | ) | — | (4,108 | ) | |||||||||||||||||||||
Net income | — | — | — | 5,249 | — | 5,249 | 69 | 5,318 | ||||||||||||||||||||||||
Purchase of non-controlling interest | — | — | 265 | — | — | 265 | (571 | ) | (306 | ) | ||||||||||||||||||||||
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Balance at September 30, 2019 | 2,810,000 | $ | 281 | $ | 7,653 | $ | 130,893 | $ | (35,412 | ) | $ | 103,415 | $ | 3,492 | $ | 106,907 | ||||||||||||||||
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Common Stock | ||||||||||||||||||||||||||||||||
Shares | Amount | Additional Paid-In Capital | Retained Earnings | Treasury Stock | Total Stockholders’ Equity – PrimeEnergy | Non- Controlling Interest | Total Equity | |||||||||||||||||||||||||
Balance at December 31, 2020 | 1,994,177 | $ | 281 | $ | 7,541 | $ | 126,804 | $ | (37,502 | ) | $ | 97,124 | $ | 874 | $ | 97,998 | ||||||||||||||||
Net Income (Loss) | (5,021 | ) | (5,021 | ) | 4 | (5,017 | ) | |||||||||||||||||||||||||
Purchase of non- controlling interest | — | — | 19 | — | — | 19 | (25 | ) | (6 | ) | ||||||||||||||||||||||
Balance at September 30, 2021 | 1,994,177 | $ | 281 | $ | 7,560 | $ | 121,783 | $ | (37,502 | ) | $ | 92,122 | $ | 853 | $ | 92,975 | ||||||||||||||||
Balance at December 31, 2019 | 1,998,978 | $ | 281 | $ | 7,505 | $ | 129,120 | $ | (36,792 | ) | $ | 100,114 | $ | 3,249 | $ | 103,363 | ||||||||||||||||
Purchase 4,801 shares of common stock | (4,801 | ) | — | — | — | (709 | ) | (709 | ) | — | (709 | ) | ||||||||||||||||||||
Net Income (Loss) | — | — | — | 65 | — | 65 | (111 | ) | (46 | ) | ||||||||||||||||||||||
Balance at September 30, 2020 | 1,994,177 | $ | 281 | $ | 7,505 | $ | 129,185 | $ | (37,501 | ) | $ | 99,470 | $ | 3,138 | $ | 102,608 | ||||||||||||||||
2020
2020 | 2019 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net (Loss) Income including non-controlling interest | $ | (46 | ) | $ | 5,318 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation, depletion, amortization and accretion on discounted liabilities | 24,524 | 27,805 | ||||||
Gain on sale of properties | (14,967 | ) | (1,803 | ) | ||||
Unrealized loss on derivative instruments, net | (62 | ) | 819 | |||||
Provision for deferred income taxes | 676 | 1,266 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 9,073 | (2,735 | ) | |||||
Due to related parties | — | (5 | ) | |||||
Other assets | 422 | 268 | ||||||
Accounts payable | (438 | ) | (101 | ) | ||||
Accrued liabilities | (1,293 | ) | (9,369 | ) | ||||
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Net Cash Provided by Operating Activities | 17,889 | 21,463 | ||||||
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Cash Flows from Investing Activities: | ||||||||
Capital expenditures | (13,142 | ) | (16,070 | ) | ||||
Proceeds from sale of properties and equipment | 10,777 | 1,808 | ||||||
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Net Cash Used in Investing Activities | (2,365 | ) | (14,262 | ) | ||||
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Cash Flows from Financing Activities: | ||||||||
Purchase of stock for treasury | (709 | ) | (4,108 | ) | ||||
Purchase of non-controlling interests | — | (306 | ) | |||||
Proceeds from long-term bank debt and other long-term obligations | 6,756 | 25,000 | ||||||
Repayment of long-term bank debt and other long-term obligations | (18,500 | ) | (29,745 | ) | ||||
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Net Cash Used in Financing Activities | (12,453 | ) | (9,159 | ) | ||||
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Cash and Cash Equivalents Period Increase (Decrease) | 3,071 | (1,958 | ) | |||||
Cash and Cash Equivalents at the Beginning of the Period | 1,015 | 6,315 | ||||||
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Cash and Cash Equivalents at the End of the Period | $ | 4,086 | $ | 4,357 | ||||
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Supplemental Disclosures: | ||||||||
Income taxes paid | $ | 1 | $ | 129 | ||||
Interest paid | $ | 1,653 | $ | 2,920 | ||||
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2021 | 2020 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net (Loss) | $ | (5,017 | ) | $ | (46 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||
Depreciation, depletion, amortization and accretion on discounted liabilities | 19,990 | 24,524 | ||||||
Gain on sale of properties | (111 | ) | (14,967 | ) | ||||
Unrealized loss (gain) on derivative instruments, net | 7,162 | (62 | ) | |||||
Provision for deferred income taxes | (1,700 | ) | 676 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (7,120 | ) | 9,073 | |||||
Due to related parties | (4 | ) | — | |||||
Other assets | (655 | ) | 422 | |||||
Accounts payable | 6,170 | (438 | ) | |||||
Accrued liabilities | 109 | (1,293 | ) | |||||
Net Cash Provided by Operating Activities | 18,824 | 17,889 | ||||||
Cash Flows from Investing Activities: | ||||||||
Capital expenditures | (11,301 | ) | (13,142 | ) | ||||
Proceeds from sale of properties and equipment | 111 | 10,777 | ||||||
Net Cash (Used in) Investing Activities | (11,190 | ) | (2,365 | ) | ||||
Cash Flows from Financing Activities: | ||||||||
Purchase of stock for treasury | — | (709 | ) | |||||
Purchase of non-controlling interests | (6 | ) | 0 | |||||
Proceeds from long-term bank debt and other long-term obligations | 3,000 | 6,756 | ||||||
Repayment of long-term bank debt and other long-term obligations | (8,000 | ) | (18,500 | ) | ||||
Net Cash (Used in) Financing Activities | (5,006 | ) | (12,453 | ) | ||||
Net Increase in Cash and Cash Equivalents | 2,628 | 3,071 | ||||||
Cash and Cash Equivalents at the Beginning of the Period | 996 | 1,015 | ||||||
Cash and Cash Equivalents at the End of the Period | $ | 3,624 | $ | 4,086 | ||||
Supplemental Disclosures: | ||||||||
Income taxes paid | $ | 0— | $ | 01 | ||||
Interest paid | $ | 1,384 | $ | 1,653 | ||||
2021
2020.
(2)
“Partnerships” “Partnerships”) and the asset and business income trusts (the “Trusts”) managed by the Company as general partner and as managing trustee, respectively. During the nine months ended September 30, 2019 the Company purchased such interest totaling $306,000. The Company had norepurchased $6,000 of such repurchases
In the third quarter of 2020, the Company sold approximately 1,950 acres of undeveloped deep rights in central Reagan County, Texas, receiving cash compensation of $10.7 million and in a separate transaction sold the Company’s operated properties in West Virginia for future payments of $200,000 and a retained overriding royalty interest in future drilling on approximately 31,000 undeveloped acres.
2021.
September 30, | December 31, | |||||||
(Thousands of dollars) | 2020 | 2019 | ||||||
Accounts Receivable: | ||||||||
Joint interest billing | $ | 1,692 | $ | 3,339 | ||||
Trade receivables | 1,188 | 2,246 | ||||||
Oil and gas sales | 2,344 | 7,284 | ||||||
Tax refund receivable | — | 1,720 | ||||||
Other | 481 | 189 | ||||||
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5,705 | 14,778 | |||||||
Less: Allowance for doubtful accounts | (418 | ) | (418 | ) | ||||
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Total | $ | 5,287 | $ | 14,360 | ||||
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Accounts Payable: | ||||||||
Trade | $ | 519 | $ | 261 | ||||
Royalty and other owners | 3,735 | 4,227 | ||||||
Partner advances | 1,180 | 1,024 | ||||||
Other | 762 | 1,122 | ||||||
Total | $ | 6,196 | $ | 6,634 | ||||
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Accrued Liabilities: | ||||||||
Compensation and related expenses | $ | 3,968 | $ | 3,620 | ||||
Property costs | 1,556 | 2,829 | ||||||
Other | 19 | 387 | ||||||
Total | $ | 5,543 | $ | 6,836 | ||||
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(Thousands of dollars) | September, 30, 2021 | December 31, 2020 | ||||||
Accounts Receivable: | ||||||||
Joint interest billing | $ | 2,589 | $ | 2,475 | ||||
Trade receivables | 1,866 | 1,073 | ||||||
Oil and gas sales | 10,084 | 3,469 | ||||||
Other | 400 | 802 | ||||||
14,939 | 7,819 | |||||||
Less: Allowance for doubtful accounts | (598 | ) | (598 | ) | ||||
Total | $ | 14,341 | $ | 7,221 | ||||
Accounts Payable: | ||||||||
Trade | $ | 7,011 | $ | 876 | ||||
Royalty and other owners | 3,724 | 3,569 | ||||||
Partner advances | 223 | 193 | ||||||
Other | 429 | 579 | ||||||
Total | $ | 11,387 | $ | 5,217 | ||||
Accrued Liabilities: | ||||||||
Compensation and related expenses | $ | 3,259 | $ | 3,331 | ||||
Property costs | 2,533 | 2,056 | ||||||
Taxes | 866 | 1,016 | ||||||
Other | 238 | 384 | ||||||
Total | $ | 6,896 | $ | 6,787 | ||||
(Thousands of dollars) | September 30, 2020 | December 31, 2019 | ||||||
Proved oil and gas properties, at cost | $ | 500,888 | $ | 527,729 | ||||
Less: Accumulated depletion and depreciation | (309,396 | ) | (322,409 | ) | ||||
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Oil and Gas Properties, Net | $ | 191,492 | $ | 205,320 | ||||
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Field and office equipment | $ | 28,254 | $ | 27,542 | ||||
Less: Accumulated depreciation | (21,827 | ) | (20,762 | ) | ||||
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Field and Office Equipment, Net | $ | 6,427 | $ | 6,780 | ||||
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Total Property and Equipment, Net | $ | 197,919 | $ | 212,100 | ||||
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(Thousands of dollars) | September 30, | December 31, 2020 | ||||||
Proved oil and gas properties, at cost | $ | 531,475 | $ | 520,488 | ||||
Less: Accumulated depletion and depreciation | (354,978 | ) | (335,390 | ) | ||||
Oil and Gas Properties, Net | $ | 176,497 | $ | 185,098 | ||||
Field and office equipment | $ | 27,018 | $ | 26,797 | ||||
Less: Accumulated depreciation | (21,244 | ) | (20,842 | ) | ||||
Field and Office Equipment, Net | $ | 5,774 | $ | 5,955 | ||||
Total Property and Equipment, Net | $ | 182,271 | $ | 191,053 | ||||
On July 17, 2018, the Company and its lenders entered into a Second Amendment to the Third Amended and Restated Credit Agreement. The credit agreement includes modifications for the borrowing base utilization margins and rates by type of borrowing, revises minimum quantifications for individual borrowings, reduces the overall percentage required for commodity hedge agreements, modifies the requirements placed on3.00% or at the Company’s abilityoption, at LIBOR plus an applicable margin ranging from 3.00% to purchase equity interests4.00%. The 2017 Credit Agreement will mature on February 11, 2023. The Company’s borrowings under this credit facility approximates fair value because the interest rates are variable and retains all other aspectsreflective of the original credit agreement. As of the effective date of this amendment the Company’s borrowing base was increased to $90 million.
On January 8, 2019, the Company and its lenders entered into a Third Amendment to the Third Amended and Restated Credit Agreement. The credit agreement includes additions for a Beneficial Ownership Certification on the effective date of the amendment. The agreement includes further clarifications for potential LIBOR loan market rate issues, swap agreement modifications and retains all other aspects of the original credit agreement. As of the effective date of this amendment the Company’s borrowing base was increased to $100 million. Pursuant to borrowing base redeterminations on June 26, 2019 and December 18, 2019, the borrowing base was set at $90, million and $72, million respectively.
rates.
On
At September
2020.
Qualifying Expenses as described in and in compliance with the CARES Act. While theThe Company intends to useutilized the PPP Loan proceeds exclusively for Qualifying Expenses it is unclearduring the
liabilities reported within the following lines: Current portion of long-term debt in the amount of $1. 37 million and included as part of the long-term bank debt in the amount of $323 thousand.
The payment schedule for the Company’s operating and financing lease obligations as of September 30, 2020 is as follows:
Operating | Financing | |||||||
(Thousands of dollars) | Leases | Leases | ||||||
2020 | $ | 154 | $ | 2 | ||||
2021 | 106 | 2 | ||||||
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|
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| |||||
Total undiscounted lease payments | $ | 260 | $ | 4 | ||||
Less: Amount associated with discounting | (24 | ) | (0 | ) | ||||
|
|
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| |||||
Net operating lease liabilities | $ | 236 | $ | 4 | ||||
|
|
|
|
2023.
(Thousands of dollars) | Operating Leases | |||
2021 | $ | 144 | ||
2022 | 158 | |||
2023 | 17 | |||
Total undiscounted lease payments | $ | 319 | ||
Less: Amount associated with discounting | (11 | ) | ||
Net operating lease liabilities | $ | 308 | ||
September | ||||
(Thousands of dollars) | 30, | |||
2020 | ||||
Asset retirement obligation at December 31, 2019 | $ | 21,118 | ||
Liabilities settled | (1,153 | ) | ||
Liabilities divested | (5,186 | ) | ||
|
| |||
Accretion expense | 752 | |||
Asset retirement obligation at September 30, 2020 | $ | 15,531 | ||
|
|
The Company’s liability is determined using significant assumptions, including current estimates
(Thousands of dollars) | September 30, | |||
Asset retirement obligation at December 31, 2020 | $ | 13,660 | ||
Liabilities incurred | 721 | |||
Liabilities settled | (1,047 | ) | ||
Accretion expense | 487 | |||
Asset retirement obligation at September 30, 2021 | $ | 13,821 | ||
2021. Payables owed to related parties primarily represent receipts collected by the Company as agent for the joint venture partners, which may include members of the Company’s Board of Directors, for oil and gas sales net of expenses.
September 30, 2020 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance at September 30, 2020 | ||||||||||||
(Thousands of dollars) | ||||||||||||||||
Assets | ||||||||||||||||
Commodity derivative contracts | $ | — | $ | — | $ | 223 | $ | 223 | ||||||||
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| |||||||||
Total assets | — | $ | — | $ | 223 | $ | 223 | |||||||||
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|
| |||||||||
Liabilities | ||||||||||||||||
Commodity derivative contracts | $ | — | $ | — | $ | (766 | ) | $ | (766 | ) | ||||||
Total liabilities | $ | — | $ | — | $ | (766 | ) | $ | (766 | ) | ||||||
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|
December 31, 2019 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance at December 31, 2019 | ||||||||||||
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|
| |||||||||
(Thousands of dollars) | ||||||||||||||||
Assets | ||||||||||||||||
Commodity derivative contracts | $ | — | $ | — | $ | 272 | $ | 272 | ||||||||
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| |||||||||
Total assets | $ | — | $ | — | $ | 272 | $ | 272 | ||||||||
|
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|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Commodity derivative contract | $ | — | $ | — | $ | (753 | ) | $ | (753 | ) | ||||||
Total liabilities | $ | — | $ | — | $ | (753 | ) | $ | (753 | ) | ||||||
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|
September 30, 2021 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance at September 30, 2021 | ||||||||||||
(Thousands of dollars) | ||||||||||||||||
Liabilities | ||||||||||||||||
Commodity derivative contracts | $ | — | $ | — | $ | (7,834 | ) | $ | (7,834 | ) | ||||||
Total liabilities | $ | — | $ | — | $ | (7,834 | ) | $ | (7,834 | ) | ||||||
December 31, 2020 | Quoted Prices in Active Markets For Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Balance at December 31, 2020 | ||||||||||||
(Thousands of dollars) | ||||||||||||||||
Assets | ||||||||||||||||
Commodity derivative contracts | $ | — | $ | — | $ | 97 | $ | 97 | ||||||||
Total assets | $ | — | $ | — | $ | 97 | $ | 97 | ||||||||
Liabilities | ||||||||||||||||
Commodity derivative contract | $ | — | $ | — | $ | (768 | ) | $ | (768 | ) | ||||||
Total liabilities | $ | — | $ | — | $ | (768 | ) | $ | (768 | ) | ||||||
(Thousands of dollars) | ||||
Net Liability– December 31, 2019 | $ | (481 | ) | |
Total realized and unrealized (gains) losses: | ||||
Included in earnings (a) | 6,114 | |||
Purchases, sales, issuances and settlements | (6,176 | ) | ||
Net Liability September 30, 2020 | $ | (543 | ) | |
|
|
(Thousands of dollars) | ||||
Net Liabilities – December 31, 2020 | $ | (671 | ) | |
Total realized and unrealized (gains) losses: | ||||
Included in earnings (a) | (10,058 | ) | ||
Purchases, sales, issuances and settlements | 2,895 | |||
Net Liabilities — September 30, 2021 | $ | (7,834 | ) | |
Derivative instruments are reported in revenues as realized |
(Thousands of dollars) Balance Sheet Location Asset Derivatives: Derivatives not designated as cash-flow hedging instruments: Natural gas commodity contracts Crude oil commodity contracts Natural gas commodity contracts Total Liability Derivatives: Derivatives not designated as cash-flow hedging instruments: Crude oil commodity contracts Natural gas commodity contracts Natural gas commodity contracts Total Total derivative instruments 2020:commodity basedcommodity-based derivatives. Both realized and unrealized gains and losses associated with commodity derivative instruments are recognized in earnings.Interest rate swap derivatives are treated as cash-flow hedges and are used to fix the Company’s floating interest rates on existing debt. The value of interest rate swaps if applicable, would be recorded in accumulated other comprehensive loss, net of tax. There are no current interest rate swaps for the periods ending September 30, 2020 and December 31, 2019.20202021 and December 31, 2019: Fair Value September 30,
2020 December 31,
2019 Derivative asset short-term $ — $ 146 Derivative asset short-term 131 126 Derivative asset long-term 92 — $ 223 $ 272 Derivative liability short-term $ (206 ) $ (715 ) Derivative liability short-term (442 ) (38 ) Derivative liability long-term (118 ) — $ (766 ) $ (753 ) $ (543 ) $ (481 )
30,
2020
other assets — $ 97 $ — $ 97 Derivative liability short-term $ (3,994 ) $ (428 ) Derivative liability short-term (2,183 ) (296 ) Derivative liability long-term (1,178 ) — Derivative liability long-term (479 ) (44 ) $ (7,834 ) $ (768 ) $ (7,834 ) $ (671 )
Location of gain (loss) recognized in income | Amount of gain/loss recognized in income | |||||||||
(Thousands of dollars) | 2020 | 2019 | ||||||||
Derivatives not designated as cash-flow hedge instruments: | ||||||||||
Natural gas commodity contracts | Unrealized gain on derivative instruments, net | $ | 533 | $ | 82 | |||||
Crude oil commodity contracts | Unrealized gain (loss) on derivative instruments, net | 5,643 | (900 | ) | ||||||
Natural gas liquids contracts | Unrealized loss on derivative instruments, net | — | (1 | ) | ||||||
Natural gas commodity contracts | Realized gain (loss) on derivative instruments, net | (576 | ) | 90 | ||||||
Crude oil commodity contracts | Realized gain (loss) on derivative instruments, net | 514 | (1,302 | ) | ||||||
Natural gas liquids contracts | Realized gain on derivative instruments, net | — | 244 | |||||||
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| |||||||
$ | 6,114 | $ | (1,787 | ) | ||||||
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|
Amount of gain/loss recognized in income | ||||||||||
(Thousands of dollars) | Location of gain/loss recognized in income | 2021 | 2020 | |||||||
Derivatives not designated as cash-flow hedge instruments: | ||||||||||
Natural gas commodity contracts | Unrealized | (2,418 | ) | (576 | ) | |||||
Crude oil commodity contracts | Unrealized | (4,744 | ) | 514 | ||||||
Natural gas commodity contracts | Realized gain (loss) on derivative instruments, net | (1,009 | ) | 533 | ||||||
Crude oil commodity contracts | Realized (loss) on derivative instruments, net | (1,887 | ) | 5,643 | ||||||
$ | (10,058) | $ | 6,114 | |||||||
Nine Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Net Income (In 000’s) | Weighted Average Number of Shares Outstanding | Per Share Amount | Net Income (In 000’s) | Weighted Average Number of Shares Outstanding | Per Share Amount | |||||||||||||||||||
Basic | $ | 65 | 1,994,175 | $ | 0.03 | $ | 5,249 | 2,008,593 | $ | 2.61 | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Options (a) | 758,367 | — | 760,972 | |||||||||||||||||||||
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Diluted | $ | 65 | 2,752,542 | $ | 0.02 | $ | 5,249 | 2,769,565 | $ | 1.90 | ||||||||||||||
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Three Months Ended September 30, | ||||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Net Income (In 000’s) | Weighted Average Number of Shares Outstanding | Per Share Amount | Net Income (In 000’s) | Weighted Average Number of Shares Outstanding | Per Share Amount | |||||||||||||||||||
Basic | $ | 6,501 | 1,994,177 | $ | 3.26 | $ | 2,512 | 2,008,688 | $ | 1.25 | ||||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Options (a) | — | 756,154 | — | 760,552 | ||||||||||||||||||||
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Diluted | $ | 6,501 | 2,750,331 | $ | 2.36 | $ | 2,512 | 2,769,240 | $ | 0.91 | ||||||||||||||
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Nine Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Net Loss (In000’s) | Weighted Average Number of Shares Outstanding | Per Share Amount | Net Income (In 000’s) | Weighted Average Number of Shares Outstanding | Per Share Amount | |||||||||||||||||||
Basic | $ | (5,021 | ) | 1,994,177 | $ | (2.52 | $ | 65 | 1,994,175 | $ | 0.03 | |||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Options (a) | 758,367 | |||||||||||||||||||||||
Diluted | $ | (5,021 | ) | 1,994,177 | $ | (2.52 | ) | $ | 65 | 2,752,542 | $ | 0.02 | ||||||||||||
Three Months Ended September 30, | ||||||||||||||||||||||||
2021 | 2020 | |||||||||||||||||||||||
Net Loss (In 000’s) | Weighted Average Number of Shares Outstanding | Per Share Amount | Net Income (In 000’s) | Weighted Average Number of Shares Outstanding | Per Share Amount | |||||||||||||||||||
Basic | $ | (1,163 | ) | 1,994,177 | $ | (0.58 | ) | $ | 6,501 | 1,994,177 | $ | 3.26 | ||||||||||||
Effect of dilutive securities: | ||||||||||||||||||||||||
Options (a) | — | 756,154 | ||||||||||||||||||||||
Diluted | $ | (1,163 | ) | 1,994,177 | $ | (0.58 | ) | $ | 6,501 | 2,750,331 | $ | 2.36 | ||||||||||||
(a) | The effect of the 767,500 outstanding stock options is antidilutive for the nine and three months ended September 30, 2021 due to net loss for these periods. |
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
properties and interests are located in the United States. Assets in our principal focus areas include mature properties with long-lived reserves and significant development opportunities as well as newer properties with development and exploration potential. We believe our balanced portfolio of assets and our ongoing hedging program position us well for both the current commodity price environment and future potential upside as we develop our attractive resource opportunities. Our primary sources of liquidity are cash generated from our operations and our credit facility.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency due to the COVID-19 outbreak, which originated in Wuhan, China, and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. In addition, in March 2020, members of OPEC failed to agree on production levels which has caused an increased supply and has led to a substantial decrease in oil prices and an increasingly volatile market. The oil price war ended with a deal to cut global petroleum output but did not go far enough to offset the impact of COVID-19 on demand. There has been an increase in supply which has pushed prices down further since March. If the depressed pricing continues for an extended period it will lead to i) further reductions in the borrowing base under our credit facility which would require us to make additional borrowing base deficiency payments, ii) reductions in reserves, and iii) additional impairment of proved and unproved oil and gas properties. We also expect disclosures of supplemental oil and gas information to be impacted by price declines.
In response to recent commodity prices our efforts to reduce costs include reducing operating costs and electing to shut-in marginal wells. The Company reviewed field operations to minimize costs and identify wells for short term shut-ins. The Company has also implemented a reduction in workforce to further reduce general and administrative costs. The full impact of the COVID-19 outbreak and the decline in oil prices continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that these events will have on the Company’s financial condition, liquidity, and future results of operations.
Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020. These matters may have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown, which may impair the Company’s asset values, including reserve estimates. Further, consumer demand has decreased since the spread of the outbreak and new travel restrictions placed by governments in an effort to curtail the spread of the coronavirus. Although the Company cannot estimate the length or gravity of the impacts of these events at this time, if the pandemic and/or decreased oil prices continue, they may have a material adverse effect on the Company’s results of future operations, financial position, and liquidity in fiscal year 2020.
may receive for our produced products. Index prices for oil, natural gas, and NGLs. The priceNGLs are considerably higher than and we expect prices to remain volatile and consequently cannot determine with any degree of oil and natural gas has fallen significantly since the beginning of 2020, duecertainty what effect increases or decreases in part to failed Organization of Petroleum Exporting Countries (“OPEC”) negotiations as well as concerns about the COVID-19 pandemic and its impactthese prices will have on the worldwide economy and global demand for oil and gas. The resulting precipitous decline in oil and gas pricing experienced during March 2020, through the date of this report, if prolonged.our capital program, production volumes or a further deterioration of the market price for oil and natural gas, will negatively impact our cash flows.
Proved Reserves as of December 31, 2019 (MBoe) | Appalachian | Gulf Coast | Mid- Continent | West Texas | Other | Total | ||||||||||||||||||
Developed | 296 | 726 | 2,013 | 7,582 | 11 | 10,628 | ||||||||||||||||||
Undeveloped | — | — | 81 | 3,526 | — | 3,607 | ||||||||||||||||||
Total | 296 | 726 | 2,094 | 11,108 | 11 | 14,235 | ||||||||||||||||||
Average Daily Production (Boe per day) | 240 | 348 | 840 | 3703 | 4 | 5,133 | ||||||||||||||||||
Gross Productive Wells (Working Interest and ORRI Wells) | 528 | 263 | 567 | 561 | 105 | 2,024 | ||||||||||||||||||
Gross Productive Wells (Working Interest Only) | 481 | 233 | 418 | 522 | 45 | 1,699 | ||||||||||||||||||
Net Productive Wells (Working Interest Only) | 451 | 143 | 216 | 257 | 4 | 1,071 | ||||||||||||||||||
Gross Operated Productive Wells | 438 | 125 | 144 | 298 | — | 1,005 | ||||||||||||||||||
Gross Operated Water Disposal, Injection and Supply wells | 1 | 7 | 44 | 7 | — | 59 |
Gulf Coast | Mid- Continent | West Texas | Other | Total | ||||||||||||||||
Proved Reserves as of December 31, 2020 (MBoe) | ||||||||||||||||||||
Developed | 517 | 1,575 | 5,116 | 6 | 7,214 | |||||||||||||||
Undeveloped | — | 95 | 3,126 | — | 3,221 | |||||||||||||||
Total | 517 | 1,670 | 8,242 | 6 | 10,435 | |||||||||||||||
Average Daily Production (Boe per day) | 297 | 788 | 3,178 | 2 | 4,265 | |||||||||||||||
Gross Productive Wells (Working Interest and ORRI Wells) | 239 | 549 | 556 | 170 | 1,514 | |||||||||||||||
Gross Productive Wells (Working Interest Only) | 209 | 485 | 518 | 69 | 1,281 | |||||||||||||||
Net Productive Wells (Working Interest Only) | 124 | 217 | 263 | 2 | 606 | |||||||||||||||
Gross Operated Productive Wells | 158 | 209 | 325 | — | 692 | |||||||||||||||
Gross Operated Water Disposal, Injection and Supply wells | 9 | 53 | 6 | — | 68 |
report: one for 9.9% interest and three for less than one percent
We believe the additional production from these wells will have a significant impact on the Company’s cash flow in the fourth quarter of 2021.
Reserve Category | ||||||||||||||||||||||||||||||||||||||||||||||||
Proved Developed | Proved Undeveloped | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Oil | NGLs | Gas | Total | Oil | NGLs | Gas | Total | Oil | NGLs | Gas | Total | |||||||||||||||||||||||||||||||||||||
As of December 31, | (MBbls) | (MBbls) | (MMcf) | (MBoe) | (MBbls) | (MBbls) | (MMcf) | (MBoe) | (MBbls) | (MBbls) | (MMcf) | (MBoe) | ||||||||||||||||||||||||||||||||||||
2017 | 5,333 | 1,703 | 17,143 | 9,893 | 505 | 156 | 710 | 779 | 5,838 | 1,859 | 17,853 | 10,672 | ||||||||||||||||||||||||||||||||||||
2018 | 6,404 | 2,707 | 21,065 | 12,622 | 10 | 12 | 124 | 43 | 6,414 | 2,719 | 21,189 | 12,665 | ||||||||||||||||||||||||||||||||||||
2019 | 4,381 | 2,914 | 19,995 | 10,268 | 1,833 | 1,017 | 4,547 | 3,608 | 6,214 | 3,931 | 24,542 | 14,235 |
Reserve Category | ||||||||||||||||||||||||||||||||||||||||||||||||
Proved Developed | Proved Undeveloped | Total | ||||||||||||||||||||||||||||||||||||||||||||||
As of December 31, | Oil (MBbls) | NGLs (MBbls) | Gas (MMcf) | Total (MBoe) | Oil (MBbls) | NGLs (MBbls) | Gas (MMcf) | Total (MBoe) | Oil (MBbls) | NGLs (MBbls) | Gas (MMcf) | Total (MBoe) | ||||||||||||||||||||||||||||||||||||
2018 | 6,404 | 2,707 | 21,065 | 12,622 | 10 | 12 | 124 | 43 | 6,414 | 2,719 | 21,189 | 12,665 | ||||||||||||||||||||||||||||||||||||
2019 | 4,381 | 2,914 | 19,995 | 10,268 | 1,833 | 1,017 | 4,547 | 3,608 | 6,214 | 3,931 | 24,542 | 14,235 | ||||||||||||||||||||||||||||||||||||
2020 | 2,684 | 2,258 | 13,633 | 7,214 | 1,784 | 787 | 3,897 | 3,221 | 4,468 | 3,045 | 17,530 | 10,435 |
(a) | In computing total reserves on a |
At
In 2018, the Company drilled and completed seventeen horizontal wells in West Texas and eleven horizontal wells in Oklahoma. In addition, the Company added reserves through overriding royalty interest in 16 wells, primarily in Oklahoma and Texas. At year-end 2018, thirteen of the seventeen wells completed in 2018 were designated as Shut-In: eight in our West Texas horizontal development program, which were brought on production in February, 2019, and five in our Oklahoma Scoop-Stack development program, which were brought on production in March, 2019.
At December 31, 2018, our reserve report included 43 MBoe of proved undeveloped reserves attributable to eight horizontal wells that had been drilled but had not yet been completed: three of these were completed in 2019, converting 24 Mboe of undeveloped reserves to proved developed, and five remained uncompleted as of December 31, 2019, which account for 18 Mboe of the 43 Mboe. The Company has 9% ownership in one of these five wells and less than 1% in four wells.
In 2019, in West Texas, in addition to the eight wells classified as Shut-in at year-end 2018 that were brought on production in February, we participated in the drilling and completion of three wells on our Kashmir tract: two wells with an average 49% interest, and a third well for 5.3% interest. One of each of these wells was completed in the Wolfcamp “A”, Jo Mill, and Lower Spraberry. All three wells were brought on production in May of 2019.
In our Oklahoma, Scoop-Stack play, in 2019, we participated in the drilling and completion of six wells on our WM Wallace tract for 7.67% interest, and nine wells, included on Slash, Osborn, and Leon tracts, with an average 1.34% interest. In addition, three wells drilled in Oklahoma in 2018, designated as proved undeveloped at year-end 2018, were completed in 2019 converting 24 Mboe of reserves to proved developed. Also in Oklahoma, six wells designated as Shut-in on December 31, 2018, were brought into production in 2019: five located on our Ruthie tract, and one on our Braum tract. In the Gulf Coast region, we added production through the recompletion of three vertical wells in Polk County, Texas: one operated by the Company in which we have 72.5% interest, and two operated by Unit Petroleum in which the Company owns 2.81% working interest and 3.77% net revenue interest.
At December 31, 2019, the Company had 3,607 Mboe of undeveloped reserves attributable to 2213 wells operated by others, three of which are new wells spud in 2020 but not drilled until the first quarter of 2021, and 10 of which that were anticipated to be drilled and completed primarily in 2020: tenas of these
Proved Developed | Proved Undeveloped | Total | ||||||||||||||||||||||||||||||
As of December 31, | Future Net Revenue | Present Value 10 Of Future Net Revenue | Future Net Revenue | Present Value 10 Of Future Net Revenue | Future Net Revenue | Present Value 10 Of Future Net Revenue | Present Value 10 Of Future Income Taxes | Standardized Measure of Discounted Cash flow | ||||||||||||||||||||||||
2017 | $ | 160,737 | $ | 111,614 | $ | 13,564 | $ | 6,100 | $ | 174,301 | $ | 117,714 | $ | 10,800 | $ | 106,914 | ||||||||||||||||
2018 | $ | 239,337 | $ | 161,376 | $ | 767 | $ | 525 | $ | 240,104 | $ | 161,901 | $ | 23,992 | $ | 137,909 | ||||||||||||||||
2019 | $ | 116,592 | $ | 82,155 | $ | 42,700 | $ | 17,876 | $ | 159,292 | $ | 100,031 | $ | 18,419 | $ | 81,612 |
Proved Developed | Proved Undeveloped | Total | ||||||||||||||||||||||||||||||
As of December 31, | Future Net Revenue | Present Value 10 Of Future Net Revenue | Future Net Revenue | Present Value 10 Of Future Net Revenue | Future Net Revenue | Present Value 10 Of Future Net Revenue | Present Value 10 Of Future Income Taxes | Standardized Measure of Discounted Cash flow | ||||||||||||||||||||||||
2018 | $ | 239,337 | $ | 161,376 | $ | 767 | $ | 525 | $ | 240,104 | $ | 161,901 | $ | 23,992 | $ | 137,909 | ||||||||||||||||
2019 | $ | 116,592 | $ | 82,155 | $ | 42,700 | $ | 17,876 | $ | 159,292 | $ | 100,031 | $ | 18,419 | $ | 81,612 | ||||||||||||||||
2020 | $ | 43,886 | $ | 34,717 | $ | 37,346 | $ | 21,823 | $ | 81,232 | $ | 56,539 | $ | 14,920 | $ | 41,619 |
Since the start
invest approximately $1.98 million in these wells.
In addition to the 3,260 acreage block under development, the Company is also developing an offsetting 1,300-acre block in Upton County, Texas with Apache Corporation as operator. In the second quarter of 2019 three horizontal wells were completed and brought on production from reservoirs above the Middle Wolfcamp: one in the Wolfcamp “A”, one in the Jo Mill, and one in the Lower Spraberry, confirming the economic viability of these reservoirs on our acreage. Prime holds between 5% and 48% working interest in various depths of this acreage, and of the $26.7 million development cost for these three wells, our share was approximately $9.2 million. As a result of the success of these three wells, six horizontals were drilled in the first half of 2020 on this acreage block. We have an average 47.76% share of these wells. In addition to the six development locations in the Wolfcamp “A”, Jo Mill and Lower Sprayberry of our 1,300-acre block, there are four locations in the Middle Spraberry that are likely to be considered for future development at an estimated gross cost of approximately $30.2 million, with the Company’s share being approximately $14.2 million. Also in the first half of 2020, the Company participated in a horizontal well for 8.36% interest operated by Pioneer Natural Resources that was completed and brought into production in July, 2020. Our total net expenditure for this well has been approximately $630,000.
Also in the Permian Basin, of West Texas, we are developing aConcho ResourcesConocoPhillips in Martin County, Texas. In 2016 and 2017, four horizontal wells were drilled and completed and put on production.have been producing from the Wolfcamp. The Company owns between 35% toand 38% interest in various leases of this joint venture acreage where Concho ResourcesConocoPhillips is the operator. No near-term additional drilling plans have been received, from Concho Resources, however, offset operators have been actively drilling and their results are encouraging for the future development of offset acreage by other operators has demonstrated the potential for good economic production from multiple landing zones within thison our acreage block.
Since50% and the start of our Oklahoma Scoop-Stack horizontal development program, which began in 2013,potential investment by the Company has participated in 41 horizontalwould be approximately $442 million. The actual number of wells for approximately $23.5 million through 2019 with an averageeventually drilled, and the cost and the timing of approximately 7% interest. There have been no newsuch wells participated in through the third quarter of 2020. During this same periodare dependent upon many factors including commodity market conditions.
Our horizontal activity in Oklahoma is focused in Canadian, Grady, Kingfisher, Garfield, Major, and Garvin counties where we have approximately 3,401 net3,680 gross acres. We believe this acreage has significant additional resource potential that could supportThis agreement facilitates the drilling of as many as 49 new horizontals based on an estimate of six wells per section: three in108 horizontal laterals where the Mississippian and three in the Woodford Shale. Should we choose to participate in future development, our share of the capital expenditurescompany would be approximately $34 million athave an average 10% ownership level; the Company will otherwise sell its rights for cash, or cash plus a royalty or working interest.
In 2019, in the Gulf Coast region of Texas, the Company participated with Unit Petroleum in the successful recompletion of two wells in the Wilcox Formation of the Jazz field in Polk County, Texas. The Company has a 2.8125%34.5% working interest and a 3.768% net revenue interestinvest approximately $236 million. We believe this agreement represents significant future value for PrimeEnergy.
In early August 2020, the Company closed on the sale of its West Virginia District operated assets. The sale includes 456 producing wells, along withinterest and would invest approximately 35,000 leasehold acres, one salt water disposal well, and operating equipment. The Company has retained an overriding royalty interest, up to 12.5%, in any future drilling of these properties.
RESULTS OF OPERATIONS
2020 and 2019 Compared
We reported net income of $6.5 million, or $3.26 per share and $65 thousand or $0.03 per share for the three and nine months ended September 30, 2020, respectively, as compared to net income of $2.5 million, or $1.25 per share and $5.2 million, or $2.61 per share for the three and nine months ended September 30, 2019, respectively. Current year net income reflects decreases in production combined with commodity price decreases over the three and nine months ended September 30, 2019, increases in gains related to the sale of acreage and changes related to the valuation of derivative instruments. The significant components of income and expense are discussed below.
Oil, gas and NGLs sales decreased $11.2 million, or 55.9% from $20.1 million for the three months ended September 30, 2019 to $8.9 million for the three months ended September 30, 2020 and $41.0 million, or 60.9% from $67.3 million for the nine months ended September 30, 2019 to $26.3 million for the nine months ended September 30, 2020.
The following table summarizes the primary components of production volumes and average sales prices realized for the nine months ended September 30, 2020 and 2019 (excluding realized gains and losses from derivatives).
Nine months ended September 30, | ||||||||||||||||
2020 | 2019 | Increase / (Decrease) | Increase / (Decrease) | |||||||||||||
Barrels of Oil Produced | 538,000 | 1,012,000 | (474,000 | ) | (47 | )% | ||||||||||
Average Price Received | $ | 38.41 | $ | 54.72 | $ | (16.31 | ) | (30 | )% | |||||||
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Oil Revenue (In 000’s) | $ | 20,663 | $ | 55,370 | $ | (34,707 | ) | (63 | )% | |||||||
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Mcf of Gas Sold | 2,038,000 | 3,549,000 | (1,241,000 | ) | (35 | )% | ||||||||||
Average Price Received | $ | 1.06 | $ | 1.43 | $ | (0.37 | ) | (26 | )% | |||||||
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Gas Revenue (In 000’s) | $ | 2,441 | $ | 5,057 | $ | (2,616 | ) | (52 | )% | |||||||
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Barrels of Natural Gas Liquids Sold | 319,000 | 445,000 | (126,000 | ) | (28 | )% | ||||||||||
Average Price Received | $ | 10.07 | $ | 15.52 | $ | (5.45 | ) | (35 | )% | |||||||
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Natural Gas Liquids Revenue (In 000’s) | $ | 3,212 | $ | 6,906 | $ | (3,694 | ) | (53 | )% | |||||||
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Total Oil & Gas Revenue (In 000’s) | $ | 26,316 | $ | 67,333 | $ | (41,017 | ) | (61 | )% | |||||||
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Three months ended September 30, | ||||||||||||||||
2019 | 2020 | Increase / (Decrease) | Increase / (Decrease) | |||||||||||||
Barrels of Oil Produced | 160,000 | 323,000 | (163,000 | ) | (50 | )% | ||||||||||
Average Price Received | $ | 39.62 | $ | 52.41 | $ | (12.79 | ) | (24 | )% | |||||||
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Oil Revenue (In 000’s) | $ | 6,339 | $ | 16,928 | $ | (10,589 | ) | (63 | )% | |||||||
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Mcf of Gas Sold | 496,000 | 1,305,632 | (809,632 | ) | (62 | )% | ||||||||||
Average Price Received | $ | 2.12 | $ | 1.12 | $ | 1.00 | 89 | % | ||||||||
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Gas Revenue (In 000’s) | $ | 1,052 | $ | 1,467 | $ | (415 | ) | (28 | )% | |||||||
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Barrels of Natural Gas Liquids Sold | 106,000 | 156,983 | (50,983 | ) | (32 | )% | ||||||||||
Average Price Received | $ | 13.91 | $ | 10.75 | $ | 3.16 | 29 | % | ||||||||
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Natural Gas Liquids Revenue (In 000’s) | $ | 1,474 | $ | 1,687 | $ | (213 | ) | (13 | )% | |||||||
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Total Oil & Gas Revenue (In 000’s) | $ | 8,865 | $ | 20,082 | $ | (11.217 | ) | (56 | )% | |||||||
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Oil, Natural Gas and NGL Derivatives We do not apply hedge accounting to any of our commodity based derivatives, thus changes in the fair market value of commodity contracts held at the end of a reported period, referred to as mark-to-market adjustments, are recognized as unrealized gains and losses in the accompanying condensed consolidated statements of operations. As oil and natural gas prices remain volatile, mark-to-market accounting treatment creates volatility in our revenues.
Field service income decreased $2.3 million or 47.2% from $4.9 million for the third quarter 2019 to $2.6 million for the third quarter 2020 and $5.1 million, or 35.6% from $14.4 million for the nine months ended September 30, 2019 to $9.2 million for the nine months ended September 30, 2020. This decrease is a combined result of decreased utilization and rates charged to customers as oil and gas prices declined during 2020. Workover rig services, hot oil treatments, saltwater hauling and disposal represent the bulk of our field service operations.
Lease operating expense decreased $4.4 million or 53.6% from $8.2 million for the third quarter 2019 to $3.8 million for the third quarter 2020, and decreased $8.1 million or 33.0% from $24.4 million for the nine months ended September 30, 2019 to $16.4 million for the nine months ended September 30, 2020. This decrease is primarily due to the shut-in of high lifting cost properties during 2020 combined with lower production taxes related to lower commodity prices.
Field service expense decreased $2.0 million or 50.3% from $4.0 million for the third quarter 2019 to $2.0 million for the third quarter 2020 and decreased $4.2 million, or 35.9% from $11.6 million for the nine months ended September 30, 2019 to $7.4 million for the nine months ended September 30, 2020. Field service expenses primarily consist of salaries and vehicle operating expenses which have decreased during thein three and nine months ended September 30, 2020 over the same periods of 2019 related to decreased utilization of the equipment as oil and gas prices declined during 2020.
Depreciation, depletion, amortization and accretion on discounted liabilities increased $0.1 million, or 1.9% from $9.3 million for the third quarter 2019 to $9.4 million for the third quarter 2020 and decreased $3.3 million, or 9.9% from $27.8 million for the nine months ended September 30, 2019 to $24.5 million for the nine months ended September 30, 2020, reflecting the reduced production rates in the nine months of 2020.
General and administrative expense decreased $0.3 million, or 9.9% from $2.9 million for the three months ended September 30, 2019 to $2.6 million for the three months ended September 30, 2020, and increased $0.3 million, or 2.0% from $12.6 million for the nine months ended September 30, 2019 to $12.9 million for the nine months ended September 30, 2020. This overall increase in 2020 is primarily due to increases in employee wages and benefits during the first quarter offset by staff reductions reflected in the third quarter decrease.
Gain on sale and exchange of assets of $15.0 million for the nine months ended September 30, 2020 consists of principally of sales of deep rights in undeveloped acreage in West Texas and marginal wells in West Virginia.
Interest expense decreased from $0.9 million for the third quarter 2019 to $0.5 million for the third quarter 2020 and from $2.9 million for the nine months ended September 30, 2019 to $1.6 million for the nine months ended September 30, 2020. This decrease reflects the decrease in rates and current borrowings under our revolving credit agreement.
Income tax expense or benefit for the September 30, 2020 and 2019 periods varied due to the change in net income or loss for those periods. The tax benefit recorded for the nine months ended September 30, 2020 includes the benefits related to tax changes under the CARES Act.
If our exploratory drilling results in significant new discoveries, we will have to expend additional capital to finance the completion, development, and potential additional opportunities generated by our success. We believe that, because of the additional reserves resulting from the successful wells and our record of reserve growth in recent years, we will be able to access sufficient additional capital through bank financing.
Our borrowing base may decrease as a result of lower natural gas or oil prices, operating difficulties, declines in reserves, lending requirements or regulations, the issuance of new indebtedness or for other reasons set forth in our revolving credit agreement. In the event of a decrease in our borrowing base due to declines in commodity prices or otherwise, our ability to borrow under our revolving credit facility may be limited and we could be required to repay any indebtedness in excess of the
2020 | 2021 | 2022 | 2020 | 2021 | 2022 | |||||||||||||||||||
Swap Agreements | ||||||||||||||||||||||||
Natural Gas (MMBTU) | — | 1,166,000 | 570,000 | — | 2.46 | 2.69 | ||||||||||||||||||
Oil (barrels) | 24,000 | 42.42 | ||||||||||||||||||||||
Put Agreements | ||||||||||||||||||||||||
Natural Gas (MMBTU) | 520,000 | 500,000 | $ | 2.25 | $ | 2.00 | ||||||||||||||||||
Oil (barrels) | 30,400 | 66,000 | $ | 46.70 | $ | 35.00 |
On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property.
We have experienced significant disruptions to our business and operations. In particular, COVID-19 restrictions have limited access to our corporate offices and required our corporate personnel, including our legal and accounting staff.
Paycheck Protection Program Loans
During May 2020, Prime Operating Company and Eastern Oil Well Services Corporation, subsidiaries of the Company received loan proceeds in the amount of $1.28 million and $0.47 million , respectively, under the Paycheck Protection Program (the “PPP”) of the CARES Act. The PPP Loans are evidenced by a promissory note in favor of the Lender, which bears interest at the rate of 1.00% per annum. No payments of principal or interest are due under the note until the date on which the amount of loan forgiveness (if any) under the CARES Act, which can be up to 10 months after the end of the related notes covered period (which is defined as 24 weeks after the date of the loan) (the “Deferral Period”). The note may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP Loans may be used only for payroll and related costs, costs used to continue group health care benefits, mortgage payments, rent, utilities, and interest on other debt obligations that were incurred prior to February 15, 2020 (the “Qualifying Expenses”). Under the terms of the PPP Loans, certain amounts thereunder may be forgiven if they are used for Qualifying Expenses as described in and in compliance with the CARES Act. While the Company intends to use the PPP Loan proceeds exclusively for Qualifying Expenses, it is unclear and uncertain whether the conditions for forgiveness of the PPP Loans will be met under the current guidelines of the CARES Act. Accordingly, we cannot make any assurance that the Company will be eligible for forgiveness of the PPP Loans, in whole or in part. To the extent, if any, that any or all of the PPP loans are not forgiven, beginning one month following expiration of the Deferral Period, and continuing monthly until 24 months from the date of each applicable Note (the “Maturity Date”), the Company is obligated to make monthly payments of principal and interest to the Lender with respect to any unforgiven portion of the Note, in such equal amounts required to fully amortize the principal amount outstanding on such Note as of the last day of the applicable Deferral Period by the applicable Maturity Date.
2021 | 2022 | 2023 | 2021 | 2022 | 2023 | |||||||||||||||||||
Swap Agreements | ||||||||||||||||||||||||
Natural Gas (MMBTU) | 268,000 | 928,000 | 131,000 | $ | 2.48 | $ | 2.67 | $ | 2.81 | |||||||||||||||
Oil (barrels) | 133,500 | 196,200 | 27,200 | $ | 53.60 | $ | 51.99 | $ | 50.31 |
Since
In Upton County, West Texas, we are developing a contiguous 3,260-acre block with our joint venture partner, Apache Corporation. In this block the Company has 2,600 leasehold acres with interest between 14% and 56%, depending on the particular lease and depth being developed. In 2018, in this block, eight wells drilled horizontally in the Wolfcamp “B”, were participated in for 49% interest. This is believed to be full development of the Wolfcamp “B” reservoir for this lease block. Apache will likely now set its sights on development of the Upper Wolfcamp, Jo Mill, and Lower Spraberry reservoirs for this block, following the recent successful testing in 2019productive potential of these reservoirs on our offset 1,300-acre lease block. Givennearby
Also in the Permian Basin of West Texas, we are developing a 965-acre block with Concho Resources in Martin County, Texas. In 2016 and 2017, four horizontal wells were drilled and completed and put on production. The Company owns 35% to 38% interest in this joint venture acreage where Concho Resources is the operator. No near-term additional drilling plans have been received from Concho Resources, however, offset operators have been actively drilling and their results are encouraging for the future development of multiple landing zones within this acreage block.
In Central Reagan County, of West Texas, during the third quarter of 2020, the Company has sold deep rights covering approximately 1,950 acres for a purchase price of $10.3 million to-date, with a final total compensation expected to be $10.7 million.
Since the start of our Oklahoma Scoop-Stack horizontal development program, which began in 2013, the Company has participated in 41 horizontal wells for approximately $23.5 million through 2019 with an average of approximately 7% interest. There have been no new wells participated in through the third quarter of 2020. During this same period the Company chose to retain an overriding royalty interest in an additional 69 horizontal wells. In 2019, the Company participated for an average 5.78% interest in 20 horizontal wells in Canadian, Grady, and Kingfisher counties for a net cost of approximately $8.8$890 million. All 20 wells were completedNear-term development plans being discussed include the drilling of three 12,500’ laterals on one acreage block with BTA Producers, Inc., and six horizontal laterals on a second acreage block with laterals from 7,500’ to 10,000’ in 2019, andlength with Hibernia Resources, LLC. The Company’s share of these 20 wells twelve are operated by Encana/Newfield. would average about 37.5% and cost approximately $35.2 million net.
OurCompany’s horizontal activity in Oklahoma is focused in Canadian, Grady, Kingfisher, Garfield, Major, and Garvin counties where we have approximately 3,401579 net acres.leasehold acres with exceptional development potential. We believe this acreage has significant additional resource potential that could support the drilling of as many as 49 new horizontalshorizontal wells based on an estimate of sixfour wells per section: threetwo in the Mississippian and threetwo in the Woodford Shale. Should we choose to participate in future development, our share of the capital expenditures would be approximately $34 million at an average 10% ownership, level;otherwise the Company will otherwise sell its rights for cash, or cash plus a royalty or working interest.
In early August 2020, the Company closed on the sale of its West Virginia District operated assets. The sale includes 456 producing wells, along with approximately 35,000 leasehold acres, one salt water disposal well, and operating equipment. The Company has retained an overriding royalty interest, up to 12.5%, in any future drilling of these properties.
Nine months ended September 30, | ||||||||||||||||
2021 | 2020 | Increase / (Decrease) | Increase / (Decrease) | |||||||||||||
Barrels of Oil Produced | 480,000 | 538,000 | (58,000 | ) | (10.80 | )% | ||||||||||
Average Price Received | $ | 63.28 | $ | 38.41 | $ | 24.88 | 64.8 | % | ||||||||
Oil Revenue (In 000’s) | $ | 30,376 | $ | 20,663 | $ | 9,713 | 47.0 | % | ||||||||
Mcf of Gas Sold | 2,395,000 | 2,038,000 | 357,000 | 17.5 | % | |||||||||||
Average Price Received | $ | 3.32 | $ | 1.20 | $ | 2.12 | 177.1 | % | ||||||||
Gas Revenue (In 000’s) | $ | 7,948 | $ | 2,441 | $ | 5,507 | 225.6 | % | ||||||||
Barrels of Natural Gas Liquids Sold | 298,000 | 319,000 | (21,000 | ) | (6.60 | )% | ||||||||||
Average Price Received | $ | 26.11 | $ | 10.07 | $ | 16.04 | 159.3 | % | ||||||||
Natural Gas Liquids Revenue (In 000’s) | $ | 7,781 | $ | 3,212 | $ | 4,569 | 142.2 | % | ||||||||
Total Oil & Gas Revenue (In 000’s) | $ | 46,105 | $ | 26,316 | $ | 19,789 | 75.2 | % | ||||||||
Three months ended September 30, | ||||||||||||||||
2021 | 2020 | Increase / (Decrease) | Increase / (Decrease) | |||||||||||||
Barrels of Oil Produced | 152,000 | 160,000 | (8,000 | ) | (5.0 | )% | ||||||||||
Average Price Received | $ | 68.70 | $ | 39.62 | $ | 29.08 | 73.4 | % | ||||||||
Oil Revenue (In 000’s) | $ | 10.442 | $ | 6,339 | $ | 4,103 | 64.7 | % | ||||||||
Mcf of Gas Sold | 950,000 | 496,000 | 454,000 | 91.5 | % | |||||||||||
Average Price Received | $ | 4.21 | $ | 2.12 | $ | 2.09 | 98.5 | % | ||||||||
Gas Revenue (In 000’s) | $ | 3,998 | $ | 1,052 | $ | 2,946 | 280.0 | % | ||||||||
Barrels of Natural Gas Liquids Sold | 103,000 | 106,000 | (3,000 | ) | (2.80 | )% | ||||||||||
Average Price Received | $ | 35.26 | $ | 13.91 | $ | 21.35 | 153.5 | % | ||||||||
Natural Gas Liquids Revenue (In 000’s) | $ | 3,632 | $ | 1,474 | $ | 2,158 | 146.4 | % | ||||||||
Total Oil & Gas Revenue (In 000’s) | $ | 18,072 | $ | 8,865 | $ | 9,207 | 103.9 | % | ||||||||
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Item 4. | CONTROLS AND PROCEDURES |
Item 1. | LEGAL PROCEEDINGS |
Item 1A. | RISK FACTORS |
Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
2020 Month | Number of shares | Average price paid per share | Maximum number of shares that may yet be purchased under the program at month end(1) | |||||||||
January | 3,701 | $ | 149.30 | 148,821 | ||||||||
February | 900 | $ | 143.31 | 147,921 | ||||||||
March | 200 | $ | 139.68 | 147,921 | ||||||||
April | — | $ | — | 147,921 | ||||||||
May | — | $ | — | 147,921 | ||||||||
June | — | $ | — | 147,921 | ||||||||
July | — | $ | — | 147,921 | ||||||||
August | — | $ | — | 147,921 | ||||||||
September | — | $ | — | 147,921 | ||||||||
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Total/Average | $ |
2021 Month | Number of shares | Average price paid per share | Maximum number of shares that may yet be purchased under the program at month end (1) | |||||||||
January | 1— | $ | — | 147,921 | ||||||||
February | — | $ | — | 147,921 | ||||||||
March | — | $ | — | 147,921 | ||||||||
April | — | $ | — | 147,921 | ||||||||
May | — | $ | — | 147,921 | ||||||||
June | — | $ | — | 147,921 | ||||||||
July | — | $ | — | 147,921 | ||||||||
August | — | $ | — | 147,921 | ||||||||
September | — | $ | — | 147,021 | ||||||||
Total/Average | $ |
(1) | In December 1993, we announced that the Board of Directors authorized a stock repurchase program whereby we may purchase outstanding shares of the common stock from time-to-time, |
Item 3. | DEFAULTS UPON SENIOR SECURITIES |
Item 4. | RESERVED |
Item 5. | OTHER INFORMATION |
Item 6. | EXHIBITS |
PRIMEENERGY RESOURCES CORPORATION | ||||||
Dated: November | By: | /s/ Charles E. Drimal, Jr. | ||||
Charles E. Drimal, Jr. | ||||||
Chairman, President |
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