UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, ~~2020~~

2021

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From
to

Commission File Number

0-7406

PrimeEnergy Resources Corporation

(Exact name of registrant as specified in its charter)


Delaware		84-0637348
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer Identification No.)

9821 Katy Freeway, Houston, Texas 77024

(Address of principal executive offices)

(713)

735-0000

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings required for the past 90 days.

Yes

☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation

S-T (§

(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule

12b-2

of the Exchange Act.


Large Accelerated Filer	☐	Accelerated Filer	☐

Non-Accelerated Filer	☐☒	Smaller Reporting Company	☒


		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of each class of the Registrant’s Common Stock as of November ~~13, 2020~~ 8, 202

was: Common Stock, $0.10 par value 1,994,177 shares.

Table of Contents

PrimeEnergy Resources Corporation

Index to Form

10-Q

September 30, ~~2020~~

2021


	Page
Part I—Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets – September 30, ~~2020~~2021 and December ~~31, 2019~~30, 2020		3
Condensed Consolidated Statements of Operations – For the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020		4
Condensed Consolidated Statement of Equity – For the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020		5
Condensed Consolidated Statements of Cash Flows – For the nine months ended September 30, ~~2020~~2021 and ~~2019~~2020		6
Notes to Condensed Consolidated Financial Statements – September 30, ~~2020~~2021		7-13
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of Operation		~~14-25~~14
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2522
Item 4. Controls and Procedures		2522
Part II—Other Information
Item 1. Legal Proceedings		2623
Item 1A. Risk Factors		2623
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		23
Item 3. Defaults Upon Senior Securities		23
Item 4. Reserved		23
Item 5. Other Information		23
Item 6. Exhibits		24
Signatures		26
~~Item 3. Defaults Upon Senior Securities~~		26
~~Item 4. Reserved~~		26
~~Item 5. Other Information~~		26
~~Item 6. Exhibits~~		~~27-28~~
~~Signatures~~		29

Table of Contents

PART I—FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

PRIMEENERGY RESOURCES CORPORATION

C
ONDENSED
C
ONSOLIDATED
B
ALANCE
S
HEETS

– Unaudited

(Thousands of dollars)

   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


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


Total Property and Equipment, Net
   197,919 212,100


Other assets
   461 866


Total Assets
   $ 208,681 $ 229,365


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


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


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 )


Total Stockholders’ Equity – PrimeEnergy Resources
   99,470 100,114
Non-controlling interest
   3,138 3,249


Total Equity
   102,608 103,363


Total Liabilities and Equity
   $ 208,681 $ 229,365


	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

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements

Table of Contents

PRIMEENERGY RESOURCES CORPORATION

C
ONDENSED
C
ONSOLIDATED
S
TATEMENTS
OF
O
PERATIONS

– Unaudited

Three and nine months ended September 30, ~~2020~~2021 and ~~2019~~

2020

(Thousands of dollars, except per share amounts)

   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


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


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


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 )


Income (Loss) Before Income Taxes
   8,316 3,096 (2,710 ) 6,570
Income Taxes Expense (Benefit)
   1,372 569 (2,664 ) 1,252


Net Income (Loss)
   6,944 2,527 (46 ) 5,318
Less: Net Income (Loss) Attributable to Non-Controlling Interests
   443 15 (111 ) 69


Net Income Attributable to PrimeEnergy
   $ 6,501 $ 2,512 $ 65 $ 5,249


Basic Income Per Common Share
   $ 3.26 $ 1.25 $ 0.03 $ 2.61


Diluted Income Per Common Share
   $ 2.36 $ 0.91 $ 0.02 $ 1.90


	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

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements

Table of Contents

PRIMEENERGY RESOURCES CORPORATION

C
ONDENSED
C
ONSOLIDATED
S
TATEMENT
OF
E
QUITY

– Unaudited

Nine months Ended September 30, ~~2020~~2021 and ~~2019~~

2020

(Thousands of dollars)

               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 )










Balance at September 30, 2020
   2,810,000    $ 281    $ 7,505    $ 129,185    $ (37,501 ) $ 99,470 $ 3,138 $ 102,608










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 )










Balance at September 30, 2019
   2,810,000    $ 281    $ 7,653    $ 130,893    $ (35,412 ) $ 103,415 $ 3,492 $ 106,907


	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

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements

Table of Contents

PRIMEENERGY RESOURCES CORPORATION

C
ONDENSED
C
ONSOLIDATED
S
TATEMENTS
OF
C
ASH
F
LOWS

–

Unaudited

Nine months ended September 30, ~~2020~~2021 and ~~2019~~

2020

(Thousands of dollars)

   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 )


Net Cash Provided by Operating Activities
   17,889 21,463


Cash Flows from Investing Activities:

Capital expenditures
   (13,142 ) (16,070 )
Proceeds from sale of properties and equipment
   10,777 1,808


Net Cash Used in Investing Activities
   (2,365 ) (14,262 )


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 )


Net Cash Used in Financing Activities
   (12,453 ) (9,159 )


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


Cash and Cash Equivalents at the End of the Period
   $ 4,086 $ 4,357


Supplemental Disclosures:

Income taxes paid
   $ 1 $ 129
Interest paid
   $ 1,653 $ 2,920


	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

The accompanying Notes are an integral part of these Condensed Consolidated Financial Statements

Table of Contents

PRIMEENERGY RESOURCES CORPORATION

N
OTES
TO
C
ONDENSED
C
ONSOLIDATED
F

INANCIAL~~STATEMENTS~~

TATEMENTS

September 30, ~~2020~~

2021

(1) Basis of Presentation:

The accompanying condensed consolidated financial statements of PrimeEnergy Resources Corporation (“PrimeEnergy” or the “Company”) have not been audited by independent public accountants. Pursuant to applicable Securities and Exchange Commission (“SEC”) rules and regulations, the accompanying interim financial statements do not include all disclosures presented in annual financial statements and the reader should refer to the Company’s Form

10-K

for the year ended December 31, ~~2019.~~2020. In the opinion of management, the accompanying interim condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s condensed consolidated balance sheets as of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, the condensed consolidated results of operations, cash flows and equity for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~

2020.

As of September 30, ~~2020,~~2021, PrimeEnergy’s significant accounting policies are consistent with those discussed in Note 1—Description of Operations and Significant Accounting Policies of its consolidated financial statements contained in PrimeEnergy’s Annual Report on Form

10-K

for the fiscal year ended December 31, ~~2019.~~2020. Certain amounts presented in prior period financial statements have been reclassified for consistency with current period presentation. The results for interim periods are not necessarily indicative of annual results. For purposes of disclosure in the condensed consolidated financial statements, subsequent events have been evaluated through the date the statements were issued.

(2)

(2) Acquisitions and Dispositions:

Historically the Company has repurchased the interests of the partners and trust unit holders in the oil and gas limited partnerships (the

~~“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 no~~repurchased $6,000 of such ~~repurchases~~

non-controlling

interests during the nine months ended September 30, ~~2020.~~

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.

(3) Additional Balance Sheet Information:

Certain balance sheet amounts are comprised of the following:

   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




   5,705    14,778
Less: Allowance for doubtful accounts
   (418 )    (418 )




Total
   $ 5,287    $ 14,360




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




Accrued Liabilities:

Compensation and related expenses
   $ 3,968    $ 3,620
Property costs
   1,556    2,829
Other
   19    387
Total
   $ 5,543    $ 6,836


(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

Table of Contents

(4) Property and Equipment:

Property and equipment at September 30, ~~2020~~2021 and December 31, ~~2019~~2020 consisted of the following:

(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 )




Oil and Gas Properties, Net
   $ 191,492    $ 205,320




Field and office equipment
   $ 28,254    $ 27,542
Less: Accumulated depreciation
   (21,827 )    (20,762 )




Field and Office Equipment, Net
   $ 6,427    $ 6,780




Total Property and Equipment, Net
   $ 197,919    $ 212,100


(Thousands of dollars)	September 30, 2021			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

(5) Long-Term Debt:

Bank Debt:

On February 15, 2017, the Company and its lenders entered into a Third Amended and Restated Credit Agreement (the “2017 Credit Agreement”) with a maturity date of February 15, 2021. ~~The Second Amended and Restated Credit Agreement and subsequent amendments were amended and restated by the 2017 Credit Agreement. Pursuant to the terms and conditions of~~Under the 2017 Credit Agreement, the Company has a revolving line of credit and letter of credit facility of up to $300 million subject to a borrowing base that is determined semi-annually by the lenders based upon the Company’s financial statements and the estimated value of the Company’s oil and gas properties, in accordance with the Lenders’ customary practices for oil and gas loans. The credit facility is secured by substantially all of the Company’s oil and gas properties. The 2017 Credit Agreement includes terms and covenants that require the Company to maintain a minimum current ratio and total indebtedness to EBITDAX (earnings before depreciation, depletion, amortization, taxes, interest expense and exploration costs) ~~ratio and interest coverage~~ ratio, as defined, and restrictions are placed on the payment of dividends, the amount of treasury stock the Company may purchase, commodity hedge agreements, and loans and investments in its consolidated subsidiaries and limited partnerships.

During 2020, the 2017 Credit Agreement was amended to add loans under the Paycheck Protection Program to the Permitted loans, as defined in the agreement.

On ~~December 22, 2017,~~February 11, 2021, the Company and its lenders entered into a ~~First~~Sixth Amendment to the ~~Third Amended and Restated~~2017 Credit Agreement. ~~The credit agreement includes the addition of a new lender and retains all other aspects of the original credit agreement. As of the effective date of~~Under this amendment the Company’s borrowing base ~~was increased~~is $40 million. Borrowings under the 2017 Credit Agreement will bear interest at a base rate plus an applicable margin ranging from 2.00% to ~~$85 million.~~

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 ~~ability~~option, at LIBOR plus an applicable margin ranging from 3.00% to ~~purchase equity interests~~4.00%. 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 aspects~~reflective 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 ~~May 8~~^th ~~2020 , the Company and its lenders entered into a Fourth Amendment to the Third Amended and Restated Credit Agreement.~~

September 4, 2020, the Company and its lenders entered into a Fifth Amendment to the Third Amended and Restated Credit Agreement. As of the effective date of this amendment the Company’s borrowing base was decreased to $50 million. The amendment includes an automatic reduction of $666,666.67 to the borrowing base on October 1, 2020, November 1, 2020 and December 1, 2020. The amendment also revised the applicable borrowing base utilization percentages for Eurodollar and ABR loans with a range of 2.5% to 3.5% and 1.5% to 2.5%, respectively. The agreement also adjusted percentages of title and mortgage guarantees supported by the oil and gas properties presented to the administrative agent at each borrowing redetermination as supported by the required reserve report.

~~At September~~

30, ~~2020,~~2021, the Company had a total of ~~$40~~$31.5 million of borrowings outstanding under its revolving credit facility at a weighted-average interest rate of ~~3.99 %~~5.35% and ~~$10~~

8.5 million was available for future borrowings. The combined weighted average interest rate paid on outstanding bank borrowings subject to base rate and LIBO interest was ~~3.94%~~5.31% for the

nine

months ended

September

30, ~~2020~~2021 as compared to ~~5.44%~~3.94% for

nine

months ended

September

30, ~~2019. The Company’s borrowings under this credit facility approximates fair value because the interest rates are variable and reflective of market rates.~~

2020.

Paycheck Protection Program Loans

Qualifying Expenses as described in and in compliance with the CARES Act. ~~While the~~The Company ~~intends to use~~utilized the PPP Loan proceeds exclusively for Qualifying Expenses ~~it is unclear~~during the

24-week

coverage period and ~~uncertain whether the conditions~~has submitted its application for forgiveness ofin accordance with the ~~PPP Loans will be met under the current guidelines~~terms of the CARES ~~Act. Accordingly, we cannot make any assurance that~~Act and related guidance. In the ~~Company will be eligible for forgiveness of~~event the PPP ~~Loans, in whole~~Loan or ~~in part.~~ any portion thereof is forgiven, the amount forgiven is applied to the outstanding principal.

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To the extent, if any, that any or all of the PPP loans are not forgiven, beginning one month following ~~expiration~~

expi

ration 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. The Company accounts for these loans on the balance sheet as financial ~~liabilities.~~

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.

(6) Other Long-Term Obligations and Commitments:

Operating Leases:

The Company leases office facilities under operating leases and recognizes lease expense on a straight-line basis over the lease term. Leases assets and liabilities are initially recorded at commencement date based on the present value of lease payments over the lease term.

A new finance lease for office equipment is included in property and equipment, other current liabilities and other long-term liabilities this quarter. As

most of the Company’s lease contracts do not provide an implicit discount rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The weighted average discount rate used was 5.5%. Certain leases may contain variable costs above the minimum required payments and are not included in the

right-of-use

assets or liabilities. Leases may include renewal, purchase or termination options that can extend or shorten the term of the lease. The exercise of those options is at the Company’s sole discretion and is evaluated at inception and throughout the contract to determine if a modification of the lease term is required. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

Operating lease costs for the nine months ended September 30, ~~2020~~2021 were ~~$434 thousand.~~

$450,000

. Cash payments included in the operating lease cost for nine months ended September 30, ~~2020~~2021 were ~~$462 thousand.~~

$433,000

. The weighted-average remaining operating lease terms is 10

11.5 months. ~~The amortization and interest expense for financing lease amounted to $1,778 and the cash payment for the lease was $1,913 and the lease term remaining was for 7 months.~~

~~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




Total undiscounted lease payments
   $ 260    $ 4
Less: Amount associated with discounting
   (24 )    (0 )




Net operating lease liabilities
   $ 236    $ 4

The Company amended certain leases for office space in Texas ~~and Oklahoma~~ providing for payments of ~~$461 thousand~~$299,000 in 2021, $158,000 in 2022 and ~~$89 thousand~~$17,000 in ~~2020 and 2021, respectively.~~

2023.

Rent expense for office space for the nine months ended September 30, 2021 and 2020 was $441,000 and ~~2019 was~~ $496,000, ~~and $484,000,~~ respectively.

The payment schedule for the Company’s operating lease obligations as of September 30, 2021 is as follows:

(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

Asset Retirement Obligation:

A reconciliation of the liability for plugging and abandonment costs for the

nine

months ended September 30, ~~2020~~

2021

is as follows:

   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, 2021
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

Table of plugging and abandonment costs, annual inflation of these costs, the productive life of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated asset retirement obligation. Revisions to the asset retirement obligation are recorded with an offsetting change to producing properties, resulting in prospective changes to depreciation, depletion and amortization expense and accretion of discount. Because of the subjectivity of assumptions and the relatively long life of most of the Company’s wells, the costs to ultimately retire the wells may vary significantly from previous estimates.

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(7) Contingent Liabilities:

The Company, as managing general partner of the affiliated Partnerships, is responsible for all Partnership activities, including the drilling of development wells and the production and sale of oil and gas from productive wells. The Company also provides the administration, accounting and tax preparation work for the Partnerships, and is liable for all debts and liabilities of the affiliated Partnerships, to the extent that the assets of a given limited Partnership are not sufficient to satisfy its obligations.

The Company is subject to environmental laws and regulations. Management believes that future expenses, before recoveries from third parties, if any, will not have a material effect on the Company’s financial condition. This opinion is based on expenses incurred to date for remediation and compliance with laws and regulations, which have not been material to the Company’s results of operations.

From time to time, the Company is party to certain legal actions arising in the ordinary course of business. While the outcome of these events cannot be predicted with certainty, management does not expect these matters to have a materially adverse effect on the financial position or results of operations of the Company.

(8) Stock Options and Other Compensation:

In May 1989,

non-statutory

stock options were granted by the Company to ~~four~~4 key executive officers for the purchase of shares of common stock. At ~~June~~September 30, ~~2020~~2021 and ~~2019,~~2020, remaining options held by two key executive officers on 767,500 shares were outstanding and exercisable at prices ranging from $1.00 to $1.25. According to their terms, the options have no expiration date.

(9) Related Party Transactions:

The Company, as managing general partner or managing trustee, makes an annual offer to repurchase the interests of the partners and trust unit holders in certain of the Partnerships or Trusts. The Company ~~purchased~~ repurchased $6,000 of such

non-controlling

interests ~~totaling $306,000 for the nine months ended June 30, 2019. The Company had no such repurchases~~ during the nine months ~~ended~~ending September 30, ~~2020.~~

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.

(10) Financial Instruments

Fair Value Measurements:

Authoritative guidance on fair value measurements defines fair value, establishes a framework for measuring fair value and stipulates the related disclosure requirements. The Company follows a three-level hierarchy, prioritizing and defining the types of inputs used to measure fair value. The fair values of the Company’s interest rate swaps, natural gas and crude oil price ~~swaps~~collars and ~~natural gas liquid~~ swaps are designated as Level 3. The following fair value hierarchy table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis at September 30, ~~2020~~2021 and December 31, ~~2019:~~

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






Total assets
   —      $ —      $ 223 $ 223






Liabilities

Commodity derivative contracts
   $ —      $ —      $ (766 ) $ (766 )
Total liabilities
   $ —      $ —      $ (766 ) $ (766 )






2020:

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








(Thousands of dollars)

Assets

Commodity derivative contracts
   $ —      $ —      $ 272    $ 272








Total assets
   $ —      $ —      $ 272    $ 272








Liabilities

Commodity derivative contract
   $ —      $ —      $ (753 )    $ (753 )
Total liabilities
   $ —      $ —      $ (753 )    $ (753 )


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	)

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The derivative contracts were measured based on quotes from the Company’s counterparties. Such quotes have been derived using valuation models that consider various inputs including current market and contractual prices for the underlying instruments, quoted forward prices for natural gas ,and crude oil, ~~natural gas liquids,~~ volatility factors and interest rates, such as a LIBOR curve for a similar length of time as the derivative contract term as applicable. These estimates are verified using comparable NYMEX futures contracts or are compared to multiple quotes obtained from counterparties for reasonableness.

The significant unobservable inputs for Level 3 derivative contracts include basis differentials and volatility factors. An increase (decrease) in these unobservable inputs would result in an increase (decrease) in fair value, respectively. The Company does not have access to the specific assumptions used in its counterparties’ valuation models. Consequently, additional disclosures regarding significant Level 3 unobservable inputs were not provided.

The following table sets forth a reconciliation of changes in the fair value of financial assets and liabilities classified as Level 3 in the fair value hierarchy for the ~~period~~quarter ended September 30, ~~2020.~~

(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 )

2021.


(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	)

a)(a)

Derivative instruments are reported in revenues as realized ~~gain (loss)~~gain/loss and on a separately reported line item captioned unrealized ~~gain (loss)~~gain/loss on derivative instruments.

Derivative Instruments:

The Company is exposed to commodity price and interest rate risk, and management considers periodically the Company’s exposure to cash flow variability resulting from the commodity price changes and interest rate fluctuations. Futures, swaps and options are used to manage the Company’s exposure to commodity price risk inherent in the Company’s oil and gas production operations. The Company does not apply hedge accounting to any of its ~~commodity based~~commodity-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.

The following table sets forth the effect of derivative instruments on the consolidated balance sheets at September 30, ~~2020~~2021 and December 31, ~~2019:~~

   Fair Value
(Thousands of dollars)

Balance Sheet Location
   September 30,
2020    December 31,
2019
Asset Derivatives:

Derivatives not designated as cash-flow hedging instruments:

Natural gas commodity contracts
   Derivative asset short-term    $ —      $ 146
Crude oil commodity contracts
   Derivative asset short-term    131    126
Natural gas commodity contracts
   Derivative asset long-term    92    —




Total
      $ 223    $ 272




Liability Derivatives:

Derivatives not designated as cash-flow hedging instruments:

Crude oil commodity contracts
   Derivative liability short-term    $ (206 )    $ (715 )
Natural gas commodity contracts
   Derivative liability short-term    (442 )    (38 )
Natural gas commodity contracts
   Derivative liability long-term    (118 )    —




Total
      $ (766 )    $ (753 )




Total derivative instruments
      $ (543 )    $ (481 )

2020:


		Fair Value
(Thousands of dollars)	Balance Sheet Location	September 30, 2021			December 31, 2020
Asset Derivatives:
Derivatives not designated as cash-flow hedging instruments:
Natural gas commodity contracts	Derivative asset long-term and other assets		—		$	97

Total		$	—		$	97

Liability Derivatives:
Derivatives not designated as cash-flow hedging instruments:
Crude oil commodity contracts	Derivative liability short-term	$	(3,994	)	$	(428	)
Natural gas commodity contracts	Derivative liability short-term		(2,183	)		(296	)
Crude oil commodity contracts	Derivative liability long-term		(1,178	)		—
Natural gas commodity contracts	Derivative liability long-term		(479	)		(44	)

Total		$	(7,834	)	$	(768	)

Total derivative instruments		$	(7,834	)	$	(671	)

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The following table sets forth the effect of derivative instruments on the consolidated statements of operations for the nine months ended September 30, ~~2020~~2021 and ~~2019:~~

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


      $ 6,114 $ (1,787 )


2020:


		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 gain (loss) on derivative instruments, net		(2,418	)		(576	)
Crude oil commodity contracts	Unrealized (loss) gain on derivative instruments, net		(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

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(11) Earnings Per Share:

Basic earnings per share are computed by dividing earnings available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share reflect per share amounts that would have resulted if dilutive potential common stock had been converted to common stock in gain periods. The following reconciles amounts reported in the financial statements:

   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









Diluted
   $ 65    2,752,542    $ 0.02    $ 5,249    2,769,565    $ 1.90









   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









Diluted
   $ 6,501    2,750,331    $ 2.36    $ 2,512    2,769,240    $ 0.91


	Nine 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	$	(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.

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist you in understanding our results of operations and our present financial condition. Our Condensed Consolidated Financial Statements and the accompanying Notes to the Condensed Consolidated Financial Statements included elsewhere in this Report contain additional information that should be referred to when reviewing this material.

OVERVIEW

We ~~attempt to assume the position of operator~~are an independent oil and natural gas company engaged in ~~all acquisitions of~~acquiring, developing and producing oil and natural gas. We presently own producing and

non-producing

properties located primarily in Texas and ~~will continue to evaluate prospects for leasehold acquisitions and for exploration and development operations in areas in which~~Oklahoma. In addition, we own ~~interests. We continue to actively pursue the acquisition~~a substantial amount of producing properties. To diversify and broaden our asset base, we will consider acquiring the assets or stock in other entities and companies in the oil and gas business. Our main objective in making any such acquisitions will be to acquire income producing assets to build stockholder value through consistent growth inwell servicing equipment. All of our oil and gas ~~reserve base on a cost-efficient basis.~~

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.

Our cash flows depend on many factors, including the price of oil, gas, and natural gas liquids (NGL’s), the success of our acquisition and drilling activities, and the operational performance of our producing properties. We use derivative instruments to manage our commodity price risk. This practice may prevent us from receiving the full advantage of any increases in ~~oil and gas~~commodity prices above the maximum fixed amount specified in the derivative agreements and subjects us to the credit risk of the counterparties to such agreements. Since all our derivative contracts are accounted for under

mark-to-market

accounting, we expect continued volatility in gains and losses on

mark-to-market

derivative contracts in our consolidated statement of operations as changes occur in the NYMEX price indices.

~~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.

Our financial results depend on many factors, particularly the price of natural gas, ~~and~~ crude oil, and NGLs and our ability to market our ~~production~~products on economically attractive terms. Commodity prices are affected by many factors outside of our control, including changes in market supply and demand, which are impacted by weather conditions, pipeline capacity constraints, inventory storage levels, basis differentials, and other factors. In addition, our realized prices are further impacted by our derivative and hedging activities.

We derive our revenue and cash flow principally from the sale of oil, natural gas, and NGLs. As a result, our revenues are determined, to a large degree, by prevailing prices for crude oil, natural gas, and NGLs. We sell our oil, ~~and~~ natural gas, and NGLs on the open market and to local processing companies at prevailing market prices or through forward delivery contracts. Because some of our operations are located outside major markets, we are directly impacted by regional prices regardless of Henry Hub, WTI, or other major market pricing. The market price for oil, natural gas, and NGLs is dictated by supply and demand; consequently, we cannot accurately predict or control the ~~price~~prices we

may receive for our produced products. Index prices for oil, natural gas, and ~~NGLs. The price~~NGLs 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, due~~certainty 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 impact~~these 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.~~

revenue.

We are the operator of the majority of our developed and undeveloped acreage which is nearly all held by production. In the Permian Basin of West Texas and eastern New Mexico, the Company maintains an acreage position of approximately 19,680 gross ~~(12,322~~(12,460 net) acres, 97% of which is located in Reagan, Upton, Martin, and Midland counties of Texas where our current horizontal drilling activity is focused. ~~We believe this~~This acreage has significant resource potential in the Spraberry and Wolfcamp intervals for additional horizontal drilling that could support the drilling of ~~as many as~~more than 250 additional horizontal wells. In Oklahoma, we maintain an acreage position of approximately ~~56,360~~49,765 gross ~~(10,580~~(10,953 net) acres. Our Oklahoma horizontal development is focused primarily in Canadian, Kingfisher, Grady, Garfield, Major and Garvin counties. We believe approximately ~~3,460~~5,579 net acres in these counties hold significant additional resource potential that could support the drilling of as many as 5249 new horizontal wells based on an estimate of four ~~to ten~~ wells per section, depending on the reservoir target area. Should we choose to participate with a working interest in future development, our share of these future capital expenditures would be approximately ~~$40~~$34 million at an average 10% ownership level.

Future development plans are established based on various factors, including the expectation of available cash flows from operations and availability of funds under our revolving credit facility.

Table of Contents

District Information:

The following table represents certain reserve and well information as of December 31, ~~2019. Note, the Appalachian District properties, described in the table below, were sold August 1,~~ 2020.

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

In several of our producing regions, we have field service groups to service our operated wells and locations as well as third-party operators in the area. These services consist of well service support, site preparation, and construction services for drilling and workover operations. Our operations are performed utilizing workover orand swab rigs, water transport trucks, hot oil trucks, saltwater disposal facilities, various land excavating equipment, and trucks we own and that are operated by our field employees.

Gulf Coast Region

Our development, exploitation, exploration, and production activities in the Gulf Coast region are primarily concentrated in southeast Texas. This region is managed from our office in Houston, Texas. Principal producing intervals are in the Wilcox, San Miguel, Olmos, and Yegua formations at depths ranging from 3,000 to 12,500 feet. We had ~~233~~239 producing wells ~~(143~~(124 net) in the Gulf Coast region as of December 31, ~~2019,~~2020, of which ~~125~~158 wells are operated by us. Average net daily production in ~~2019~~our Gulf Coast Region in 2020 was ~~348~~297 Boe. AtOn December 31, ~~2019,~~2020, we had ~~726~~517 MBoe of proved reserves in the Gulf Coast region, which represented ~~5.1%~~5% of our total proved reserves. We maintain an acreage position of over ~~12,700~~11,548 gross ~~(5,120~~(3,968 net) acres in this region, primarily in Dimmit and Polk counties. We operate a field service group in this region from a field office in Carrizo Springs, Texas utilizing four workover rigs, nineteen water transport trucks, two saltwater disposal wells, ~~and several trucks~~two hot oilers, and excavating equipment. Services including well service support, site preparation, and construction services for drilling and workover operations are provided to third-party operators as well as utilized in our ~~own~~ operated wells and locations. As of September 30, ~~2020,~~2021, the Gulf Coast region has no operated wells in the process of being drilled, no waterfloods in the process of being installed, and no other related activities of material importance.

Mid-Continent

Region

Our

Mid-Continent ~~activities are concentrated in central Oklahoma. This region is managed from our office in Oklahoma City, Oklahoma. As of December 31, 2019, we had 418 wells (216 net) in the~~ ~~Mid-Continent~~ area, of which 144 wells are operated by us. Principal producing intervals are in the Roberson, Avant, Skinner, Sycamore, Bromide, McLish, Hunton, Mississippian, Oswego, Red Fork, and Chester formations at depths ranging from 1,100 to 10,500 feet. Average net daily production in 2019 was 840 Boe. At December 31, 2019, we had 2,094 MBoe of proved reserves in the Mid-Continent area, or 14.7% of our total proved reserves. We maintain an acreage position of approximately 56,358 gross (10,580 net) acres in this region, primarily in Canadian, Kingfisher, Grant, Major, and Garvin counties. We operate a field service group in this region from a field office in Elmore City, utilizing one workover rig and one saltwater hauling truck. Our Mid-Continent

region is actively participating with third-party operators in the horizontal development of lands that include ~~Company owned~~Company-owned interest in several counties in the Stack and Scoop plays of Oklahoma where drilling is primarily targeting reservoirs of the Mississippian, and Woodford formations. In the second quarter of 2021, the Company participated for 11.25% with Ovintiv

Mid-Continent,

LLC in the drilling of four wells in Canadian County, Oklahoma targeting the Mississippian and Woodford formations, which are currently in the process of being completed. Our share of these will be approximately $2.8 million. As of September 30, ~~2020, in the~~ 2021, our

Mid-Continent

region ~~the Company was is participating in the drilling and/or completion of~~has four other wells operated by third parties that have been drilled but have yet to be completed. These four wells ~~with overriding royalty only in eight additional wells, all~~were included as Proved Undeveloped in the ~~2019~~ 2020

year-end

reserve ~~report.~~

report: one for 9.9% interest and three for less than one percent

interest.

West Texas Region

Our West Texas activities are concentrated in the Permian Basin inof West Texas and New Mexico. The basin covers more than 75,000 square miles and extends across 52 Counties. The Wolfcamp and Spraberry ~~field was discovered in 1949, encompasses eight counties in West Texas and the Company believes it is~~reservoirs of this basin are among the largest contiguous accumulations of oil ~~field~~and gas in the United States. ~~The field is approximately 150 miles long and 75 miles wide at its widest point. The oil produced~~Production from these reservoirs is West Texas Intermediate Sweet ~~and the gas produced is~~ ~~casing-head~~ ~~gas with an average energy content~~

Table of ~~1,400 Btu. The~~Contents

Crude oil and ~~gas are produced primarily from five intervals; the Upper and Lower Spraberry, the Wolfcamp, the Strawn, and the Atoka, at depths ranging from 6,700 feet to 11,300 feet.~~high-quality casing-head gas. This region is managed from our office in Midland, Texas. As of December 31, ~~2019,~~2020, we had ~~522~~556 wells ~~(257~~(263 net) in the West Texas area, of which ~~298~~325 wells are operated by us. Principal producing intervals are in the ~~Spraberry,~~ Wolfcamp and ~~San Andres~~Spraberry formations at depths ranging from ~~4,200~~5,500 to 12,500 feet. ~~Average~~The average net daily production in ~~2019~~Our West Texas Region in 2020 was ~~3,703~~3,178 Boe. AtOn December 31, ~~2019,~~2020, we had ~~11,108~~8,242 MBoe of proved reserves in the West Texas area, or ~~78%~~79% of our total proved reserves. We maintain an acreage position of approximately ~~19,910~~19,679 gross ~~(12,560~~(12,461 net) acres in the Permian Basin in West Texas, primarily in Reagan, Upton, Martin, and Midland counties, and believe this acreage has significant resource potential for horizontal drilling in the Spraberry, Jo Mill, and Wolfcamp intervals. We operate a field service group in this region utilizing nine workover rigs, ~~four~~three hot oiler trucks, one kill truck, and two roustabout trucks. Services including well service support, site preparation, and construction services for drilling and workover operations are provided to third-party operators as well as utilized in our ~~own~~ operated wells and locations. ~~At December 31, 2019,~~

In the third quarter of 2021, the Company ~~had committed to participate~~and Apache Corporation completed nine new Kashmir wells in Upton County, Texas: three each in the ~~drilling~~Upper Wolfcamp, Jo Mill, and Lower Spraberry reservoirs. Six of ~~ten Proved Undeveloped horizontal drilling locations. Seven~~these had been drilled in the spring of ~~the ten wells~~2020 and three were drilled ~~by April 15, 2020. One well was put on production~~early in ~~July of this year~~2021. The Company owns 47.5% working interest in these wells and ~~six other~~has invested approximately $24 million

to-date

in their drilling and completions. All nine wells are ~~expected to be~~ producing ~~by May~~as of October 4, 2021.

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 Information:

Our interests in proved developed and undeveloped oil and gas properties, including the interests held by the Partnerships, have been evaluated by Ryder Scott Company, L.P. for each of the three years ended December 31, ~~2019.~~2020. The professional qualifications of the technical persons primarily responsible for overseeing the preparation of the reserve estimates can be found in Exhibit 99.1, the Ryder Scott Company, L.P. Report on Registrant’s Reserves Estimates. In matters related to the preparation of our reserve estimates, our district managers report to the Engineering Data manager, who maintains oversight and compliance responsibility for the internal reserve estimate process and provides oversight for the annual preparation of reserve estimates of 100% of our

year-end

reserves by our independent third-party engineers, Ryder Scott Company, L.P. The members of our district and central groups consist of degreed engineers and geologists with between approximately twenty and thirty-five years of industry experience, and between eight and twenty-five years of experience managing our reserves. Our Engineering Data manager, the technical person primarily responsible for overseeing the preparation of reserves estimates, has over ~~twenty-five~~thirty years of experience, holds a ~~Bachelor~~Bachelor’s degree in Geology and an MBA in finance, and is a member of the Society of Petroleum Engineers and American Association of Petroleum Geologist. See Part II, Item 8 “Financial Statements and Supplementary Data”, for additional discussions regarding proved reserves and their related cash flows.

All of our reserves are located within the continental United States. The following table summarizes our oil and gas reserves at each of the respective dates:

   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 ~~barrels~~barrel of oil equivalent (Boe) basis, gas is converted to oil based on its relative energy content at the rate of six Mcf of gas to one barrel of oil, and NGLs are converted based upon volume; one barrel of natural gas liquids equals one barrel of oil.

December 31, ~~2017 our reserve report included 779 MBoe~~2020, the Company had 3,221 Mboe of proved undeveloped (PUD) reserves attributable to ~~22 horizontal wells that were all completed in 2018, therefore, 100% of these reserves were converted to proved developed in the 2018~~ ~~year-end~~ ~~reserves report.~~

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 22~~13 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: ten~~as of ~~these~~

year-end

but not yet completed. The three new horizontal wells along with six uncompleted wells are located on our Kashmir tract in ~~our West Texas horizontal development program~~Upton County, Texas. They are operated by Apache Corporation and all nine wells are producing as of October 4, 2021. These nine wells account for ~~3,526~~3,127 Mboe of the total and 12 wells are located in our Oklahoma Scoop-Stack horizontal program and account for 81 Mboe of the total. Of the 12 locations in Oklahoma, six were drilled and are on production, four have been drilled but not yet completed and two are not yet drilled. Nine of the ten wells in West Texas are located on our 1,300 acre Kashmir tract in Upton County. By April 15, of this year six of these had been drilled and are awaiting completion, which is now expected to occur the end of February or beginning of March 2021. undeveloped reserves at

year-end.

Our average ~~47.76%~~47.5% share of the total cost of these ~~six~~nine horizontal wells will be approximately ~~$19.4~~$27.8 million. ~~Drilling~~The four remaining PUD wells, drilled but not completed at

year-end,

are located in Grady County, Oklahoma and account for 95 Mboe of the ~~remaining three wells is expected to occur the end~~total undeveloped

reserves.

Table of ~~February or beginning of March 2021.~~

In the first half of 2020, the Company participated in a horizontal well for 8.36% interest operated by Pioneer Natural Resources completed and brought into production in July 2020. Our total net expenditure for this well will be approximately $630,000. Contents

Additional drilling and future development plans will be established based on an expectation of available cash flows from operations and the availability of funds under our revolving credit facility.

We employ technologies to establish ~~proved~~proven reserves that have ~~been~~ demonstrated ~~to provide~~ consistent results capable of repetition. The technologies ~~and economic data~~ being used in the estimation of our proved reserves include, but are not limited to, ~~electrical logs, radioactivity logs,~~decline curve and volumetric analysis, analogy, geologic ~~maps,~~mapping, as well as evaluation of reservoir properties, production, ~~data,~~ and well test data. The estimated reserves of wells with sufficient production history are estimated using appropriate decline curves. Estimated reserves of producing wells with limited production history and for undeveloped locations are estimated using performance data from analogous wells in the area. These wells are considered analogous based on production performance from the same formation and with similar completion techniques.

The estimated future net revenue (using current prices and costs as of those dates) and the present value of future net revenue (at a 10% discount for estimated timing of cash flow) for our proved developed and proved undeveloped oil and gas reserves at the end of each of the three years ended December 31, ~~2019,~~2020, are summarized as follows (in thousands of dollars):

   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

The PV 10 Value represents the discounted future net cash flows attributable to our proved oil and gas reserves before income tax, discounted at 10%. Although this measure is not in accordance with U.S. generally accepted accounting principles (“GAAP”), we believe that the presentation of the PV10 Value is relevant and useful to investors because it presents the discounted future net cash flow attributable to proved reserves ~~prior to~~before taking into account corporate future income taxes and the current tax structure. We use this measure when assessing the potential return on investment related to oil and gas properties. The PV10 of future income taxes represents the sole reconciling item between this

non-GAAP

PV10 Value versus the GAAP measure presented in the standardized measure of discounted cash flow. A reconciliation of these values is presented in the last three columns of the table above. The standardized measure of discounted future net cash flows represents the present value of future cash flows attributable to proved oil and natural gas reserves after income tax, discounted at 10%.

“Proved developed” oil and gas reserves are reserves that can be expected to be recovered from existing wells with existing equipment and operating methods. “Proved undeveloped” oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Our reserves include amounts attributable to

non-controlling

interests in the Partnerships. These interests represent less than 10% of our reserves.

In accordance with U.S. generally accepted accounting principles, product prices are determined using the twelve-month average oil and gas index prices, calculated as the unweighted arithmetic average for the first day of the month price for each month, adjusted for oilfield or gas gathering hub and wellhead price differentials (e.g. grade, transportation, gravity, sulfur, and basic sediment and water) as appropriate. Also, in accordance with SEC specifications and U.S. generally accepted accounting principles, changes in market prices subsequent to December 31 are not considered.

While it may be reasonably anticipated that the prices received for the sale of our production may be higher or lower than the prices used in this evaluation, as described above, and the operating costs relating to such production may also increase or decrease from existing levels, such possible changes in prices and costs were, in accordance with rules adopted by the SEC, omitted from consideration in making this evaluation for the SEC case. Actual volumes produced, prices received and costs incurred may vary significantly from the SEC case.

Natural gas prices, based on the twelve-month average of the first of the month Henry Hub index price, were $1.985 per MMBtu in 2020 as compared to $2.58 per MMBtu in 2019, and $3.10 per MMBtu in 2018. Oil prices, based on the NYMEX first of the month average price, were $39.57 per barrel in 2020 as compared to $55.69 per barrel in 2019, and $65.56 per barrel in 2018.

RECENT ACTIVITIES

~~Since the start~~

Maintaining a strong balance sheet and ample liquidity are key components of our ~~West Texas horizontal drilling~~business strategy. For 2021, we will continue our focus on preserving financial flexibility and ample liquidity as we manage the risks facing our industry. Our 2021 capital budget is reflective of current commodity prices and has been established based on an expectation of available cash flows, with any cash flow deficiencies expected to be funded by borrowings under our revolving credit facility. As we have done historically to preserve or enhance liquidity, we may adjust our capital program ~~in 2015 and through~~throughout the year, divest

non-strategic

assets, or enter into strategic joint ventures.

Table of Contents

In the third quarter of ~~2020~~2021, the Company, together with Apache Corporation, completed nine new horizontal wells on the Kashmir tract in Upton County, Texas. These nine wells include three laterals in each of the Upper Wolfcamp, Jo Mill, and Lower Spraberry reservoirs. All nine wells were on production by October 4, 2021. The Company has ~~participated~~an average of 47.5% working interest in ~~74 horizontal~~these nine wells with a total investment of approximately $24 million. We believe the additional income from these wells will have a significant impact on the Company’s fourth-quarter cash flow. In addition to the Middle and Upper Wolfcamp, the Jo Mill and the Lower Spraberry, which we now consider fully developed, we believe there is future development potential in the Middle Spraberry reservoir on this 1280 acre block. This reservoir will likely be developed with four

two-mile

laterals. The approximate completed cost of four wells in the ~~Permian Basin, seven of which were drilled in~~Middle Spraberry is $30.2 million, with the first half of 2020. Through July 2020, the Company has invested approximately $112 MM in our West Texas horizontal drilling program. Of the 74 total horizontal wells participated in, we have an average of 24% working interest. Company’s share being $14.2 million.

In ~~2019, 11 wells were brought on production: the Company has 49% interest in eight of these wells, all~~ ~~one-mile~~ ~~in length, located on our~~ ~~CC-33~~ ~~tract, and an average 48% interest in two horizontals and 5.3% interest in one additional horizontal, that are each~~ ~~two-miles~~ ~~in length, located on the Kashmir tract. The Company invested approximately $31.5 million in these 11 wells brought on production in 2019. Through~~ the second quarter of ~~2020,~~2021, the Company participated with Ovintiv

Mid-Continent,

LLC in ~~seven new~~the drilling of four horizontal wells ~~all~~ located in ~~Upton~~Canadian County, ~~Texas. Six~~Oklahoma. These four

two-mile

laterals are in the process of ~~these~~being completed and are ~~operated by Apache Corporation and one is operated by Pioneer Natural Resources. The Pioneer well was completed in late June and came~~expected to be on production in ~~early July 2020.~~December of this year. The ~~six Apache operated wells are anticipated~~Company has an 11.25% working interest in each well and expects to ~~be completed the end of February or beginning of March 2021.~~

invest approximately $1.98 million in these wells.

In ~~Upton County,~~ West Texas, in addition to the Kashmir Tract described above, we are actively developing a contiguous ~~3,260-acre~~ ~~block~~3,260 acre Area of Mutual Interest (AMI) in Upton County with our joint venture partner Apache Corporation. In this acreage block, the Company has ~~2,600~~ leasehold ~~acres with~~ interest of between 14% and 56%, depending on the particular lease and depth being developed. ~~In 2018, in this block, eight wells drilled horizontally~~Development

to-date

has been in the Wolfcamp “B”~~, were participated in~~ reservoir where we have 33 horizontal wells currently producing. We believe this reservoir is fully developed and the next phase of development for ~~49% interest. This~~this block 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~~shallower Upper Wolfcamp, Jo Mill, and Lower Spraberry reservoirs. These reservoirs ~~for this block, following the recent successful testing in 2019 of these reservoirs on our offset~~ ~~1,300-acre~~ ~~lease block. Given the favorable results achieved~~ have been

proven-up

by ~~the~~near-offset completions. PrimeEnergy and Apache are planning an initial three ~~wells on the offset block, it is expected that as many as 54 additional horizontals will be slated for development on the~~ ~~3,260-acre~~ block in the near future. The cost of such development would be approximately $370.6 million with the Company’s share being approximately $170.8 million. In addition, there is a fourth target reservoir, the Middle Spraberry, that is also prospective for development. The potential of the Middle Spraberry, on the ~~3,280-acre~~ ~~block, is for 18 horizontal~~ wells to be drilled in 2022 that will each be three miles in length. The Company has 36 horizontals laid out for the development of these three reservoirs,18 of which are designed as three-mile laterals. In addition to these reservoirs, there is a Middle Spraberry target that will likely be developed in the future with 12 horizontal wells. In total, we anticipate 48 horizontal wells will develop these four reservoirs with a cost estimate of $146 million net to the ~~Company likely participating for approximately $61.8 million.~~Company. The actual number of wells that are eventually drilled, as well as the cost and the timing of drilling, will vary based upon many factors including commodity market conditions.

~~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 a

965-acre

block with ~~Concho Resources~~ConocoPhillips 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 Resources~~ConocoPhillips 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 this~~on our 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~~two separate joint development projects that are in the planning stage for ~~a purchase price~~the initial phase of ~~$10.3 million~~ ~~to-date,~~development to occur in 2022: one with ~~a final total compensation~~BTA Producers, Inc. and one with Hibernia Resources, LLC. These two joint development acreage blocks can accommodate the drilling of 144 horizontal wells to produce from five prospective reservoirs, four of which are proven. The Company’s share is expected to be ~~$10.7 million.~~

~~Since~~50% and the ~~start of our Oklahoma Scoop-Stack horizontal development program, which began in 2013,~~potential investment by the Company ~~has participated in 41 horizontal~~would be approximately $442 million. The actual number of wells ~~for approximately $23.5 million through 2019 with an average~~eventually drilled, and the cost and the timing of ~~approximately 7% interest. There have been no new~~such wells ~~participated in through the third quarter of 2020. During this same period~~are dependent upon many factors including commodity market conditions.

Also, In Reagan County, Texas, the Company ~~chose~~and Pioneer Natural Resources have agreed 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 ofjointly develop approximately $8.8 million. All 20 wells were completed in 2019, and of these 20 wells, twelve are operated by Encana/Newfield. In addition, the Company is also participating in four wells in Grady County, Oklahoma spud in 2018 that have not yet been completed. During 2019, in Oklahoma, the Company retained an overriding royalty interest in eighteen wells, nine of which were completed in 2019, and nine of which have yet to be completed. Through the third quarter of 2020, the Company has retained an interest in four wells located in Canadian County, Oklahoma, completed in February of this year.

~~Our horizontal activity in Oklahoma is focused in Canadian, Grady, Kingfisher, Garfield, Major, and Garvin counties where we have approximately 3,401 net~~3,680 gross acres. ~~We believe this acreage has significant additional resource potential that could support~~This agreement facilitates the drilling of as many as ~~49 new horizontals based on an estimate of six wells per section: three in~~108 horizontal laterals where the ~~Mississippian and three in the Woodford Shale. Should we choose to participate in future development, our share of the capital expenditures~~company would ~~be approximately $34 million at~~have 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 interest~~invest approximately $236 million. We believe this agreement represents significant future value for PrimeEnergy.

In addition, we are in ~~these~~discussions with Earthstone Energy, Inc. regarding the drilling of three wells ~~and participated for approximately $45,000. Also~~ in ~~2019,~~Reagan County, Texas, in which the Company ~~successfully recompleted a shallow straight hole well in the Segno field of Polk County, Texas with a 72.5%~~would have 20% 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~~interest 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 )%







Oil Revenue (In 000’s)
   $ 20,663    $ 55,370    $ (34,707 )    (63 )%







Mcf of Gas Sold
   2,038,000    3,549,000    (1,241,000 )    (35 )%
Average Price Received
   $ 1.06    $ 1.43    $ (0.37 )    (26 )%







Gas Revenue (In 000’s)
   $ 2,441    $ 5,057    $ (2,616 )    (52 )%







Barrels of Natural Gas Liquids Sold
   319,000    445,000    (126,000 )    (28 )%
Average Price Received
   $ 10.07    $ 15.52    $ (5.45 )    (35 )%







Natural Gas Liquids Revenue (In 000’s)
   $ 3,212    $ 6,906    $ (3,694 )    (53 )%







Total Oil & Gas Revenue (In 000’s)
   $ 26,316    $ 67,333    $ (41,017 )    (61 )%

      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 )%







Oil Revenue (In 000’s)
   $ 6,339    $ 16,928    $ (10,589 )    (63 )%







Mcf of Gas Sold
   496,000    1,305,632    (809,632 )    (62 )%
Average Price Received
   $ 2.12    $ 1.12    $ 1.00    89 %







Gas Revenue (In 000’s)
   $ 1,052    $ 1,467    $ (415 )    (28 )%







Barrels of Natural Gas Liquids Sold
   106,000    156,983    (50,983 )    (32 )%
Average Price Received
   $ 13.91    $ 10.75    $ 3.16    29 %







Natural Gas Liquids Revenue (In 000’s)
   $ 1,474    $ 1,687    $ (213 )    (13 )%







Total Oil & Gas Revenue (In 000’s)
   $ 8,865    $ 20,082    $ (11.217 )    (56 )%

~~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.

9,650 foot laterals.

~~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.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity are cash generated from our operations, through our producing oil and gas properties, field services business, and sales of acreage.

Net cash provided by operating activities for the nine months ended September 30, ~~2020~~2021, was $18.8 million, compared to $17.9 ~~million.~~million in the first nine months of 2020. Excluding the effects of significant unforeseen expenses or other income, our cash flow from operations fluctuates primarily because of variations in oil and gas production and prices or changes in working capital accounts. Our oil and gas production will vary based on actual well performance but may be curtailed due to factors beyond our control.

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Our realized oil and gas prices vary due to world political events, supply and demand of products, product storage levels, and weather patterns. We sell the majority of our production at spot market prices. Accordingly, product price volatility will affect our cash flow from operations. To mitigate price volatility, we sometimes lock in prices for some portion of our production through the use of derivatives.

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.

Maintaining a strong balance sheet and ample liquidity are key components of our business strategy. For ~~2020,~~2021, we will continue our focus on preserving financial flexibility and ample liquidity as we manage the risks facing our industry. Our ~~2020~~2021 capital budget is reflective of commodity prices and has been established based on an expectation of available cash flows, with any cash flow deficiencies expected to be funded by borrowings under our revolving credit facility. As we have done historically to preserve or enhance liquidity, we may adjust our capital program throughout the year, divest assets, or enter into strategic joint ventures. We are actively in discussions with financial partners for funding to develop our asset base and, if required, pay down our revolving credit facility should our borrowing base become limited due to the deterioration of commodity prices.

The Company maintains a Credit Agreement with a maturity date of February 15, ~~2021,~~2023, providing for a credit facility totaling $300 million, with a borrowing base of ~~$48~~$40 million. ~~As of November 25, 2020,~~At September 30, 2021, the Company ~~has $40.0~~had $31.5 million in outstanding borrowings and ~~$8.0~~$8.5 million in availability under this facility. The bank reviews the borrowing base semi-annually and, at their discretion, may decrease or propose an increase to the borrowing base relative to a

re-determined

estimate of proved oil and gas reserves. The current borrowing base review is in progress and expected to be set at $50 million. Our oil and gas properties are pledged as collateral for the line of credit and we are subject to certain financial and operational covenants defined in the agreement. We are currently in compliance with these covenants and expect to be in compliance over the next twelve months. If we do not comply with these covenants on a continuing basis, the lenders have the right to refuse to advance additional funds under the facility and/or declare all principal and interest immediately due and payable.

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

re-determined

borrowing base.

Our credit agreement ~~required~~requires us to hedge a portion of our production as forecasted for the PDP reserves included in our borrowing base review engineering reports. Accordingly, as of September 30, 2021, the Company has in place the following swap and put agreements for oil and natural gas.

   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

The Company’s activities include development ~~and exploratory~~ drilling. Our strategy is to develop a balanced portfolio of drilling prospects that includes lower risk wells with a high probability of success and higher risk wells with greater economic potential. In 2016, based upon the results of horizontal wells and historical vertical well performance, we decided to reduce the number of vertical wells in our drilling program and focus primarily on horizontal well drilling. We believe horizontal development of our resource base provides superior returns relative to vertical development, due to the ability of horizontals to come in contact with and drain from a greater volume of reservoir rock over more acreage, with less infrastructure, and thus at a lower cost of development per acre.

~~Since~~

Our primary focus is the ~~start~~development of our ~~West Texas horizontal drilling program in 2015 and through the third quarter of 2020 the Company has participated in 74 horizontal wells~~leasehold acreage in the Permian Basin ~~seven~~of West Texas where the Company currently holds an acreage position of 19,680 gross (12,460 net) acres, the majority of which ~~were drilled~~is in Reagan, Upton, Martin and Midland counties. We believe this acreage has significant resource potential in as many as 10 reservoirs, including benches of the Spraberry, Jo Mill, and Wolfcamp, and can support the potential drilling of more than 250 additional horizontal wells.

The Middle Wolfcamp was our primary target for production in the ~~first half of 2020. Through July 2020,~~area until the Company ~~has invested approximately $112 MM in our West Texas horizontal drilling program. Of the 74 total~~drilled three horizontal wells ~~participated~~with Apache Corporation into the shallower reservoirs of the Wolfcamp “A”, the Jo Mill, and the Lower Spraberry, in 2019. These three test wells proved the productive capability of these reservoirs for the 1,280 acre Kashmir block in which we recently completed an additional nine wells. These nine wells were completed in the third quarter and all were on production by October 4

2021. We have an average ~~of 24% working interest. In 2019, 11~~47.5% interest in these wells ~~were brought on production:~~and expect a total investment net to the Company ~~has 49% interest in eight~~of approximately $24 million.

The successful development of these ~~wells, all~~ ~~one-mile~~ ~~in length, located on our~~ ~~CC-33~~ ~~tract, and an average 48% interest in two horizontals and 5.3% interest in one additional horizontal, that are each~~ ~~two-miles~~ ~~in length, located on~~reservoirs has proven the Kashmir tract. The Company invested approximately $31.5 million in these 11 wells brought on production in 2019. Through the second quarter of 2020, the Company participated in seven new horizontal wells, all located in Upton County, Texas. Six of these are operated by Apache Corporation and one is operated by Pioneer Natural Resources. The Pioneer well was completed in late June and came on production in early July 2020. The six Apache operated wells are anticipated to be completed the end of February or beginning of March 2021.

~~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. Given~~nearby

3,260-acre

AMI block with Apache Corporation in Upton County, Texas. Here the ~~favorable results achieved by~~Company holds between 14% and 56% interest and is planning the drilling of an initial three wells onto be drilled in 2022. These three will each be three-mile-long laterals. The future development will likely be the ~~offset block, it is expected that as many as 54 additional horizontals will be slated for development on~~drilling of 48 horizontal wells targeting four reservoirs from the ~~3,260-acre~~ ~~block in~~Wolfcamp “A” through the ~~near future.~~Middle Spraberry. The cost of such development ~~would~~will be approximately ~~$370.6~~$370 million with the Company’s share being approximately ~~$170.8 million. In addition, there is a fourth target reservoir, the Middle Spraberry, that is also prospective for development. The potential of the Middle Spraberry, on the~~ ~~3,280-acre~~ ~~block, is for 18 horizontal wells to be drilled, with the Company likely participating for approximately $61.8~~$146 million. The actual number of wells that ~~are eventually~~will be drilled, ~~as well as~~ the cost, and the timing of drilling will vary based upon many factors, including commodity market conditions.

Table of Contents

In ~~addition~~Reagan County, Texas, the Company holds 12,700 Gross (8.870 net) acres with exceptional potential. Offset operators have proven the productive capability of four reservoirs from the Middle Wolfcamp to the ~~3,260 acreage block under development,~~Lower Spraberry. Here the Company ~~is also developing an offsetting~~ ~~1,300-acre~~ ~~block~~could participate 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,~~352 horizontals 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 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 completed~~Near-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, and~~length 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.

In ~~addition, the Company is also participating in four wells in Grady County, Oklahoma spud in 2018 that have not yet been completed. During 2019, in~~ Oklahoma, the Company retained an overriding royalty interest in eighteen wells, nine of which were completed in 2019, and nine of which have yet to be completed. Through the third quarter of 2020, the Company has retained an interest in four wells located in Canadian County, Oklahoma, completed in February of this year.

~~Our~~Company’s horizontal activity ~~in Oklahoma~~ is focused in Canadian, Grady, Kingfisher, Garfield, Major, and Garvin counties where we have approximately ~~3,401~~579 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 ~~horizontals~~horizontal wells based on an estimate of ~~six~~four wells per section: ~~three~~two in the Mississippian and ~~three~~two 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.

The majority of our capital spending is discretionary, and the ultimate level of expenditures will be dependent on our assessment of the oil and gas business environment, the number and quality of oil and gas prospects available, the market for oilfield services, and oil and gas business opportunities in general.

The Company has in place both a stock repurchase program and a limited partnership interest repurchase program. Spending under these programs in 2020 was $1.452 million. The Company expects continued spending under these programs through 2021.

RESULTS OF OPERATIONS

2021 and ~~2019 was $0.71~~2020 Compared

We reported net income of $6.5 million, or $3.26 per share and ~~$5.9~~$65 thousand or $0.03 per share for the three and nine months ended September 30, 2020, respectively, as compared to net losses of $1.2 million, or $(0.58) per share and $5.0 million, or $(2.52) per share for the three and nine months ended September 30, 2021, respectively. InCurrent year net loss reflects changes in production combined with commodity price increases over the three and nine months ended September 30, 2020, decreases 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

increased $9.2 million, or 103.9% to $18.1 million for the three months ended September 30, 2021 from $8.9 million for the three months ended September 30, 2020 and $19.8 million, or 75.2% to $46.1 million for the nine months ended September 30, 2021 from $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, 2021 and 2020 (excluding realized gains and losses from derivatives).


			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	%

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			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	%

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

increased $0.4 million or 15.9% to $3.0 million for the third quarter 2021 from $2.6 million for the third quarter 2020 and decreased $1.1 million, or 12.0% to $8.1 million for the nine months ended September 30, 2021 from $9.2 million for the nine months ended September 30, 2020. Workover rig services, hot oil treatments, saltwater hauling and disposal represent the bulk of our field service operations.

Lease operating expense

increased $3.4 million or 90.5% to $7.2 million for the third quarter 2021 to $3.8 million for the third quarter 2020, and increased $1.4 million or 8.8% to $17.8 million for the nine months ended September 30, 2021 from $16.4 million for the nine months ended September 30, 2020. This increase is primarily due to returning to production the high lifting cost properties

shut-in

during 2020 combined with higher production taxes related to higher commodity prices.

Field service expense

increased $1.4 million or 72.9% to $3.4 million for the third quarter 2021 from $2.0 million for the third quarter 2020 and increased $0.3 million, or 4.0% to $7.7 million for the nine months ended September 30, 2021 from $7.4 million for the nine months ended September 30, 2020. Field service expenses primarily consist of salaries and vehicle operating expenses which have increased during the three and nine months ended September 30, 2021 over the same periods of 2020 related to increased utilization of the equipment as oil and gas prices increased during 2021.

Depreciation, depletion, amortization and accretion on discounted liabilities

decreased $2.5 million, or 27.0% to $6.9 million for the third quarter 2021 from $9.4 million for the third quarter 2020 and decreased $4.5 million, or 18.5% to $20.0 million for the nine months ended September 30, 2021 from $24.5 million for the nine months ended September 30, 2020, reflecting the reduced capital base of the producing properties in 2021.

General and administrative expense

decreased $0.2 million, or 7.9% to $2.4 million for the three months ended September 30, 2021 from $2.6 million for the three months ended September 30, 2020, and decreased $5.4 million, or 42.0% to $7.5 million for the nine months ended September 30, 2021 from $12.9 million for the nine months ended September 30, 2020. This overall decrease in 2021 is primarily due to decreases in employee wages and benefits and by staff reductions in 2020.

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. No such sales took place during 2021.

Interest expense

decreased to $0.46 million for the third quarter 2021 from $0.47 million for the third quarter 2020 and to $1.5 million for the nine months ended September 30, 2021 from $1.6 million for the nine months ended September 30, 2020. This decrease reflects the decrease in current ~~price environment,~~borrowings under our revolving credit agreement.

Income tax expense or benefit

for the ~~Company will suspend their stock repurchase program.~~

September 30, 2021 and 2020 periods varied due to the change in net income or loss for those periods.

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Item 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is a smaller reporting company and no response is required pursuant to this Item.

Item 4.

CONTROLS AND PROCEDURES

As of the end of the current reported period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules

13a-15

and

15d-15

of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective with respect to the recording, processing, summarizing and reporting, within the time periods specified in the Commission’s rules and forms, of information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act.

There were no changes in the Company’s internal control over financial reporting that occurred during the first ~~six~~nine months of ~~2020~~2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

None.

Item 1A.

RISK FACTORS

The Company is a smaller reporting company and no response is required pursuant to this Item.

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no sales of equity securities by the Company during the period covered by this report.

During the nine months ended September 30, ~~2020,~~2021, the Company purchased the following shares of common stock as treasury shares.

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





Total/Average
      $

~~(1)~~
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,

in open market transactions or negotiated sales. On October 31, 2012 and June 13, 2018, the Board of Directors of the Company approved an additional 500,000 and 200,000 shares respectively, of the Company’s stock to be included in the stock repurchase program. A total of 3,700,000 shares have been authorized, to date, under this program. Through September 30, ~~2020,~~2021, a total of 3,552,279 shares have been repurchased under this program for $74,934,725 at an average price of $21.09 per share. Additional purchases of shares may occur as market conditions warrant.

Item 3.

DEFAULTS UPON SENIOR SECURITIES

None

Item 4.

RESERVED

Item 5.

OTHER INFORMATION

None

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Item 6.

EXHIBITS

The following exhibits are filed as a part of this report:


Exhibit No.

3.1		Certificate of Incorporation of PrimeEnergy Resources Corporation, as amended and restated of December 21, 2018, (filed as Exhibit 3.1 of PrimeEnergy Resources Corporation Form 8-K on December 27, 2018, and incorporated herein by reference).

3.2		Bylaws of PrimeEnergy Resources Corporation as amended and restated as of April 24, 2020 (filed as Exhibit 3.2 of PrimeEnergy Resources Corporation Form 8-K on April 27, 2020 and incorporated herein by reference).

10.18		Composite copy of Non-Statutory Option Agreements (Incorporated by reference to Exhibit 10.18 of PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2004).

10.22.5.10		Third Amended and Restated Credit Agreement dated as of February 15, 2017 among PrimeEnergy Resources Corporation, as Borrower, Compass Bank, as Administrative Agent and Lender, Wells Fargo, National Association, as Document Agent, the Lenders Party Hereto (Compass Bank, Wells Fargo, National Association, Citibank, N.A.) and BBVA Compass Bank, as Letter of Credit Issuer and Sole Lead Arranger and Sole Bookrunner (Incorporated by reference to Exhibit 10.22.5.10 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2016).

10.22.5.10.1		~~THIRD~~FIRST AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of ~~January 8, 2019,~~December 22, 2017 among PRIMEENERGY ~~RESOURCES~~ CORPORATION, as Borrower, THE LENDERS PARTY HERETO, COMPASS BANK, as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA COMPASS, as Sole Lead Arranger and Sole Book Runner, (Incorporated by reference to Exhibit ~~10.22.5.10.3~~10.22.5.10.1 to PrimeEnergy ~~Resources~~ Corporation Form 10-K for the year ended December 31, ~~2018)~~2017).

10.22.5.10.2		SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of July 17, 2018 among PRIMEENERGY CORPORATION, as Borrower, THE LENDERS PARTY HERETO, COMPASS BANK, as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA COMPASS, as Sole Lead Arranger and Sole Book Runner, (Incorporated by reference to Exhibit 10.22.5.10.2 to PrimeEnergy Corporation Form 10-Q for the quarter ended June 30, 2018).

10.22.5.10.3		THIRD AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of January 8, 2019, among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE LENDERS PARTY HERETO, COMPASS BANK, as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA COMPASS, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to Exhibit 10.22.5.10.3 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2018).

10.22.5.10.4		FOURTH AMENDMENT TO THE THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of May 8, 2020 among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE LENDERS PARTY HERETO, BBVA USA (f/k/a COMPASS BANK), as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA USA, as Sole Lead Arranger and Sole Book Runner ~~(Filed Herewith)~~(Incorporated by reference to 10.22.5.10.4 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended September 30, 2020).

10.22.5.10.5		FIFTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of September 4, 2020, among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE LENDERS PARTY HERETO, BBVA USA (f/k/a COMPASS BANK,) as Administrative Agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as Documentation Agent, and BBVA USA, as Sole Lead Arranger and Sole Book Runner ~~(Filed Herewith)~~(Incorporated by reference to 10.22.5.10.5 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended September 30, 2020).

10.22.5.10.6		SIXTH AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT dated as of FEBRUARY 11, 2021, among PRIMEENERGY RESOURCES CORPORATION, as Borrower, THE GUARANTORS PARTY HERETO, THE LENDERS PARTY, HERETO, BBVA USA, as Administrative Agent and BBVA USA, as Sole Lead Arranger and Sole Book Runner (Incorporated by reference to Exhibit 10.22.5.10.6 to PrimeEnergy Resources Corporation Form 8-K dated February 16, 2021).

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Exhibit No.

10.22.5.11		Amended, Restated and Consolidated Guaranty dated as of February 15, 2017, among PrimeEnergy Management Corporation, Prime Operating Company, Eastern Oil Well Service Company, Southwest Oilfield Construction Company, EOWS Midland Company and Prime Offshore L.L.C. in favor of Compass Bank, as Administrative Agent for the Lenders (Incorporated by reference to Exhibit 10.22.5.11 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2016).

10.22.5.12		Amended, Restated and Consolidated Pledge and Security Agreement dated as of February 15, 2017, among PrimeEnergy Resources Corporation, PrimeEnergy Management Corporation, Prime Operating Company, Eastern Oil Well Service Company, Southwest Oilfield Construction Company, EOWS Midland Company and Prime Offshore L.L.C. and Compass Bank, as Administrative Agent for the Secured Parties (Incorporated by reference to Exhibit 10.22.5.12 to PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2016).

10.22.5.13		Amended, Restated and Consolidated Deed of Trust, Mortgage, Security Agreement, Assignment of Production and Financing Statement Dated as of May 5, 2017 (Incorporated by reference to Exhibit 10.22.5.13 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended March 31, 2017).

10.22.5.14		Deed of Trust, Mortgage, Security Agreement, Assignment of Production and Financing Statement Dated as of May 5, 2017 (Incorporated by reference to Exhibit 10.22.5.14 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended March 31, 2017).

~~10.22.5.15~~		Amended, Restated and Consolidated Mortgage of Oil and Gas Property, Security Agreement, Assignment of Production and Financing Statement Dated as of May 5, 2017 (Incorporated by reference to Exhibit 10.22.5.15 to PrimeEnergy Resources Corporation Form 10-Q for the quarter ended March 31, 2017).


~~Exhibit No.~~

14		PrimeEnergy Resources Corporation Code of Business Conduct and Ethics, as amended December 16, 2011 (Incorporated by reference to Exhibit 14 of PrimeEnergy Resources Corporation Form 10-K for the year ended December 31, 2011).

31.1		Certification of Chief Executive Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).

31.2		Certification of Chief Financial Officer pursuant to Rule 13(a)-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended (filed herewith).

32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

101.INS		XBRL (eXtensible Business Reporting Language) Instance Document (filed herewith)

101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith)

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)

101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith)

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	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

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

Total Property and Equipment, Net		197,919			212,100

Other assets		461			866

Total Assets	$	208,681		$	229,365

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

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

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	)

Total Stockholders’ Equity – PrimeEnergy Resources		99,470			100,114
Non-controlling interest		3,138			3,249

Total Equity		102,608			103,363

Total Liabilities and Equity	$	208,681		$	229,365


												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	)

Balance at September 30, 2020		2,810,000	$	281	$	7,505	$	129,185	$	(37,501	)	$	99,470		$	3,138		$	102,608

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	)

Balance at September 30, 2019		2,810,000	$	281	$	7,653	$	130,893	$	(35,412	)	$	103,415		$	3,492		$	106,907


	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

		5,705			14,778
Less: Allowance for doubtful accounts		(418	)		(418	)

Total	$	5,287		$	14,360

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

Accrued Liabilities:
Compensation and related expenses	$	3,968		$	3,620
Property costs		1,556			2,829
Other		19			387
Total	$	5,543		$	6,836


(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	)

Oil and Gas Properties, Net	$	191,492		$	205,320

Field and office equipment	$	28,254		$	27,542
Less: Accumulated depreciation		(21,827	)		(20,762	)

Field and Office Equipment, Net	$	6,427		$	6,780

Total Property and Equipment, Net	$	197,919		$	212,100


	Operating			Financing
(Thousands of dollars)	Leases			Leases
2020	$	154		$	2
2021		106			2

Total undiscounted lease payments	$	260		$	4
Less: Amount associated with discounting		(24	)		(0	)

Net operating lease liabilities	$	236		$	4


(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 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

Total assets		—	$	—	$	223		$	223

Liabilities
Commodity derivative contracts	$	—	$	—	$	(766	)	$	(766	)
Total liabilities	$	—	$	—	$	(766	)	$	(766	)


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

(Thousands of dollars)
Assets
Commodity derivative contracts	$	—	$	—	$	272		$	272

Total assets	$	—	$	—	$	272		$	272

Liabilities
Commodity derivative contract	$	—	$	—	$	(753	)	$	(753	)
Total liabilities	$	—	$	—	$	(753	)	$	(753	)


(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	)


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


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

Total/Average			$

PRIMEENERGY RESOURCES CORPORATION

Dated: November ~~25, 2020~~19, 2021

/s/ Charles E. Drimal, Jr.

Charles E. Drimal, Jr.

Chairman, President