UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


FORM 10-Q


ý

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

For the quarterly period ended March 31, 20182019

or


☐oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from _______________________to____________________________


Commission File No. 000-53895


Ridgewood Energy A-1 Fund, LLC

(Exact name of registrant as specified in its charter)


Delaware

(State or other jurisdiction of

incorporation or organization)

 

01-0921132

(I.R.S. Employer

Identification No.)


14 Philips Parkway, Montvale, NJ  07645

(Address of principal executive offices) (Zip code)


(800) 942-5550

(Registrant’s telephone number, including area code)


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

Yes ☒   xNo☐o


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 ☒x     No☐o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.


Act.

Large accelerated filer☐oAccelerated filer☐o

Non-accelerated filer

(Do not check if a smaller reporting company)

☐x

Smaller reporting company

Emerging growth company

☒
☐
x
o

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 Securities Exchange Act of 1934. Act.☐o


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934)Act). Yes☐oNo ☒


x

Securities registered pursuant to Section 12(b) of the Act: None.

As of May 11, 201810, 2019, there were 207.7026 shares of LLC Membership Interest outstanding.

 

Table of Contents

 

Table of Contents

PAGE
PART I - FINANCIAL INFORMATION 
Item 1.
Financial Statements
1
    
Unaudited Condensed Balance Sheets as of March 31, 20182019 and December 31, 20172018
1
    
Unaudited Condensed Statements of Operations and Comprehensive LossIncome (Loss) for the
three months
ended March 31, 20182019 and 20172018
2
    
Unaudited Condensed Statements of Changes in Members’ Capital for the three months ended
March 31, 2019 and 2018
3

Unaudited Condensed Statements of Cash Flows for the three months ended


March 31, 20182019 and 20172018

34
    
Notes to Unaudited Condensed Financial Statements
45
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
10
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
1615
Item 4.
Controls and Procedures
1615
   
PART II - OTHER INFORMATION 
Item 1.
Legal Proceedings
16
Item 1A.
Risk Factors
16
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
16
Item 3.
Defaults Upon Senior Securities
16
Item 4.
Mine Safety Disclosures
16
Item 5.
Other Information
16
Item 6.
Exhibits
1716
   
  
SIGNATURES
17

Table of Contents
Table of Contents

PART I – FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


RIDGEWOOD ENERGY A-1 FUND, LLC

UNAUDITED CONDENSED BALANCE SHEETS

(in thousands, except share data)


     March 31, 2018  December 31, 2017 
Assets      
Current assets:      
Cash and cash equivalents $2,267  $2,423 
Salvage fund  310   1,191 
Production receivable  408   491 
Other current assets  29   52 
Total current assets  3,014   4,157 
Salvage fund  1,281   355 
Oil and gas properties:        
Proved properties  21,111   20,498 
Less:  accumulated depletion and amortization  (8,350)  (7,391)
Total oil and gas properties, net  12,761   13,107 
Total assets $17,056  $17,619 
         
Liabilities and Members' Capital        
Current liabilities:        
Due to operators $293  $609 
Accrued expenses  57   54 
Current portion of long-term borrowings  1,566   1,566 
Asset retirement obligations  310   1,191 
Other current liabilities  40   40 
Total current liabilities  2,266   3,460 
Long-term borrowings  5,392   5,639 
Asset retirement obligations  1,095   210 
Total liabilities  8,753   9,309 
Commitments and contingencies (Note 5)        
Members' capital:        
Manager:        
Distributions  (5,058)  (5,058)
Retained earnings  5,638   5,484 
Manager's total  580   426 
Shareholders:        
Capital contributions (250 shares authorized;        
   207.7026 issued and outstanding)  41,143   41,143 
Syndication costs  (4,804)  (4,804)
Distributions  (35,427)  (35,427)
Retained earnings  6,810   6,970 
Shareholders' total  7,722   7,882 
Accumulated other comprehensive income  1   2 
Total members' capital  8,303   8,310 
Total liabilities and members' capital $17,056  $17,619 

  March 31, 2019  December 31, 2018 
Assets      
Current assets:        
Cash and cash equivalents $1,677  $2,124 
Production receivable  371   338 
Due from affiliate (Note 2)  15   50 
Other current assets  24   48 
Total current assets  2,087   2,560 
Salvage fund  1,749   1,710 
Oil and gas properties:        
Proved properties  20,711   20,663 
Less:  accumulated depletion and amortization  (9,899)  (9,405)
Total oil and gas properties, net  10,812   11,258 
Total assets $14,648  $15,528 
         
Liabilities and Members' Capital        
Current liabilities:        
Due to operators $312  $618 
Accrued expenses  40   43 
Current portion of long-term borrowings  1,135   945 
Total current liabilities  1,487   1,606 
Long-term borrowings  1,897   2,256 
Asset retirement obligations  1,452   1,446 
Total liabilities  4,836   5,308 
Commitments and contingencies (Note 4)        
Members' capital:        
Manager:        
Distributions  (5,207)  (5,129)
Retained earnings  6,146   6,054 
Manager's total  939   925 
Shareholders:        
Capital contributions (250 shares authorized;        
   207.7026 issued and outstanding)  41,143   41,143 
Syndication costs  (4,804)  (4,804)
Distributions  (36,266)  (35,829)
Retained earnings  8,799   8,784 
Shareholders' total  8,872   9,294 
Accumulated other comprehensive income  1   1 
Total members' capital  9,812   10,220 
Total liabilities and members' capital $14,648  $15,528 

The accompanying notes are an integral part of these unaudited condensed financial statements.

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1

RIDGEWOOD ENERGY A-1 FUND, LLC

UNAUDITED CONDENSED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE LOSS

 (inINCOME (LOSS)

(in thousands, except per share data)


    Three months ended March 31, 
  2018  2017 
Revenue      
Oil and gas revenue $1,366  $911 
Expenses        
Depletion and amortization  959   958 
Management fees to affiliate (Note 3)  93   94 
Operating expenses  132   189 
General and administrative expenses  46   42 
Total expenses  1,230   1,283 
Income (loss) from operations  136   (372)
Interest expense, net  (142)  (185)
Net loss  (6)  (557)
Other comprehensive loss        
Unrealized loss on marketable securities  (1)  - 
Total comprehensive loss $(7) $(557)
         
Manager Interest        
Net income $154  $78 
         
Shareholder Interest        
Net loss $(160) $(635)
Net loss per share $(773) $(3,053)

 Three months ended March 31, 
  2019  2018 
Revenue      
Oil and gas revenue $872  $1,366 
Other revenue  61   - 
Total revenue  933   1,366 
Expenses        
Depletion and amortization  472   959 
Management fees to affiliate (Note 2)  93   93 
Operating expenses  149   132 
General and administrative expenses  45   46 
Total expenses  759   1,230 
Income from operations  174   136 
Interest expense, net  (67)  (142)
Net income (loss)  107   (6)
Other comprehensive loss        
Unrealized loss on marketable securities  -   (1)
Total comprehensive income (loss) $107  $(7)
         
Manager Interest        
Net income $92  $154 
         
Shareholder Interest        
Net income (loss) $15  $(160)
Net income (loss) per share $71  $(773)

The accompanying notes are an integral part of these unaudited condensed financial statements.

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RIDGEWOOD ENERGY A-1 FUND, LLC

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

CHANGES

IN MEMBERS’ CAPITAL

(in thousands)


  Three months ended March 31, 
  2018  2017 
       
Cash flows from operating activities      
Net loss $(6) $(557)
Adjustments to reconcile net loss to net cash        
  provided by operating activities:        
Depletion and amortization  959   958 
Accretion expense  4   7 
Amortization of debt discounts and deferred financing costs  -   31 
Changes in assets and liabilities:        
Decrease in production receivable  83   41 
Decrease in other current assets  23   92 
(Decrease) increase in due to operators  (16)  56 
Increase in accrued expenses  3   137 
Settlement of asset retirement obligation  -   (74)
Net cash provided by operating activities  1,050   691 
         
Cash flows from investing activities        
Capital expenditures for oil and gas properties  (913)  (515)
Increase in salvage fund  (46)  - 
Net cash used in investing activities  (959)  (515)
         
Cash flows from financing activities        
Repayment of long-term borrowings  (247)  - 
Net cash used in financing activities  (247)  - 
         
Net (decrease) increase in cash and cash equivalents  (156)  176 
Cash and cash equivalents, beginning of period  2,423   3,458 
Cash and cash equivalents, end of period $2,267  $3,634 
         
Supplemental disclosure of cash flow information        
Cash paid for interest, net of amounts capitalized $144  $- 
         
Supplemental disclosure of non-cash investing activities        
Due to operators for accrued capital expenditures for
oil and gas properties
 $200  $725 

thousands, except share data)

  Three months ended March 31, 2019 
          Accumulated Other    
          Comprehensive    
  # of Shares Manager  Shareholders  Income  Total 
Balances, December 31, 2018  207.7026 $925  $9,294  $1  $10,220 
 Distributions  -  (78)  (437)  -   (515)
 Net income    -  92   15   -   107 
Balances, March 31, 2019  207.7026 $939  $8,872  $1  $9,812 

  Three months ended March 31, 2018 
          Accumulated Other    
          Comprehensive    
  # of Shares Manager  Shareholders  Income  Total 
Balances, December 31, 2017  207.7026 $426  $7,882  $2  $8,310 
 Net income (loss)  -  154   (160)  -   (6)
 Other comprehensive loss  -  -   -   (1)  (1)
Balances, March 31, 2018  207.7026 $580  $7,722  $1  $8,303 

The accompanying notes are an integral part of these unaudited condensed financial statements.

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RIDGEWOOD ENERGY A-1 FUND, LLC

UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS

(in thousands)

 Three months ended March 31, 
  2019  2018 
Cash flows from operating activities        
Net income (loss) $107  $(6)
Adjustments to reconcile net income (loss) to net cash        
   provided by operating activities:        
Depletion and amortization  472   959 
Accretion expense  6   4 
Amortization of debt discounts  1   - 
Changes in assets and liabilities:        
(Increase) decrease in production receivable  (33)  83 
Decrease in due from affiliate  35   - 
Decrease in other current assets  24   23 
Decrease in due to operators  (48)  (16)
(Decrease) increase in accrued expenses  (3)  3 
Net cash provided by operating activities  561   1,050 
         
Cash flows from investing activities        
Capital expenditures for oil and gas properties  (284)  (913)
Investments in marketable securities  -   - 
Increase in salvage fund  (39)  (46)
Net cash used in investing activities  (323)  (959)
         
Cash flows from financing activities        
Repayments of long-term borrowings  (170)  (247)
Distributions  (515)  - 
Net cash used in financing activities  (685)  (247)
         
Net decrease in cash and cash equivalents  (447)  (156)
Cash and cash equivalents, beginning of period  2,124   2,423 
Cash and cash equivalents, end of period $1,677  $2,267 
         
Supplemental disclosure of cash flow information        
Cash paid for interest $69  $144 
         
Supplemental disclosure of non-cash investing activities        
Due to operators for accrued capital expenditures for
oil and gas properties		 $252  $200 

The accompanying notes are an integral part of these unaudited condensed financial statements.

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RIDGEWOOD ENERGY A-1 FUND, LLC

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS


1.Organization and Summary of Significant Accounting Policies

Organization

The Ridgewood Energy A-1 Fund, LLC (the “Fund”), a Delaware limited liability company, was formed on February 3, 2009 and operates pursuant to a limited liability company agreement (the “LLC Agreement”) dated as of March 2, 2009 by and among Ridgewood Energy Corporation (the “Manager”) and the shareholders of the Fund, which addresses matters such as the authority and voting rights of the Manager and shareholders, capitalization, transferability of membership interests, participation in costs and revenues, distribution of assets and dissolution and winding up. The Fund was organized to primarily acquire interests in oil and gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico.


The Manager has direct and exclusive control over the management of the Fund’s operations. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for the Fund’s operations. Such services include, without limitation, the administration of shareholder accounts, shareholder relations, the preparation, review and dissemination of tax and other financial information and the management of the Fund’s investments in projects. In addition, the Manager provides office space, equipment and facilities and other services necessary for Fundthe Fund’s operations. The Manager also engages and manages contractual relations with unaffiliated custodians, depositories, accountants, attorneys, corporate fiduciaries, insurers, banks and others as required. See Notes 2, 3 4 and 5.


4.

Basis of Presentation

These unaudited interim condensed financial statements have been prepared by the Fund’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Fund’s financial position, results of operations and cash flows for the periods presented. Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements. The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results. These unaudited interim condensed financial statements should be read in conjunction with the Fund’s December 31, 20172018 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K (“20172018 Annual Report”) filed with the Securities and Exchange Commission (“SEC”). The year-end condensed balance sheet data was derived from audited financial statements for the year ended December 31, 2017,2018, but does not include all annual disclosures required by GAAP.


Use of Estimates

The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, the Manager reviews its estimates, including those related to the fair value of financial instruments, depletion and amortization, determination of proved reserves, impairment of long-lived assets and asset retirement obligations. Actual results may differ from those estimates.

Summary of Significant Accounting Policies

The Fund has provided discussion of significant accounting policies in Note 1 of “Notes to Financial Statements” – “Organization and Summary of Significant Accounting Policies” contained in Item 8. “Financial Statements and Supplementary Data” within its 20172018 Annual Report. There have been no significant changes to the Fund’s significant accounting policies during the three months ended March 31, 2018, except2019.

Fair Value Measurements

The Fund follows the accounting guidance for fair value measurement for measuring fair value of assets and liabilities in its financial statements. The Fund’s financial instruments consist of cash and cash equivalents, production receivable, due from affiliate, other current assets, salvage fund, due to operators, accrued expenses and long-term debt. Except for long-term debt, the carrying amounts of these instruments approximate fair value due to their short-term nature.

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Mortgage-backed securities within the salvage fund are recorded based on Level 2 inputs, as noted belowsuch instruments trade in over-the-counter markets. The Fund’s long-term debt is valued using an income approach and classified as Level 3 in the fair value hierarchy. The fair value of long-term debt is estimated by discounting future cash payments of principal and interest to a present value amount using a market yield for revenue recognition. See Note 2. “Impact of New Revenue Standard Adoption” for discussiondebt instruments with similar terms, maturities and credit ratings. The Fund also applies the provisions of the Fund’s updatedfair value measurement accounting policies relatedguidance to revenue recognition for revenue from contracts with customers.


its non-financial assets and liabilities, such as oil and gas properties and asset retirement obligations, on a non-recurring basis.

Salvage Fund

The Fund deposits cash in a separate interest-bearing account, or salvage fund, to provide for the dismantling and removal of production platforms and facilities and plugging and abandoning its wells at the end of their useful lives in accordance with applicable federal and state laws and regulations. As of March 31, 20182019 and December 31, 2017,2018, the Fund had investments in federal agency mortgage-backed securities as detailed in the following table, which are classified as available for sale.available-for-sale. Available-for-sale securities are carried in the financial statements at fair value. Mortgage-backed securities within the salvage fund are recorded based on Level 2 inputs, as such instruments trade in over-the-counter markets and the inputs are consistent with the Level 2 definition.

     Gross    
  Amortized  Unrealized  Fair 
  Cost  Gains  Value 
  (in thousands) 
Government National Mortgage Association security (GNMA July 2041)    
March 31, 2018 $46  $1  $47 
December 31, 2017 $46  $2  $48 

     Gross    
  Amortized  Unrealized  Fair 
  Cost  Gains  Value 
  (in thousands) 
Government National Mortgage Association security (GNMA July 2041)   
March 31, 2019 $36  $1  $37 
December 31, 2018 $36  $1  $37 

The unrealized gains on the Fund's investments in federal agency mortgage-backed securities were the result of fluctuations in market interest rates. The contractual cash flows of those investments are guaranteed by an agency of the U.S. government. Unrealized gains or losses on available-for-sale debt securities are reported in other comprehensive income until realized.


For all investments, interest income is accrued as earned and amortization of premium or discount, if any, is included in interest income. Interest earned on the account will become part of the salvage fund. There are no restrictions on withdrawals from the salvage fund.


Asset Retirement Obligations

For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. Upon the determination that a property is either proved or dry, a retirement obligation is incurred. The Fund recognizes the fair value of a liability for an asset retirement obligation in the period incurred. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs. Bi-annually,Annually, or more frequently if an event occurs that would dictate a change in assumptions or estimates underlying the obligations, the Fund reassesses its asset retirement obligations to determine whether any revisions to the obligations are necessary. The following table presents changes in asset retirement obligations during the three months ended March 31, 2018 and 2017.


  2018  2017 
  (in thousands) 
Balance, beginning of period $1,401  $1,675 
Liabilities settled  -   (74)
Accretion expense  4   7 
Revision of estimates  -   (122)
Balance, end of period $1,405  $1,486 

During the three months ended March 31, 2017, the Fund recorded credits to depletion expense totaling $0.1 million related to an adjustment to the asset retirement obligation for a fully depleted property. The Fund maintains a salvage fund to provide for the funding of future asset retirement obligations.

Impairment of Long-Lived Assets
The Fund reviews the carrying value of its oil and gas properties annually and when management determines that events and circumstances indicate that the recorded carrying value of properties may not be recoverable.  Impairments are determined by comparing estimated future net undiscounted cash flows to the carrying value at the time of the review.  If the carrying value exceeds the estimated future net undiscounted cash flows, the carrying value of the asset is written down to fair value, which is determined using estimated future net discounted cash flows from the asset.  The fair value determinations require considerable judgment and are sensitive to change.  Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment.
There were no impairments of oil and gas properties during each of the three months ended March 31, 2018 and 2017. Fluctuations in oil and natural gas prices may impact the fair value of the Fund’s oil and gas properties. If oil and natural gas prices decline, even if only for a short period of time, it is possible that impairments of oil and gas properties will occur.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on revenue recognition (“New

Revenue Standard”), which provides for a single five-step model to be applied to all revenue contracts with customers. In July 2015, the FASB issued a deferral of the effective date of the New Revenue Standard to 2018, with early adoption permitted in 2017. In March 2016, the FASB issued accounting guidance, which clarifies the implementation guidance on principal versus agent considerations in the New Revenue Standard. In April 2016, the FASB issued guidance on identifying performance obligations and licensing and in May 2016, the FASB issued final amendments which provided narrow scope improvements and practical expedients related to the implementation of the New Revenue Standard.  The New Revenue Standard may be applied either retrospectively or through the use of a modified-retrospective method. Under the New Revenue Standard, the revenue associated with the Fund’s existing contracts will be recognized in the period that control of the related commodity is transferred to the customer, which is generally consistent with the Fund’s previous revenue recognition model. The Fund adopted the New Revenue Standard using the modified retrospective method on January 1, 2018. See Note 2. “Impact of New Revenue Standard Adoption” for the required disclosures related to the impact of adopting this guidance and a discussion of the Fund’s updated policies related to revenue recognition for revenue from contracts with customers.


2.Impact of New Revenue Standard Adoption

The Fund adopted the New Revenue Standard on January 1, 2018 using the modified retrospective method to all new contracts entered into after January 1, 2018 and all existing contracts for which all of the revenues has not been recognized under the previous revenue guidance as of December 31, 2017. Although the Fund did not identify changes to its revenue recognition that resulted in a cumulative adjustment to retained earnings on January 1, 2018, the adoption of the accounting guidance resulted in enhanced disclosures related to revenue recognition policies, the Fund’s performance obligations and significant judgments used in applying the New Revenue Standard.

Revenue from Contracts with Customers
Recognition

Oil and gas revenues are recognized at the point when control of oil and natural gas is transferred to the customers. Natural gas liquid (“NGL”) sales are included within gas sales. The Fund’s oil and natural gas generally is sold to its customers at prevailing market prices based on an index in which the prices are published, adjusted for pricing differentials, quality of the oil and pipeline allowances.


Oil and Gas Revenue
Generally, the Fund sells oil and natural gas under two types of agreements, which are common in the oil and gas industry. In the first type of agreement, or a netback agreement, the Fund receives a price, net of pricing differentials as well as transportation expense incurred by the customer and the Fund records revenue at the wellhead at the net price received where control transfers to the customer. In the second type of agreement, the Fund delivers oil and natural gas to the customer at a contractually agreed-upon delivery point where the customer takes control. The Fund pays a third-party to transport the oil and natural gas and receives a specific market price from the customer net of pricing adjustments. The Fund records the transportation expense within operating expenses in the statements of operations.

Under the Fund’s natural gas processing contracts, the Fund delivers natural gas to a midstream processing company at the inlet of the midstream processing company’s facility. The midstream processing company gathers and processes the natural gas and remits the proceeds to the Fund for the sale of NGLs. In this type of arrangement, the Fund evaluates whether it is the principal or agent in the transaction. For those contracts where the Fund concluded that it is the principal and the ultimate third-party purchaser is the customer, the Fund recognizes revenue on a gross basis, with transportation, gathering and processing fees recorded as an expense within operating expenses in the statements of operations.

In certain instances, the Fund may elect to take its residue gas and NGLs in-kind at the tailgate of the midstream company’s processing plant and subsequently market such volumes. Through its marketing process, the Fund delivers the residue gas and NGLs to the ultimate third-party customer at a contractually agreed-upon delivery point and receives a specified market price from the customer. In this arrangement, the Fund recognizes revenue when control transfers to the customer at the delivery point based on the market price received from the customer. The transportation, gathering and processing fees are recorded as expense within operating expenses in the statements of operations.
The Fund assesses the performance obligations promised in its oil and natural gas contracts based on each unit of oil and natural gas that will be transferred to its customer that are both capable of being distinct. The Fund satisfies its performance obligation when control transfers at a point in time when its customer is able to direct the use of, and obtain substantially all of the benefits from, the oil and natural gas delivered. Under each of the Fund’s oil and natural gas contracts, contract prices are variable and based on an index in which the prices are published, which fluctuate as a result of related industry variables, adjusted for pricing differentials, quality of the oil and pipeline allowances. However, uncertainty related to the oil and gas prices is resolved daily or monthly. Payments are received in the month following oil and natural gas production month. Adjustments that occur after delivery, such as quality bank adjustments, are reflected in revenue in the month payments are received.

Transaction price allocated to remaining performance obligations
Under the Fund’s oil and natural gas contracts, each unit of oil and natural gas generally represents a separate performance obligations,obligation; therefore, future volumes are wholly unsatisfied and disclosure of the transaction price allocatedrelated to the remaining performance obligations is not required.

Contract balances
the variable index-based price attributable to each unit of oil and natural gas that is transferred to the customer. The Fund invoices customers once its performance obligations have been satisfied, at which point the payment is unconditional. Accordingly, the Fund’s oil and natural gas contracts do not give rise to contract assets or liabilities under the New Revenue Standard.liabilities. The receivables related to the Fund’s oil and gas revenue are included within “Production receivable” on the balance sheets.

Prior period

Other revenue is generated from the Fund’s production handling, gathering and operating services agreement with an affiliated entity and other third parties. The Fund simply earns a fee for its services and recognizes these fees as revenue at the time its performance obligations

The Fund records are satisfied as the control of oil and natural gas revenue in the month production is deliverednever transferred to its customers. However, settlement statements for residue gas and NGLs sales may not be received for 30 to 60 days after the date of production is delivered. As a result, the Fund, is required to estimatethus there are no unsatisfied performance obligations. The Fund’s project operator performs joint interest billing once the amount of production delivered to the purchaser and the price that will be received for the sale of the residue gas and NGLs. The Fund records the differences between its estimates and the actual amounts received in the month thatperformance obligations have been satisfied, at which point the payment is receivedunconditional. Accordingly, the Fund’s production handling, gathering and operating services agreement with an affiliated entity and other third parties does not give rise to contract assets or liabilities. The receivables related to the Fund’s proportionate share of revenue from an affiliate are included within “Due from affiliate” on the Fund’s balance sheets. The receivables related to the Fund’s proportionate share of revenue from third parties are presented as a reduction from “Due to operator” on the Fund’s balance sheets. The receivables are settled by issuance of a non-cash credit from the customer. Beta Project operator to the Fund when the operator performs the joint interest billing of the lease operating expenses due from the Fund.

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The Fund also has existing internal controls for its revenuean estimation process for revenue and related accruals, and any identified difference between its revenue estimates and actual revenue historically have not been significant.


For the period ending March 31, 2019 and 2018, revenue recognized from performance obligations satisfied in previous periods is not significant.

Impairment of Long-Lived Assets

The Fund reviews the carrying value of its oil and gas properties for impairment whenever events and circumstances indicate that the recorded carrying value of the assets may not be recoverable. Impairments are determined by comparing estimated future net undiscounted cash flows to the carrying value of the assets at the time of the review. If the carrying value exceeds the estimated future net undiscounted cash flows, the carrying value of the asset is written down to fair value, which is determined using valuation techniques that include both market and income approaches and use Level 3 inputs. The fair value determinations require considerable judgment and are sensitive to change. Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment.

There were no impairments of oil and gas properties during each of the three months ended March 31, 2019 and 2018. Fluctuations in oil and natural gas commodity prices may impact the fair value of the Fund’s oil and gas properties. If oil and natural gas commodity prices decline, even if only for a short period of time, it is possible that impairments of oil and gas properties will occur.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued accounting guidance on fair value measurement, which adds, among other things, disclosure requirements for the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This accounting guidance is effective for the Fund in the first quarter 2020 with early adoption permitted. The Fund does not expect this accounting guidance will have a material impact on its financial statements upon adoption.

In February 2016, the FASB issued accounting guidance on leases as amended on January 2018 and July 2018, which requires an entity to recognize all lease assets and liabilities with a term greater than one year on the balance sheet, disclose key quantitative and qualitative information about leasing arrangements, and permits an entity not to evaluate existing or expired land easements that were not previously assessed under the existing lease guidance. The accounting guidance does not apply to leases of mineral rights to explore for or use of oil and natural gas. The accounting guidance was effective for the Fund beginning January 1, 2019. Although the Fund, as a non-operator, does not enter into lease agreements to support its operations, the Fund completed its evaluation of existing contracts that may have a lease impact and embedded lease features to determine the contracts to which the new guidance applies. Based on this evaluation, the Fund determined its existing contracts did not meet the definition of leases under the new accounting guidance and therefore, did not qualify for lease accounting.

3.2.Related Parties

Pursuant to the terms of the LLC Agreement, the Manager is entitled to receive an annual management fee, payable monthly, of 2.5% of total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund, however, the Manager is permitted to waive the management fee at its own discretion. Therefore, the management fee may be temporarily waived to accommodate the Fund’s short-term commitments. Management fees during each of the three months ended March 31, 20182019 and 20172018 were $0.1 million.

The Manager is also entitled to receive 15% of the cash distributions from operations made by the Fund. Distributions paid to the Manager during the three months ended March 31, 2019 were $0.1 million. The Fund did not pay distributions during the three months ended March 31, 2018 and 2017.

2018.

The Fund utilizes Beta Sales and Transport, LLC, a wholly-owned subsidiary of the Manager, to facilitate the transportation and sale of oil and natural gas produced from the Beta Project.

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During 2016, the Fund and other third-party working interest owners in the Beta Project entered into a production handling, gathering and operating services agreement (“PHA”) with Ridgewood Claiborne, LLC, a wholly-owned entity of Ridgewood Energy Oil & Gas Fund II, L.P. (“Institutional Fund II”), and other third-party working interest owners in the Claiborne Project. Institutional Fund II is an entity that is managed by the Fund’s Manager. During the three months ended March 31, 2019, the Fund earned $15 thousand representing its proportionate share of the production handling fees earned from Institutional Fund II, which is included within “Other revenue” on the Fund’s statements of operations. There were no such amounts recorded during the three months ended March 31, 2018. As of March 31, 2019 and December 31, 2018, the Fund’s receivables of $15 thousand and $0.1 million related to the Fund’s proportionate share of revenue from Institutional Fund II are included within “Due from affiliate” on the Fund’s balance sheets. The receivables are settled by issuance of a non-cash credit from the Beta Project operator to the Fund on behalf of the Claiborne Project working interest owners when the operator performs the joint interest billing of the lease operating expenses due from the Fund. The revenue received from the PHA will be utilized by the Fund to repay a portion of the long-term debt outstanding under its credit agreement until the loan is repaid in full, in no event later than December 31, 2022.

At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business.


The Fund has working interest ownership in certain oil and natural gas projects, which are also owned by other entities that are likewise managed by the Manager.


4.3.Credit Agreement – Beta Project Financing

As of March 31, 20182019 and December 31, 2017,2018, the Fund had outstanding borrowings of $7.0$3.0 million and $7.2$3.2 million, respectively, under its credit agreement dated November 27, 2012, as amended on September 30, 2016, September 15, 2017, June 1, 2018 and August 10, 2018 (the “Credit Agreement”). As of March 31, 2019, the credit agreement. estimated fair value of the debt was $3.0 million.

The loanCredit Agreement bears interest at 8%8.75% compounded annually.monthly. Principal and interest payments are repaid atbased on the lesserfixed percentage of the monthly fixed amount of approximately $0.1 million or the Debt Service Cap amountFund’s Net Revenue, as defined in the credit agreement,Credit Agreement. As of March 31, 2019, the Fund’s fixed percentage is 30%, which was based on the Fund’s ratio of outstanding debt to working interest ownership in no event later than December 31, 2020.the Beta Project determined on September 1, 2018 as scheduled in the Credit Agreement. Beginning on April 1, 2019 and each April 1st thereafter, the Fund’s fixed percentage will be the greater of (i) 30% or (ii) the Fixed Reassessment Percentage, as defined in the Credit Agreement. The Fixed Reassessment Percentage is determined annually beginning April 1, 2019 and each April 1st thereafter, and will be based on the Fund’s ratio of its outstanding debt as of the reassessment date relative to 80% of third-party reserve engineer’s proved plus probable future undiscounted cash flows attributable to the Beta Project through the maturity of the loan. As of April 1, 2019, the Fixed Reassessment Percentage was determined to be 30%. The loan may be prepaid by the Fund without premium or penalty.


There were no Pursuant to the Credit Agreement, the Fund also agreed to convey a fixed percentage of 10.81% overriding royalty interest in its working interest in the Beta Project to the lenders, which will become payable to the lenders on January 1, 2023.

As of March 31, 2019 and December 31, 2018, the unamortized debt discounts related to the Credit Agreement of $14 thousand and deferred financing costs$15 thousand, respectively, were presented as a reduction of March 31, 2018 and December 31, 2017.“Long-term borrowings” on the balance sheets. Amortization expense of unamortized debt discounts and deferred financing costs during the three months ended March 31, 20172019 of $31$1 thousand was expensed and included on the statements of operations within “Interest expense, net”. There were no such amounts recorded during the three months ended March 31, 2018.

As of March 31, 20182019 and December 31, 2017,2018, there were no accrued interest costs outstanding. Interest costs incurred during each of the three months ended March 31, 20182019 and 20172018 of $0.1 million and $0.2 million, respectively, were expensed and included on the statements of operations within “Interest expense, net”.
As additional consideration to the lenders, the Fund has agreed to convey an overriding royalty interest (“ORRI”) in its working interest in the Beta Project to the lenders. 

The Fund’s share of the lenders’ aggregate ORRI is directly proportionate to its level of borrowing as a percentage of total borrowings of all the other participating funds managed by the Manager. Such ORRI will not become payable to the lenders until after the loan is repaid in full.  The credit agreementCredit Agreement contains customary covenants, with which the Fund was in compliance as of March 31, 20182019 and December 31, 2017.


2018.

5.4.Commitments and Contingencies

Capital Commitments

As of March 31, 2018,2019, the Fund’s estimated capital commitments related to its oil and gas properties were $4.0$2.8 million (which include asset retirement obligations for the Fund’s projects of $2.1$1.9 million), of which $1.6$0.1 million is expected to be spent during the next twelve months, primarily related to the continued development of the Beta Project and the settlement of asset retirement obligations for certain of the Fund’s projects.  As a result of continued development of the Beta Project as well as borrowing repayments, the Fund has experienced negative cash flows during the three months ended March 31, 2018.months. Future results of operations and cash flows are dependent on the continued successful development and the related production of oil and gas revenues from the Beta Project.

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Based upon its current cash position and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments, borrowing repayments and ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision. However, if cash flow from operations is not sufficient to meet the Fund’s commitments, the Manager will temporarily waive all or a portion of the management fee as well as provide short-term financing to accommodate the Fund’s short-term commitments if needed.


Environmental and Governmental Regulations

Many aspects of the oil and gas industry are subject to federal, state and local environmental laws and regulations. The Manager and operators of the Fund’s properties are continually taking action they believe appropriate to satisfy applicable federal, state and local environmental regulations. However, due to the significant public and governmental interest in environmental matters related to those activities, the Manager cannot predict the effects of possible future legislation, rule changes, or governmental or private claims. As of March 31, 20182019 and December 31, 2017,2018, there were no known environmental contingencies that required adjustment to, or disclosure in, the Fund’s financial statements.


Oil and gas industry legislation and administrative regulations are periodically changed for a variety of political, economic, and other reasons. Any such future laws and regulations could result in increased compliance costs or additional operating restrictions, which could have a material adverse effect on the Fund’s operating results and cash flows. It is not possible at this time to predict whether such legislation or regulation, if proposed, will be adopted as initially written, if at all, or how legislation or new regulation that may be adopted would impact the Fund’s business.


BOEM Notice to Lessees on Supplemental Bonding

On July 14, 2016, the Bureau of Ocean Energy Management (“BOEM”) issued a Notice to Lessees (“NTL”) that discontinued and materially replaced existing policies and procedures regarding financial security (i.e. supplemental bonding) for decommissioning obligations of lessees of federal oil and gas leases and owners of pipeline rights-of-way, rights-of use and easements on the Outer Continental Shelf (“Lessees”).  Generally, the new NTL (i) ended the practice of excusing Lessees from providing such additional security where co-lessees had sufficient financial strength to meet such decommissioning obligations, (ii) established new criteria for determining financial strength and additional security requirements of such Lessees, (iii) provided acceptable forms of such additional security and (iv) replaced the waiver system with one of self-insurance. The new rule became effective as of September 12, 2016; however on January 6, 2017, the BOEM announced that it was suspending the implementation timeline for six months in certain circumstances. On June 22, 2017, the BOEM announced that the implementation timeline extension will remain in effect pending the completion of its review of the new NTL. The Fund, as well as other industry participants, are working withAs of March 31, 2019, the BOEM has not completed its operators and working interest partners to determine and agree uponreview nor has the correct level of decommissioning obligations to which they may be liable and the manner in which such obligations will be secured.NTL been enforced.  The impact of the NTL, if enforced without change or amendment, may require the Fund to fully secure all of its potential abandonment liabilities to the BOEM’s satisfaction using one or more of the enumerated methods for doing so.  Potentially this could increase costs to the Fund if the Fund is required to obtain additional supplemental bonding, fund escrow accounts or obtain letters of credit.

Insurance Coverage

The Fund is subject to all risks inherent in the oil and natural gas business. Insurance coverage as is customary for entities engaged in similar operations is maintained, but losses may occur from uninsurable risks or amounts in excess of existing insurance coverage. The occurrence of an event that is not insured or not fully insured could have a material adverse impact upon earnings and financial position. Moreover, insurance is obtained as a package covering all of the entities managed by the Manager. Depending on the extent, nature and payment of claims made by the Fund or other entities managed by the Manager, yearly insurance coverage may be exhausted and become insufficient to cover a claim by the Fund in a given year.

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ITEM 2.              MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


Cautionary Statement Regarding Forward-Looking Statements


Certain statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the documents Ridgewood Energy A-1 Fund, LLC (the “Fund”) has incorporated by reference into this Quarterly Report, other than purely historical information, including estimates, projections, statements relating to the Fund’s business plans, strategies, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 that are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. You are therefore cautioned against relying on any such forward-looking statements. Forward-looking statements can generally be identified by words such as “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “target,” “pursue,” “may,” “will,” “will likely result,” and similar expressions and references to future periods. Examples of events that could cause actual results to differ materially from historical results or those anticipated include weather conditions, such as hurricanes, changes in market and other conditions affecting the pricing, production and demand of oil and natural gas, the cost and availability of equipment, and changes in domestic and foreign governmental regulations. Examples of forward-looking statements made herein include statements regarding projects, investments, insurance, capital expenditures and liquidity. Forward-looking statements made in this document speak only as of the date on which they are made. The Fund undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.


Critical Accounting Policies and Estimates


There were no changes to the Fund’s critical accounting policies and estimates from those disclosed in its Annual Report on Form 10-K for the year ended December 31, 2017, except for the revenue recognition for revenue from contracts with customers. See Note 2 of “Notes to Unaudited Condensed Financial Statements” - “Impact of New Revenue Standard Adoption” contained in Item 1. “Financial Statements” within Part I of this Quarterly Report for a discussion of the Fund’s updated accounting policies on revenue recognition upon adoption of the related new standard.


2018.

Overview of the Fund’s Business


The Fund was organized primarily to acquire interests in oil and natural gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico. The Fund’s primary investment objective is to generate cash flow for distribution to its shareholders by generating returns across a portfolio of oil and natural gas projects. Distributions to shareholders are made in accordance with the Fund’s limited liability company agreement (the “LLC Agreement”).


Ridgewood Energy Corporation (the “Manager”) is the Manager, and as such, has direct and exclusive control over the management of the Fund’s operations. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for the Fund’s operations. As compensation for its services, the Manager is entitled to an annual management fee, payable monthly, equal to 2.5% of the total capital contributions made by the Fund’s shareholders, net of cumulative dry-hole and related well costs incurred by the Fund. The Fund does not currently, nor is there any plan to, operate any project in which the Fund participates. The Manager enters into operating agreements with third-party operators for the management of all exploration, development and producing operations, as appropriate. The Manager also participates in distributions.


Commodity Price Changes


Changes in oil and natural gas commodity prices may significantly affect liquidity and expected operating results. Declines in oil and natural gas commodity prices not only reduce revenues and profits but could also reduce the quantities of reserves that are commercially recoverable and result in non-cash charges to earnings due to impairment.

Oil and natural gas commodity prices have been subject to significant fluctuations during the past several years. The Fund anticipates price cyclicality in its planning and believes it is well positioned to withstand price volatility. Despite operating in a volatile oil and natural gas commodity price environment, the Fund continued to advance the development of the Beta Project, which commenced production in 2016. The Fund has suspended distributionswill continue to closely manage and continues to conservecoordinate its capital spending estimates within its expected cash flows to provide for the continuedfuture development costs of the Beta Project.  its producing projects, as budgeted. See “Results“Results of Operations” under this Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report for more information on the average oil and natural gas prices received by the Fund during the three months ended March 31, 20182019 and 20172018 and the effect of such average prices on the Fund’s results of operations. If oil and natural gas commodity prices decline, even if only for a short period of time, the Fund’s results of operations and liquidity will be adversely impacted.

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Market pricing for oil and natural gas is volatile and is likely to continue to be volatile in the future. This volatility is caused by numerous factors and market conditions that the Fund cannot control or influence. Therefore, it is impossible to predict the future price of oil and natural gas with any certainty. Factors affecting market pricing for oil and natural gas include:


·weather conditions;
·economic conditions, including demand for petroleum-based products;
·actions by OPEC, the Organization of Petroleum Exporting Countries;
·political instability in the Middle East and other major oil and gas producing regions;
·governmental regulations, both domestic and foreign;
·domestic and foreign tax policy;
·the pace adopted by foreign governments for the exploration, development, and production of their national reserves;
·the supply and price of foreign oil and gas;
·the cost of exploring for, producing and delivering oil and gas;
·the discovery rate of new oil and gas reserves;
·the rate of decline of existing and new oil and gas reserves;
·available pipeline and other oil and gas transportation capacity;
·the ability of oil and gas companies to raise capital;
·the overall supply and demand for oil and gas; and
·the price and availability of alternate fuel sources.

Business Update


Information regarding the Fund’s current projects, all of which are located in the United States offshore waters in the Gulf of Mexico, is provided in the following table. See “Liquidity Needs” under this Item 2. “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report for information regarding the funding of the Fund’s capital commitments.

      Total Spent  Total   
   Working  through  Fund   
Project  Interest  March 31, 2019  Budget  Status
      (in thousands)   
Producing Properties               
Beta Project  1.64% $16,152  $17,766   The Beta Project is expected to include the development of seven wells.  Wells #1 and #2 commenced production in 2016.  Wells #3  and #4 commenced production in 2017. Wells #5 and #6 commenced production in first quarter 2018 and third quarter 2018, respectively. Well #7 commenced production in first quarter 2019. The Fund expects to spend $0.8 million for additional development costs and $0.8 million for asset retirement obligations.
Liberty Project  2.0% $3,004  $3,268   The Liberty Project, a single-well project, commenced production in 2010.  The Fund expects to spend $0.3 million for asset retirement obligations.

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     Total Spent  Total  
   Working  through  Fund  
Project Interest  March 31, 2018  Budget Status
     (in thousands)  
Producing Properties             
Beta Project 2.0%  $17,925  $20,781 The Beta Project is expected to include the development of six wells.  Wells #1 and #2 commenced production in 2016.  Wells #3  and #4 commenced production in second  quarter 2017 and  third quarter 2017, respectively. Well #5 commenced production in first quarter 2018. Well #6, which began drilling in second quarter 2018, is expected to commence production in fourth quarter 2018. The Fund expects to spend $2.0 million for additional development costs and $0.9 million for asset retirement obligations.
Liberty Project 2.0%  $3,004  $3,268 The Liberty Project, a single-well project, commenced production in 2010.  The well, which was shut-in in late-June 2017 due to gas dehydration unit work resumed production in late-September 2017.  The Fund expects to spend $0.3 million for asset retirement obligations.

Results of Operations


The following table summarizes the Fund’s results of operations during the three months ended March 31, 20182019 and 2017,2018, and should be read in conjunction with the Fund’s financial statements and notes thereto included within Item 1. “Financial Statements” in Part I of this Quarterly Report.


    Three months ended March 31, 
  2018  2017 
    (in thousands) 
Revenue      
Oil and gas revenue $1,366  $911 
Expenses        
Depletion and amortization  959   958 
Management fees to affiliate  93   94 
Operating expenses  132   189 
General and administrative expenses  46   42 
Total expenses  1,230   1,283 
Income (loss) from operations  136   (372)
Interest expense, net  (142)  (185)
Net loss  (6)  (557)
Other comprehensive loss        
Unrealized loss on marketable securities  (1)  - 
Total comprehensive loss $(7) $(557)
Overview.

 Three months ended March 31, 
  2019  2018 
 (in thousands) 
Revenue      
Oil and gas revenue $872  $1,366 
Other revenue  61   - 
Total revenue  933   1,366 
Expenses        
Depletion and amortization  472   959 
Management fees to affiliate  93   93 
Operating expenses  149   132 
General and administrative expenses  45   46 
Total expenses  759   1,230 
Income from operations  174   136 
Interest expense, net  (67)  (142)
Net income (loss)  107   (6)
Other comprehensive loss        
Unrealized loss on marketable securities  -   (1)
Total comprehensive income (loss) $107  $(7)

Overview. The following table provides information related to the Fund’s oil and natural gas production and oil and gas revenue during the three months ended March 31, 20182019 and 2017.2018. Natural gas liquid (“NGL”) sales are included within gas sales.


  Three months ended March 31, 
  2018  2017 
Number of wells producing  6   3 
Total number of production days  432   260 
Oil sales (in thousands of barrels)  21   19 
Average oil price per barrel $60  $44 
Gas sales (in thousands of mcfs)  29   23 
Average gas price per mcf $3.50  $3.25 

  Three months ended March 31, 
 2019  2018 
Number of wells producing  8   6 
Total number of production days  609   432 
Oil sales (in thousands of barrels)  14   21 
Average oil price per barrel $58  $60 
Gas sales (in thousands of mcfs)  19   29 
Average gas price per mcf $2.98  $3.50 

The production-related changesincreases in the above tablenumber of wells producing and production days were primarily related to the commencement of production of three additionaltwo wells in the Beta Project, one well during third quarter 2018 and one well during first quarter 2019. The decreases in oil and gas sales volumes were primarily related to the Beta and Liberty projects. The decrease in the Beta Project production was primarily related to the partial sale of working interest in the project during third quarter 2018 coupled with periodic shut-ins during first quarter 2019 due to certain drilling and completion operations performed at the project’s production facility. The Liberty Project which experienced increaseda decrease in production as a result of flowing the project’s current zone with the behind-pipe zone in thirda shut-in during first quarter 2017.2019 due to mechanical work. See additional discussion in “Business Update” section above.


Oil and Gas Revenue. Oil and gas revenue during the three months ended March 31, 20182019 was $1.4$0.9 million, an increasea decrease of $0.5 million from the three months ended March 31, 2017.2018. The increasedecrease was primarily attributable to increased oil and gas prices totaling $0.3 million coupled with increaseddecreased sales volume totaling $0.1 million.


volume.

See “Overview” above for factors that impact the oil and gas revenue volume and rate variances.

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Other Revenue.Other revenue is generated from the Fund’s production handling, gathering and operating services agreement with an affiliated entity and other third parties. There were no such amounts recorded during the three months ended March 31, 2018.

Depletion and Amortization.Amortization. Depletion and amortization during the three months ended March 31, 20182019 was $1.0$0.5 million, an increasea decrease of $1 thousand$0.5 million from the three months ended March 31, 2017.2018. The increasedecrease was attributable to an increasea decrease in production volumes totaling $0.2$0.3 million coupled with an adjustment to the asset retirement obligation related to a fully depleted property totaling $0.1 million, which was recorded in first quarter 2017.  These increases were partially offset by a decrease in the average depletion rate totaling $0.3$0.2 million. The decrease in the average depletion rate was primarily attributable to lower cost of reserves from the onsetFund’s producing projects. Depletion and amortization was also impacted by the partial sale of production of three additional wellsworking interest in the Beta Project.

Project during third quarter 2018.

See “Overview” above for certain factors that impact the depletion and amortization volume and rate variances. Depletion and amortization rates may also be impacted by changes in reserve estimates provided annually by the Fund’s independent petroleum engineers.

Management Fees to Affiliate. An annual management fee, totaling 2.5% of total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund, is paid monthly to the Manager. Such fee may be temporarily waived by the Manager to accommodate the Fund’s short-term commitments.

Operating Expenses. Operating expenses represent costs specifically identifiable or allocable to the Fund’s wells, as detailed in the following table.


  Three months ended March 31, 
  2018  2017 
  (in thousands) 
Lease operating expense $92  $132 
Insurance expense  23   24 
Transportation and processing expense  8   5 
Accretion expense  4   7 
Workover expense and other  5   21 
  $132  $189 

  Three months ended March 31, 
 2019  2018 
  (in thousands) 
Lease operating expense $75  $92 
Transportation and processing expense  37   8 
Insurance expense  24   23 
Accretion expense  6   4 
Workover expense and other  7   5 
  $149  $132 

Lease operating expense and transportation and processing expense relatesrelate to the Fund’s producing properties.projects. Insurance expense represents premiums related to the Fund’s properties,projects, which vary depending upon the number of wells producing or drilling. Accretion expense relates to the asset retirement obligations established for the Fund’s oil and gas properties. Workover expense represents costs to restore or stimulate production of existing reserves.


The average production cost,

Production costs, which includesinclude lease operating expense, transportation and processing expense and insurance expense, was $4.72were $0.1 million ($7.70 per barrel of oil equivalent (“BOE”or “BOE”) during the three months ended March 31, 2018,2019, compared to $7.17$0.1 million ($4.72 per BOEBOE) during the three months ended March 31, 2017. The decrease was2018. Although production costs remained relatively consistent during first quarter 2019 compared to first quarter 2018, the production costs per BOE increased primarily attributabledue to the impact of ongoing costs for the Beta Project, which has lower cost per BOE as compared to other projectsexperienced decreased production volumes due to the processing of production through its standalone facility. The production costs per BOE may decline over time as throughput increases from the project or other projects expected to tie-in to the facility.

periodic shut-ins during first quarter 2019. See “Overview” above for factors that impact oil and natural gas production.

General and Administrative Expenses. General and administrative expenses represent costs specifically identifiable or allocable to the Fund, such as accounting and professional fees and insurance expenses.


Interest Expense, Net. Interest expense, net is comprised of interest expense and amortization of debt discounts and deferred financing costs related to the Fund’s long-term borrowings (see “Liquidity Needs”Needs -Credit Agreement” below for additional information), and interest income earned on cash and cash equivalents and salvage fund.


Unrealized Loss on Marketable Securities.The Fund has available-for-sale investments within its salvage fund in federal agency mortgage-backed securities. Available-for-sale debt securities are carried in the financial statements at fair value and unrealized gains and losses related to the securities’ changes in fair value are recorded in other comprehensive income until realized.


Capital Resources and Liquidity


Operating Cash Flows

Cash flows provided by operating activities during the three months ended March 31, 2019 were $0.6 million, primarily related to revenue received of $0.9 million, partially offset by operating expenses of $0.1 million, management fees of $0.1 million and interest payments of $0.1 million.

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Cash flows provided by operating activities during the three months ended March 31, 2018 were $1.1 million, primarily related to revenue received of $1.4 million, partially offset by interest payments of $0.1 million, operating expenses of $0.1 million and management fees of $0.1 million.


Investing Cash Flows

Cash flows provided by operatingused in investing activities during the three months ended March 31, 20172019 were $0.7$0.3 million, primarily related to revenue received of $1.0 million, partially offset by management fees of $0.1 million, the settlement of an asset retirement obligation of $0.1 millioncapital expenditures for oil and general and administrative expenses of $0.1 million.


Investing Cash Flows
gas properties.

Cash flows used in investing activities during the three months ended March 31, 2018 were $1.0 million, primarily related to capital expenditures for oil and gas properties.


Financing Cash Flows

Cash flows used in investingfinancing activities during the three months ended March 31, 20172019 were $0.5$0.7 million, related to capital expenditures for oilmanager and gas properties.


Financing Cash Flows
shareholder distributions of $0.5 million and the repayments of long-term borrowings of $0.2 million.

Cash flows used in financing activities during the three months ended March 31, 2018 were $0.2 million, related to the repayment of long-term borrowings.


There were no cash flows from financing activities during the three months ended March 31, 2017.

Estimated Capital Expenditures


Capital expenditures for oil and gas properties have been funded with the capital raised by the Fund in its private placement offering and through debt financing. The Fund’s remaining capital has been fully allocated to its projects. As a result, the Fund will not invest in any new projects and will limit its investment activities, if any, to those projects in which it currently has a working interest. See “Business Update” under this Item 2. “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report for information regarding the Fund’s current projects. See “Liquidity Needs” below for additional information.


Liquidity Needs


The Fund’s primary short-term liquidity needs are to fund its operations, capital expenditures for its oil and gas properties and borrowing repayments. Such needs are funded utilizing operating income and existing cash on-hand.


As of March 31, 2018,2019, the Fund’s estimated capital commitments related to its oil and gas properties were $4.0$2.8 million (which include asset retirement obligations for the Fund’s projects of $2.1$1.9 million), of which $1.6$0.1 million is expected to be spent during the next twelve months, primarily related to the continued development of the Beta Project and the settlement of asset retirement obligations for certain of the Fund’s projects. As a result of continued development of the Beta Project as well as borrowing repayments, the Fund has experienced negative cash flows during the three months ended March 31, 2018.months. Future results of operations and cash flows are dependent on the continued successful development and the related production of oil and gas revenues from the Beta Project.

Based upon its current cash position and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments, borrowing repayments and ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision. However, if cash flow from operations is not sufficient to meet the Fund’s commitments, the Manager will temporarily waive all or a portion of the management fee as well as provide short-term financing to accommodate the Fund’s short-term commitments if needed.

The Manager is entitled to receive an annual management fee from the Fund regardless of the Fund’s profitability in that year. However, pursuant to the terms of the LLC Agreement, the Manager is also permitted to waive the management fee at its own discretion.


Distributions, if any, are funded from available cash from operations, as defined in the LLC Agreement, and the frequency and amount are within the Manager’s discretion. Due to the significant capital required to develop the Beta Project, distributions have been impacted, and may be impacted in the future, by amounts reserved to provide for its ongoing development costs, borrowing repayments and funding its estimated asset retirement obligations.


Credit Agreement

In November 2012,

As of March 31, 2019 and December 31, 2018, the Fund entered into ahad outstanding borrowings of $3.0 million and $3.2 million, respectively, under its credit agreement (asdated November 27, 2012, as amended on September 30, 2016, and September 15, 2017, theJune 1, 2018 and August 10, 2018 (the “Credit Agreement”) with Rahr Energy Investments LLC, as administrative agent and lender (and any other banks or financial institutions that may in the future become a party thereto, collectively “Lenders”), that provided for an aggregate loan commitment to the Fund of approximately $8.3 million to provide capital toward the funding of the Fund’s share of development costs on the Beta Project. As of March 31, 2018 and December 31, 2017, the Fund had borrowings of $7.0 million and $7.2 million, respectively, under the.

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The Credit Agreement.


The loanAgreement bears interest at 8%8.75% compounded annually. Monthly principalmonthly. Principal and interest payments are based on the lesserfixed percentage of the monthly fixed amount of approximately $0.1 million or the Debt Service Cap amount,Fund’s Net Revenue, as defined in the Credit Agreement, untilAgreement. The Fund’s fixed percentage is 30%, which was based on the loan is repaidFund’s ratio of outstanding debt to working interest ownership in full, in no event later than December 31, 2020. The Fund expects operating income from the Beta Project to be sufficient to cover the principal and interest payments required underdetermined on September 1, 2018, as scheduled in the Credit Agreement. Beginning on April 1, 2019 and each April 1st thereafter, the Fund’s fixed percentage will be the greater of (i) 30% or (ii) the Fixed Reassessment Percentage, as defined in the Credit Agreement. The Fixed Reassessment Percentage is determined annually beginning April 1, 2019 and every April 1st thereafter, and will be based on the Fund’s ratio of its outstanding debt as of the reassessment date relative to 80% of third-party reserve engineer’s proved plus probable future undiscounted cash flows attributable to the Beta Project through the maturity of the loan. As of April 1, 2019, the Fixed Reassessment Percentage was determined to be 30%. The loan may be prepaid by the Fund without premium or penalty.
As additional consideration to the Lenders, the Fund has agreed to convey an The Credit Agreement also provides for a fixed percentage of 10.81% overriding royalty interest (“ORRI”) in its working interest in the Beta Project to the Lenders.  The Fund’s share of the Lenders’ aggregate ORRI is directly proportionate to its level of borrowing as a percentage of total borrowings of all the other participating funds managed by the Manager. Such ORRIlenders, which will not become payable to the Lenders until after the Loan is repaidlenders in full.
January 2023.

The Credit Agreement contains customary negative covenants including covenants that limit the Fund’s ability to, among other things, grant liens, change the nature of its business, or merge into or consolidate with other persons. The events which constitute events of default are also customary for credit facilities of this nature and include payment defaults, breaches of representations, warrants and covenants, insolvency and change of control. Upon the occurrence of a default, in some cases following a notice and cure period, the Lenderslenders under the Credit Agreement may accelerate the maturity of the loan and require full and immediate repayment of all borrowings under the Credit Agreement. The Fund believes it is in compliance with all covenants under the Credit Agreement as of March 31, 20182019 and December 31, 2017.

2018.

Off-Balance Sheet Arrangements


The Fund had no off-balance sheet arrangements as of March 31, 20182019 and December 31, 20172018 and does not anticipate the use of such arrangements in the future.


Contractual Obligations


The Fund enters into participation and joint operating agreements with operators. On behalf of the Fund, an operator enters into various contractual commitments pertaining to exploration, development and production activities. The Fund does not negotiate such contracts. No contractual obligations exist as of March 31, 20182019 and December 31, 2017,2018, other than those discussed in “Estimated Capital Expenditures” and “Liquidity Needs –Credit Agreement”Agreement” above.

Recent Accounting Pronouncements


See Note 1 of “Notes to Unaudited Condensed Financial Statements” - “Organization and Summary of Significant Accounting Policies” contained in Item 1. “Financial Statements” within Part I of this Quarterly Report for a discussion of recent accounting pronouncements.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not required.


ITEM 4.CONTROLS AND PROCEDURES

In accordance with Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Fund’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of March 31, 2018.


2019.

There has been no change in the Fund’s internal control over financial reporting that occurred during the three months ended March 31, 20182019 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

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PART II – OTHER INFORMATION


ITEM 1.LEGAL PROCEEDINGS

None.


ITEM 1A.RISK FACTORS

Not required.


ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.


ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.


ITEM 4.MINE SAFETY DISCLOSURES

None.


ITEM 5.OTHER INFORMATION

None.

ITEM 6.EXHIBITS

EXHIBIT

NUMBER

TITLE OF EXHIBIT
METHOD OF FILING
   
31.1

Certification of Robert E. Swanson, Chief Executive Officer of


the Fund, pursuant to Exchange Act Rule 13a-14(a)

Filed herewith
   
31.2

Certification of Kathleen P. McSherry, Executive Vice President


and Chief Financial Officer of the Fund, pursuant to Exchange

Act Rule 13a-14(a)

Filed herewith
   
32

Certifications pursuant to 18 U.S.C. Section 1350, as adopted


pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,

signed by Robert E. Swanson, Chief Executive Officer of the

Fund and Kathleen P. McSherry, Executive Vice President and

Chief Financial Officer of the Fund

Filed herewith
   
101.INSXBRL Instance DocumentFiled herewith
   
101.SCHXBRL Taxonomy Extension SchemaFiled herewith
   
101.CALXBRL Taxonomy Extension Calculation LinkbaseFiled herewith
   
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentFiled herewith
   
101.LABXBRL Taxonomy Extension Label LinkbaseFiled herewith
   
101.PREXBRL Taxonomy Extension Presentation LinkbaseFiled herewith


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SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



      

RIDGEWOOD ENERGY A-1 FUND, LLC

Dated:May 11, 201810, 2019By:/s/  ROBERT E. SWANSON
   Name:  Robert E. Swanson
   Title:  Chief Executive Officer
      (Principal Executive Officer)
       
       
Dated:May 11, 201810, 2019By:/s/  KATHLEEN P. MCSHERRY
   Name:  Kathleen P. McSherry
   Title:  Executive Vice President and Chief Financial Officer
      
(Principal Financial and Accounting Officer)

17

 
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