Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2018 | Nov. 09, 2018 | |
Document And Entity Information Abstract | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Sep. 30, 2018 | |
Entity Registrant Name | Ridgewood Energy W Fund LLC | |
Entity Central Index Key | 1,409,947 | |
Current Fiscal Year End Date | --12-31 | |
Document Fiscal Year Focus | 2,018 | |
Document Fiscal Period Focus | Q3 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Common Stock, Shares Outstanding | 332.2918 |
UNAUDITED CONDENSED BALANCE SHE
UNAUDITED CONDENSED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 4,513 | $ 2,056 |
Salvage fund | 37 | 1,623 |
Production receivable | 629 | 1,175 |
Other current assets | 115 | 72 |
Total current assets | 5,294 | 4,926 |
Salvage fund | 2,491 | 699 |
Oil and gas properties: | ||
Proved properties | 44,268 | 42,646 |
Less: accumulated depletion and amortization | (24,455) | (23,119) |
Total oil and gas properties, net | 19,813 | 19,527 |
Total assets | 27,598 | 25,152 |
Current liabilities: | ||
Due to operators | 1,237 | 1,072 |
Accrued expenses | 41 | 46 |
Current portion of long-term borrowings | 761 | 3,051 |
Asset retirement obligations | 37 | 1,623 |
Other current liabilities | 60 | 60 |
Total current liabilities | 2,136 | 5,852 |
Long-term borrowings | 4,925 | 5,411 |
Asset retirement obligations | 1,988 | 385 |
Total liabilities | 9,049 | 11,648 |
Commitments and contingencies (Note 6) | ||
Members' capital: | ||
Distributions | (7,964) | (7,964) |
Retained earnings | 9,772 | 8,730 |
Manager's total | 1,808 | 766 |
Capital contributions (625 shares authorized; 332.2918 issued and outstanding) | 65,965 | 65,965 |
Syndication costs | (7,823) | (7,823) |
Distributions | (48,463) | (48,463) |
Retained earnings | 7,062 | 3,059 |
Shareholders' total | 16,741 | 12,738 |
Total members' capital | 18,549 | 13,504 |
Total liabilities and members' capital | $ 27,598 | $ 25,152 |
UNAUDITED CONDENSED BALANCE S_2
UNAUDITED CONDENSED BALANCE SHEETS (Parenthetical) - shares | Sep. 30, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Shares authorized | 625 | 625 |
Shares issued | 332.2918 | 332.2918 |
Shares outstanding | 332.2918 | 332.2918 |
UNAUDITED CONDENSED STATEMENTS
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Revenue | ||||
Oil and gas revenue | $ 3,003 | $ 1,361 | $ 8,957 | $ 5,262 |
Expenses | ||||
Depletion and amortization | 1,037 | 601 | 4,123 | 4,186 |
Management fees to affiliate | 225 | 225 | 675 | 675 |
Operating expenses | 406 | 336 | 1,089 | 1,071 |
General and administrative expenses | 49 | 42 | 147 | 135 |
Total expenses | 1,717 | 1,204 | 6,034 | 6,067 |
Gain on sale of oil and gas properties | 284 | 284 | ||
Income (loss) from operations | 1,570 | 157 | 3,207 | (805) |
Other income (loss) | ||||
Gain on debt extinguishment | 2,319 | 2,319 | ||
Interest expense, net | (145) | (237) | (481) | (705) |
Total other income (loss) | 2,174 | (237) | 1,838 | (705) |
Net income (loss) | 3,744 | (80) | 5,045 | (1,510) |
Manager Interest | ||||
Net income | 364 | 110 | 1,042 | 473 |
Shareholder Interest | ||||
Net income (loss) | $ 3,380 | $ (190) | $ 4,003 | $ (1,983) |
Net income (loss) per share | $ 10,171 | $ (574) | $ 12,046 | $ (5,967) |
UNAUDITED CONDENSED STATEMENT_2
UNAUDITED CONDENSED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Cash flows from operating activities | ||
Net income (loss) | $ 5,045 | $ (1,510) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
Depletion and amortization | 4,123 | 4,186 |
Gain on sale of oil and gas properties | (284) | |
Accretion expense | 25 | 87 |
Gain on debt extinguishment | (2,319) | |
Amortization of debt discounts and deferred financing costs | 105 | |
Changes in assets and liabilities: | ||
Decrease in production receivable | 546 | 301 |
(Increase) decrease in other current assets | (43) | 28 |
(Decrease) increase in due to operators | (28) | 27 |
Decrease in accrued expenses | (5) | (300) |
Net cash provided by operating activities | 7,060 | 2,924 |
Cash flows from investing activities | ||
Capital expenditures for oil and gas properties | (2,586) | (3,043) |
Proceeds from sale of oil and gas properties | 937 | |
Increase in salvage fund | (206) | (2) |
Net cash used in investing activities | (1,855) | (3,045) |
Cash flows from financing activities | ||
Repayments of long-term borrowings | (2,748) | (385) |
Net cash used in financing activities | (2,748) | (385) |
Net increase (decrease) in cash and cash equivalents | 2,457 | (506) |
Cash and cash equivalents, beginning of period | 2,056 | 2,794 |
Cash and cash equivalents, end of period | 4,513 | 2,288 |
Supplemental disclosure of cash flow information | ||
Cash paid for interest, net of amounts capitalized | 488 | 905 |
Supplemental disclosure of non-cash investing activities | ||
Due to operators for accrued capital expenditures for oil and gas properties | $ 943 | $ 701 |
Organization and Summary of Sig
Organization and Summary of Significant Accounting Policies | 9 Months Ended |
Sep. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Summary of Significant Accounting Policies | 1. Organization and Summary of Significant Accounting Policies Organization The Ridgewood Energy W Fund, LLC (the “Fund”), a Delaware limited liability company, was formed on May 17, 2007 and operates pursuant to a limited liability company agreement (the “LLC Agreement”) dated as of June 15, 2007 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 the 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 4, 5 and 6. 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, 2017 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K (“2017 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, 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 2017 Annual Report. There have been no significant changes to the Fund’s significant accounting policies during the three and nine months ended September 30, 2018, except as noted below for revenue recognition. See Note 2. “Revenue Recognition” for discussion of the Fund’s updated accounting policies related to revenue recognition for revenue from contracts with customers. 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, salvage fund, production receivable, other current assets, due to operators, accrued expenses, other current liabilities and long-term debt. Except for long-term debt, the carrying amounts of these instruments approximate fair value due to their short-term nature. The Fund’s salvage fund is a separate interest-bearing account that has no restrictions on withdrawals, therefore its carrying amount approximates fair value. The Fund’s long-term debt is valued using an income approach and classified as Level 3 in the fair value hierarchy. The Fund applies the provisions of the fair value measurement accounting guidance to its non-financial assets and liabilities, such as oil and gas properties and asset retirement obligations, on a non-recurring basis. 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. 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 Fund maintains a salvage fund to provide for the funding of future asset retirement obligations. The following table presents changes in asset retirement obligations for the following periods: Nine months ended September 30, 2018 2017 (in thousands) Balance, beginning of period $ 2,008 $ 2,550 Liabilities incurred 4 3 Liabilities settled/relieved (12 ) - Accretion expense 25 87 Balance, end of period $ 2,025 $ 2,640 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 estimated fair value, which is determined using a valuation technique that considers both market and income approaches and uses 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 and nine months ended September 30, 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 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 May 2014, the 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. “Revenue Recognition” 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. |
Revenue Recognition
Revenue Recognition | 9 Months Ended |
Sep. 30, 2018 | |
Revenue Recognition | |
Revenue Recognition | 2. Revenue Recognition The Fund adopted the New Revenue Standard on January 1, 2018 using the modified retrospective method for all new contracts entered into after January 1, 2018 and all existing contracts for which revenues have 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 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. The Fund concluded that it is the principal and the ultimate third-party purchaser is the customer, therefore, 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 because each unit is 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. The use of index-based pricing with predictable differentials reduces the level of uncertainty related to oil and gas prices. Additionally, any variable consideration is not constrained. Payments are received in the month following the oil and natural gas production month. Adjustments that occur after delivery, 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 represents a separate performance obligation, therefore, future volumes are wholly unsatisfied and the transaction price related to the remaining performance obligations is the variable index-based price attributable to each unit of oil and natural gas that is transferred to the customer. Contract balances 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. The receivables related to the Fund’s oil and gas revenue are included within “Production receivable” on the balance sheets. Prior period performance obligations The Fund records oil and gas revenue in the month production is delivered to its customers. However, settlement statements for residue gas and NGLs sales may not be received for 30 to 60 days after the date production is delivered. As a result, the Fund is required to estimate the amount of production delivered to the purchaser and the price that will be received for the sale of the residue gas and NGLs. The Fund records the differences between its estimates and the actual amounts received in the month that the payment is received from the customer. The Fund has an estimation process for revenue and related accruals, and any identified difference between its revenue estimates and actual revenue historically have not been significant. There was no material revenue recognized in the current period from performance obligations satisfied in previous periods. |
Oil and Gas Properties
Oil and Gas Properties | 9 Months Ended |
Sep. 30, 2018 | |
Oil And Gas Properties | |
Oil and Gas Properties | 3. Oil and Gas Properties On August 10, 2018, the Fund entered into a purchase and sale agreement (“PSA”) to sell a portion of the Fund’s working interest in the Beta Project to Walter Oil & Gas Corporation and Gordy Oil Company (collectively the “Buyers”) with an effective date of January 1, 2018. Certain other funds managed by the Manager were also parties to the PSA. The Fund had a 3.0% working interest in the Beta Project and sold a 0.11% working interest to the Buyers for a total purchase price of $1.0 million, subject to purchase price and customary post-closing adjustments. The transaction closed on August 10, 2018 and the Fund received $0.9 million in cash, which included preliminary purchase price adjustments primarily related to the net cash flows from the effective date to the closing date. The net carrying value of the working interest sold as of the closing date was approximately $0.7 million and the related asset retirement obligation was approximately $12 thousand. A gain to the Fund of approximately $0.3 million was recognized in third quarter 2018, subject to customary post-closing adjustments. The proceeds from the sale were utilized to repay a portion of the long-term debt outstanding under the credit agreement. The sale did not qualify as discontinued operations because it did not represent a strategic shift that has, or will have, a major effect on the Fund’s operations and financial results. |
Related Parties
Related Parties | 9 Months Ended |
Sep. 30, 2018 | |
Related Party Transactions [Abstract] | |
Related Parties | 4. 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 and nine months ended September 30, 2018 and 2017 were $0.2 million and $0.7 million, respectively. The Manager is also entitled to receive 15% of the cash distributions from operations made by the Fund. The Fund did not pay distributions during the three and nine months ended September 30, 2018 and 2017. 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. 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. |
Credit Agreement - Beta Project
Credit Agreement - Beta Project Financing | 9 Months Ended |
Sep. 30, 2018 | |
Debt Disclosure [Abstract] | |
Credit Agreement - Beta Project Financing | 5. Credit Agreement – Beta Project Financing On June 1, 2018, the Fund and other participating funds managed by the Manager, and Rahr Energy Investments LLC, as administrative agent and lender (and other lenders that may become a party thereto, collectively “Lenders”), entered into a third amendment (the “Third Amendment”) effective as of September 1, 2018 (“Third Amendment Effective Date”) to the credit agreement, dated as of November 27, 2012 (as amended by the first amendment to credit agreement, dated September 30, 2016, and the second amendment to credit agreement and reaffirmation of waiver, dated September 15, 2017 and as amended by the Third Amendment, the “Credit Agreement”). In conjunction with the sale of a portion of the Beta Project working interest and the repayment of a portion of amounts outstanding on the Credit Agreement, on August 10, 2018, the Fund and other participating funds managed by the Manager and the Lenders entered into a fourth amendment (the “Fourth Amendment”) to the Credit Agreement effective as of September 1, 2018 (“Fourth Amendment Effective Date”). The Third Amendment extended the loan maturity from December 31, 2020 to December 31, 2022, revised the interest rate and required a monthly payment amount based on a fixed percentage of the Fund’s Net Revenue (as defined in the Credit Agreement) derived from the Beta Project, changed the overriding royalty interest (“ORRI”) in its working interest in the Beta Project conveyed to the Lenders to a fixed percentage of 8.16% from a tiered structure, and deferred the payment of such ORRI, which will not become payable to the Lenders until January 1, 2023. The proceeds from the sale of a portion of the working interest in the Beta Project were used to reduce the outstanding debt under the Credit Agreement. As a result, the Fourth Amendment principally reduced the fixed percentage for the calculation of the monthly payments and amended the interest calculation. Beginning on September 1, 2018 up to and including 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 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 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 engineers’ proved plus probable future undiscounted cash flows attributable to the Beta Project through the maturity of the loan. Beginning on September 1, 2018 and thereafter until the loan is repaid in full, in no event later than December 31, 2022, the loan will bear interest at a rate equal to 8.75% compounded monthly. The Fund reviewed the terms of the Third Amendment and determined that the conditions were met, pursuant to Accounting Standard Codification 470-50 Debt: Modification and Extinguishments (“ASC 470-50”) The Fund recognized a gain on debt extinguishment of $2.3 million during third quarter 2018, which is recorded within “Other income (loss)” in its condensed statements of operations. The gain on debt extinguishment primarily represents non-cash gains associated with the change in the fair value of ORRI conveyed to the Lenders totaling $2.3 million and the difference between the fair value of the new debt and the carrying amount of the old debt totaling $28 thousand. The Fund estimated the fair value of the ORRI before and after the Fourth Amendment using a discounted cash flow method based on Level 3 inputs, which included future revenue from proved and probable oil and natural gas reserves from the Beta Project, future commodity pricing curves to derive future cash flows and risk-adjusted discount rate of 9%. The change in the fair value of the ORRI of $2.3 million is recorded within “Total oil and gas properties, net” on the Fund’s balance sheet, which will be amortized to depletion expense using the units-of-production method over the life of the Beta Project. The Fund estimated the fair value of the amended debt by discounting future cash payments of principal and interest to a present value amount using a market yield for debt instruments with similar terms, maturities and credit ratings. The Fund used a market yield of 9.25% to estimate the fair value of the amended debt, which was determined to be $5.7 million. The discounted loan is being accreted to its face value using the effective interest method over the remaining term of the amended debt. As of September 30, 2018 and December 31, 2017, the Fund had borrowings of $5.7 million and $8.5 million, respectively, under the Credit Agreement. The loan may be prepaid by the Fund without premium or penalty. As of September 30, 2018, the estimated fair value of the debt approximates its carrying value. There were no unamortized debt discounts and deferred financing costs as of September 30, 2018 and December 31, 2017. Amortization expense during the three and nine months ended September 30, 2017 of $35 thousand and $0.1 million, respectively, were expensed and included on the statements of operations within “Interest expense, net”. There were no such amounts recorded during the three and nine months ended September 30, 2018. As of September 30, 2018 and December 31, 2017, there were no accrued interest costs outstanding. Interest costs incurred during the three and nine months ended September 30, 2018 of $0.1 million and $0.5 million, respectively, were expensed and included on the statements of operations within “Interest expense, net”. Interest costs incurred during the three and nine months ended September 30, 2017 of $0.2 million and $0.6 million, respectively, were expensed and included on the statements of operations within “Interest expense, net”. The Credit Agreement contains customary covenants, with which the Fund was in compliance as of September 30, 2018 and December 31, 2017. |
Commitments and Contingencies
Commitments and Contingencies | 9 Months Ended |
Sep. 30, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 6. Commitments and Contingencies Capital Commitments As of September 30, 2018, the Fund’s estimated capital commitments related to its oil and gas properties were $5.9 million (which include asset retirement obligations for the Fund’s projects of $3.0 million), of which $2.0 million is expected to be spent during the next twelve months, primarily related to the continued development of the Beta Project. 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. 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 September 30, 2018 and December 31, 2017, 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 with the BOEM, its operators and working interest partners to determine and agree upon the correct level of decommissioning obligations to which they may be liable and the manner in which such obligations will be secured. 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. |
Organization and Summary of S_2
Organization and Summary of Significant Accounting Policies (Policy) | 9 Months Ended |
Sep. 30, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | 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, 2017 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K (“2017 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, but does not include all annual disclosures required by GAAP. |
Use of Estimates | 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. |
Fair Value Measurements | 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, salvage fund, production receivable, other current assets, due to operators, accrued expenses, other current liabilities and long-term debt. Except for long-term debt, the carrying amounts of these instruments approximate fair value due to their short-term nature. The Fund’s salvage fund is a separate interest-bearing account that has no restrictions on withdrawals, therefore its carrying amount approximates fair value. The Fund’s long-term debt is valued using an income approach and classified as Level 3 in the fair value hierarchy. The Fund applies the provisions of the fair value measurement accounting guidance to its non-financial assets and liabilities, such as oil and gas properties and asset retirement obligations, on a non-recurring basis. |
Asset Retirement Obligations | 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. 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 Fund maintains a salvage fund to provide for the funding of future asset retirement obligations. The following table presents changes in asset retirement obligations for the following periods: Nine months ended September 30, 2018 2017 (in thousands) Balance, beginning of period $ 2,008 $ 2,550 Liabilities incurred 4 3 Liabilities settled/relieved (12 ) - Accretion expense 25 87 Balance, end of period $ 2,025 $ 2,640 |
Impairment of Long-Lived Assets | 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 estimated fair value, which is determined using a valuation technique that considers both market and income approaches and uses 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 and nine months ended September 30, 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 | 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 May 2014, the 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. “Revenue Recognition” 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. |
Organization and Summary of S_3
Organization and Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Sep. 30, 2018 | |
Organization And Summary Of Significant Accounting Policies Tables | |
Schedule of Changes in Asset Retirement Obligations | Nine months ended September 30, 2018 2017 (in thousands) Balance, beginning of period $ 2,008 $ 2,550 Liabilities incurred 4 3 Liabilities settled/relieved (12 ) - Accretion expense 25 87 Balance, end of period $ 2,025 $ 2,640 |
Organization and Summary of S_4
Organization and Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2018 | Sep. 30, 2017 | |
Organization And Summary Of Significant Accounting Policies Schedule Of Changes In Asset Retirement Obligations Details | ||
Balance, beginning of period | $ 2,008 | $ 2,550 |
Liabilities incurred | 4 | 3 |
Liabilities settled/relieved | (12) | |
Accretion expense | 25 | 87 |
Balance, end of period | $ 2,025 | $ 2,640 |
Oil and Gas Properties (Details
Oil and Gas Properties (Details) - USD ($) $ in Thousands | 1 Months Ended | 3 Months Ended | 9 Months Ended | ||||
Aug. 10, 2018 | Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | Dec. 31, 2016 | |
Cash received | $ 937 | ||||||
Asset retirement obligation | $ 2,025 | $ 2,640 | 2,025 | 2,640 | $ 2,008 | $ 2,550 | |
Gain on sale | $ 284 | $ 284 | |||||
Beta Project [Member] | |||||||
Working interest percentage | 3.00% | ||||||
Working interest acquired by buyers | 0.11% | ||||||
Total purchase price | $ 1,000 | ||||||
Carrying value | 700 | ||||||
Asset retirement obligation | $ 12 |
Related Parties (Details)
Related Parties (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | |
Related Party Transactions [Abstract] | ||||
Annual management fee percentage rate | 2.50% | 2.50% | ||
Annual management fees paid to Fund Manager | $ 225 | $ 225 | $ 675 | $ 675 |
Percentage of total distributions allocated to Fund Manager | 15.00% | 15.00% |
Credit Agreement - Beta Proje_2
Credit Agreement - Beta Project Financing (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2018 | Sep. 30, 2017 | Sep. 30, 2018 | Sep. 30, 2017 | Dec. 31, 2017 | |
Debt Disclosure [Abstract] | |||||
Credit agreement, maturity date | Dec. 31, 2022 | ||||
Overriding royalty interest | 8.16% | 8.16% | |||
Interest rate | 8.75% | 8.75% | |||
Gain on debt extinguishment | $ 2,319 | $ 2,319 | |||
Non-cash gains associated with the change in fair value | 2,300 | ||||
Change in fair value | $ 28 | ||||
Overriding royalty interest fair value measurement input | 9.00% | 9.00% | |||
Long-term debt fair value measurement input | 9.25% | 9.25% | |||
Fair value of debt | $ 5,700 | $ 5,700 | |||
Long-term borrowings | 5,700 | 5,700 | $ 8,500 | ||
Unamortized debt discounts and deferred financing costs | |||||
Amortization of financing costs | 35 | 100 | |||
Accrued interest | |||||
Interest expense | $ 100 | $ 200 | $ 500 | $ 600 |
Commitments and Contingencies (
Commitments and Contingencies (Details) $ in Thousands | 9 Months Ended |
Sep. 30, 2018USD ($) | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments for the drilling and development of investment properties | $ 5,900 |
Commitments for asset retirement obligations included in estimated capital commitments | 3,000 |
Commitments for the drilling and development of investment properties expected to be incurred in the next 12 months | $ 2,000 |