Supplementary Information | Note 16. Supplementary Information Supplementary Oil and Natural Gas Activities Costs incurred in oil and natural gas property acquisitions and development activities are presented below for the periods indicated: Year Ended December 31, (in thousands) 2018 2017 Property acquisition costs: Proved $ 20,158 $ 4,665 Unproved 1,085 369 Exploration — — Development 8,617 9,947 Asset retirement obligations 15,491 684 Total costs incurred $ 45,351 $ 15,665 Estimated Proved Oil and Natural Gas Reserves (Unaudited) The Partnership’s proved oil and natural gas reserves are all located in the United States. The proved oil and natural gas reserves for the years ended December 31, 2018 and 2017, were prepared by our reservoir engineers and audited by CG&A, independent third party petroleum consultants. These reserve estimates have been prepared in compliance with the rules of the SEC. We emphasize that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and natural gas properties. Accordingly, the estimates are expected to change as future information becomes available. An analysis of the change in estimated quantities of oil and natural gas reserves are presented below for the periods indicated: Oil (MBbls) Natural Gas (MMcf) MBoe Proved developed and undeveloped reserves: As of December 31, 2016 18,210 6,124 19,231 Revisions of previous estimates (1) 2,355 168 2,383 Extensions, discoveries and other additions (2) 69 — 69 Purchases of reserves in place (3) 1,607 459 1,684 Sales of reserves in place (4) (2,522 ) (38 ) (2,529 ) Production (1,209 ) (431 ) (1,281 ) As of December 31, 2017 18,510 6,282 19,557 Revisions of previous estimates (1) 1,484 (1,045 ) 1,310 Extensions, discoveries and other additions (5) 72 — 72 Purchases of reserves in place (6) 4,968 1,713 5,253 Sales of reserves in place (7) (133 ) (172 ) (162 ) Production (1,112 ) (457 ) (1,188 ) As of December 31, 2018 23,789 6,321 24,842 Proved developed reserves: December 31, 2017 13,512 4,586 14,276 December 31, 2018 17,634 6,059 18,643 Proved undeveloped reserves: December 31, 2017 4,998 1,696 5,281 December 31, 2018 6,155 262 6,199 (1) ( 2 ) (3 ) (4 ) ( 5 ) (6) (7) The increase in quantities of proved reserves from December 31, 2016, to December 31, 2017, was due in part to commodity price increases of 1,309 MBoe which extended the economic lives of certain producing properties, offset in part by downward revisions from certain recent results and development plans. Increased oil production was seen as a response to water injection in our Oklahoma and Texas core areas resulting in upward revisions to our proved reserves of 1,074 MBoe. Positive outcomes from step out drilling locations in the Texas core area resulted in an extension within our Hardrock Field and generated an increase in proved reserves of 69 MBoe. During 2017, the acquisition of the Wheatland properties resulted in a positive revision of 1,684 MBoe, and the divestiture of our Southern Oklahoma properties resulted in a decrease in proved reserves of 2,529 MBoe. The increase in quantities of proved reserves from December 31, 2017, to December 31, 2018, was due in part to commodity price increases of 1,975 MBoe which extended the economic lives of certain producing properties, offset in part by net downward revisions of 1,169 MBoe from certain recent results and development modifications. Increased oil production was seen as a response to water injection in our Oklahoma and Texas core areas, resulting in upward revisions to our proved reserves of 504 MBoe. Positive outcomes from step out drilling locations in the Texas core area resulted in an extension within our Hardrock Field and generated an increase in proved reserves of 72 MBoe. During 2018, the acquisition of the Oklahoma and Wyoming waterflood properties resulted in a positive revision of 5,253 MBoe, and the divestiture of several small properties in the Texas core area resulted in a decrease in proved reserves of 162 MBoe. Estimates of economically recoverable oil and natural gas reserves and of future net revenues are based upon a number of variable factors and assumptions, all of which are to some degree subjective and may vary considerably from actual results. Therefore, actual production, revenues, development and operating expenditures may not occur as estimated. The reserve data are estimates only, are subject to many uncertainties and are based on data gained from production histories and on assumptions as to geologic formations and other matters. Actual quantities of oil and natural gas may differ materially from the amounts estimated. Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Natural Gas Reserves (Unaudited) The standardized measure represents the present value of estimated future cash inflows from proved oil and natural gas reserves, less future development, production, plugging and abandonment costs, discounted at the rate prescribed by the SEC. The standardized measure of discounted future net cash flow does not purport to be, nor should it be interpreted to represent, the fair market value of our proved oil and natural gas reserves. The following assumptions have been made: • in the determination of future cash inflows, sales prices used for oil and natural gas for the years ended December 31, 2018 and 2017, were estimated using the average price during the 12-month period, determined as the unweighted arithmetic average of the first-day-of-the-month price for each month in such period; • future costs of developing and producing the proved oil and natural gas reserves were based on costs determined at each such period-end, assuming the continuation of existing economic conditions, including abandonment costs; • no future income tax expenses are computed for the Partnership, because we are a non-taxable entity; and • future net cash flows were discounted at an annual rate of 10%. The standardized measure of discounted future net cash flow relating to estimated proved oil and natural gas reserves is presented below for the periods indicated: Year Ended December 31, (in thousands) 2018 2017 Future cash inflows $ 1,494,349 $ 927,473 Future production costs (694,862 ) (444,673 ) Future development costs, including abandonment costs (92,973 ) (50,868 ) Future net cash flow 706,514 431,932 10% discount for estimated timing of cash flow (358,261 ) (224,719 ) Standardized measure of discounted cash flow $ 348,253 $ 207,213 The prices utilized in calculating our total proved reserves were $65.56 and $51.34 per Bbl of oil and $3.10 and $2.98 per MMBtu of natural gas for December 31, 2018 and 2017, respectively. These prices were adjusted by lease for quality, transportation fees, location differentials, marketing bonuses or deductions or other factors affecting the price received at the wellhead. Average adjusted prices used were $62.17 and $49.34 per Bbl of oil and $2.43 and $2.27 per Mcf of natural gas for December 31, 2018 and 2017, respectively. Adjusted natural gas price includes the sale of associated NGLs. During the years ended December 31, 2018 and 2017, we did not extract NGLs from our natural gas production prior to the sale and transfer of title of the natural gas stream to our purchasers. While some of our purchasers extracted NGLs from the natural gas stream sold by us to them, we had no ownership in such NGLs. Therefore, we do not report NGLs in our production or proved reserves. All wellhead prices are held flat over the life of the properties for all reserve categories. Changes in the standardized measure of discounted future net cash flow relating to proved oil and natural gas reserves is presented below for the periods indicated: Year Ended December 31, (in thousands) 2018 2017 Standardized measure of discounted future net cash flow, beginning of year $ 207,213 $ 157,285 Changes in the year resulting from: Sales, less production costs (38,316 ) (33,994 ) Revisions of previous quantity estimates 24,035 28,132 Extensions, discoveries and improved recovery 2,398 3,168 Net change in prices and production costs 102,480 61,504 Net change in income taxes — — Changes in estimated future development costs 4,534 5,173 Previously estimated development costs incurred during the year 8,428 9,726 Purchases of reserves in place 50,242 13,826 Sales of reserves in place (2,714 ) (10,420 ) Accretion of discount 20,721 15,729 Timing differences and other (30,768 ) (42,916 ) Standardized measure of discounted future net cash flow, end of year $ 348,253 $ 207,213 |