Exhibit 99.6
HENRY ENERGY LP
Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
HENRY ENERGY LP
Table of Contents
| | | Page |
| Condensed Consolidated Unaudited Interim Financial Statements: | | |
| | | |
| Balance Sheets | | 1 |
| | | |
| Statements of Operations | | 2 |
| | | |
| Statements of Changes in Partner’s Capital | | 3 |
| | | |
| Statements of Cash Flows | | 4 |
| | | |
| Notes to Condensed Consolidated Unaudited Interim Financial Statements | | 6 |
HENRY ENERGY LP
Condensed Consolidated Unaudited Balance Sheets
(in thousands)
| | | September 30,
2023 | | | December 31,
2022 | |
| ASSETS | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 57,904 | | | $ | 53,833 | |
| Accounts receivable, net | | | 30,379 | | | | 43,563 | |
| Affiliate receivable | | | 597 | | | | 830 | |
| Prepaid expenses and other current assets | | | 338 | | | | 591 | |
| Total current assets | | | 89,218 | | | | 98,817 | |
| Oil and natural gas property and equipment, based on full cost method of accounting, net | | | 468,274 | | | | 407,537 | |
| Other property and equipment, net | | | 34,244 | | | | 35,906 | |
| Right-of-use assets | | | 10,928 | | | | 7,349 | |
| Equity method investment | | | 1,801 | | | | 1,807 | |
| Other assets | | | 1,001 | | | | 1,104 | |
| Total assets | | $ | 605,466 | | | $ | 552,520 | |
| LIABILITIES AND PARTNER’S CAPITAL | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 28,762 | | | $ | 22,872 | |
| Accrued liabilities | | | 19,282 | | | | 11,180 | |
| Affiliate note payable | | | — | | | | 418 | |
| Drilling advances | | | 6,695 | | | | 2,498 | |
| Current portion of debt | | | 1,301 | | | | 1,274 | |
| Operating lease liability | | | 6,332 | | | | 5,190 | |
| Total current liabilities | | | 62,372 | | | | 43,432 | |
| Long-term debt, net | | | 20,751 | | | | 66,230 | |
| Other noncurrent liabilities: | | | | | | | | |
| Asset retirement obligation | | | 1,484 | | | | 1,439 | |
| Operating lease liability | | | 4,596 | | | | 2,159 | |
| Total other noncurrent liabilities | | | 6,080 | | | | 3,598 | |
| Total liabilities | | | 89,203 | | | | 113,260 | |
| Commitments and contingencies | | | | | | | | |
| Partner’s capital: | | | | | | | | |
| Limited partner | | | 512,742 | | | | 435,939 | |
| Noncontrolling interests | | | 3,521 | | | | 3,321 | |
| Total partner’s capital | | | 516,263 | | | | 439,260 | |
| Total liabilities and partner’s capital | | $ | 605,466 | | | $ | 552,520 | |
The accompanying notes are an integral part of these condensed consolidated unaudited interim financial statements.
HENRY ENERGY LP
Condensed Consolidated Unaudited Statements of Operations
(in thousands)
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| REVENUES: | | | | | | | | |
| Crude oil, natural gas, and NGL sales, net | | $ | 155,846 | | | $ | 218,707 | |
| Drilling and overhead fees | | | 3,194 | | | | 2,561 | |
| Water disposal fees and pipeline income | | | 8,043 | | | | 6,930 | |
| Affiliate service fee income | | | 38,804 | | | | 21,574 | |
| Loss on derivatives, net | | | — | | | | (4,198 | ) |
| Other income | | | 1,073 | | | | 431 | |
| Total revenues, net | | | 206,960 | | | | 246,005 | |
| | | | | | | | | |
| OPERATING EXPENSES: | | | | | | | | |
| Lease operating and workover expenses | | | 28,048 | | | | 25,806 | |
| Pipeline operating expenses | | | 5,850 | | | | 2,886 | |
| Severance and ad valorem taxes | | | 7,594 | | | | 10,857 | |
| Depletion, depreciation and amortization expense | | | 31,682 | | | | 26,610 | |
| Accretion expense | | | 89 | | | | 99 | |
| General and administrative | | | 24,942 | | | | 18,399 | |
| Total operating expenses | | | 98,205 | | | | 84,657 | |
| Income from operations | | | 108,755 | | | | 161,348 | |
| | | | | | | | | |
| OTHER INCOME (EXPENSE): | | | | | | | | |
| Other expense | | | (1,837 | ) | | | (529 | ) |
| Interest expense | | | (1,002 | ) | | | (3,640 | ) |
| Interest income | | | 761 | | | | 1 | |
| Gain (loss) on sale of assets | | | 16 | | | | (59 | ) |
| Loss from equity method investments | | | (42 | ) | | | (39 | ) |
| Total other expense | | | (2,104 | ) | | | (4,266 | ) |
| NET INCOME | | | 106,651 | | | | 157,082 | |
| NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS | | | 268 | | | | 715 | |
| NET INCOME ATTRIBUTABLE TO HENRY ENERGY LP | | $ | 106,383 | | | $ | 156,367 | |
The accompanying notes are an integral part of these condensed consolidated unaudited interim financial statements.
HENRY ENERGY LP
Condensed Consolidated Unaudited Statements of Changes in Partner’s Capital
(in thousands)
| | | Limited
Partner | | | Noncontrolling
Interests | | | Total
Partner’s Capital | |
| BALANCE, JANUARY 1, 2022 | | $ | 283,572 | | | $ | 3,431 | | | $ | 287,003 | |
| Distributions to parent, net | | | (34,404 | ) | | | — | | | | (34,404 | ) |
| Distributions to noncontrolling interests | | | — | | | | (718 | ) | | | (718 | ) |
| Net income | | | 156,367 | | | | 715 | | | | 157,082 | |
| BALANCE, September 30, 2022 | | | 405,535 | | | | 3,428 | | | | 408,963 | |
| | | Limited
Partner | | | Noncontrolling
Interests | | | Total
Partner’s Capital | |
| BALANCE, JANUARY 1, 2023 | | $ | 435,939 | | | $ | 3,321 | | | $ | 439,260 | |
| Distributions to parent, net | | | (29,580 | ) | | | — | | | | (29,580 | ) |
| Contributions from noncontrolling interests | | | — | | | | 118 | | | | 118 | |
| Distributions to noncontrolling interests | | | — | | | | (186 | ) | | | (186 | ) |
| Net income | | | 106,383 | | | | 268 | | | | 106,651 | |
| BALANCE, September 30, 2023 | | | 512,742 | | | | 3,521 | | | | 516,263 | |
The accompanying notes are an integral part of these condensed consolidated unaudited interim financial statements.
HENRY ENERGY LP
Condensed Consolidated Unaudited Statements of Cash Flows
(in thousands)
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
| Net income | | $ | 106,651 | | | $ | 157,082 | |
| Adjustments to reconcile net income to net cash provided by operating activities | | | | | | | | |
| Depletion, depreciation and amortization | | | 31,682 | | | | 26,610 | |
| Accretion expense | | | 89 | | | | 99 | |
| Loss on derivatives, net | | | — | | | | 4,198 | |
| Cash settlements on commodity derivatives | | | — | | | | (4,916 | ) |
| Loss from equity method investments | | | 42 | | | | 39 | |
| (Gain) loss on sale of assets | | | (16 | ) | | | 59 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable, net and affiliate receivable | | | 13,418 | | | | (11,767 | ) |
| Prepaid expenses and other current assets | | | 253 | | | | (2,690 | ) |
| Other assets | | | 103 | | | | (588 | ) |
| Accounts payable | | | 5,891 | | | | 25,444 | |
| Accrued liabilities | | | (3,765 | ) | | | 5,583 | |
| Drilling advances | | | 4,198 | | | | (7,534 | ) |
| Other long-term liabilities | | | (54 | ) | | | (10 | ) |
| Net cash provided by operating activities | | | 158,492 | | | | 191,609 | |
| CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | |
| Additions to oil and natural gas properties | | | (78,879 | ) | | | (125,593 | ) |
| Proceeds from the sale of oil and natural gas properties | | | — | | | | 10,119 | |
| Additions to other property and equipment | | | (814 | ) | | | (3,999 | ) |
| Proceeds from the sale of other property and equipment | | | 827 | | | | 38 | |
| Additions to equity method investments | | | (36 | ) | | | (36 | ) |
| Net cash used in investing activities | | | (78,902 | ) | | | (119,471 | ) |
The accompanying notes are an integral part of these condensed consolidated unaudited interim financial statements.
HENRY ENERGY LP
Condensed Consolidated Unaudited Statements of Cash Flows
(in thousands)
| CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | |
| Distributions to parent, net | | | (29,581 | ) | | | (34,404 | ) |
| Contributions from noncontrolling interests | | | 118 | | | | — | |
| Distributions to noncontrolling interests | | | (186 | ) | | | (718 | ) |
| Payments on airplane note | | | (952 | ) | | | (926 | ) |
| Payments on affiliate note payable | | | (418 | ) | | | (407 | ) |
| Proceeds from senior secured credit facility | | | 8,000 | | | | 5,000 | |
| Payments on senior secured credit facility | | | (52,500 | ) | | | (21,500 | ) |
| Net cash used in financing activities | | | (75,519 | ) | | | (52,955 | ) |
| Net increase (decrease) in cash and cash equivalents | | | 4,071 | | | | 19,183 | |
| Cash and cash equivalents at beginning of period | | | 53,833 | | | | 37,670 | |
| Cash and cash equivalents at end of period | | $ | 57,904 | | | $ | 56,853 | |
The accompanying notes are an integral part of these condensed consolidated unaudited interim financial statements.
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
Note 1. Organization and Summary of Significant Accounting Policies
Description of the Company
The condensed consolidated unaudited interim financial statements and associated footnotes presented herein represent the financial statements of Henry Energy LP and subsidiaries (“Henry Energy”). The subsidiaries of Henry Energy include TAW Reserves 11C Mgmt LLC and subsidiary; Henry TAW Prod Mgmt LLC and subsidiaries; Henry Resources LLC and subsidiary; BITS Energy Mgmt LLC and subsidiary; and Moriah Henry Partners LLC.
Henry Energy is engaged in the exploration, development and production of crude oil, natural gas and natural gas liquids (“NGLs”) in the Midland and Delaware Basins, located in Texas. In addition, Henry Energy also operates certain pipelines for the transfer of frac water and saltwater.
On September 13, 2023, Henry Energy signed a definitive agreement with Vital Energy, Inc. (“Vital”) to sell substantially all of its oil and gas assets. As of September 30, 2023, any contemplated sale transaction was not deemed to be probable, and therefore, these unaudited condensed consolidated interim financial statements do not present assets held for sale.
Basis of Presentation of Condensed Consolidated Unaudited Interim Financial Statements
Henry Energy and all wholly owned subsidiaries are considered disregarded entities for federal income tax purposes. Disregarded entities are treated similarly to consolidated subsidiaries under accounting principles generally accepted in the United States of America (“US GAAP”), whereby the financial results are included in Henry Energy and all intercompany transactions are eliminated. As such, all subsidiaries of Henry Energy are consolidated and all intercompany accounts and transactions have been eliminated.
The condensed consolidated unaudited interim financial statements (“consolidated financial statements”) have been prepared in accordance with US GAAP and include the accounts of Henry Energy. Certain disclosures normally included in consolidated financial statements prepared in accordance with US GAAP have been condensed or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. The accompanying consolidated financial statements and notes should be read in conjunction with the financial statements and notes included in the Henry Energy consolidated financial statements as of and for the years ended December 31, 2022, 2021 and 2020. The accompanying consolidated financial statements in this report reflect all adjustments that are, in the opinion of management, necessary for a fair statement of Henry Energy’s results of operations and cash flows for the nine-month periods ended September 30, 2023 and 2022 and its financial position as of September 30, 2023.
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 requires that a financial asset measured at amortized cost be presented at the net amount expected to be collected. ASU 2016-13 is intended to provide more timely decision-useful information about the expected credit losses on financial instruments. In November 2019, the FASB ASU 2019-19, “Codification Improvements to Topic 326: Financial Instruments – Credit Losses”, which makes amendments to clarify the scope of the guidance, including clarification that receivables arising from operating leases are not within its scope. The amended guidance was effective for Henry Energy on January 1, 2023.
Henry Energy determines its allowance for each type of receivable based on the length of time the receivable is past due, its previous loss history, and customers current ability to pay its obligation. Henry Energy also bases its allowance for each type of receivable on its respective credit risks. Henry Energy writes off specific receivables when they become uncollectible. Once an allowance is recorded, any subsequent payments received on such receivables are credited to the allowance for credit losses. To date, Henry Energy has not experienced any pattern of credit losses and therefore has no allowance as of September 30, 2023 or December 31, 2022. Henry Energy will continually monitor the creditworthiness of its counterparties by reviewing credit ratings, financial statements, and payment history. The adoption of ASU 2016-13 did not result in a material impact to the financial position, cash flows, or results of operations of Henry Energy.
Note 2. Accounts Receivable
Components of accounts receivable include the following (in thousands):
| | | September 30, 2023 | | | December 31, 2022 | |
| Crude oil, natural gas and NGL sales | | $ | 17,436 | | | $ | 28,748 | |
| Joint interest billings and other | | | 12,943 | | | | 14,815 | |
| Gross accounts receivable | | | 30,379 | | | | 43,563 | |
| Allowance for doubtful accounts | | | — | | | | — | |
| Net accounts receivable | | $ | 30,379 | | | $ | 43,563 | |
Note 3. Oil and Natural Gas Properties
Capitalized Costs
The following table reflects the aggregate capitalized costs associated with Henry Energy (in thousands):
| | | September 30, 2023 | | | December 31, 2022 | |
| Oil and natural gas properties: | | | | | | | | |
| Proved properties | | $ | 958,184 | | | $ | 867,419 | |
| Total oil and natural gas properties | | | 958,184 | | | | 867,419 | |
| Less: Accumulated depreciation, depletion and amortization | | | (489,910 | ) | | | (459,882 | ) |
| Oil and natural gas properties, net | | $ | 468,274 | | | $ | 407,537 | |
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
There were no proved property impairments for the nine months ended September 30, 2023 and 2022. Depletion expense was $30.0 million and $25.1 million for the nine months ended September 30, 2023 and 2022, respectively.
Note 4. Other Property and Equipment
The following table presents the other property and equipment of Henry Energy (in thousands):
| | | September 30, 2023 | | | December 31, 2022 | |
| Building and improvements | | $ | 5,037 | | | $ | 5,412 | |
| Office furniture and equipment | | | 3,137 | | | | 3,128 | |
| Land | | | 1,635 | | | | 1,814 | |
| Pipeline | | | 15,443 | | | | 14,900 | |
| Production equipment | | | 431 | | | | 425 | |
| Airplane | | | 18,588 | | | | 18,588 | |
| Total property and equipment | | | 44,271 | | | | 44,267 | |
| Less: accumulated depreciation | | | (10,027 | ) | | | (8,361 | ) |
| Total property and equipment, net | | $ | 34,244 | | | $ | 35,906 | |
For the nine months ended September 30, 2023 and 2022, depreciation expense for other property and equipment was $1.7 million and $1.5 million, respectively.
Note 5. Equity Method Investments
Henry Energy owns an approximate 25.0% interest in Eagles Nest Aviation, LLC (“Eagles Nest”). Eagles Nest owns and operates an airplane hanger that is utilized by Henry Energy along with other equity owners.
The following table presents Henry Energy’s proportionate investment in Eagles Nest at September 30, 2023 and December 31, 2022 (in thousands):
| | | Nine Months Ended
September 30, 2023 | | | Year Ended
December 31, 2022 | |
| Investment balance, beginning of period | | $ | 1,807 | | | $ | 1,789 | |
| Contributions | | | 36 | | | | 72 | |
| Loss from equity investments | | | (42 | ) | | | (54 | ) |
| Investment balance, end of period | | $ | 1,801 | | | $ | 1,807 | |
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
Note 6. Revenue
Disaggregation of Revenue
The following table presents the disaggregation of crude oil, natural gas and NGL revenue of Henry Energy (in thousands):
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| Crude oil | | $ | 138,257 | | | $ | 185,451 | |
| Natural gas and NGL sales | | | 17,589 | | | | 33,256 | |
| Total crude oil, natural gas and NGL sales, net | | $ | 155,846 | | | $ | 218,707 | |
Receivable Balances
At September 30, 2023 and December 31, 2022, the accounts receivable balance representing amounts due or billable under the terms of contracts with purchasers was $16.7 million and $28.0 million, respectively. As of January 1, 2022, the accounts receivable balance representing amounts due or billable under the terms of contracts with purchasers was $17.5 million.
Note 7. Derivative Financial Instruments
Commodity Derivatives
Derivative instruments are recognized at fair value and subsequently settled over the contract terms. As of September 30, 2023 and December 31, 2022, Henry Energy did not have any open derivative positions.
Derivative Gains and Losses
Cash receipts and payments reflect the gains or losses on derivative contracts which matured during the applicable period, calculated as the difference between the contract price and the market settlement price of matured contracts. The derivative contracts of Henry Energy are settled based upon reported settlement prices on commodity exchanges, with crude oil derivative settlements based on the New York Mercantile Exchange (“NYMEX”) West Texas Intermediate pricing and natural gas derivative settlements based primarily on NYMEX Henry Hub pricing. Non-cash gains and losses represent the change in fair value of derivative instruments which continued to be held at period end and the reversal of previously recognized non-cash gains or losses on derivative contracts that matured during the period. There were no derivative gains or losses for the nine months ended September 30, 2023 as Henry Energy did not have any open derivative positions during that time period.
The following table summarizes the commodity derivative activity of Henry Energy (in thousands):
| | | Nine Months Ended
September 30, 2022 | |
| Cash paid on derivatives | | $ | (4,916 | ) |
| Non-cash loss on derivatives | | | 718 | |
| Loss on derivatives, net | | $ | (4,198 | ) |
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
Note 8. Asset Retirement Obligations
The following table presents changes in asset retirement obligations of Henry Energy (in thousands):
| | | Nine Months Ended
September 30, 2023 | | | Year Ended
December 31, 2022 | |
| Asset retirement obligations at beginning of period | | $ | 1,439 | | | $ | 1,509 | |
| Liabilities incurred and assumed through acquisitions | | | 8 | | | | 188 | |
| Liabilities settled and divested | | | (52 | ) | | | (367 | ) |
| Revision of estimated obligation | | | — | | | | (23 | ) |
| Accretion expense on discounted obligation | | | 89 | | | | 132 | |
| Asset retirement obligations at end of period | | $ | 1,484 | | | $ | 1,439 | |
Note 9. Debt and Related Expenses
The following table presents the outstanding debt and related expenses of Henry Energy (in thousands):
| | | September 30, 2023 | | | December 31, 2022 | |
| Senior Secured Credit Facility | | $ | 8,500 | | | $ | 5,300 | |
| Airplane Note | | | 13,552 | | | | 14,504 | |
| Total debt, including current portion | | | 22,052 | | | | 67,504 | |
| Less: current portion of debt | | | 1,301 | | | | 1,274 | |
| Long-term debt, net | | $ | 20,751 | | | $ | 66,230 | |
Senior Secured Credit Facility
On May 10, 2016, Henry Energy, as borrower, and InterBank, as lender, entered into a loan agreement (“Senior Secured Credit Facility”). Henry Energy Exploration LP and Henry Reserves LP are jointly and severally liable for the Senior Secured Credit Facility. The Senior Secured Credit Facility is secured by a first lien on at least 80.0% of the proved developed producing and proved developed nonproducing oil and natural gas properties of Henry Energy, Henry Exploration LP and Henry Reserves LP.
On April 1, 2023, Henry Energy entered into the Thirteenth Amendment to the Senior Secured Credit Facility (“Thirteenth Amendment”). The Thirteenth Amendment reduced the borrowing base to $50.0 million, updated the annual redetermination to be on June 1 of each year, and extended the maturity date to June 1, 2025.
As of September 30, 2023, the Senior Secured Credit Facility has a borrowing base of $50.0 million and matures on June 1, 2025. As of September 30, 2023, Henry Energy had $8.5 million in outstanding borrowings under the Senior Secured Credit Facility. Amounts borrowed under the Senior Secured Credit Facility bear interest, payable quarterly, at a floating rate per annum equal to the Prime Rate, a per annum rate of interest equal to the base rate on corporate loans posted by at least seventy percent (70.0%) of the ten largest U.S. banks plus 0.5%. The effective interest rate during the nine months ended September 30, 2023 and 2022 was 8.6% and 4.7%, respectively.
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
The Senior Secured Credit Facility contains various covenants that restrict Henry Energy’s indebtedness, limits its ability to create liens securing certain indebtedness, make restricted payments and make or permit investments, among other matters.
Airplane Note
On March 11, 2021, Henry Energy entered into a loan and security agreement with JP Morgan Chase Bank, N.A., maturing in March 2026 on a 60-month term for $16.7 million to finance the acquisition of an airplane (“Airplane Note”). The Airplane Note is an amortizing loan with monthly payments of $0.1 million and a lump sum payment of $10.4 million due on March 11, 2026. The Airplane Note has a stated interest rate of 2.8%. As of September 30, 2023 and December 31, 2022, Henry Energy had an outstanding balance of $13.6 million and $14.5 million, respectively, on the Airplane Note.
Note 10. Affiliate Note Payable
On August 15, 2018, Henry Energy entered into a promissory note with an affiliate (“Affiliate Note”) for the purpose of acquiring oil and gas interests. The Affiliate Note requires quarterly payments of principal and accrued interest at a rate of 2.8% and matured on July 1, 2023. The Affiliate Note is unsecured and had a balance of $0.4 million at December 31, 2022. On July 1, 2023, Henry Energy paid the balance of the Affiliate Note in full, including accrued interest.
Note 11. Leases
Short-term leases are variable costs included in “general and administrative” and “lease operating and workover expenses” in the condensed consolidated unaudited interim statements of operations. The lease costs of Henry Energy were as follows for the nine months ended September 30, 2023 (in thousands):
| | | Nine Months Ended
September 30, 2023 | |
| Operating lease cost | | $ | 5,757 | |
| Short term costs | | | 11,474 | |
| Variable lease cost | | | 1,804 | |
| Total lease costs | | $ | 19,035 | |
The following table presents additional lease information of Henry Energy for the nine months ended September 30, 2023:
| Operating cash flows for operating leases | | $ | 5,757 | |
| Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 9,111 | |
| Weighted-average remaining lease term (years) — operating | | | 1.9 | |
| Weighted-average discount rate — operating | | | 3.2 | % |
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
The following table presents the maturity analysis of Henry Energy as of September 30, 2023 for leases expiring in each of the next 5 years and thereafter.
| 2023 | | | $ | 6,598 | |
| 2024 | | | | 3,540 | |
| 2025 | | | | 1,185 | |
| 2026 | | | | — | |
| 2027 | | | | — | |
| Thereafter | | | | — | |
| Total lease payments | | | | 11,323 | |
| Less: interest | | | | (395 | ) |
| Present value of lease liabilities | | | $ | 10,928 | |
Note 12. Commitments and Contingencies
Environmental Remediation
Various federal, state and local laws and regulations covering the discharge of materials into the environment, or otherwise relating to the protection of the environment, may affect the operations and the cost of crude oil and natural gas exploration, development, and production operations of Henry Energy. Henry Energy does not anticipate that it will be required in the near future to expend significant amounts for compliance with such federal, state and local laws and regulations, and therefore, no amounts have been accrued for such purposes.
Litigation
Henry Energy is involved in various legal proceedings including, but not limited to, commercial disputes, claims from royalty and surface owners, property damage claims, personal injury claims, regulatory compliance matters, disputes with tax authorities and other matters. While the outcome of these legal matters cannot be predicted with certainty, Henry Energy does not expect any such matters to have a material effect on its financial condition, results of operations or cash flows.
Note 13. Concentrations of Credit Risk
Henry Energy is subject to credit risk resulting from the concentration of its crude oil, natural gas and NGL receivables with significant purchasers. Receivables from purchasers are generally unsecured as Henry Energy does not require collateral. Henry Energy does not believe the loss of any single purchaser would materially impact its financial position, results of operations, or cash flows as crude oil, natural gas and NGLs are fungible products with well-established markets and numerous purchasers in its areas of operations. For the years nine months ended September 30, 2023 and 2022, Henry Energy has experienced no such credit losses.
Henry Energy maintains cash and cash equivalents in bank deposit accounts which, at times, may exceed the federally insured limits. Henry Energy has not experienced any losses related to amounts in excess of FDIC limits and believes it is not exposed to significant credit risk in this area.
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
Note 14. Transactions with Affiliates
Oil and Natural Gas Operations
Certain affiliates as well as employees participate in wells operated by Henry Energy. Henry Energy invoices these affiliates for drilling and completion, lease operating costs and other related expenses and service and incentive fees.
During the nine months ended September 30, 2023 and 2022, these affiliates were invoiced the following amounts (in thousands):
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| Henry Reserves | | $ | 1 | | | $ | 6,801 | |
| Henry TAW LP | | | 1 | | | | 452 | |
| Davlin LLC | | | 1,769 | | | | 933 | |
| DSD, LTD | | | 100 | | | | 100 | |
| Challenger Crude, LTD | | | 100 | | | | 20 | |
| Henry Heirs LTD | | | 50 | | | | 1 | |
| Henry Production LLC | | | 1 | | | | 1 | |
| Employee participants and affiliated companies | | | 4,691 | | | | 4,955 | |
| Total | | $ | 6,713 | | | $ | 13,263 | |
Henry Energy has received reimbursement for all amounts shown above, with the exception of certain amounts reflected as affiliate receivables on the condensed consolidated unaudited interim balance sheet. Affiliate receivables were $0.6 million and $0.8 million at September 30, 2023 and December 31, 2022, respectively.
Henry Energy receives revenue earned by its oil and natural gas properties and distributes such revenues to the various working interest owners. Certain affiliates and employees of Henry Energy receive a portion of these revenue distributions. During the nine months ended September 30, 2023 and 2022, these affiliates received revenue distributions in the following amounts (in thousands):
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| Davlin LLC | | $ | 1,481 | | | $ | 2,235 | |
| Employee participants and affiliated companies | | | 7,670 | | | | 9,609 | |
| Total | | $ | 9,151 | | | $ | 11,844 | |
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
Affiliate Service Fee Income
Henry Energy has two separate agreements (“G&A Agreements”) with Henry Reserves LP and Henry TAW LP. These G&A Agreements were both entered into to pay all the general and administrative expenses of Henry Reserves LP and Henry Taw LP. These expenses include accounting fees, bank fees, consulting fees, interest charges, payroll expenses and other expenses as outlined in the G&A Agreements. In return, Henry Energy will receive a monthly fee based upon predetermined rates. The affiliate service fee income is presented net of interest expense paid by Henry Energy. For the nine months ended September 30, 2023 and 2022, Henry Energy recorded $38.8 million and $21.6 million of affiliate service fee income in the condensed consolidated unaudited statements of operations.
Note 15. Supplemental Disclosures to Consolidated Financial Statements
Accrued Liabilities
Accrued liabilities consisted of the following at the dates indicated (in thousands):
| | | September 30, 2023 | | | December 31, 2022 | |
| Accrued oil and natural gas capital expenditures | | $ | 15,082 | | | $ | 3,215 | |
| Accrued lease operating and workover expenses | | | 4,200 | | | | 7,965 | |
| Total accrued liabilities | | $ | 19,282 | | | $ | 11,180 | |
Supplemental Cash Flow Information
The following table provides certain supplemental cash flow information for the periods indicated (in thousands):
| | | Nine Months Ended September 30, | |
| | | 2023 | | | 2022 | |
| Supplemental Disclosure of Cash Flow Information: | | | | | | |
| Interest paid | | $ | 1,002 | | | | 3,640 | |
| Supplemental Disclosure of Non-Cash Information: | | | | | | | | |
| Additions to oil and natural gas properties included in accounts payable and accrued liabilities | | $ | 11,867 | | | $ | 7,282 | |
| Revisions and additions to asset retirement obligations, net | | $ | 7 | | | $ | 81 | |
| Non-Cash Financing Activities: | | | | | | | | |
| ROU assets obtained in exchange for operating lease liabilities | | $ | 9,111 | | | $ | — | |
HENRY ENERGY LP
Notes to Condensed Consolidated Unaudited Interim Financial Statements
September 30, 2023 and 2022
Note 16. Subsequent Events
In preparing the accompanying consolidated financial statements of Henry Energy, management has evaluated all subsequent events and transactions for potential recognition or disclosure through November 1, 2023, the date the consolidated financial statements of Henry Energy were available for issuance.
Subsequent to September 30, 2023, the following events and transactions have occurred:
| • | As of October 24, 2023, Henry Energy had reduced the outstanding balance of the Senior Secured Credit Facility to approximately $6.0 million. |
