Exhibit 99.3
Colgate Energy Partners III, LLC
Unaudited
(in thousands) | June 30, 2022 | December 31, 2021 | ||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 63,586 | $ | 210,276 | ||||
Accounts receivable from affiliates | 776 | — | ||||||
Accounts receivable | 204,649 | 125,161 | ||||||
Prepaids | 6,017 | 22,790 | ||||||
Short-term derivative instruments | 46,546 | — | ||||||
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Total current assets | 321,574 | 358,227 | ||||||
Oil & gas properties and equipment: | ||||||||
Oil and gas properties and equipment | 2,666,338 | 2,185,445 | ||||||
Accumulated depreciation, depletion, and amortization | (431,830 | ) | (279,593 | ) | ||||
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Net oil and gas properties and equipment | 2,234,508 | 1,905,852 | ||||||
Other assets: | ||||||||
Long-term derivative instruments | 14,424 | — | ||||||
Other property and equipment, net | 17,736 | 989 | ||||||
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Total assets | $ | 2,588,242 | $ | 2,265,068 | ||||
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Liabilities and members’ capital | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 183,296 | $ | 156,483 | ||||
Accounts payable to affiliates | 489 | 191 | ||||||
Revenue payable | 142,739 | 79,565 | ||||||
Accrued expenses | 87,821 | 38,866 | ||||||
Short-term derivative instruments | 1,567 | 60,505 | ||||||
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Total current liabilities | 415,912 | 335,610 | ||||||
Other liabilities: | ||||||||
Long-term debt, net | 1,428,598 | 977,451 | ||||||
Asset retirement obligations and other | 38,470 | 20,294 | ||||||
Long-term derivative instruments | 353 | 116,535 | ||||||
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Total liabilities | 1,883,333 | 1,449,890 | ||||||
Members’ capital: | ||||||||
Capital contributions | 812,377 | 812,377 | ||||||
Capital distributions | (505,014 | ) | (277,359 | ) | ||||
Retained earnings | 397,546 | 280,160 | ||||||
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Total members’ capital | 704,909 | 815,178 | ||||||
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Total liabilities and members’ capital | $ | 2,588,242 | $ | 2,265,068 | ||||
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See accompanying notes to the unaudited consolidated financial statements.
1
Colgate Energy Partners III, LLC
Consolidated Statements of Operations
Unaudited
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenues: | ||||||||||||||||
Crude oil sales | $ | 322,639 | $ | 102,723 | $ | 574,151 | $ | 182,070 | ||||||||
Natural gas sales | 67,503 | 10,966 | 107,418 | 25,817 | ||||||||||||
Natural gas liquid sales | 58,634 | 15,572 | 109,159 | 25,662 | ||||||||||||
Other | 1,271 | 489 | 2,196 | 829 | ||||||||||||
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Total revenues | 450,047 | 129,750 | 792,924 | 234,378 | ||||||||||||
Operating expenses: | ||||||||||||||||
Lease operating expenses | 40,374 | 14,721 | 73,614 | 26,320 | ||||||||||||
Gathering, processing, and transportation costs | 3,850 | 1,763 | 8,808 | 2,249 | ||||||||||||
Production and ad valorem taxes | 25,518 | 7,129 | 44,460 | 12,451 | ||||||||||||
Depreciation, depletion, and amortization | 70,367 | 28,057 | 120,371 | 51,338 | ||||||||||||
Exploration and abandonment costs | 437 | 2,613 | 491 | 3,251 | ||||||||||||
Accretion of asset retirement obligations | 329 | 113 | 643 | 219 | ||||||||||||
General and administrative | 5,451 | 2,090 | 11,050 | 4,196 | ||||||||||||
Profit sharing by affiliates | 2,530 | — | 22,346 | 3,330 | ||||||||||||
Gain on sale of assets | (44,458 | ) | — | (53,718 | ) | (7 | ) | |||||||||
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Total operating expenses | 104,398 | 56,486 | 228,065 | 103,347 | ||||||||||||
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Income from operations | 345,649 | 73,264 | 564,859 | 131,031 | ||||||||||||
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Other income (expenses): | ||||||||||||||||
Interest income | 3 | 83 | 10 | 163 | ||||||||||||
Interest expense | (20,104 | ) | (7,139 | ) | (37,992 | ) | (12,525 | ) | ||||||||
Loss on commodity derivatives, net | (76,304 | ) | (162,971 | ) | (409,491 | ) | (268,201 | ) | ||||||||
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Total other income (expense) | (96,405 | ) | (170,027 | ) | (447,473 | ) | (280,563 | ) | ||||||||
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Net income (loss) | $ | 249,244 | $ | (96,763 | ) | $ | 117,386 | $ | (149,532 | ) | ||||||
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See accompanying notes to the unaudited consolidated financial statements.
2
Colgate Energy Partners III, LLC
Consolidated Statements of Members’ Capital
Unaudited
(in thousands) | ||||
Balance at December 31, 2020 | $ | 467,271 | ||
Capital distributions | (146,002 | ) | ||
Capital contributions (Profit sharing by affiliates) | 3,330 | |||
Net loss | (52,769 | ) | ||
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Balance at March 31, 2021 | $ | 271,830 | ||
Capital contributions | 513,686 | |||
Net loss | (96,763 | ) | ||
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Balance at June 30, 2021 | $ | 688,753 | ||
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Balance at December 31, 2021 | $ | 815,178 | ||
Capital distributions | (225,000 | ) | ||
Capital contributions (Profit sharing by affiliates) | 19,815 | |||
Net loss | (131,858 | ) | ||
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Balance at March 31, 2022 | $ | 478,135 | ||
Capital distributions | (25,000 | ) | ||
Capital contributions (Profit sharing by affiliates) | 2,530 | |||
Net income | 249,244 | |||
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Balance at June 30, 2022 | $ | 704,909 | ||
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See accompanying notes to the unaudited consolidated financial statements.
3
Colgate Energy Partners III, LLC
Consolidated Statements of Cash Flows
Unaudited
Six Months Ended June 30, | ||||||||
(in thousands) | 2022 | 2021 | ||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 117,386 | $ | (149,532 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Depreciation, depletion, amortization | 120,371 | 51,338 | ||||||
Accretion of asset retirement obligations | 643 | 219 | ||||||
Gain on sale of assets | (53,718 | ) | (7 | ) | ||||
Amortization of deferred financing costs and issue premium / discount | 2,411 | 1,252 | ||||||
Loss on commodity derivatives, net | 409,491 | 268,201 | ||||||
Gain on interest rate derivatives, net | — | 23 | ||||||
Net settlements paid on commodity derivatives | (645,580 | ) | (34,377 | ) | ||||
Net settlements paid on interest rate derivatives | — | (782 | ) | |||||
Profit sharing by affiliates | 22,346 | 3,330 | ||||||
Other | 203 | — | ||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable and prepaids | (63,491 | ) | (92,086 | ) | ||||
Accounts payable, revenue payable, and accrued expenses | 103,340 | 76,526 | ||||||
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Net cash provided by operating activities | $ | 13,402 | $ | 124,105 | ||||
Cash flows from investing activities: | ||||||||
Capital expenditures to develop oil and gas properties and equipment | (304,155 | ) | (101,960 | ) | ||||
Capital expenditures to acquire oil and gas properties and equipment | (320,891 | ) | (13,791 | ) | ||||
Proceeds from sale of oil and gas properties and equipment | 266,138 | 5,008 | ||||||
Capital expenditures for other property and equipment | 80 | (84 | ) | |||||
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Net cash used in investing activities | $ | (358,828 | ) | $ | (110,827 | ) | ||
Cash flows from financing activities: | ||||||||
Distributions to members | (250,000 | ) | (146,002 | ) | ||||
Proceeds from issuance of long-term debt | — | 796,910 | ||||||
Proceeds from credit facility | 565,000 | 50,000 | ||||||
Repayments of credit facility | (115,000 | ) | (160,000 | ) | ||||
Deferred financing costs | (1,264 | ) | (20,546 | ) | ||||
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Net cash provided by financing activities | $ | 198,736 | $ | 520,362 | ||||
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Net increase (decrease) in cash | (146,490 | ) | 533,640 | |||||
Cash at beginning of period | 210,276 | 8,245 | ||||||
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Cash at end of period | $ | 63,586 | $ | 541,885 | ||||
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Supplemental disclosures of cash flow information: | ||||||||
Accrued capital expenditures for oil and gas properties at period end | $ | 128,891 | $ | 33,098 | ||||
Asset retirement obligation | $ | 2,294 | $ | 3,130 | ||||
Interest paid | $ | 35,530 | $ | 2,241 | ||||
Non-cash equity contribution | $ | — | $ | 513,686 |
See accompanying notes to the unaudited consolidated financial statements.
4
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
(1) | Nature of Operations |
Colgate Energy Partners III, LLC (together with its subsidiaries, the Company) was formed on December 4, 2017 as a Delaware limited liability company pursuant to the Delaware Limited Liability Company Act, as amended (the Act). Upon formation, the Company was managed by Pearl Energy Investments II, LP, the sole member.
On December 30, 2020, the Company reorganized per the terms of the Third Amended and Restated Limited Liability Company Agreement (the Company Agreement). In accordance with the Company Agreement, the members of the Company contributed their Members’ Equity to CEP III Holdings, LLC (Holdings), in exchange for equity interests in Holdings.
On May 18, 2022, Holdings contributed its Members’ Equity to Colgate Energy Partners III MidCo, LLC (MidCo). At this time, MidCo became the sole member of the Company and Holdings became the sole member of MidCo. Holdings is governed by a seven-member board of managers.
The Company is a Midland, Texas-based oil and gas company focused on the acquisition, development, exploration and production of oil and natural gas properties. The Company’s operations are focused in the Permian Basin throughout Texas and New Mexico.
(2) | Summary of Significant Accounting Policies |
A complete discussion of the Company’s significant accounting policies is included in the Company’s Annual Report for the year ended December 31, 2021.
(a) | Basis of Presentation |
The consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and include the assets, liabilities, revenue, expenses, and related note disclosures of the Company and its consolidated subsidiaries.
These consolidated financial statements were approved by management and available for issuance on August 15, 2022. Subsequent events have been evaluated through this date.
(b) | Principles of Consolidation |
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries since their acquisition or formation. All intercompany transactions and balances have been eliminated in consolidation.
(c) | Interim Financial Statements and Use of Estimates |
The accompanying consolidated financial statements of the Company have not been audited by the Company’s independent registered public accounting firm, except that the consolidated balance sheet at December 31, 2021 is derived from audited consolidated financial statements. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments necessary to present fairly the Company’s consolidated financial statements. All such adjustments are of a normal, recurring nature. In preparing the accompanying consolidated financial statements, management has made certain estimates and assumptions that affect reported amounts in the consolidated financial statements. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results.
(d) | Cash |
The Company’s cash includes depository accounts held by banks.
5
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
(e) | Accounts Receivable |
The Company’s Accounts receivable balance consists of receivables from joint interest owners on properties the Company operates and receivables from the sale of crude oil, natural gas, and natural gas liquids (NGL) production delivered to purchasers. The purchasers remit payment for production directly to the Company. Most payments are received within two months after the production date. For receivables from joint interest owners, the Company typically has the ability to withhold future revenue disbursements to recover any non-payment of joint interest billings. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company recognizes an allowance for doubtful accounts in an amount equal to anticipated future uncollectible receivables. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company’s previous loss history, the debtor’s current ability to pay its obligation to the Company and historical creditworthiness, the condition of the general economy and the industry as a whole. The Company writes off specific accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. As of June 30, 2022 and December 31, 2021, management believes all accounts receivable are collectible and no allowance is required.
(f) | Deferred Financing Costs |
Deferred financing costs consist of fees incurred to secure debt financing and are amortized over the life of the related loans using a method consistent with the effective interest method; such amortization is recorded within Interest expense in the consolidated statements of operations. Deferred financing costs were $22.4 million as of June 30, 2022, net of accumulated amortization of $6.5 million. Deferred financing costs were $23.5 million as of December 31, 2021, net of accumulated amortization of $4.2 million. The deferred financing costs and accumulated amortization are presented in the consolidated balance sheets as a direct deduction to the face amount of the borrowings.
(g) | Revenue Recognition |
Substantially all of the Company’s revenue is from the sale of crude oil, natural gas, and natural gas liquids. See note 3 for additional information regarding the Company’s revenue recognition.
(h) | Concentrations of Credit Risk |
The Company’s oil and gas operations have a concentration of purchasers in the energy industry. This customer concentration may impact the Company’s overall exposure to credit risk, either positively or negatively, in that the purchasers may be similarly affected by changes in economic or other conditions. Our principal exposures to credit risk are through receivables resulting from joint interest owners and from the sale of our oil and natural gas production. As of June 30, 2022 and 2021, the Company did not experience any material credit losses or write-offs of receivables. See note 10 for a list of significant purchasers as a percentage of total sales.
(i) | Overhead Reimbursement |
The Company records gross overhead charges billed to working interest owners as a reduction to General and administrative expenses in the consolidated statements of operations. The Company recorded overhead charges of $1.8 million and $0.8 million during the three months ended June 30, 2022 and 2021, respectively, and $4.2 million and $1.5 million during the six months ended June 30, 2022 and 2021, respectively. The Company records overhead charges as they relate to its net share of properties owned in the Lease operating expenses account in the consolidated statements of operations and the Oil and gas properties and equipment account in the consolidated balance sheets. The Company recorded net overhead charges of $0.9 million and $0.4 million in Lease operating expenses for the three months ended June 30, 2022 and 2021, respectively, and $2.5 million and $0.7 million for the six months ended June 30, 2022 and 2021, respectively. The Company recorded net overhead charges of $0.5 million and $0.2 million in Oil and gas properties and equipment for the three months ended June 30, 2022 and 2021, respectively, and $1.1 million and $0.4 million for the six months ended June 30, 2022 and 2021, respectively.
6
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
(j) | Related Party Transactions |
Transactions between related parties are considered to be related party transactions though they may not be given accounting recognition. The Financial Accounting Standards Board (FASB) ASC Topic 850, Related Party Disclosures (ASC Topic 850), requires that transactions with related parties that would make a difference in decision making shall be disclosed so that users of the consolidated financial statements can evaluate their significance. See note 9 for additional information about the Company’s related parties.
(k) | Segment Reporting |
Operating segments are defined as components of an enterprise that (i) engage in activities from which it may earn revenues and incur expenses and (ii) for which separate operational information is available and is regularly evaluated by the chief decision maker for the purpose of allocating resources and assessing performance.
Based on the organization and management of the Company, the Company has only one reportable operating segment, which is oil and natural gas exploration and production.
(l) | Reclassifications |
Certain amounts in prior period financial statements have been reclassified to conform to current period presentation.
(m) | Recently Adopted Accounting Pronouncements |
During the first quarter of 2022, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (Topic 842) and the amendments provided for in ASU No. 2018-11, “Targeted Improvements” (ASU 2018-11). Topic 842 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that the Company chose to apply. These practical expedients relate to (i) the identification and classification of leases that commenced before the effective date, (ii) the treatment of initial direct costs for leases that commenced before the effective date, (iii) the ability to use hindsight in evaluating lessee options to extend or terminate a lease or to purchase the underlying asset and (iv) the ability to initially apply the new lease standard at the adoption date. ASU 2018-01 is a land easement practical expedient which allowed the Company to begin evaluating land easements entered into or modified after December 31, 2021. ASU 2018-11 provides a transition election not to restate comparative periods for the effects of applying the new lease standard. This transition election permits entities to change the date of initial application to the beginning of the year of adoption and to recognize the effects of applying the new standard as a cumulative-effect adjustment to the opening balance of retained earnings. The Company elected this transition approach, however the cumulative impact of adoption to the opening balance of retained earnings as of January 1, 2022 was zero. See note 8 for additional disclosures related to leases.
(3) | Revenue from Contracts with Customers |
Revenue is measured based on considerations specified in contracts with customers, excluding any sales incentives or amounts collected on behalf of third parties. The Company recognizes revenue when a performance obligation is satisfied by the transfer of control over a product to the ultimate customer. Sales of oil, natural gas and NGLs are recognized at the time that control of the product is transferred to the customer and collectability is reasonably assured. Generally, the pricing provisions in the Company’s contracts are tied to a market index, with certain adjustments based on, among other factors, whether a well delivers to a gathering or transmission line, the quality of the oil or natural gas, and prevailing supply and demand conditions. As a result, the prices of the Company’s oil, natural gas and NGLs fluctuate to remain competitive with other available oil, natural gas and NGLs supplies. The Company reports revenues disaggregated by product on its consolidated statements of operations.
7
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
(a) | Oil Sales |
Oil production is sold at the wellhead and the Company collects an agreed-upon index price, net of pricing differentials. In this scenario, revenue is recognized when control transfers to the purchaser at the wellhead at the net price received by the Company.
(b) | Natural Gas and Natural Gas Liquid Sales |
Under the Company’s natural gas processing contracts, it delivers natural gas to a midstream processing company at the wellhead or the inlet of the midstream processing company’s gathering system. The midstream processing company gathers and processes the natural gas and remits proceeds to the Company for the resulting natural gas sales and natural gas liquid sales. In these scenarios, the Company evaluates whether it is the principal or the agent in the transaction, which includes considerations of product redelivery, take-in-kind rights and risk of loss. For those contracts where the Company has concluded that control of the product transfers at the tailgate of the plant, meaning that the Company is the principal and the ultimate third party is its customer, the Company recognizes revenue on a gross basis, with transportation and processing fees presented as Gathering, processing, and transportation costs on the Company’s consolidated statements of operations. Alternatively, for those contracts where the Company has concluded control of the product transfers at the inlet of the plant, meaning that the Company is the agent and the midstream processing company is the Company’s customer, the Company recognizes natural gas sales and natural gas liquid sales based on the net amount of proceeds received from the midstream processing company. The Company also determined that losses associated with shrinkage and line loss (“FL&U”) occur prior to the change in control. As a result, natural gas and NGLs sales are presented net of FL&U costs.
(c) | Contract Balances |
Under the Company’s product sales contracts, the Company invoices customers once performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s product sales contracts do not give rise to contract assets or liabilities under ASC Topic 606, Revenue from Contracts with Customers.
(4) | Acquisitions and Divestitures |
Business Combination Agreement
On May 19, 2022, the Company entered into a business combination agreement (the Business Combination Agreement) with MidCo, Centennial Resource Production, LLC (CRP) and Centennial Resource Development, Inc. (CDEV) which provides for the combination of CRP and Colgate in a merger of equals transaction (the Merger), with CRP surviving the Merger (the Surviving Company) as a subsidiary of CDEV. Per the terms of the Business Combination Agreement, MidCo will receive 269.3 million shares of CDEV stock and $525 million of cash. The Merger has been unanimously approved by the Boards of Directors of CDEV and the Company. CDEV has filed its Definitive Proxy Statement with the Securities and Exchange Commission and the shareholder meeting is scheduled for August 29, 2022, where the Merger will be voted on by CDEV’s shareholders. The Merger is expected to close shortly after the shareholder meeting and is subject customary closing conditions including receipt of the required approval from CDEV’s shareholders.
Texas Asset Exchange
In April of 2022, the Company closed on a transaction in Reeves and Ward Counties in which the Company received proved and unproved oil and natural gas properties and equipment consisting of approximately 13,000 net acres and approximately 2.0 MBoe per day from producing wells. In exchange, the Company conveyed certain proved and unproved oil and natural gas properties and equipment consisting of approximately 6,000 net acres and approximately 0.5 MBoe per day from producing wells, and $115 million in cash. The Company recognized a gain on the transaction of approximately $44.5 million.
8
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
Parkway Acquisition
In January 2022, the Company closed an acquisition of proved and unproved oil and gas properties and equipment in Eddy County, New Mexico and Lea County, New Mexico for approximately $189.3 million.
Recent Divestitures
In January 2022, the Company closed a divestiture of proved and unproved oil and gas properties and equipment in Ward County, Texas for approximately $231.9 million. The Company recognized a gain on the sale of approximately $7.7 million.
(5) | Fair Value |
The Company determines fair value based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets and liabilities are classified based on inputs that market participants use in pricing an asset or liability. The inputs are characterized according to a hierarchy that prioritizes observability. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The three input levels of the fair value hierarchy are as follows:
• | Level 1 – quoted prices for identical assets or liabilities in active markets. |
• | Level 2 – quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates) and inputs derived principally from or corroborated by observable market data by correlation or other means. |
• | Level 3 – unobservable inputs for the asset or liability, typically reflecting management’s estimate of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques, including discounted cash flow models. |
The following table presents the carrying values and fair values of the Company’s financial instruments at June 30, 2022 and December 31, 2021:
June 30, 2022 | December 31, 2021 | |||||||||||||||
(in thousands) | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||
Assets: | ||||||||||||||||
Derivative instruments | $ | 60,970 | $ | 60,970 | $ | — | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Derivative instruments | $ | 1,920 | $ | 1,920 | $ | 177,040 | $ | 177,040 | ||||||||
5.875% senior notes due 2029 (a) | $ | 690,410 | $ | 616,329 | $ | 690,028 | $ | 725,266 | ||||||||
7.75% senior notes due 2026 (a) | $ | 292,562 | $ | 288,600 | $ | 291,527 | $ | 324,639 |
(a) | The carrying value includes associated deferred loan costs and any discount/premium. The fair values of the Company’s senior notes are based on quoted market prices. |
9
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
Credit facility. The carrying amount of the Company’s credit facility approximates its fair value, as the applicable interest rates are variable and reflective of market rates.
(a) | Assets and Liabilities Recorded at Fair Value on a Recurring Basis |
(i) | Derivative instruments. |
The fair market values of the derivative financial instruments reflected in the consolidated balance sheets were based on observable inputs obtained from the counterparties to the agreements. Further, the Company presents asset and liability positions on a net basis by counterparty. The following tables present the fair value hierarchy for those derivative financial instruments measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021:
June 30, 2022 | ||||||||||||||||||||||||
(in thousands) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total Fair Value | Gross Amounts Offset in the Consolidated Balance Sheet | Net Fair Value Presented in the Consolidated Balance Sheet | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Current: | ||||||||||||||||||||||||
Commodity contracts | $ | — | 64,800 | — | 64,800 | (18,254 | ) | $ | 46,546 | |||||||||||||||
Long-term: | ||||||||||||||||||||||||
Commodity contracts | — | 15,556 | — | 15,556 | (1,132 | ) | 14,424 | |||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Current: | ||||||||||||||||||||||||
Commodity contracts | — | (19,821 | ) | — | (19,821 | ) | 18,254 | (1,567 | ) | |||||||||||||||
Long-term: | ||||||||||||||||||||||||
Commodity contracts | — | (1,485 | ) | — | (1,486 | ) | 1,132 | (353 | ) | |||||||||||||||
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Net financial assets | $ | — | 59,050 | — | 59,050 | — | $ | 59,050 | ||||||||||||||||
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10
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
December 31, 2021 | ||||||||||||||||||||||||
(in thousands) | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total Fair Value | Gross Amounts Offset in the Consolidated Balance Sheet | Net Fair Value Presented in the Consolidated Balance Sheet | ||||||||||||||||||
Assets: | ||||||||||||||||||||||||
Current: | ||||||||||||||||||||||||
Commodity contracts | $ | — | 848 | — | 848 | (848 | ) | $ | — | |||||||||||||||
Long-term: | ||||||||||||||||||||||||
Commodity contracts | — | 862 | — | 862 | (862 | ) | — | |||||||||||||||||
Liabilities: | ||||||||||||||||||||||||
Current: | ||||||||||||||||||||||||
Commodity contracts | — | (61,353 | ) | — | (61,353 | ) | 848 | (60,505 | ) | |||||||||||||||
Long-term: | ||||||||||||||||||||||||
Commodity contracts | — | (117,397 | ) | — | (117,397 | ) | 862 | (116,535 | ) | |||||||||||||||
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Net financial liabilities | $ | — | (177,040 | ) | — | (177,040 | ) | — | $ | (177,040 | ) | |||||||||||||
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(b) | Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis |
Certain assets and liabilities are reported at fair value on a nonrecurring basis in the Company’s balance sheets. The following methods and assumptions were used to estimate the fair values:
(i) | Properties Acquired in Business Combinations |
If sufficient market data is not available, the Company determines the fair values of proved and unproved properties acquired in transactions accounted for as business combinations by preparing estimates of discounted cash flow projections. The factors to determine fair value include, but are not limited to, estimates of proved reserves, future commodity prices, the timing of future production and capital expenditures, and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and gas properties.
(ii) | Proved Oil and Natural Gas Properties |
Proved oil and natural gas properties are reviewed for impairment when events and circumstances indicate the carrying value of such properties may not be recoverable. The factors used to determine fair value include, but are not limited to, estimates of proved reserves, future commodity prices, the timing of future production and capital expenditures, and a discount rate commensurate with the risk reflective of the lives remaining for the respective oil and gas properties. The Company did not recognize any impairments of proved properties during the three or six months ended June 30, 2022 or 2021.
(iii) | Unproved Properties |
Unproved oil and natural gas properties are periodically assessed for impairment by considering future drilling and exploration plans, results of exploration activities, commodity price outlooks, planned future sales and expiration of all or a portion of the projects. During the three and six months ended June 30, 2022 and 2021, the Company did not recognize unproved impairment expense.
11
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
(c) | Other Financial Instruments Recorded at Cost |
The Company has other financial instruments that are not carried at fair value in the consolidated balance sheets, consisting primarily of cash, accounts receivable, accounts payable, and other current assets and liabilities. The carrying values of these instruments approximate their fair values due to the short-term maturities and/or liquid nature of these assets and liabilities.
(6) | Derivative Instruments and Hedging Activities |
The Company uses derivative financial instruments to manage commodity price risk associated with the sales of oil and gas production and to manage interest rate risk associated with the outstanding borrowings on the Company’s credit facility. The Company does not hold or issue derivative financial instruments for speculative or trading purposes.
The Company accounts for derivatives in accordance with ASC 815, Accounting for Derivative Instruments and Hedging Activity (as amended). Currently, the Company does not designate its derivative instruments to qualify for hedge accounting. Accordingly, the Company reflects changes in fair value of its derivative instruments in its consolidated statements of operations as they occur. Commodity hedging instruments may take the form of collars, swaps, or other derivatives indexed to the New York Mercantile Exchange (NYMEX) or other commodity price indices. Such derivative instruments will not exceed anticipated production volumes and are expected to have a reasonable correlation between price movements in the futures market and the spot markets where the Company’s production is sold.
The Company records its derivative activities at fair value. Gains and losses due to changes in fair value of commodity derivatives are included in Loss on commodity derivatives, net in the consolidated statements of operations. Gains and losses due to changes in fair value of interest rate derivatives are included in Interest expense in the consolidated statements of operations. Non-cash gains and losses associated with the Company’s commodity price derivatives and interest rate derivatives are separately presented in operating activities within the consolidated statements of cash flows.
During the three months ended June 30, 2022 and 2021, the Company recorded a net loss on commodity derivatives of $76.3 million and $163.0 million, respectively, and a net loss of $409.5 million and $268.2 million during the six months ended June 30, 2022 and 2021, respectively. The following table summarizes the amounts related to the Company’s derivative financial instruments that are recorded in Loss on commodity derivatives, net and Interest expense in the consolidated statements of operations for the three and six months ended June 30, 2022 and 2021:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Commodity derivatives: | ||||||||||||||||
Non-cash commodity derivative gain (loss), net | $ | 504,933 | $ | (139,682 | ) | $ | 236,089 | $ | (233,824 | ) | ||||||
Net cash settlements paid on commodity derivatives | (581,237 | ) | (23,289 | ) | (645,580 | ) | (34,377 | ) | ||||||||
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Loss on commodity derivatives, net | $ | (76,304 | ) | $ | (162,971 | ) | $ | (409,491 | ) | $ | (268,201 | ) | ||||
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Interest rate derivatives: | ||||||||||||||||
Non-cash interest rate derivative gain, net | $ | — | $ | 377 | $ | — | $ | 759 | ||||||||
Net cash settlements paid on interest rate derivatives | — | (404 | ) | — | (782 | ) | ||||||||||
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Interest expense | $ | — | $ | (27 | ) | $ | — | $ | (23 | ) | ||||||
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12
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
On May 18, 2022, the Company entered into a hedge re-strike transaction that impacted several crude oil, natural gas, and natural gas liquids hedges. The transaction, among other changes, increased the average strike price on 10.6 million barrels of existing crude WTI swaps from $56.07/Bbl to $93.55/Bbl and added an additional 1.1 million barrels in new crude WTI swaps to its hedge position and in total resulted in a $460.1 million settlement paid. This amount is included Net cash settlements paid on commodity derivatives in the table above. The impacted commodity contracts have settlement dates beginning in July of 2022 through December 2024. This transaction will be referred to as the Hedge Re-strike Transaction throughout this report.
(a) | Swap Contracts |
Generally, a swap contract is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified notional amount of the underlying assets. The payment flows are usually netted.
The Company has entered into a series of crude oil, natural gas and natural gas liquids price swap derivative contracts to mitigate a portion of the exposure to commodity price risk. The following table sets forth the Company’s outstanding oil derivative contracts as of June 30, 2022. When aggregating multiple contracts, the weighted average contract price is disclosed.
2022 | 2023 | 2024 | Total | |||||||||||||
Oil Price Swap - WTI | ||||||||||||||||
Volume (MBbl) | 3,680 | 5,475 | 2,562 | 11,717 | ||||||||||||
Price per Bbl | $ | 101.31 | $ | 88.86 | $ | 79.54 | $ | 90.73 | ||||||||
Oil Basis Swap - Mid/Cush | ||||||||||||||||
Volume (MBbl) | 3,680 | 5,475 | 2,562 | 11,717 | ||||||||||||
Price per Bbl | $ | 0.68 | $ | 0.47 | $ | 0.43 | $ | 0.53 | ||||||||
Oil WTI Roll Swap | ||||||||||||||||
Volume (MBbl) | 3,680 | 5,475 | 2,562 | 11,717 | ||||||||||||
Price per Bbl | $ | 2.92 | $ | 1.26 | $ | 0.74 | $ | 1.67 |
The following table sets forth the Company’s outstanding natural gas derivative contracts as of June 30, 2022. When aggregating multiple contracts, the weighted average contract price is disclosed.
2022 | 2023 | 2024 | Total | |||||||||||||
Gas Price Swap - Henry Hub | ||||||||||||||||
Volume (BBtu) | 3,899 | 6,143 | 1,755 | 11,797 | ||||||||||||
Price per MMBtu | $ | 8.05 | $ | 5.55 | $ | 4.33 | $ | 6.19 | ||||||||
Gas Price Collar - Henry Hub | ||||||||||||||||
Volume (BBtu) | 6,221 | 9,369 | 5,566 | 21,156 | ||||||||||||
Ceiling Price per MMBtu | $ | 11.84 | $ | 10.34 | $ | 8.77 | $ | 10.37 | ||||||||
Floor Price per MMBtu | $ | 7.00 | $ | 4.07 | $ | 3.19 | $ | 4.70 | ||||||||
Gas Basis Swap - WAHA | ||||||||||||||||
Volume (BBtu) | 10,120 | 15,513 | 7,320 | 32,953 | ||||||||||||
Price per MMBtu | $ | (0.77 | ) | $ | (1.33 | ) | $ | (0.64 | ) | $ | (1.00 | ) |
13
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
(7) | Oil and Gas Properties and Equipment |
The Company had net capitalized costs of $2,234.5 million and $1,905.9 million in oil and gas properties and equipment as of June 30, 2022 and December 31, 2021, respectively. The components are summarized in the table below:
(in thousands) | June 30, 2022 | December 31, 2021 | ||||||
Oil and gas properties and equipment | ||||||||
Proved | �� | $ | 2,394,130 | $ | 1,951,878 | |||
Unproved | 272,208 | 233,567 | ||||||
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Total | 2,666,338 | 2,185,445 | ||||||
Less: accumulated DD&A | (431,830 | ) | (279,593 | ) | ||||
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Net capitalized costs for oil and gas properties and equipment | $ | 2,234,508 | $ | 1,905,852 | ||||
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(8) | Leases |
The Company has entered into operating leases for office space and office equipment. The Company’s leases have lease terms that include options to extend to future years, and some of which include options to terminate within one year. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheets. The Company’s short-term leases are primarily composed of drilling rigs and field equipment such as compressors. The exercise of lease renewal and termination options are at the Company’s sole discretion. The Company determines whether a contract arrangement contains a lease at inception. The lease classification and lease measurement are determined upon lease commencement. The lease commencement date is evaluated based on when the key lease terms are available and when the Company takes possession of the underlying asset. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Because the majority of the Company’s leases do not provide an implicit rate of return, the Company uses its incremental borrowing rate based on the information available at the commencement date of the lease in determining the present value of lease payments. The incremental borrowing rate is not a quoted rate and is derived from the Company’s credit facility agreement.
The Company has operating lease agreements with lease and non-lease components that are accounted for as a single lease component. Right-of-use assets and lease liabilities are initially recorded at the commencement date based on the present value of lease payments over the lease term. Certain leases contain variable costs above the minimum required payments and are not included in the right-of-use assets or lease liabilities. Options to extend or terminate a lease are included in the lease term when it is reasonably certain the Company will exercise that option. For operating leases, lease cost is recognized on a straight-line basis over the term of the lease.
14
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
Lease payments represent gross payments to vendors, which, for certain of the Company’s operating assets, are partially offset by amounts billed to other working interest owners based on their percent ownership. The components of the Company’s lease costs as of June 30, 2022 were as follows:
(in thousands) | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2022 | ||||||
Operating leases: | ||||||||
General and administrative | $ | 549 | $ | 1,098 | ||||
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Total operating leases | 549 | 1,098 | ||||||
Short-term leases: | ||||||||
Lease operating expenses | 2,274 | 4,178 | ||||||
Oil and gas properties and equipment | 10,590 | 25,847 | ||||||
General and administrative | 75 | 128 | ||||||
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Total short-term leases | 12,939 | 30,153 | ||||||
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Total lease expense | $ | 13,488 | $ | 31,251 | ||||
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Supplemental cash flow information related to the Company’s leases as of June 30, 2022 was as follows:
Six Months Ended | ||||
(in thousands) | June 30, 2022 | |||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash outflows from operating leases | $ | 895 |
Supplemental balance sheet information related to the Company’s operating leases as of June 30, 2022 was as follows (in thousands):
Type | Consolidated Balance Sheet Location | As of June 30, 2022 | ||||
Assets: | ||||||
Operating lease right-of-use assets, net | Other property and equipment, net | $ | 17,070 | |||
Liabilities: | ||||||
Operating lease liabilities, current | Accrued expenses | $ | 2,035 | |||
Operating lease liabilities, noncurrent | Asset retirement obligations and other | $ | 15,238 | |||
Weighted average remaining lease term | 9.2 years | |||||
Weighted average discount rate | 2.9 | % |
Maturities of the Company’s lease liabilities as of June 30, 2022 were as follows:
June 30, 2022 | ||||
(in thousands) | Operating leases | |||
2023 | $ | 1,008 | ||
2024 | 2,058 | |||
2025 | 2,103 | |||
2026 | 2,150 | |||
2027 | 2,153 | |||
Thereafter | 10,305 | |||
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Total lease payments | 19,777 | |||
Less imputed interest | (2,504 | ) | ||
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Total lease obligations | 17,273 | |||
Less current obligations | (2,035 | ) | ||
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Long-term lease obligations | $ | 15,238 | ||
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15
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
As discussed in note 2, the Company elected a transition method to recognize the effects of adopting the new lease standard as a cumulative-effect adjustment to the opening balance of retained earnings. Per Topic 842, an entity electing this transition method should provide the required disclosures under Topic 840 for all periods that continue to be in accordance with Topic 840. As such, the Company included the future minimum lease commitments table below as of December 31, 2021:
December 31, 2021 | ||||
(in thousands) | Operating leases | |||
2022 | $ | 1,534 | ||
2023 | 1,718 | |||
2024 | 1,755 | |||
2025 | 1,793 | |||
Thereafter | 11,709 | |||
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Total lease payments | 18,509 | |||
Less imputed interest | (2,539 | ) | ||
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Total lease obligations | 15,970 | |||
Less current obligations | (1,534 | ) | ||
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Long-term lease obligations | $ | 14,436 | ||
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(9) | Related Party Transactions |
The Company incurs related party transactions with Pearl Energy Investments and its affiliates (Pearl), NGP Energy Capital and its affiliates (NGP), Holdings and its affiliates, CM Resources, LLC, LM Touchdown, LLC and Luxe Energy. These transactions include revenues and operating expenses incurred in connection with operating oil and gas properties and equipment, cash advances for capital projects, fees related to gathering crude oil and natural gas, and general and administrative expenses. The Company had receivables from related parties of $0.8 million at June 30, 2022 and payables to related parties of $0.5 million and $0.2 million at June 30, 2022 and December 31, 2021, respectively. The Company had no receivables from relates parties at December 31, 2021.
Members of management own profit interests at Holdings and its affiliates. These profit interests are subject to various performance and forfeiture provisions, and they become payable once certain distribution hurdles are met. Once certain hurdles are achieved, payments will be made to members of management directly by Holdings and its affiliates. Payments are not funded by the Company. These payments are generally not considered probable of occurring until paid. During the three and six months ended June 30, 2022, the Company recognized charges of approximately $2.5 million and $22.3 million, respectively, and $3.3 million during the six months ended June 30, 2021 in the Profit sharing from affiliates account within the consolidated statements of operations as a result of the profit interests described herein.
(10) | Significant Concentrations |
As of the periods presented on the consolidated balance sheets and statements of operations, substantially all of the Company’s accounts receivable and sales were related to oil and gas production. This concentration may impact the Company’s business risk, either positively or negatively, in that commodity prices, customers and suppliers may be similarly affected by changes in economic, political, or other conditions related to the industry. The Company does not believe that the loss of a purchaser would have an adverse effect on its ability to sell its crude oil and natural gas production due to the competitive nature of the oil and gas industry and availability of marketing alternatives.
16
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
The table below sets forth the significant purchasers as a percentage of total crude oil sales, natural gas sales, and natural gas liquid sales for the three and six months ended June 30, 2022 and 2021:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
Enterprise Products Partners | 72 | % | 65 | % | 70 | % | 68 | % | ||||||||
EagleClaw Midstream | 13 | % | 11 | % | 13 | % | 15 | % | ||||||||
Occidental Energy Marketing, Inc. | 7 | % | — | % | 7 | % | — | % | ||||||||
Brazos Permian II, LLC | 3 | % | 2 | % | 4 | % | 2 | % | ||||||||
Plains All American | — | % | 17 | % | — | % | 12 | % | ||||||||
Other | 5 | % | 5 | % | 6 | % | 3 | % | ||||||||
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100 | % | 100 | % | 100 | % | 100 | % | |||||||||
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Further, the Company regularly maintains its cash in bank deposit accounts, which at times, may exceed federally insured limits. The Company has not experienced any losses with respect to the related risks to cash and does not believe its exposure to such risk is more than nominal.
(11) | Commitments and Contingencies |
(a) | Legal Matters |
In the ordinary course of business, the Company may at times be subject to claims and legal actions. Management does not believe the impact of such matters will have a material adverse effect on the Company’s financial position or results of operations. The Company had no legal matters requiring specific disclosure or recognition of a liability as of June 30, 2022 and December 31, 2021.
(b) | Environmental |
The Company is subject to extensive federal, state, and local environmental laws and regulations, which may materially affect its operations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites.
In the Company’s acquisition of existing or previously drilled well bores, the Company may not be aware of what environmental safeguards were taken at the time such wells were drilled or during such time the wells were operated.
The Company maintains comprehensive insurance coverage that it believes is adequate to mitigate the risk of any adverse financial effects associated with these risks.
However, should it be determined that a liability exists with respect to any environmental cleanup or restoration, the liability to cure such a violation could still fall upon the Company. No claim has been made, nor is the Company aware of any such liability, as it relates to any environmental cleanup, restoration, or the violation of any rules or regulations relating thereto.
17
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that related to an existing condition caused by past operations and that have no future economic benefits are expensed as incurred. Liabilities for expenditures of a noncapital nature are recorded when environmental assessment and/or remediation is probable, and the cost can be reasonably estimated.
(c) | Severance tax, royalty, joint interest and sales and use tax audits |
The Company is subject to routine severance tax, royalty, joint interest and sales and use tax audits from regulatory bodies and non-operators. Additionally, the Company is subject to various possible contingencies that arise primarily from interpretations affecting the oil and natural gas industry. Such contingencies include differing interpretations as to the prices at which oil and natural gas sales may be made, the prices at which royalty owners may be paid for production from their leases, allowable costs under joint interest arrangements and other matters. Although the Company believes that it has estimated its exposure with respect to the various laws and regulations, administrative rulings and interpretations thereof, adjustments could be required as new interpretations and regulations are issued.
(12) | Debt |
The Company’s debt consisted of the following at June 30, 2022 and December 31, 2021:
(in thousands) | June 30, 2022 | December 31, 2021 | ||||||
Credit Facility due 2025 | $ | 450,000 | $ | — | ||||
5.875% senior notes due 2029 | 700,000 | 700,000 | ||||||
7.75% senior notes due 2026 | 300,000 | 300,000 | ||||||
Deferred financing costs and issue premium / discount, net | (21,402 | ) | (22,549 | ) | ||||
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Long-term debt, net | $ | 1,428,598 | $ | 977,451 | ||||
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Credit Facility. The Company’s credit facility has a maturity date of June 15, 2025. At June 30, 2022, the Company had a $1 billion borrowing base with elected commitments of $600 million, of which $150 million was available at June 30, 2022. The credit facility is collateralized by the Company’s oil and gas properties and requires compliance with certain financial covenants.
As of June 30, 2022, the Company was in compliance with all financial covenants.
On June 10, 2022, the Company entered into the Eighteenth Amendment to the Credit Agreement. The amendment increased the borrowing base from $625 million to $1 billion and increased elected commitments from $500 million to $600 million. Further, the LIBOR borrowing option was replaced by a SOFR borrowing option. Last, the interest rate pricing grid was reduced by 50 basis points.
On May 18, 2022, the Company entered into the Seventeenth Amendment to the Credit Agreement. At that time, the definition of Consolidated EBITDAX was changed to add back the negative impact of the Hedge Re-strike Transaction (see note 6) when calculating the Consolidated Net Leverage Ratio Financial Covenant for the quarter ended June 30, 2022.
On March 9, 2022, the Company entered into the Sixteenth Amendment to the Credit Agreement to adjust the borrowing base redetermination schedule to May 1 and November 1 of each year, beginning on May 1, 2022.
5.875% Senior Notes. On June 30, 2021, the Company issued $500 million aggregate principal amount of 5.875% senior unsecured notes due 2029 (the 5.875% Notes) in an offering that was exempt from registration under the Securities Act of 1933. The 5.875% Notes resulted in net proceeds to the Company, after deducting estimated fees and expenses, of approximately $491 million.
18
Colgate Energy Partners III, LLC
Notes to Consolidated Financial Statements
June 30, 2022
(Unaudited)
On November 12, 2021, the Company issued $200 million aggregate principal amount of 5.875% senior unsecured notes due 2029 under the same indenture as the previously issued 5.875% Notes. The additional notes were issued at a premium and resulted in net proceeds to the Company, after deducting estimated fees and expenses, of approximately $200 million. The Company used the proceeds to repay borrowings under its credit facility and to fund a portion of the Parkway Acquisition (see note 4).
7.75% Senior Notes. On January 27, 2021, the Company issued $300 million aggregate principal amount of 7.75% senior unsecured notes due 2026 (the 7.75% Notes) in an offering that was exempt from registration under the Securities Act of 1933. The 7.75% Notes resulted in net proceeds to the Company, after deducting estimated fees and expenses, of approximately $292 million. The Company used the proceeds along with cash on hand to pay down the credit facility by $150 million and to make a $146 million cash distribution to Holdings.
Interest Expense. The following amounts have been incurred and charged to interest expense for the three and six months ended June 30, 2022 and 2021:
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Cash payments for interest | $ | 3,033 | $ | 389 | $ | 35,530 | $ | 1,459 | ||||||||
Non-cash interest | 1,255 | 724 | 2,413 | 1,255 | ||||||||||||
Settled interest rate hedges | — | 27 | — | 23 | ||||||||||||
Net changes in accruals | 15,816 | 5,999 | 49 | 9,788 | ||||||||||||
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Interest expense | $ | 20,104 | $ | 7,139 | $ | 37,992 | $ | 12,525 | ||||||||
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(13) | Members’ Equity Accounts |
Capital contributions and distributions are governed by the Company Agreement. Cash earnings on profits and any items in nature of income or loss will be applied to the member’s capital account in accordance with their earnings interest.
During the three and six months ended June 30, 2022, the Company received contributions of $2.5 million and $22.3 million, respectively, and $3.3 million during the six months ended June 30, 2021, each of which is related to payments by Holdings and its affiliates to the owners of certain profit interests (see note 9).
19