| Basis of Presentation and Significant Accounting Policies | Note 1 – Basis of Presentation and Significant Accounting Policies Unless otherwise indicated or the context otherwise requires, references herein to the “Company” refer (i) prior to the Spin-off (as defined below) to Linn Energy, Inc. (the “Parent”) and its consolidated subsidiaries, and (ii) after the Spin-off, to Riviera Resources, Inc. (“Riviera”) and its consolidated subsidiaries. Unless otherwise indicated or the context otherwise requires, references herein to “LINN Energy” refer to Linn Energy, Inc. and its consolidated subsidiaries. In April 2018, the Parent announced its intention to separate Riviera from LINN Energy. To effect the separation, the Parent and certain of its then direct and indirect subsidiaries undertook an internal reorganization (including the conversion of Riviera Resources, LLC from a limited liability company to a corporation named Riviera Resources, Inc.), following which Riviera holds, directly or through its subsidiaries, substantially all of the assets of LINN Energy, other than LINN Energy’s 50% equity interest in Roan Resources LLC (“Roan”). A subsidiary of the Company held the equity interest in Roan until the Parent’s internal reorganization on July 25, 2018 (the “Reorganization Date”). Following the internal reorganization, the Parent distributed all of the outstanding shares of Riviera common stock to the Parent’s shareholders on a pro rata basis (the “Spin-off”). The Spin-off was completed on August 7, 2018. Prior to the completion of the Spin-off, a then subsidiary of the Parent distributed $40 million to the Parent to pay the Parent’s obligations during the transition period under the TSA (as defined below). Linn Energy, Inc. returned such $40 million to Riviera on September 24, 2018, which included approximately $7 million for the reimbursement of cash paid to settle the Parent’s restricted stock units (“LINN RSUs”) held by Riviera’s employees and approximately $1 million for the payment of income taxes on shares withheld from participants upon vesting On August 7, 2018, Riviera entered into a Transition Services Agreement (the “TSA”) with the Parent to facilitate an orderly transition following the Spin-off. Pursuant to the TSA, Riviera agreed to provide the Parent with certain finance, financial reporting, information technology, investor relations, legal, payroll, tax and other services during the term of the TSA. Riviera reimbursed the Parent for, or paid on the Parent’s behalf, all direct and indirect costs and expenses incurred by the Parent during the term of the TSA in connection with the fees for any such services. The TSA terminated in accordance with its terms on September 24, 2018. Prior to the Spin-off, the accompanying consolidated and combined financial statements were prepared on a stand-alone basis and derived from the Parent’s consolidated financial statements and accounting records for the periods presented as the Company was historically managed as a subsidiary of the Parent. Historically, a subsidiary of the Company also owned a 50% equity interest in Roan. The Company’s equity earnings (losses), consisting of its share of Roan’s earnings or losses, are included in the consolidated and combined financial statements through the Reorganization Date. However, on the Reorganization Date, the equity interest in Roan was distributed to the Parent and is no longer affiliated with Riviera. As such, the Company has classified the investment and equity earnings (losses) in Roan as discontinued operations on its consolidated and combined financial statements. See Note 4 for additional information. Following the Spin-off, Riviera is an independent oil and natural gas company with a strategic focus on efficiently operating its mature low-decline assets, developing its growth-oriented assets, and returning capital to shareholders. Riviera is quoted for trading on the OTCQX Market under the ticker “RVRA,” and the Parent did not retain any ownership interest in the Company. Nature of Business At December 31, 2019, the Company’s upstream reporting segment properties were located in three operating regions in the United States (“U.S.”): East Texas, the Mid-Continent and North Louisiana. The Blue Mountain reporting segment consists Principles of Consolidation and Combination The Company presents its consolidated and combined financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”). The consolidated and combined financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Prior to the Spin-off, the consolidated and combined financial statements were prepared on a carve-out basis and reflect significant assumptions and allocations. The consolidated and combined financial statements for previous periods include certain reclassifications that were made to conform to current presentation. Such reclassifications have no impact on previously reported net income (loss), stockholders’ equity, or cash flows. Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method. At December 31, 2019, the Company had no investments accounted for under the equity method. See Note 4. Allocations Cash and cash equivalents held by the Parent were not allocated to Riviera unless they were held in a legal entity that transferred to Riviera. All intracompany transactions between the Parent and Riviera are considered to be effectively settled in the consolidated and combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intracompany transactions is reflected in the consolidated and combined statements of cash flows as a financing activity and in the consolidated balance sheets as net parent company investment. Net parent company investment is primarily impacted by contributions from the Parent which are the result of treasury activities and net funding provided by or distributed to the Parent. Historically, the Parent had no assets or operations independent from its subsidiaries. Accordingly, the consolidated and combined financial statements include materially all of the Parent’s historical general and administrative expenses, including 100% of its employee-related expenses, as its personnel were employed by Riviera Operating, LLC (“Riviera Operating” formerly known as Linn Operating, LLC), a former subsidiary of the Parent that became a subsidiary of Riviera as part of the Spin-off. The Company considers the methodology and results to be reasonable for all periods presented; however, these costs may not be indicative of the actual expenses that Riviera would have incurred as an independent public company or the costs it may incur in the future. Bankruptcy Accounting Upon LINN Energy’s emergence from bankruptcy on February 28, 2017, the Parent adopted fresh start accounting which resulted in the Parent becoming a new entity for financial reporting purposes. As a result of the adoption of fresh start accounting and the effects of the implementation of the Plan (as defined in Note 2), the Company’s consolidated financial statements subsequent to February 28, 2017, are not comparable to its consolidated and combined financial statements prior to February 28, 2017. References to “Successor” relate to the financial position and results of operations of the reorganized Company subsequent to February 28, 2017. References to “Predecessor” relate to the financial position of the Company prior to, and results of operations through and including, February 28, 2017. The Company’s consolidated and combined financial statements and related footnotes are presented with a black line division, which delineates the lack of comparability between amounts presented after February 28, 2017, and amounts presented on or prior to February 28, 2017. See Note 2 for additional information. Use of Estimates The preparation of the accompanying consolidated and combined financial statements in conformity with GAAP requires management of the Company to make estimates and assumptions about future events. These estimates and the underlying assumptions affect the amount of assets and liabilities reported, disclosures about contingent assets and liabilities, and reported amounts of revenues and expenses. The estimates that are particularly significant to the financial statements include estimates of the Company’s reserves of oil, natural gas and natural gas liquids (“NGL”), future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, certain revenues and operating expenses, fair values of commodity derivatives and deferred taxes. In addition, as part of fresh start accounting, the Company made estimates and assumptions related to its reorganization value, the fair value of assets and liabilities recorded as a result of the adoption of fresh start accounting and income taxes. As fair value is a market-based measurement, it is determined based on the assumptions that market participants would use. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment, which management believes to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from these estimates. Any changes in estimates resulting from continuing changes in the economic environment will be reflected in the financial statements in future periods. Recently Adopted Accounting Standards In February 2016, the Financial Accounting Standards Board issued an Accounting Standards Update (“ASU”) that is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet. The Company adopted this ASU effective January 1, 2019, using the modified retrospective effective date method and applied practical expedients which, among other things, allowed the Company to carryforward its historical lease classification, for the nonrecognition of short-term leases and for the combination of lease and non-lease components, by asset class. The adoption of this ASU resulted in an increase in both assets and liabilities of approximately $1 million as of January 1, 2019, related to the Company’s leasing activities with no material impact to the Company’s results of operations. The Company’s leases primarily include buildings, office equipment, and field equipment. The Company elected to combine lease and non-lease components for leases of office equipment and field equipment. New Accounting Standards Issued But Not Yet Adopted In June 2016, the FASB issued an ASU that is intended to change the impairment model for trade receivables, net investments in leases, debt securities, loans and certain other instruments. Adoption of this standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those years. Modified retrospective application of this standard is required upon adoption. The Company does not expect that adoption will have a material impact on its results of operations or financial position. Cash Equivalents For purposes of the consolidated and combined statements of cash flows, the Company considers all highly liquid short-term investments with original maturities of three months or less to be cash equivalents. Outstanding checks in excess of funds on deposit are included in “accounts payable and accrued expenses” on the consolidated balance sheets and are classified as financing activities on the consolidated and combined statements of cash flows. Accounts Receivable – Trade, Net Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The Company maintains an allowance for doubtful accounts for estimated losses inherent in its accounts receivable portfolio. In establishing the required allowance, management considers historical losses, current receivables aging, and existing industry and national economic data. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential recovery is remote. The balance in the Company’s allowance for doubtful accounts related to trade accounts receivable was approximately $1 million and $397,000 at December 31, 2019, and December 31, 2018, respectively. Inventories Materials, supplies and commodity inventories are valued at the lower of average cost and net realizable value and are included in “other current assets” on the consolidated balance sheets. Oil and Natural Gas Properties As a result of the application of fresh start accounting, the Company recorded its oil and natural gas properties at fair value as of the Effective Date (as defined in Note 2). See Note 2 for additional information. Proved Properties The Company accounts for oil and natural gas properties in accordance with the successful efforts method. In accordance with this method, all leasehold and development costs of proved properties are capitalized and amortized on a unit-of-production basis over the remaining life of the proved reserves and proved developed reserves, respectively. Costs of retired, sold or abandoned properties that constitute a part of an amortization base are charged or credited, net of proceeds, to accumulated depreciation, depletion and amortization unless doing so significantly affects the unit-of-production amortization rate, in which case a gain or loss is recognized currently. Gains or losses from the disposal of other properties are recognized currently. Expenditures for maintenance and repairs necessary to maintain properties in operating condition are expensed as incurred. Estimated dismantlement and abandonment costs are capitalized, net of salvage, at their estimated net present value and amortized on a unit-of-production basis over the remaining life of the related proved developed reserves. The Company capitalizes interest on borrowed funds related to its share of costs associated with the drilling and completion of new oil and natural gas wells. Interest is capitalized only during the periods in which these assets are brought to their intended use. Capitalized interest costs were not material for the year ended December 31, 2019, or the ten months ended December 31, 2017. The Company did not capitalize any interest costs during the year ended December 31, 2018, or the two months ended February 28, 2017. The Company evaluates the impairment of its proved oil and natural gas properties on a field-by-field basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of proved properties are reduced to fair value when the expected undiscounted future cash flows of proved and risk-adjusted probable and possible reserves are less than net book value. The fair values of proved properties are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount. Significant inputs used to determine the fair values of proved properties include estimates of: (i) reserves; (ii) future operating and development costs; (iii) future commodity prices; and (iv) a market-based weighted average cost of capital rate. These inputs require assumptions by the Company’s management at the time of the valuation and are the most sensitive and subject to change. The underlying commodity prices embedded in the Company’s estimated cash flows are the product of a process that begins with New York Mercantile Exchange (“NYMEX”) forward curve pricing, adjusted for estimated location and quality differentials, as well as other factors that Company management believes will impact realizable prices. Based on the analysis described above, for the years ended December 31, 2019, and December 31, 2018, the Company recorded noncash impairment charges of approximately $208 million and $16 million, respectively, associated with proved oil and natural gas properties. In 2019, approximately $207 million relates to assets sold or assets held for sale at December 31, 2019. The impairment charges recorded in 2019 and 2018 were primarily due to a decline in commodity prices and higher operating costs. The carrying values of the impaired proved properties were reduced to fair value, estimated using inputs characteristic of a Level 3 fair value measurement. The impairment charges are included in “impairment of assets held for sale and long-lived assets” on the consolidated and combined statement s of operations. The Company recorded no impairment charges associated with proved properties during the ten months ended December 31, 2017, or the two months ended February 28, 2017. Unproved Properties Costs related to unproved properties include costs incurred to acquire unproved reserves. Because these reserves do not meet the definition of proved reserves, the related costs are not classified as proved properties. Unproved leasehold costs are capitalized and amortized on a composite basis if individually insignificant, based on past success, experience and average lease-term lives. Individually significant leases are reclassified to proved properties if successful and expensed on a lease by lease basis if unsuccessful or the lease term expires. Unamortized leasehold costs related to successful exploratory drilling are reclassified to proved properties and depleted on a unit-of-production basis. The Company evaluates the impairment of its unproved oil and natural gas properties whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of unproved properties are reduced to fair value based on management’s experience in similar situations and other factors such as the lease terms of the properties and the relative proportion of such properties on which proved reserves have been found in the past. The Company recorded no impairment charges associated with unproved properties for the years ended December 31, 2019, December 31, 2018, the ten months ended December 31, 2017, or the two months ended February 28, 2017. Exploration Costs Exploratory geological and geophysical costs, delay rentals, amortization and impairment of unproved leasehold costs and costs to drill exploratory wells that do not find proved reserves are expensed as exploration costs. The costs of any exploratory wells are carried as an asset if the well finds a sufficient quantity of reserves to justify its capitalization as a producing well and as long as the Company is making sufficient progress towards assessing the reserves and the economic and operating viability of the project. Other Property and Equipment Other property and equipment includes natural gas gathering systems, pipelines, furniture and office equipment, buildings, vehicles, information technology equipment, software and other fixed assets. These assets are recorded at cost and are depreciated using the straight-line method based on expected lives ranging from one to 10 years for vehicles, equipment and other fixed assets, 20 to 39 years for buildings and 20 to 30 years for plants and pipelines. Derivative Instruments The Company hedges a portion of its forecasted production to reduce exposure to fluctuations in oil and natural gas prices and provide long-term cash flow predictability to manage its business. The Company also hedges its exposure to natural gas differentials in certain operating areas. In addition, the Company has hedged purchase costs and margins of its Blue Mountain Midstream Business. The Company enters into commodity hedging transactions primarily in the form of fixed price swap contracts that are designed to provide a fixed price, collars, basis swaps, margin spreads and, from time to time, put options that are designed to provide a fixed price floor with the opportunity for upside. The Company enters into these transactions with respect to a portion of its projected production to provide an economic hedge of the risk related to the future commodity prices received or paid. The Company does not enter into derivative contracts for trading purposes. A fixed price swap contract specifies a fixed price that the Company will receive from the counterparty as compared to floating market prices, and on the settlement date the Company will receive or pay the difference between the swap price and the market price. Collar contracts specify floor and ceiling prices to be received as compared to floating market prices. A basis swap specifies a fixed basis differential to the NYMEX Henry Hub natural gas price. A margin spread specifies a fixed basis spread between specified market hubs. A put option requires the Company to pay the counterparty a premium equal to the fair value of the option at the purchase date and receive from the counterparty the excess, if any, of the fixed price floor over the market price at the settlement date. Derivative instruments are recorded at fair value and included on the consolidated balance sheets as assets or liabilities. The Company did not designate any of its contracts as cash flow hedges; therefore, the changes in fair value of these instruments are recorded in current earnings. The Company determines the fair value of its commodity derivatives utilizing pricing models that use a variety of techniques, including market quotes and pricing analysis. Inputs to the pricing models include publicly available prices and forward price curves generated from a compilation of data gathered from third parties. Company management validates the data provided by third parties by understanding the pricing models used, obtaining market values from other pricing sources, analyzing pricing data in certain situations and confirming that those instruments trade in active markets. Assumed credit risk adjustments, based on published credit ratings and public bond yield spreads are applied to the Company’s commodity derivatives. See Note 7 and Note 8 for additional details about the Company’s derivative financial instruments. Revenue from Contracts with Customers Revenues representative of the Company’s ownership interest in its properties are presented on a gross basis on the consolidated and combined statements of operations. The Company recognizes sales of oil, natural gas and NGL when it satisfies a performance obligation by transferring control of the product to a customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for a product. Natural Gas and NGL Sales The Company’s natural gas production is primarily sold under market-sensitive contracts that are typically priced at a differential to the published natural gas index price for the producing area due to the natural gas quality and the proximity to major consuming markets. For its natural gas contracts, the Company generally records its wet gas sales at the wellhead or inlet of the plant as revenues net of transportation, gathering and processing expenses, and its residual natural gas and NGL sales at the tailgate of the plant on a gross basis along with the associated transportation, gathering and processing expenses. All facts and circumstances of an arrangement are considered and judgment is often required in making this determination. Oil Sales The Company’s oil production is primarily sold under market-sensitive contracts that are typically priced at a differential to the NYMEX price or at purchaser posted prices for the producing area. For its oil contracts, the Company generally records its sales based on the net amount received. Production Imbalances Upon adoption of fresh start accounting on February 28, 2017, the Company elected the sales method to account for natural gas production imbalances. If the Company’s sales volumes for a well exceed the Company’s proportionate share of production from the well, a liability is recognized to the extent that the Company’s share of estimated remaining recoverable reserves from the well is insufficient to satisfy this imbalance. No receivables are recorded for those wells on which the Company has taken less than its proportionate share of production. The Predecessor had applied the entitlements method to account for natural gas production imbalances in previous periods. Marketing Revenues The Company engages in the purchase, gathering and transportation of third-party natural gas and subsequently markets such natural gas to independent purchasers under separate arrangements. As such, the Company separately reports third-party marketing revenues and marketing expenses. Share-Based Compensation The Company recognizes expense for share-based compensation over the requisite service period in an amount equal to the fair value of share-based awards granted. The fair value of liability classified awards is remeasured at each reporting date through the settlement date with the change in fair value recognized as compensation expense over that period. The Company has made a policy decision to recognize compensation expense for service-based awards on a straight-line basis over the requisite service period for the entire award. The Company accounts for forfeitures as they occur. See Note 13 for additional details about the Company’s accounting for share-based compensation. Deferred Financing Fees The Company has incurred legal and bank fees related to the issuance of debt. At December 31, 2019, and December 31, 2018, net deferred financing fees of approximately $3 million and $5 million, respectively, were included in “other noncurrent assets” on the consolidated balance sheets. These debt issuance costs are amortized over the life of the debt agreement. Upon early retirement or amendment to the debt agreement, certain fees are written off to expense. For the years ended December 31, 2019, December 31, 2018, the ten months ended December 31, 2017, and the two months ended February 28, 2017, amortization expense of approximately $3 million, $2 million, $1 million and $1 million, respectively, is included in “interest expense, net of amounts capitalized” on the consolidated and combined statements of operations. For the year ended December 31, 2019, and the ten months ended December 31, 2017, approximately $700,000 and $3 million, respectively, was written off to expense and included in “other, net” on the consolidated and combined statements of operations related to amendments of the credit facilities. No fees were written off to expense for the year ended December 31, 2018, or the two months ended February 28, 2017. Fair Value of Financial Instruments The carrying values of the Company’s receivables, payables and credit facilities are estimated to be substantially the same as their fair values at December 31, 2019, and December 31, 2018. As noted above, the Company carries its derivative financial instruments at fair value. See Note 8 for details about the fair value of the Company’s derivative financial instruments. Income Taxes For periods prior to the Spin-off, income tax expense and deferred tax balances were calculated on a separate tax return basis although Riviera’s operations have historically been included in the tax returns filed by the Parent, of which Riviera’s business was a part. Beginning August 8, 2018, as a stand-alone entity, Riviera files tax returns on its own behalf and its deferred taxes and effective tax rate may differ from those in the historical periods. Upon completion of the Spin-off, on August 8, 2018, the Company recorded a deferred tax asset, the calculation of which, relied on estimates and assumptions related to the value of the company and its oil and natural gas reserves. During the third quarter of 2019, and for the first time since Riviera’s inception, the Company’s earnings show a cumulative loss which is primarily due to losses generated during 2019. Based on the cumulative loss and projections of future taxable income for the periods in which our deferred tax assets are deductible, during the third quarter of 2019, the Company recorded a full valuation allowance to reduce its federal and state net deferred tax assets to an amount that is more likely than not to be realized. Effective February 28, 2017, upon LINN Energy’s emergence from bankruptcy, LINN Energy became a C corporation subject to federal and state income taxes. Prior to February 28, 2017, the Predecessor to LINN Energy was a limited liability company treated as a partnership for federal and state income tax purposes, with the exception of the state of Texas, in which income tax liabilities and/or benefits were passed through to its unitholders. Limited liability companies are subject to Texas margin tax. In addition, certain of the Predecessor’s subsidiaries were C corporations subject to federal and state income taxes. As such, with the exception of the state of Texas and certain subsidiaries prior to February 28, 2017, the Predecessor did not directly pay federal and state income taxes and recognition was not given to federal and state income taxes for the operations of the Predecessor. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. See Note 15 for additional details of the Company’s accounting for income taxes. |
