10-Q 1 o72114010q.htm FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014 o72114010q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x
  
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended June 30, 2014

or

¨
  
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the transition period from _______________________to____________________________

 
Commission File No. 000-53584

Ridgewood Energy Y Fund, LLC
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)
  
26-2417032
(I.R.S. Employer
Identification No.)

14 Philips Parkway, Montvale, NJ  07645
(Address of principal executive offices) (Zip code)
 
(800) 942-5550
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
      Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x     No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
(Do not check if a smaller reporting company)
¨
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 Yes ¨     No x

As of July 24, 2014 the Fund had 492.3709 shares of LLC Membership Interest outstanding.

 

 
 
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PART I - FINANCIAL INFORMATION
  
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PART II - OTHER INFORMATION
  
   
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PART I – FINANCIAL INFORMATION


RIDGEWOOD ENERGY Y FUND, LLC
(in thousands, except share data)

 
   
June 30, 2014
    
December 31, 2013
  
Assets
            
Current assets:
            
Cash and cash equivalents
   $ 13,165     $ 13,330  
Production receivable
     619       617  
Asset held for sale
     -       317  
Other current assets
     7       99  
Total current assets
     13,791       14,363  
Salvage fund
     2,021       1,216  
Other assets
     30       89  
Oil and gas properties:
                
Advances to operators for working interests and expenditures
     78       101  
Proved properties
     37,459       35,998  
Equipment and facilities - in progress
     3,707       2,119  
Less:  accumulated depletion, depreciation and amortization
     (26,816 )     (25,527 )
Total oil and gas properties, net
     14,428       12,691  
Total assets
   $ 30,270     $ 28,359  
                 
Liabilities And Members' Capital
                
Current liabilities:
                
Due to operators
   $ 1,478     $ 1,039  
Accrued expenses
     33       42  
Liability held for sale
     -       171  
Total current liabilities
     1,511       1,252  
Asset retirement obligations
     2,087       2,087  
Total liabilities
     3,598       3,339  
                 
Commitments and contingencies (Note 4)
                
                 
Members' capital:
                
Manager:
                
Distributions
     (3,998 )     (3,838 )
Retained earnings
     3,291       3,067  
Manager's total
     (707 )     (771 )
                 
Shareholders:
                
Capital contributions (500 shares authorized;
                
492.3709 issued and outstanding)
     97,818       97,818  
Syndication costs
     (11,668 )     (11,668 )
Distributions
     (24,296 )     (23,389 )
Accumulated deficit
     (34,475 )     (36,970 )
Shareholders' total
     27,379       25,791  
Total members' capital
     26,672       25,020  
Total liabilities and members' capital
   $ 30,270     $ 28,359  

The accompanying notes are an integral part of these unaudited condensed financial statements.
 

RIDGEWOOD ENERGY Y FUND, LLC
(in thousands, except per share data)


   
Three months ended June 30,
    
Six months ended June 30,
  
   
2014
    
2013
    
2014
    
2013
  
Revenue
                        
Oil and gas revenue
   $ 1,803     $ 2,467     $ 3,121     $ 5,819  
                                 
Expenses
                                
Depletion, depreciation and amortization
     685       832       1,289       1,781  
Management fees to affiliate (Note 3)
     421       438       841       875  
Operating expenses
     260       444       500       969  
Workover expense
     (15 )     53       221       104  
General and administrative expenses
     79       120       161       179  
Total expenses
     1,430       1,887       3,012       3,908  
Gain on sale of oil and gas properties
     17       -       2,602       -  
Income from operations
     390       580       2,711       1,911  
Interest income
     4       7       8       13  
Net income
   $ 394     $ 587     $ 2,719     $ 1,924  
                                 
Manager Interest
                                
Net income
   $ 153     $ 205     $ 224     $ 540  
                                 
Shareholder Interest
                                
Net income
   $ 241     $ 382     $ 2,495     $ 1,384  
Net income per share
   $ 491     $ 775     $ 5,069     $ 2,811  

The accompanying notes are an integral part of these unaudited condensed financial statements.


RIDGEWOOD ENERGY Y FUND, LLC
(in thousands)

 
   
Six months ended June 30,
  
 
  
2014
    
2013
  
             
Cash flows from operating activities
            
Net income
   $ 2,719     $ 1,924  
Adjustments to reconcile net income to net cash
                
provided by operating activities:
                
Depletion, depreciation and amortization
     1,289       1,781  
Gain on sale of oil and gas properties
     (2,602 )     -  
Changes in assets and liabilities:
                
(Increase) decrease in production receivable
     (2 )     775  
Decrease in other current assets
     92       81  
Increase in due to operators
     11       145  
(Decrease) increase in accrued expenses
     (9 )     7  
Net cash provided by operating activities
     1,498       4,713  
                 
Cash flows from investing activities
                
Proceeds from sale of oil and gas properties
     2,748       -  
Payments to operators for working interests
                
and expenditures
     (78 )     (21 )
Capital expenditures for oil and gas properties
     (2,461 )     (1,331 )
Investments in marketable securities
     -       (7,499 )
Proceeds from maturity of investments
     -       7,500  
Investments in salvage fund
     (805 )     (78 )
Net cash used in investing activities
     (596 )     (1,429 )
                 
Cash flows from financing activities
                
Distributions
     (1,067 )     (4,523 )
Net cash used in financing activities
     (1,067 )     (4,523 )
Net decrease in cash and cash equivalents
     (165 )     (1,239 )
                 
Cash and cash equivalents, beginning of period
     13,330       16,016  
Cash and cash equivalents, end of period
   $ 13,165     $ 14,777  
                 
Supplemental schedule of non-cash investing activities
                
Advances used for capital expenditures in oil and gas properties
reclassified to proved properties
   $ 101     $ -  

The accompanying notes are an integral part of these unaudited condensed financial statements.


RIDGEWOOD ENERGY Y FUND, LLC

1.           Organization and Summary of Significant Accounting Policies

Organization
The Ridgewood Energy Y Fund, LLC (the “Fund”), a Delaware limited liability company, was formed on March 25, 2008 and operates pursuant to a limited liability company agreement (the “LLC Agreement”) dated as of May 1, 2008 by and among Ridgewood Energy Corporation (the “Manager”) and the shareholders of the Fund, which addresses matters such as the authority and voting rights of the Manager and shareholders, capitalization, transferability of membership interests, participation in costs and revenues, distribution of assets and dissolution and winding up.  The Fund was organized to primarily acquire interests in oil and gas properties located in the United States offshore waters of Texas, Louisiana, and Alabama in the Gulf of Mexico.

The Manager has direct and exclusive control over the management of the Fund’s operations.  With respect to project investments, the Manager locates potential projects, conducts due diligence, and negotiates and completes the transactions in which the investments are made. The Manager performs, or arranges for the performance of, the management, advisory and administrative services required for Fund operations.  Such services include, without limitation, the administration of shareholder accounts, shareholder relations and the preparation, review and dissemination of tax and other financial information.  In addition, the Manager provides office space, equipment and facilities and other services necessary for Fund operations.  The Manager also engages and manages the contractual relations with unaffiliated custodians, depositories, accountants, attorneys, broker-dealers, corporate fiduciaries, insurers, banks and others as required.  See Notes 3 and 4.

Basis of Presentation
These unaudited interim condensed financial statements have been prepared by the Fund’s management in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in the opinion of management, contain all adjustments (consisting of only normal recurring adjustments) necessary to present fairly the Fund’s financial position, results of operations and cash flows for the periods presented.  Certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been omitted in these unaudited interim condensed financial statements.  The results of operations, financial position, and cash flows for the periods presented herein are not necessarily indicative of future financial results.  These unaudited interim condensed financial statements should be read in conjunction with the Fund’s December 31, 2013 financial statements and notes thereto included in the Fund’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”).  The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP.

Use of Estimates
The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the reporting period. On an ongoing basis, the Manager reviews its estimates, including those related to the fair value of financial instruments, property balances, determination of proved reserves, impairments and asset retirement obligations. Actual results may differ from those estimates.

Fair Value Measurements
The fair value measurement guidance provides a hierarchy that prioritizes and defines the types of inputs used to measure fair value.  The fair value hierarchy gives the highest priority to Level 1 inputs, which consists of unadjusted quoted prices for identical instruments in active markets.  Level 2 inputs consist of quoted prices for similar instruments.  Level 3 valuations are derived from inputs that are significant and unobservable; hence, these valuations have the lowest priority.  Cash and cash equivalents approximate fair value based on Level 1 inputs.
 
Cash and Cash Equivalents
All highly liquid investments with maturities, when purchased, of three months or less, are considered cash and cash equivalents. At times, deposits may be in excess of federally insured limits, which are $250 thousand per insured financial institution.  At June 30, 2014, the Fund’s bank balances were maintained in uninsured bank accounts at Wells Fargo Bank, N.A.
 

Salvage Fund
The Fund deposits in a separate interest-bearing account, or salvage fund, money to provide for the dismantling and removal of production platforms and facilities and plugging and abandoning its wells at the end of their useful lives in accordance with applicable federal and state laws and regulations.  Interest earned on the account will become part of the salvage fund.   There are no restrictions on withdrawals from the salvage fund.

Oil and Gas Properties
The Fund invests in oil and gas properties, which are operated by unaffiliated entities that are responsible for drilling, administering and producing activities pursuant to the terms of the applicable operating agreements with working interest owners. The Fund’s portion of exploration, drilling, operating and capital equipment expenditures is billed by operators.

Exploration, development and acquisition costs are accounted for using the successful efforts method. Costs of acquiring unproved and proved oil and natural gas leasehold acreage, including lease bonuses, brokers’ fees and other related costs are capitalized. Costs of drilling and equipping productive wells and related production facilities are capitalized. Costs of developing production facilities and pipelines that service multiple oil and gas properties are segregated as “Equipment and facilities - in progress.”  Exploratory costs are capitalized pending determination of whether proved reserves have been found. If proved commercial reserves are not found, exploratory drilling costs are expensed as dry-hole costs. Annual lease rentals and exploration expenses are expensed as incurred.  All costs related to production activity and workover efforts are expensed as incurred.

Upon the sale, retirement or abandonment of a property, the cost and related accumulated depletion, depreciation and amortization, if any, is eliminated from the property accounts, and the resultant gain or loss is recognized.

At June 30, 2014 and December 31, 2013, amounts recorded in due to operators totaling $1.2 million and $0.7 million, respectively, related to capital expenditures for oil and gas properties.

Advances to Operators for Working Interests and Expenditures
The Fund’s acquisition of a working interest in a well or a project requires it to make a payment to the seller for the Fund’s rights, title and interest. The Fund may be required to advance its share of estimated cash expenditures for the succeeding month’s operation. The Fund accounts for such payments as advances to operators for working interests and expenditures. As drilling costs are incurred, the advances are reclassified to unproved or proved properties.

Asset Retirement Obligations
For oil and gas properties, there are obligations to perform removal and remediation activities when the properties are retired. When a project reaches drilling depth and is determined to be either proved or dry, an asset retirement obligation is incurred. Plug and abandonment costs associated with unsuccessful projects are expensed as dry-hole costs.  As indicated above, the Fund maintains a salvage fund to provide for the funding of future asset retirement obligations.

Syndication Costs
Syndication costs are direct costs incurred by the Fund in connection with the offering of the Fund’s shares, including professional fees, selling expenses and administrative costs payable to the Manager, an affiliate of the Manager and unaffiliated broker-dealers, which are reflected on the Fund’s balance sheet as a reduction of shareholders’ capital.

Revenue Recognition and Imbalances
Oil and gas revenues are recognized when oil and gas is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable. The Fund uses the sales method of accounting for gas production imbalances. The volumes of gas sold may differ from the volumes to which the Fund is entitled based on its interests in the properties. These differences create imbalances that are recognized as a liability only when the properties’ estimated remaining reserves net to the Fund will not be sufficient to enable the underproduced owner to recoup its entitled share through production. The Fund’s recorded liability, if any, would be reflected in other liabilities. No receivables are recorded for those wells where the Fund has taken less than its share of production.
 

Derivative Instruments
The Fund may periodically utilize derivative instruments to manage the price risk attributable to its oil and gas production.  Derivative instruments are carried on the balance sheet at fair value and recorded as either an asset or liability.  Changes in the fair value of the derivatives are recorded currently in earnings unless specific hedge accounting criteria are met.  At this time, the Fund has elected not to use hedge accounting for its derivatives and, accordingly, the derivatives are marked-to-market each quarter with fair value gains and losses recognized currently as other income on the statement of operations.  The estimated fair value of such contracts is based upon various factors, including reported prices on the New York Mercantile Exchange (“NYMEX”) and the Intercontinental Exchange (“ICE”), volatility, and the time value of options.  The Fund recognizes all unrealized and realized gains and losses related to these contracts on a mark-to-market basis on the statement of operations within other income or loss. The related cash flow impact of the derivative activities are reflected as cash flows from operating activities on the statement of cash flows.  The Fund actively monitors the creditworthiness of each counterparty and assesses the impact, if any, on its derivative positions.

Impairment of Long-Lived Assets
The Fund reviews the value of its oil and gas properties whenever management determines that events and circumstances indicate that the recorded carrying value of properties may not be recoverable. Impairments of proved properties are determined by comparing future net undiscounted cash flows to the net book value at the time of the review. If the net book value exceeds the future net undiscounted cash flows, the carrying value of the property is written down to fair value, which is determined using net discounted future cash flows from the property. The Fund provides for impairments on unproved properties when it determines that the property will not be developed or a permanent impairment in value has occurred. The fair value determinations require considerable judgment and are sensitive to change. Different pricing assumptions, reserve estimates or discount rates could result in a different calculated impairment. Given the volatility of oil and natural gas prices, it is reasonably possible that the Fund’s estimate of discounted future net cash flows from proved oil and natural gas reserves could change in the near term. If oil and natural gas prices decline significantly, even if only for a short period of time, it is possible that write-downs of oil and gas properties could occur.

Depletion, Depreciation and Amortization
Depletion, depreciation and amortization of the cost of proved oil and gas properties are calculated using the units-of-production method.  Proved developed reserves are used as the base for depleting capitalized costs associated with successful exploratory well costs, development costs and related facilities. The sum of proved developed and proved undeveloped reserves is used as the base for depleting or amortizing leasehold acquisition costs. In certain circumstances, equipment and facilities costs are depreciated over the estimated useful life of the asset.

Income Taxes
No provision is made for income taxes in the financial statements. The Fund is a limited liability company, and as such, the Fund’s income or loss is passed through and included in the tax returns of the Fund’s shareholders.

Income and Expense Allocation
Profits and losses are allocated to shareholders and the Manager in accordance with the LLC agreement.

Distributions
Distributions to shareholders are allocated in proportion to the number of shares held. The Manager determines whether available cash from operations, as defined in the LLC Agreement, will be distributed. Such distributions are allocated 85% to the shareholders and 15% to the Manager, as required by the LLC Agreement.
 
Available cash from dispositions, as defined in the LLC Agreement, will be paid 99% to shareholders and 1% to the Manager until the shareholders have received total distributions equal to their capital contributions.  After shareholders have received distributions equal to their capital contributions, 85% of available cash from dispositions will be distributed to shareholders and 15% to the Manager.
 
Recent Accounting Pronouncements
The Fund has considered recent accounting pronouncements and believes that these recent pronouncements will not have a material effect on the Fund’s financial statements.
 

2.           Oil and Gas Properties

On January 17, 2014, the Fund, along with its affiliates, Ridgewood Energy Gulf of Mexico Oil and Gas Fund, L.P., Ridgewood Energy A-1 Fund, LLC, Ridgewood Energy P Fund, LLC, and Ridgewood Energy W Fund, LLC,  (when used with the Fund the “Ridgewood Funds”) entered into a purchase and sale agreement to sell the Ridgewood Funds’ interests in the Raven Project, located in the state waters of Louisiana, to Castex Energy Partners, L.P. (“Castex”) for cash consideration totaling $21.7 million.  The closing of the sale transaction occurred on January 30, 2014.

The Fund had a 6.25% working interest in the Raven Project and received $2.7 million in cash proceeds from the sale. The net carrying value for the Raven Project on the date of the sale was $0.1 million, thereby resulting in a gain to the Fund of $2.6 million, which was recognized during the six months ended June 30, 2014.  Such included a gain of $17 thousand, which resulted from post-closing adjustments to the Raven Project sale price.  There was no such amount recorded during the three and six months ended June 30, 2013.

At December 31, 2013, the Fund’s balance sheet reflects the Raven Project’s cost and accumulated depletion classified as “Asset held for sale”, which totaled $0.3 million, and the Raven Project’s asset retirement obligation classified as “Liability held for sale”, which totaled $0.2 million.   Such asset was monetized and obligation was relieved upon the closing of the Raven Project’s sale.

Capitalized exploratory well costs are expensed as dry-hole costs in the event that reserves are not found or are not in sufficient quantities to complete the well and develop the field. At times, the Fund receives adjustments to certain wells from their respective operators upon review and audit of the wells’ costs.

During the three and six months ended June 30, 2014, the Fund recorded credits to workover expense of $15 thousand and workover expense of $0.2 million, respectively, principally related to the Carrera Project.  During the three and six months ended June 30, 2013, workover expense of $53 thousand and $0.1 million, respectively, related to the Alpha, Carrera and Liberty projects.
 
3.           Related Parties

The LLC Agreement provides that the Manager render management, administrative and advisory services to the Fund. For such services, the Manager is paid an annual management fee, payable monthly, of 2.5% of total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund.  Management fees for the three and six months ended June 30, 2014 were $0.4 million and $0.8 million, respectively.  Management fees for the three and six months ended June 30, 2013 were $0.4 million and $0.9 million, respectively.

The Manager is entitled to receive a 15% interest in cash distributions from operations made by the Fund. Distributions paid to the Manager for the three and six months ended June 30, 2014 were $0.1 million and $0.2 million, respectively. Distributions paid to the Manager for the three and six months ended June 30, 2013 were $0.3 million and $0.7 million, respectively.

At times, short-term payables and receivables, which do not bear interest, arise from transactions with affiliates in the ordinary course of business.

None of the amounts paid to the Manager have been derived as a result of arm’s length negotiations.

The Fund has working interest ownership in certain projects to acquire and develop oil and natural gas projects with other entities that are likewise managed by the Manager.

4.           Commitments and Contingencies

Capital Commitments
The Fund has entered into multiple agreements for the acquisition, drilling and development of its investment properties. The estimated capital expenditures associated with these agreements vary depending on the stage of development on a property-by-property basis.  Currently, the Fund has several non-producing properties, the Beta, Diller and Marmalard projects, for which additional development costs must be incurred in order to commence production. The Fund currently anticipates such development will include up to eleven wells, four in the Beta Project and seven in the Diller and Marmalard projects, with related platform and pipeline infrastructure. It is also possible that full development of the Beta and Marmalard projects will entail the drilling of up to two additional wells beyond the projected wells, the cost of which is not included in the below estimates.
 

As of June 30, 2014, the Fund’s estimated capital commitments related to its investments in oil and gas properties were $16.9 million, of which $7.2 million is expected to be spent during the next twelve months.  These expected capital commitments exceed available working capital by $4.6 million at June 30, 2014, which includes asset retirement obligations for the non-producing properties. 
 
Based upon its current cash position and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments, as well as ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision.
 
Environmental Considerations
The exploration for and development of oil and natural gas involves the extraction, production and transportation of materials which, under certain conditions, can be hazardous or cause environmental pollution problems.  The Manager and operators of the Fund’s properties are continually taking action they believe appropriate to satisfy applicable federal, state and local environmental regulations and do not currently anticipate that compliance with federal, state and local environmental regulations will have a material adverse effect upon capital expenditures, results of operations or the competitive position of the Fund in the oil and gas industry.  However, due to the significant public and governmental interest in environmental matters related to those activities, the Manager cannot predict the effects of possible future legislation, rule changes, or governmental or private claims.  At June 30, 2014 and December 31, 2013, there were no known environmental contingencies that required the Fund to record a liability.

During the past several years, the United States Congress, as well as certain regulatory agencies with jurisdiction over the Fund’s business, have considered or proposed legislation or regulation relating to the upstream oil and gas industry both onshore and offshore including a proposal to raise or eliminate the cap on liability for oil spill cleanups under the Oil Pollution Act of 1990.  If any such proposals were to be enacted or adopted they could potentially materially impact the Fund’s operations.  It is not possible at this time to predict whether such legislation or regulation, if proposed, will be adopted as initially written, if at all, or how legislation or new regulation that may be adopted would impact the Fund’s business. Any such future laws and regulations could result in increased compliance costs or additional operating restrictions, which could have a material adverse effect on the Fund’s operating results and cash flows.


Insurance Coverage
The Fund is subject to all risks inherent in the exploration for and development of oil and natural gas. Insurance coverage as is customary for entities engaged in similar operations is maintained, but losses may occur from uninsurable risks or amounts in excess of existing insurance coverage.  The occurrence of an event that is not insured or not fully insured could have a material adverse impact upon earnings and financial position.  Moreover, insurance is obtained as a package covering all of the funds managed by the Manager.  Claims made by other funds managed by the Manager can reduce or eliminate insurance for the Fund.



Cautionary Statement Regarding Forward-Looking Statements

Certain statements in this Quarterly Report on Form 10-Q (“Quarterly Report”) and the documents Ridgewood Energy Y Fund, LLC (the “Fund”) has incorporated by reference into this Quarterly Report, other than purely historical information, including estimates, projections, statements relating to the Fund’s business plans, strategies, objectives and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the US Private Securities Litigation Reform Act of 1995 that are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially from the forward-looking statements. You are therefore cautioned against relying on any such forward-looking statements. Forward-looking statements can generally be identified by words such as “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “plan,” “target,” “pursue,” “may,” “will,” “will likely result,” and similar expressions and references to future periods.  Examples of events that could cause actual results to differ materially from historical results or those anticipated include weather conditions, such as hurricanes, changes in market conditions affecting the pricing and production of oil and natural gas, the cost and availability of equipment, and changes in governmental regulations.  Examples of forward-looking statements made herein include statements regarding projects, investments, insurance, capital expenditures and liquidity.  Forward-looking statements made in this document speak only as of the date on which they are made.  The Fund undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Critical Accounting Policies and Estimates

The following discussion and analysis of the Fund’s financial condition and operating results is based on its financial statements. The preparation of this Quarterly Report requires the Fund to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the Fund’s financial statements, and the reported amount of revenue and expense during the reporting period. Actual results may differ from those estimates and assumptions.  See “Notes to Unaudited Condensed Financial Statements” in Part I of this Quarterly Report for a presentation of the Fund’s significant accounting policies. No changes have been made to the Fund’s critical accounting policies and estimates disclosed in its 2013 Annual Report on Form 10-K.

Overview of the Fund’s Business

The Fund is a Delaware limited liability company formed on March 25, 2008 to primarily acquire interests in oil and natural gas properties located in the United States offshore waters of Texas, Louisiana and Alabama in the Gulf of Mexico.  The Fund’s primary investment objective is to generate cash flow for distribution to its shareholders by generating returns across a portfolio of exploratory or development oil and natural gas projects.  However, the Fund is not required to make distributions to shareholders except as provided in the Fund’s limited liability company agreement (the “LLC Agreement”).

Ridgewood Energy Corporation (the “Manager” or “Ridgewood Energy”) is the Manager, and as such, has direct and exclusive control over the management of the Fund’s operations.  The Manager performs certain duties on the Fund’s behalf including the evaluation of projects, including ongoing management, administrative and advisory services.  For these services, the Manager receives an annual management fee equal to 2.5% of capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund, payable monthly.  The Fund does not currently, nor is there any plan to, operate any project in which the Fund participates.  The Manager enters into operating agreements with third-party operators for the management of all exploration, development and producing operations, as appropriate.  The Manager also participates in distributions.

Revenues are subject to market pricing for oil and natural gas, which has been volatile, and is likely to continue to be volatile in the future.  This volatility is caused by numerous factors and market conditions that the Fund cannot control or influence. Therefore, it is impossible to predict the future price of oil and natural gas with any certainty. Low commodity prices could have an adverse effect on the Fund’s future profitability.
 

Business Update
 

Information regarding the Fund’s current projects, all of which are located in the offshore waters of the Gulf of Mexico, is provided in the following table.
 
         
Total Spent
          
   
Working
    
through
    
Total Fund
    
Project
  
Interest
    
June 30, 2014
    
Budget
  
Status
         
(in thousands)
    
Equipment and Facilities
                    
Delta House Project
   0.06%     $ 274     $ 352  
Floating production facility to service several wells, including the Diller and Marmalard wells. Expected to be placed in service in 2015.
Non-producing Properties
                        
Beta Project
   2.0%     $ 6,519     $ 16,003  
Well deemed to be a discovery in 2012. Completion efforts are ongoing and production is expected to commence in 2016.
Diller Project
   0.88%     $ 1,924     $ 3,898  
Well deemed to be a discovery in March 2012. Completion efforts are ongoing and production is expected to commence in 2015.
Marmalard Project
   0.88%     $ 2,219     $ 7,419  
Well #1 and well #2 were deemed to be discoveries in May 2012 and May 2013, respectively. Completion efforts are ongoing and production is expected to commence in 2015.
Producing Properties
                        
Alpha Project
   7.5%     $ 13,213     $ 13,213  
Production commenced in 2012.
Carrera Project
   3.0%     $ 4,875     $ 4,875  
Production commenced in 2011. Well has been shut-in periodically during 2014 due to maintenance activities. Well is currently shut-in due to pipeline maintenance activities and is expected to resume production in late-July 2014.
Cobalt Project
   12.0%     $ 5,683     $ 5,779  
Production commenced in 2009. Recompletions are expected in 2016 and 2019 at an estimated total cost of $96 thousand.
Liberty Project
   3.0%     $ 4,512     $ 4,542  
Production commenced in 2010. Well is currently shut-in due to pipeline maintenance activities and is expected to resume production in late-July 2014. Recompletion is planned for 2015 at an estimated cost of $30 thousand.
Sold Properties
                        
Raven Project well #1 & #2
   6.25%     $ 2,863     $ 2,863  
In January 2014, the Fund sold its interest in the Raven Project. See "Raven Sale" below for additional information.
 

Raven Sale
On January 17, 2014, the Fund, along with its affiliates, Ridgewood Energy Gulf of Mexico Oil and Gas Fund, L.P., Ridgewood Energy A-1 Fund, LLC, Ridgewood Energy P Fund, LLC, and Ridgewood Energy W Fund, LLC,  (when used with the Fund the “Ridgewood Funds”) entered into a purchase and sale agreement to sell the Ridgewood Funds’ interests in the Raven Project, located in the state waters of Louisiana, to Castex Energy Partners, L.P. (“Castex”) for cash consideration totaling $21.7 million.  The closing of the sale transaction occurred on January 30, 2014.

The Fund had a 6.25% working interest in the Raven Project and received $2.7 million in cash proceeds from the sale. The net carrying value for the Raven Project on the date of the sale was $0.1 million, thereby resulting in a gain to the Fund of $2.6 million, which was recognized during the six months ended June 30, 2014.  Such included a gain of $17 thousand, which resulted from post-closing adjustments to the Raven Project sale price.  There was no such amount recorded during the three and six months ended June 30, 2013.

Results of Operations

The following table summarizes the Fund’s results of operations for the three and six months ended June 30, 2014 and 2013, and should be read in conjunction with the Fund’s financial statements and notes thereto included within Item 1.  “Financial Statements” in Part I in this Quarterly Report.

   
Three months ended June 30,
    
Six months ended June 30,
  
   
2014
    
2013
    
2014
    
2013
  
   
(in thousands)
  
Revenue
                        
Oil and gas revenue
   $ 1,803     $ 2,467     $ 3,121     $ 5,819  
                                 
Expenses
                                
Depletion, depreciation and amortization
     685       832       1,289       1,781  
Management fees to affiliate
     421       438       841       875  
Operating expenses
     260       444       500       969  
Workover expense
     (15 )     53       221       104  
General and administrative expenses
     79       120       161       179  
Total expenses
     1,430       1,887       3,012       3,908  
Gain on sale of oil and gas properties
     17       -       2,602       -  
Income from operations
     390       580       2,711       1,911  
Interest income
     4       7       8       13  
Net income
   $ 394     $ 587     $ 2,719     $ 1,924  

Overview.  The following table provides information related to the Fund’s oil and gas production and oil and gas revenue during the three and six months ended June 30, 2014 and 2013.

   
Three months ended June 30,
    
Six months ended June 30,
  
   
2014
    
2013
    
2014
    
2013
  
Number of wells producing
     4       6       4       6  
Total number of production days
     321       421       579       911  
Oil sales (in thousands of barrels)
     13       15       21       33  
Average oil price per barrel
   $ 102     $ 106     $ 101     $ 108  
Gas sales (in thousands of mcfs)
     90       268       190       573  
Average gas price per mcf
   $ 5.23     $ 4.72     $ 5.34     $ 4.37  

The decreases in the number of wells producing, production days and sales volumes were primarily attributable to the Raven Project, which was sold in January 2014, the Carrera Project, which was shut-in periodically during first and second quarter 2014, and natural declines in well production. See additional discussion in “Business Update” section above.
 

Oil and Gas Revenue.  Oil and gas revenue for the three months ended June 30, 2014 was $1.8 million, a $0.7 million decrease from the three months ended June 30, 2013.  The decrease was attributable to decreased sales volume totaling $0.3 million, excluding the impact of the sale of the Raven Project, which contributed an additional decrease of $0.5 million.  Oil and gas revenue for the six months ended June 30, 2014 was $3.1 million, a $2.7 million decrease from the six months ended June 30, 2013.  The decrease was attributable to decreased sales volume totaling $1.7 million, excluding the impact of the sale of the Raven Project, which contributed an additional decrease of $1.1 million.  These decreases were partially offset by the impact of the change in average prices totaling $0.1 million. See “Overview” above for additional information.

Depletion, Depreciation and Amortization.  Depletion, depreciation and amortization for the three months ended June 30, 2014 was $0.7 million, a decrease of $0.1 million from the three months ended June 30, 2013.  The decrease resulted from a decrease in production volumes totaling $0.4 million, partially offset by an increase in average depletion rates totaling $0.3 million.  Depletion, depreciation and amortization for the six months ended June 30, 2014 was $1.3 million, a decrease of $0.5 million from the six months ended June 30, 2013.  The decrease resulted from a decrease in production volumes totaling $1.1 million, partially offset by an increase in average depletion rates totaling $0.6 million. The increases in average depletion rates were primarily attributable to decreases in reserve estimates, primarily related to the Alpha Project, coupled with the impact of the sale of the Raven Project, which had lower cost reserves.  See “Overview” above for additional information.
 
Management Fees to Affiliate.  Management fees for each of the three months ended June 30, 2014 and 2013 were $0.4 million.  Management fees for the six months ended June 30, 2014 and 2013 were $0.8 million and $0.9 million, respectively.  An annual management fee, totaling 2.5% of total capital contributions, net of cumulative dry-hole and related well costs incurred by the Fund, is paid monthly to the Manager.

Operating Expenses.  Operating expenses represent costs specifically identifiable or allocable to the Fund’s wells, as detailed in the following table.
 
   
Three months ended June 30,
    
Six months ended June 30,
  
   
2014
    
2013
    
2014
    
2013
  
   
(in thousands)
  
Lease operating expense
   $ 255     $ 440     $ 496     $ 956  
Geological costs
     6       8       9       19  
Dry-hole costs
     (1 )     (4 )     (5 )     (6 )
    $ 260     $ 444     $ 500     $ 969  

Lease operating expense relates to the Fund’s producing properties during each period as outlined above in “Overview”.  The average production cost was $9.16 per barrel of oil equivalent (“BOE”) and $9.39 per BOE during the three and six months ended June 30, 2014, respectively, compared to $7.40 per BOE and $7.41 per BOE during the three and six months ended June 30, 2013, respectively.  Geological costs, which represent costs incurred to obtain seismic data, surveys, and lease rentals, were primarily related to the Beta, Diller and Marmalard projects.  Dry-hole costs are those costs incurred to drill and develop a well that is ultimately found to be incapable of producing either oil or natural gas in sufficient quantities to justify completion of the well. At times, the Fund receives adjustments to certain wells from their respective operators upon review and audit of the wells’ costs.

Workover Expense. Workover expense represents costs to restore or stimulate production of existing reserves.  During the three and six months ended June 30, 2014, the Fund recorded credits to workover expense of $15 thousand and workover expense of $0.2 million, respectively, principally related to the Carrera Project. During the three and six months ended June 30, 2013, workover expense of $53 thousand and $0.1 million, respectively, related to the Alpha, Carrera and Liberty projects.
 
General and Administrative Expenses.  General and administrative expenses represent costs specifically identifiable or allocable to the Fund, as detailed in the following table.
 
 
   
Three months ended June 30,
    
Six months ended June 30,
  
   
2014
    
2013
    
2014
    
2013
  
   
(in thousands)
  
Insurance expense
   $ 48     $ 71     $ 97     $ 103  
Accounting and professional fees
     30       42       62       59  
Trust fees and other
     1       7       2       17  
    $ 79     $ 120     $ 161     $ 179  

Insurance expense represents premiums related to producing well and control of well insurance, which varies depending upon the number of wells producing or drilling, and directors’ and officers’ liability insurance.  Accounting and professional fees represent expenses for audits, quarterly reviews, tax preparation, reserve data engineering and reporting, and administration of filings. Trust fees represent bank fees associated with the management of the Fund’s cash accounts.

Gain on Sale of Oil and Gas Properties.  During the three and six months ended June 30, 2014, the Fund recorded a gain on sale of oil and gas properties of $17 thousand and $2.6 million, respectively, related to the Raven Project.  See “Business Update” for additional information regarding the sale.  There were no such amounts recorded during the three and six months ended June 30, 2013.

Interest Income.  Interest income is comprised of interest earned on cash and cash equivalents, salvage fund and held-to-maturity investments.

Capital Resources and Liquidity

Operating Cash Flows
Cash flows provided by operating activities for the six months ended June 30, 2014 were $1.5 million, primarily related to revenue received of $3.1 million, partially offset by management fees of $0.8 million, operating expenses paid of $0.5 million, workover expense paid of $0.2 million and general and administrative expenses paid of $0.1 million.

Cash flows provided by operating activities for the six months ended June 30, 2013 were $4.7 million, primarily related to revenue received of $6.6 million, partially offset by operating expenses paid of $0.9 million, management fees of $0.9 million and general and administrative expenses paid of $0.1 million.

Investing Cash Flows
Cash flows used in investing activities for the six months ended June 30, 2014 were $0.6 million, primarily related to capital expenditures for oil and gas properties of $2.5 million and investments in the salvage fund of $0.8 million, partially offset by proceeds from the sale of the Raven Project of $2.7 million.

Cash flows used in investing activities for the six months ended June 30, 2013 were $1.4 million, primarily related to investments in U.S. Treasury securities of $7.5 million, capital expenditures for oil and gas properties of $1.3 million and investment in the salvage fund of $0.1 million, partially offset by the proceeds from the maturity of investments in U.S. Treasury securities of $7.5 million.

Financing Cash Flows
Cash flows used in financing activities for the six months ended June 30, 2014 were $1.1 million, related to manager and shareholder distributions.

Cash flows used in financing activities for the six months ended June 30, 2013 were $4.5 million, related to manager and shareholder distributions.

Estimated Capital Expenditures

The Fund has entered into multiple agreements for the acquisition, drilling and development of its investment properties. The estimated capital expenditures associated with these agreements vary depending on the stage of development on a property-by-property basis. As of June 30, 2014, the Fund has several non-producing properties, the Beta, Diller and Marmalard projects, for which additional development costs must be incurred in order to commence production. The Fund currently expects to spend an additional $16.8 million related to the development of these projects, which the Fund anticipates will include the development of up to eleven wells, four in the Beta Project and seven in the Diller and Marmalard projects, with related platform and pipeline infrastructure. It is also possible that full development of the Beta and Marmalard projects will entail the drilling of up to two additional wells beyond the projected wells, the cost of which is not included in the above estimates. See “Liquidity Needs” below for additional information.
 

Capital expenditures for investment properties have been funded with the capital raised by the Fund in its private placement offering, which may be all the capital it will obtain.  The number of projects in which the Fund can invest was limited, and each unsuccessful project the Fund experienced exhausted its capital and reduced its ability to generate revenue.

Liquidity Needs

The Fund’s primary short-term liquidity needs are to fund its operations and capital expenditures for its investment properties. Such needs are funded utilizing operating income, existing cash on-hand and income earned therefrom.

As of June 30, 2014, the Fund’s estimated capital commitments related to its investments in oil and gas properties were $16.9 million, of which $7.2 million is expected to be spent during the next twelve months.  These expected capital commitments exceed available working capital by $4.6 million at June 30, 2014, which includes asset retirement obligations for the non-producing properties. 

Based upon its current cash position and its current reserve estimates, the Fund expects cash flow from operations to be sufficient to cover its commitments as well as ongoing operations. Reserve estimates are projections based on engineering data that cannot be measured with precision, require substantial judgment, and are subject to frequent revision.

The Manager is entitled to receive an annual management fee from the Fund regardless of the Fund’s profitability in that year. Generally, the management fee is paid from operating income.

Distributions, if any, are funded from available cash from operations, as defined in the LLC Agreement, and the frequency and amount are within the Manager’s discretion.  Due to the significant capital required to develop the Beta, Diller and Marmalard projects, distributions have been impacted, and may be impacted in the future, by amounts reserved to provide for their ongoing development costs and funding their estimated asset retirement obligations.

Off-Balance Sheet Arrangements

The Fund had no off-balance sheet arrangements at June 30, 2014 and December 31, 2013 and does not anticipate the use of such arrangements in the future.

Contractual Obligations

The Fund enters into participation and joint operating agreements with operators.  On behalf of the Fund, an operator enters into various contractual commitments pertaining to exploration, development and production activities.  The Fund does not negotiate such contracts.  No contractual obligations exist at June 30, 2014 and December 31, 2013, other than those discussed in “Estimated Capital Expenditures” above.

Recent Accounting Pronouncements

The Fund has considered recent accounting pronouncements and believes that these recent pronouncements will not have a material effect on the Fund’s financial statements.


Not required.
 


In accordance with Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Fund’s management, including its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Fund’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Fund’s disclosure controls and procedures were effective as of June 30, 2014.

There has been no change in the Fund’s internal control over financial reporting that occurred during the three months ended June 30, 2014 that has materially affected, or is reasonably likely to materially affect, the Fund’s internal control over financial reporting.

 
PART II – OTHER INFORMATION
 


None.


Not required.


None.


None.


None.


None.
 

         
EXHIBIT
NUMBER
  
TITLE OF EXHIBIT
  
METHOD OF FILING
         
31.1
  
Certification of Robert E. Swanson, Chief Executive Officer of
the Fund, pursuant to Exchange Act Rule 13a-14(a)
  
Filed herewith
         
31.2
  
Certification of Kathleen P. McSherry, Executive Vice President
and Chief Financial Officer of the Fund, pursuant to Exchange
Act Rule 13a-14(a)
  
Filed herewith
         
32
  
Certifications pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by Robert E. Swanson, Chief Executive Officer of the
Fund and Kathleen P. McSherry, Executive Vice President and
Chief Financial Officer of the Fund
  
Filed herewith
         
101.INS
  
XBRL Instance Document
  
Filed herewith
         
101.SCH
  
XBRL Taxonomy Extension Schema
  
Filed herewith
         
101.CAL
  
XBRL Taxonomy Extension Calculation Linkbase
  
Filed herewith
         
101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
  
Filed herewith
         
101.LAB
  
XBRL Taxonomy Extension Label Linkbase
  
Filed herewith
         
101.PRE
  
XBRL Taxonomy Extension Presentation Linkbase
  
Filed herewith

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


           
RIDGEWOOD ENERGY Y FUND, LLC
 
Dated:
July 24, 2014
By:
/s/
    
ROBERT E. SWANSON
     
Name:
    
Robert E. Swanson
     
Title:
    
Chief Executive Officer
           
(Principal Executive Officer)
             
             
Dated:
July 24, 2014
By:
/s/
    
KATHLEEN P. MCSHERRY
     
Name:
    
Kathleen P. McSherry
     
Title:
    
Executive Vice President and Chief Financial Officer
           
(Principal Financial and Accounting Officer)
 
 
16