Partners’ Capital

12 Months Ended

Dec. 31, 2023

Partners’ Units

Under the terms of the amended partnership agreement, there are two classes of units, Common Units and Preferred Units. The general partner establishes the number of authorized units and as of December 31, 2023, the general partner has

not established the authorized number of Common Units. All of the Common Unit and per Common Unit amounts herein are presented as if the January 2023, one-for-25.33 reverse stock split had taken place January 1, 2021.

In conjunction with an offering in August 2019, we created a new class of Preferred Units, Series 3 Preferred Units. Each Series 3 Preferred Unit cost $25 per preferred unit and also included warrants to purchase an additional 0.1 common units for $25.33. The Series 3 Preferred Units received semi-annual distributions in the amount of $0.625 per preferred unit. A holder of Series 3 Preferred Units will received in-kind distributions of Common Units for their Series 3 Preferred Units. The semi-annual distributions were paid in April and October. The Series 3 Preferred Units automatically converted to 0.2 Common Units for each preferred unit on October 1, 2022. Additionally, all of the warrants were exercised on October 1, 2022.

In conjunction with an offering in July 2020, we created an additional class of Preferred Units, Series 4 Preferred Units. Each Series 4 Preferred Unit was issued at $95,000 per preferred unit (an original issue discount of $5,000 per preferred unit) and also included warrants equal to, in the aggregate, 20% non-dilutable common units, at the time of exercise. These warrants had a term of five years from the date of closing and an exercise price of $0.25 each. If holders of a majority of the warrants elected to exercise the warrants, then all warrants were required to be exercised at the same time. There was also a group of backstop investors that provided a minimum amount of capital of a least $35 million. These backstop investors received an arrangement fee in the form of warrants to purchase common units for $0.25 per common unit, with warrants equal to, in the aggregate, 10% non-dilutable common units at the time of exercise. These warrants had a term of 15 years. The Series 4 Preferred Units received a semi-annual payment of 12% paid-in-kind common units at $5.07 per common unit or 10% cash pay as permitted. The Partnership could call the Series 4 Preferred Units at any time and at a cost of $100,000 per preferred unit plus any accrued dividends at such date. However, if we called the Series 4 Preferred Units on or prior to the second anniversary of the offering, we were required to pay $130,000 per preferred unit. Beginning August 1, 2025, the Series 4 Preferred Units could be put back to us for repayment at a cost of $100,000 per preferred unit plus any accrued dividends at such date. As a result of our offering, we issued 533.63 preferred units for total proceeds of $50.4 million net of $0.3 million of offering costs. The proceeds were used to pay down $35 million on our Credit Facility (see Note 4) and the remainder was retained for future cash needs.

In conjunction with an offering in October 2021, we created an additional class of Preferred Units, Series 5 Preferred Units. Each Series 5 Preferred Unit was issued at $100,000 per preferred unit. The Series 5 Preferred Units receive a semi-annual payment of 6.25% paid-in cash. The Series 5 Preferred Units automatically convert to Common Units at a rate of $20.26 per unit no later than October 15, 2024. In conjunction with our offering, all Series 4 Preferred Units were exchanged into Series 5 Preferred Units at a rate of 1.4 Series 5 Preferred Units for each Series 4 Preferred Unit. Additionally, all Series 4 warrants were converted to Common Units effective October 2021 at no cost to the warrant holder. The impact of the exchange of Series 4 Preferred Units to Series 5 Preferred Units coupled with the non-cash conversion of Series 4 warrants to Common Units accrued to the benefit of the Series 4 Preferred unitholders, who also own approximately 90% of the Common Units. The actual effect of this conversion was to transfer $22.7 million of value from the Common Unit holders to the Series 4 Preferred Unit holders. As a result of the offering, we issued 2,073.69 preferred units for total proceeds of $132.6 million net of $0.1 million of offering costs. There are no Series 4 Preferred Units or warrants still outstanding.

The proceeds, in conjunction with cash on hand and borrowings under our credit facility, were used to acquire producing properties and a gas processing plant in the Permian Basin of New Mexico and CO2 assets in Colorado from Chevron (see Note 2).

Effective with the public listing of our common units on January 31, 2023, all of the outstanding Series 5 Preferred Units were exchanged for 10,644,484 Common Units, such that there is only one class of units outstanding. After the exchange, we had 25,000,000 Common Units outstanding.

Prior to April 1st of each year, the general partner shall determine the fair value of a Common Unit as of January 1st of such year. However, the general partner can change the fair value of a Common Unit should circumstances indicate that a material change in value has occurred. The fair value was determined to be $10.13 per Common Unit as of January 1, 2021 and $22.03 per Common Unit as of January 1, 2022. The fair value was not calculated for January 1, 2023, since the Common Units are now publicly traded. The fair value established by the general partner was used for all purposes until the next redetermination.

The following reflects our partners’ Common Unit and Preferred Unit activity for the years ended December 31, 2023, 2022 and 2021 (in thousands):


	2021
	Common Units	Series 3 Preferred Units	Series 4 Preferred Units	Series 5 Preferred Units
Balance, beginning of period	7,119	1,372	1	—
Vesting of restricted units, net of income taxes	118	—	—	—
Warrants converted to common units	5,427	—	—	—
Common units received in lieu of distribution	1,302	—	—	—
Preferred units purchased	—	—	—	1
Preferred units exchanged for new preferred units	—	—	(1)	1
Balance, December 31	13,966	1,372	—	2


	2022
	Common Units	Series 3 Preferred Units	Series 4 Preferred Units	Series 5 Preferred Units
Balance, beginning of period	13,966	1,372	—	2
Warrants converted to common units	81	—	—	—
Common units received in lieu of distribution	38	—	—	—
Preferred units converted to common units	271	(1,372)	—	—
Balance, December 31	14,356	—	—	2


	2023
	Common Units	Series 3 Preferred Units	Series 4 Preferred Units	Series 5 Preferred Units
Balance, beginning of period	14,356	—	—	2
Preferred units converted to common units	10,644	—	—	(2)
Common units issued in the initial public offering	5,750	—	—	—
Balance, December 31	30,750	—	—	—

Distributions

During 2023, we paid no in-kind distributions to our Series 5 Preferred holders. During 2022, we paid in-kind distributions of 37,615 units with a value of $1.7 million to our Series 3 Preferred holders. During 2021, we paid in-kind distributions of 1.3 million units with a value of $6.4 million to our Series 4 Preferred holders and 37,615 units with a value of $1.8 million to our Series 3 Preferred holders.

During 2023, we paid $49.8 million of distributions to our Common unitholders. The following is a summary of our 2023 distributions:


2023	Distribution per Unit		Payment Date
First Quarter	$	0.50	May 30, 2023
Second Quarter	$	0.48	August 25, 2023
Third Quarter	$	0.52	November 27, 2023

Our fourth quarter distribution of $0.58 per unit with respect to cash available for distribution for the three months ended December 31, 2023, was declared on March 05, 2024 and will be paid on March 28, 2024 to unitholders of record on March 15, 2024.

The determination of the amount of future distributions on the Common Units, if any, to be declared and paid is at the sole discretion of the general partner and will depend on our financial condition, earnings and cash flow from operations, the level of debt outstanding, the level of our capital expenditures, our future business prospects and other matters the general partner deems relevant.

See Note 12.