UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _______________ to _______________
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading symbols(s) |
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Name of exchange on which registered |
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None |
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None |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
As of October 31, 2020, there were
TABLE OF CONTENTS
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1 |
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Item 1. |
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2 |
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3 |
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4 |
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5 |
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6 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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31 |
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Item 3. |
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53 |
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Item 4. |
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54 |
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Item 1. |
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56 |
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Item 1A. |
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56 |
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Item 2. |
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58 |
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Item 3. |
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58 |
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Item 4. |
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59 |
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Item 5. |
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59 |
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Item 6. |
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60 |
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61 |
i
GLOSSARY OF TERMS
As commonly used in the oil and natural gas industry and as used in this Quarterly Report on Form 10-Q, the following terms have the following meanings:
Bbl. One stock tank barrel or 42 United States gallons liquid volume.
Btu. One British thermal unit, which is the heat required to raise the temperature of a one-pound mass of water from 58.5 degrees to 59.5 degrees Fahrenheit.
MBbls. One thousand barrels of oil or other liquid hydrocarbons.
MBbls/d. MBbls per day.
Mcf. One thousand cubic feet.
Mcfe. One thousand cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
MMBbls. One million barrels of oil or other liquid hydrocarbons.
MMBtu. One million British thermal units.
MMcf. One million cubic feet.
MMcf/d. MMcf per day.
MMcfe. One million cubic feet equivalent, determined using the ratio of six Mcf of natural gas to one Bbl of oil, condensate or natural gas liquids.
MMcfe/d. MMcfe per day.
MMMBtu. One billion British thermal units.
NGL. Natural gas liquids, which are the hydrocarbon liquids contained within natural gas.
1
PART I – FINANCIAL INFORMATION
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Item 1. |
Financial Statements |
RIVIERA RESOURCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September 30, 2020 |
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December 31, 2019 |
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(in thousands, except share amounts) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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Accounts receivable – trade, net |
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Derivative instruments |
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Restricted cash |
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Other current assets |
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Assets held for sale |
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Total current assets |
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Noncurrent assets: |
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Oil and natural gas properties (successful efforts method) |
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Less accumulated depletion and amortization |
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Other property and equipment |
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Less accumulated depreciation |
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Other noncurrent assets |
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Total noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Derivative instruments |
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Other accrued liabilities |
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Liabilities held for sale |
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Total current liabilities |
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Noncurrent liabilities: |
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Credit facilities |
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Asset retirement obligations and other noncurrent liabilities |
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Total noncurrent liabilities |
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Commitments and contingencies (Note 10) |
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Equity: |
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Preferred Stock ($ issued at September 30, 2020, or December 31, 2019) |
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Common Stock ($ September 30, 2020, and December 31, 2019, respectively) |
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Additional paid-in capital |
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Accumulated deficit |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
2
RIVIERA RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2020 |
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2019 |
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2020 |
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2019 |
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(in thousands, except per share amounts) |
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Revenues and other: |
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Oil, natural gas and natural gas liquids sales |
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$ |
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$ |
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$ |
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$ |
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Gains (losses) on commodity derivatives |
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Marketing revenues |
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Other revenues |
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Expenses: |
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Lease operating expenses |
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Transportation expenses |
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Marketing expenses |
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General and administrative expenses |
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Exploration costs |
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Depreciation, depletion and amortization |
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Impairment of assets held for sale and long-lived assets |
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Taxes, other than income taxes |
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(Gains) losses on sale of assets and other, net |
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Operating loss |
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Other income and (expenses): |
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Interest expense, net of amounts capitalized |
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Other, net |
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Reorganization items, net |
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Loss before income taxes |
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Income tax expense |
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Net loss |
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$ |
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$ |
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$ |
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$ |
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Loss per share: |
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Basic and diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding ‒ basic and diluted |
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Distributions declared per share |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
RIVIERA RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
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Common Stock |
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Additional Paid in Capital |
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Accumulated Earnings (Deficit) |
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Total Equity |
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Shares |
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Amount |
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(in thousands) |
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December 31, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
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Net loss |
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Repurchases of common stock |
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Issuance of common stock |
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Distributions to shareholders |
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March 31, 2020 |
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Net loss |
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Distributions to shareholders |
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June 30, 2020 |
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Net loss |
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( |
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September 30, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
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December 31, 2018 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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Repurchases of common stock |
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( |
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Issuance of common stock |
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March 31, 2019 |
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Net loss |
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( |
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Repurchases of common stock |
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( |
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( |
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( |
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( |
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June 30, 2019 |
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Net loss |
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( |
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( |
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Repurchases of common stock |
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( |
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( |
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( |
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( |
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Other |
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September 30, 2019 |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
4
RIVIERA RESOURCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Nine Months Ended September 30, |
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2020 |
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2019 |
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(in thousands) |
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Cash flow from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash (used in) provided by operating activities: |
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Depreciation, depletion and amortization |
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Impairment of assets held for sale and long-lived assets |
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Deferred income taxes |
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— |
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Gains on derivatives, net |
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Cash settlements on derivatives |
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Share-based compensation expenses |
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(Gains) losses on sale of assets and other, net |
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( |
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Other |
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Changes in assets and liabilities: |
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Decrease in accounts receivable – trade, net |
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Decrease in other assets |
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Decrease in accounts payable and accrued expenses |
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( |
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Decrease in other liabilities |
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( |
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Net cash (used in) provided by operating activities |
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|
|
|
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
Acquisition of property, plant and equipment |
|
|
— |
|
|
|
( |
) |
|
Development of oil and natural gas properties |
|
|
( |
) |
|
|
( |
) |
|
Purchases of other property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of properties and equipment and other |
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
|
|
|
|
|
|
|
Cash flow from financing activities: |
|
|
|
|
|
|
|
|
|
Repurchases of shares |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from borrowings |
|
|
|
|
|
|
|
|
|
Repayments of debt |
|
|
( |
) |
|
|
( |
) |
|
Debt issuance costs paid |
|
|
— |
|
|
|
( |
) |
|
Distributions to shareholders |
|
|
( |
) |
|
|
— |
|
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
|
|
|
Cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
Ending |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 – Basis of Presentation
Unless otherwise indicated or the context otherwise requires, references herein to the “Company” refer 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.
Nature of Business
The Company is incorporated under Delaware law and its headquarters are in Houston, Texas. Prior to the recent sales of interests in oil and natural gas properties and the sale of its wholly owned subsidiary Blue Mountain Midstream LLC (“Blue Mountain Midstream”), discussed below, Riviera was an independent oil and natural gas company. The Company had
Recent Developments
Section 271 Sale
In July 2020, the Company signed definitive agreements to sell substantially all of its interests located in its two upstream operating regions, North Louisiana and the Mid-Continent, and in August 2020, signed a definitive agreement to sell Blue Mountain Midstream (the “Blue Mountain Divestiture”). The Blue Mountain Divestiture, together with the sales of interests in properties located in North Louisiana and the Mid-Continent (collectively, the “271 Sale”), constituted a sale of substantially all of the consolidated assets of the Company for purposes of Section 271(a) of the Delaware General Corporate Law, as amended. Therefore, on August 23, 2020, the Company elected to obtain shareholder approval and authorization of the 271 Sale. Holders of a majority of the Company’s issued and outstanding shares of common stock (the “Majority Stockholders”) executed and delivered to the Company a written consent in lieu of a special meeting. The written consent delivered by the Majority Stockholders authorized and approved the 271 Sale. On September 1, 2020, and October 1, 2020, the Company completed the sales of its interests in properties located in North Louisiana and the Mid-Continent, respectively. In addition, on October 8, 2020, the Company completed the Blue Mountain Divestiture. See Note 3 for additional information about divestitures.
Plan of Liquidation
On August 24, 2020, following approval of the 271 Sale, the Company announced that it was evaluating the process of winding-up and of returning the majority of its remaining capital to its shareholders. On October 12, 2020, the Board of Directors of the Company (the “Board”), approved the dissolution, winding up and liquidation of the Company (the “Plan of Liquidation”) and adopted the Plan of Liquidation. Also, on October 12, 2020, the required percentage of the Company’s shareholders approved, through written consent in accordance with the bylaws of the Company, the Plan of Liquidation. The Plan of Liquidation contemplates the orderly sale of the Company’s remaining assets and the discharge of all outstanding liabilities to third parties and, after the establishment of appropriate reserves, the distribution of any remaining cash to shareholders. See Note 18 for more information.
Other Recent Developments
The Company and the oil and gas industry have been adversely impacted by certain events, including the initial dramatic increase in output from the Organization of Petroleum Exporting Countries and other oil producing nations (“OPEC+”) in the first quarter of 2020 and the destruction of demand resulting from the unprecedented global health and economic crisis sparked by the novel coronavirus disease (“COVID-19”) global pandemic. While OPEC+ has agreed to cut production, downward pressure on commodity prices has continued. In order to reduce expenses, in April 2020, the Board made the decision to consolidate the management of Blue Mountain Midstream within the Company’s existing executive management team and further reduced expenses by integration of the operations of the two companies wherever practical. The Company incurred severance expenses of approximately $
6
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
As described further below, the Company recorded impairments on oil and natural gas properties and property, plant and equipment for the nine months ended September 30, 2020. The impairment charges recorded in the three months ended September 30, 2020, were primarily due to the Company’s exit from the midstream business. The impairment charges recorded in the first quarter and second quarter of 2020 were primarily due to declines in commodity prices and declines in expected future volumes. The COVID-19 pandemic continues to evolve and identification of all trends, events and uncertainties, including a possible widespread resurgence in COVID-19 infections in the remainder of 2020 without the availability of generally effective therapeutics or a vaccine for the disease, that may impact the Company’s financial condition and results of operations are unknown at this time. Due to the adoption of the Plan of Liquidation, the Company’s results of operations for the three months and nine months ended September 30, 2020, are not indicative of its future results.
Principles of Consolidation and Reporting
The information reported herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of the results for the interim periods. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted under Securities and Exchange Commission rules and regulations; as such, this report should be read in conjunction with the consolidated financial statements and notes in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019. The results reported in these unaudited condensed consolidated financial statements should not necessarily be taken as indicative of results that may be expected for the entire year.
The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated. Investments in noncontrolled entities over which the Company exercises significant influence are accounted for under the equity method.
There have been no material changes in critical accounting policies during the nine months ended September 30, 2020, as compared to the critical accounting policies described in Item 8. “Financial Statements and Supplementary Data” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Based on the approval of the Plan of Liquidation in October 2020, discussed above, the Company plans to adopt the liquidation basis of accounting in the fourth quarter of 2020. See Note 18.
Use of Estimates
The preparation of the accompanying condensed consolidated 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 impairment evaluations, estimates of the Company’s reserves of oil, natural gas and NGL, future cash flows from oil and natural gas properties, depreciation, depletion and amortization, asset retirement obligations, certain revenues and operating expenses, and fair values of commodity derivatives.
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 consolidated financial statements in future periods.
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 September 30, 2020, and December 31, 2019. See Note 8 for details about the fair value of the Company’s derivative financial instruments.
7
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Recently Adopted Accounting Standard
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. The Company adopted this ASU effective January 1, 2020, using the modified retrospective effective date method. The Company’s trade receivables due in one year or less represent substantially all the items that are within the scope of the new standard. The adoption of this ASU did not have a material impact on the Company’s results of operations or financial position.
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. 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 $
Impairment of Assets Held for Sale and Long-Lived Assets
Proved Oil and Natural Gas Properties
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 or there are alternative indications of impairment. 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, or the Company takes into consideration contract prices from executed definitive agreements. 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 assumptions represent Level 3 inputs. 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, during the nine months ended September 30, 2020, the Company recorded noncash impairment charges of approximately $
Unproved Oil and Natural Gas Properties
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.
8
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Based on the analysis described above, during the nine months ended September 30, 2020, the Company recorded a noncash impairment charge of approximately $
Other Property and Equipment and Other Assets
The Company evaluates the impairment of its other property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The carrying values of other property and equipment are reduced to fair value when the expected undiscounted future cash flows are less than net book value or there are alternative indications of impairment. The fair values of other property and equipment are measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount, or the Company takes into consideration contract prices from executed definitive agreements. Significant inputs used to determine the fair values of other property and equipment and other assets include estimates of future operating costs, future volumes and future commodity prices. These inputs require assumptions by the Company’s management at the time of the valuation and are the most sensitive and subject to change.
At September 30, 2020, because of the Blue Mountain Divestiture, the Company performed an impairment evaluation of Blue Mountain Midstream’s other property and equipment and other assets. Based on the analysis described above, during the three months and nine months ended September 30, 2020, the Company recorded impairment charges of approximately $
Note 2 – Revenues
Disaggregation of Revenue
Substantially all of the revenues reported on the Company’s unaudited condensed consolidated statements of operations included herein relates to properties that were divested either prior or subsequent to September 30, 2020. See Note 1, Note 3 and Note 18 for information about divestitures.
9
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The following tables present the Company’s disaggregated revenues by source and geographic area:
|
|
|
Three Months Ended September 30, 2020 |
|
|||||||||||||||||||||||||
|
|
|
Natural Gas |
|
|
Oil |
|
|
NGL |
|
|
Oil, Natural Gas and NGL Sales |
|
|
Marketing Revenues |
|
|
Other Revenues |
|
|
Total |
|
|||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Continent |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
East Texas |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
North Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uinta Basin |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
Other divested properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Blue Mountain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Three Months Ended September 30, 2019 |
|
|||||||||||||||||||||||||
|
|
|
Natural Gas |
|
|
Oil |
|
|
NGL |
|
|
Oil, Natural Gas and NGL Sales |
|
|
Marketing Revenues |
|
|
Other Revenues |
|
|
Total |
|
|||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Mid-Continent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uinta Basin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan/Illinois |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Mountain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
10
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
|
|
|
Nine Months Ended September 30, 2020 |
|
|||||||||||||||||||||||||
|
|
|
Natural Gas |
|
|
Oil |
|
|
NGL |
|
|
Oil, Natural Gas and NGL Sales |
|
|
Marketing Revenues |
|
|
Other Revenues |
|
|
Total |
|
|||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-Continent |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
East Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uinta Basin |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other divested properties |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Blue Mountain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
Nine Months Ended September 30, 2019 |
|
|||||||||||||||||||||||||
|
|
|
Natural Gas |
|
|
Oil |
|
|
NGL |
|
|
Oil, Natural Gas and NGL Sales |
|
|
Marketing Revenues |
|
|
Other Revenues |
|
|
Total |
|
|||||||
|
|
|
(in thousands) |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Mid-Continent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East Texas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North Louisiana |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Uinta Basin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michigan/Illinois |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blue Mountain |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Contract Balances
Under the Company’s product sales contracts, customers are invoiced once the Company’s performance obligations have been satisfied, at which point payment is unconditional. Accordingly, the Company’s product sales contracts do not give rise to material contract assets or contract liabilities.
The Company had trade accounts receivable related to revenue from contracts with customers of approximately $
Performance Obligations
A majority of the Company’s sales are short-term in nature with a contract term of one year or less. For those contracts, the Company utilized the practical expedient in ASC 606-10-50-14 that exempts the Company from disclosure of the transaction price allocated to remaining performance obligations if the performance obligation is part of a contract that has an original expected duration of one year or less.
For the Company’s product sales that have a contract term greater than one year, the Company utilized the practical expedient in ASC 606-10-50-14(A), which states the Company is not required to disclose the transaction price allocated to remaining
11
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
performance obligations if the variable consideration is allocated entirely to a wholly unsatisfied performance obligation. Under these contracts, future revenue from the sale of products and services is dependent on future production or variable customer volume and variable commodity prices for that volume; therefore, future volumes are wholly unsatisfied, and disclosure of the transaction price allocated to remaining performance obligations is not required.
Note 3 – Divestitures
Divestitures – 2020
On January 15, 2020, the Company completed the sale of its interest in non-operated properties located in the Drunkards Wash field in the Uinta Basin. Cash proceeds from the sale of these properties were approximately $
On January 31, 2020, the Company completed the sale of its interest in properties located in the Overton field in East Texas. Cash proceeds from the sale of these properties were approximately $
On February 14, 2020, the Company completed the sale of its interest in properties located in the Personville field in East Texas. Cash proceeds from the sale of these properties were approximately $
On February 28, 2020, the Company completed the sale of its office building located in Oklahoma City, Oklahoma. Cash proceeds from the sale were approximately $
On April 2, 2020, the Company completed the sale of its remaining interest in properties located in East Texas. Cash proceeds from the sale of these properties were approximately $
On September 1, 2020, the Company completed the sale of its interest in substantially all of its properties located in North Louisiana (the “North Louisiana Assets”). Cash proceeds from the sale of these properties were approximately $
Divestitures – Subsequent Events
On October 1, 2020, the Company completed the sale of its interest in substantially all of its Mid-Continent properties located in Oklahoma (the “Mid-Continent Assets”). Cash proceeds from the sale of these properties were approximately $
12
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The following are summarized results of operations and balance sheet information for the Mid-Continent Assets:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
September 30, 2020 |
|
|
|
|
|
(in thousands) |
|
|
|
Assets: |
|
|
|
|
|
Current assets |
|
$ |
|
|
|
Oil and natural gas properties, net |
|
|
|
|
|
Other property and equipment, net |
|
|
|
|
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
Current liabilities |
|
$ |
|
|
|
Asset retirement obligations |
|
|
|
|
|
|
|
$ |
|
|
On October 8, 2020, the Company completed the Blue Mountain Divestiture. Cash proceeds from the sale were approximately $
The following are summarized results of operations and balance sheet information for the Blue Mountain Divestiture:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Loss before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Income tax benefit |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Net (loss) income |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
13
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
|
|
|
September 30, 2020 |
|
|
|
|
|
(in thousands) |
|
|
|
Assets: |
|
|
|
|
|
Current assets |
|
$ |
|
|
|
Other property and equipment, net |
|
|
|
|
|
Other noncurrent assets |
|
|
|
|
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
Current liabilities |
|
$ |
|
|
|
Credit facility |
|
|
|
|
|
Asset retirement obligations |
|
|
|
|
|
Other noncurrent liabilities |
|
|
|
|
|
|
|
$ |
|
|
Divestitures – 2019
On November 22, 2019, the Company completed the sale of its interest in properties located in the Hugoton Basin (the “Hugoton Basin Assets Sale”). Cash proceeds from the sale of these properties were approximately $
On September 5, 2019, the Company completed the sale of its interest in properties located in Illinois. Cash proceeds from the sale of these properties were approximately $
On August 30, 2019, the Company completed the sale of its interest in non-core assets located in North Louisiana. Cash proceeds from the sale were approximately $
On July 3, 2019, the Company completed the sale of its interest in properties located in Michigan. Cash proceeds from the sale of these properties were approximately $
On May 31, 2019, the Company completed the sale of its interest in non-operated properties located in the Hugoton Basin in Kansas. Cash proceeds from the sale of these properties were approximately $
On January 17, 2019, the Company completed the sale of its interest in properties located in the Arkoma Basin in Oklahoma. Cash proceeds from the sale of these properties were approximately $
The Blue Mountain Divestiture and the Mid-Continent Assets are not presented as discontinued operations as of and for the period ended September 30, 2020, as the associated activity represents substantially all of the Company’s results of operations and remaining net assets. Therefore, they do not meet the definition of a component of an entity because they are not clearly distinguishable from the rest of the entity. Other divestitures of oil and natural gas properties during 2019 and 2020 are not presented as discontinued operations because they did not represent a strategic shift. The gains and losses on divestitures are included in “(gains) losses on sale of assets and other, net” on the condensed consolidated statements of
14
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
operations, in the upstream reporting segment for oil and natural gas properties, and in the Blue Mountain reporting segment for the Blue Mountain Divestiture.
The following table presents carrying amounts of the assets and liabilities of the Company’s properties classified as held for sale on the condensed consolidated balance sheet:
|
|
|
December 31, 2019 |
|
|
|
|
|
(in thousands) |
|
|
|
Assets: |
|
|
|
|
|
Oil and natural gas properties, net |
|
$ |
|
|
|
Other property and equipment, net |
|
|
|
|
|
Other |
|
|
|
|
|
Total assets held for sale |
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
Asset retirement obligations |
|
$ |
|
|
|
Other |
|
|
|
|
|
Total liabilities held for sale |
|
$ |
|
|
Other assets primarily include inventories and other liabilities primarily include accounts payable.
Note 4 – Equity (Deficit)
Share Repurchase Program
On July 18, 2019, the Board authorized the repurchase of up to $
Cash Distributions
On March 9, 2020, the Board declared a cash distribution of $
Cash Distributions – Subsequent Event
On October 12, 2020, the Board declared a cash distribution of $
15
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 5 – Oil and Natural Gas Properties
Aggregate capitalized costs related to oil, natural gas and NGL production activities with applicable accumulated depletion and amortization are presented below:
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Proved properties |
|
$ |
|
|
|
$ |
|
|
|
Unproved properties |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depletion and amortization |
|
|
( |
) |
|
|
( |
) |
|
|
|
$ |
|
|
|
$ |
|
|
As discussed in Note 1 and Note 3, substantially all of the Company’s remaining oil and natural gas properties were sold subsequent to September 30, 2020.
Note 6 – Debt
Fair Value
The Company’s debt is recorded at the carrying amount on the condensed consolidated balance sheets. The carrying amounts of the credit facilities approximate fair value because the interest rates are variable and reflective of market rates.
Riviera Credit Facility
As of September 30, 2020, Riviera’s credit agreement provided for a senior secured reserve-based revolving loan facility (the “Riviera Credit Facility”) with a borrowing base and borrowing commitments of $
Redetermination of the borrowing base under the Riviera Credit Facility, based primarily on reserve reports using lender commodity price expectations at such time, occurs semi-annually, in April and October. On June 1, 2020, the Company entered into a Fifth Amendment (the “Fifth Amendment”) to the Riviera Credit Facility. Pursuant to the Fifth Amendment, the borrowing base was reduced from $
During the nine months ended September 30, 2020, the Company recorded a finance fee expense of approximately $
At the Company’s election, interest on borrowings under the Riviera Credit Facility is determined by reference to either the LIBOR plus an applicable margin ranging from
16
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
applicable margin ranging from
The obligations under the Riviera Credit Facility are secured by mortgages covering approximately
The Riviera Credit Facility also contains affirmative and negative covenants, including compliance with laws (including environmental laws, ERISA and anti-corruption laws), maintenance of required insurance, delivery of quarterly and annual financial statements, oil and gas engineering reports and budgets, maintenance and operation of property (including oil and gas properties), restrictions on the incurrence of liens and indebtedness, mergers, consolidations and sales of assets, paying dividends or other distributions in respect of, or repurchasing or redeeming, the Company’s capital stock, making certain investments and transactions with affiliates.
The Riviera Credit Facility contains events of default and remedies customary for credit facilities of this nature. Failure to comply with the financial and other covenants in the Riviera Credit Facility would allow the lenders, subject to customary cure rights, to require immediate payment of all amounts outstanding under the Riviera Credit Facility. As of September 30, 2020, the Company was in compliance with all financial and other covenants of the Riviera Credit Facility.
Blue Mountain Midstream Credit Facility
On October 8, 2020, the Company repaid approximately $
As of September 30, 2020, Blue Mountain Midstream’s credit agreement provided for a senior secured revolving loan facility (the “Blue Mountain Credit Facility”), with a borrowing base and borrowing commitments of $
As of September 30, 2020, total borrowings outstanding under the Blue Mountain Credit Facility were approximately $
Note 7 – Derivatives
Commodity Derivatives
As of September 30, 2020, the Company had no derivative positions. During the three months ended September 30, 2020, the Company unwound all of its natural gas fixed price swaps, oil fixed price swaps, and Panhandle Eastern Pipeline basis swaps for 2020 and 2021, for a cost of approximately $
17
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The natural gas derivatives are settled based on the closing price of NYMEX Henry Hub natural gas on the last trading day for the delivery month, which occurs on the third business day preceding the delivery month, or the relevant index prices of natural gas published in Inside Federal Energy Regulatory Commission’s Gas Market Report on the first business day of the delivery month. The oil derivatives are settled based on the average closing price of NYMEX WTI crude oil for each day of the delivery month. The NGL derivatives are settled based on the average effective price of natural gas liquids for each day of the delivery month, published in the issue of Oil Price Information Service.
Balance Sheet Presentation
The Company’s commodity derivatives are presented on a net basis in “derivative instruments” and “asset retirement obligations and other noncurrent liabilities” on the condensed consolidated balance sheets. See Note 8 for fair value disclosures about commodity derivatives. The following table summarizes the fair value of derivatives outstanding on a gross basis:
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Assets: |
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
|
|
By using derivative instruments to economically hedge exposures to changes in commodity prices, the Company exposes itself to credit risk and market risk. Credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk. A majority of the Company’s counterparties are participants in its Credit Facilities. The Credit Facilities are secured by certain of the Company’s and its subsidiaries’ oil, natural gas and NGL reserves and personal property. The Company is not required to post any collateral. The Company does not receive collateral from its counterparties.
The maximum amount of loss due to credit risk that the Company would incur if its counterparties failed completely to perform according to the terms of the contracts, based on the gross fair value of financial instruments, was approximately $
18
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Gains and Losses on Derivatives
A summary of gains and losses on derivatives included on the condensed consolidated statements of operations is presented below:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on commodity derivatives |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketing expenses |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Gains (losses) on commodity derivatives |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The Company received net cash settlements of approximately $
Note 8 – Fair Value Measurements
Fair Value Measurements on a Recurring Basis
The Company accounts for its commodity derivatives at fair value (see Note 7) on a recurring basis. 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.
In accordance with applicable accounting standards, the Company has categorized its financial instruments into a three-level fair value hierarchy based on the priority of inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The following presents the fair value hierarchy for assets and liabilities measured at fair value on a recurring basis:
|
|
|
September 30, 2020 |
|
|||||||||
|
|
|
Level 2 |
|
|
Netting (1) |
|
|
Total |
|
|||
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
(1) |
Represents counterparty netting under agreements governing such derivatives. |
19
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
|
|
|
December 31, 2019 |
|
|||||||||
|
|
|
Level 2 |
|
|
Netting (1) |
|
|
Total |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivatives |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
(1) |
|
Fair Value Measurements on a Nonrecurring Basis
Non-financial assets and liabilities that are initially measured at fair value include asset retirement obligations (see Note 9) and impairments (see Note 1).
Note 9 – Asset Retirement Obligations
The Company has the obligation to plug and abandon oil and natural gas wells and related equipment at the end of production operations. Estimated asset retirement costs are recognized as liabilities with an increase to the carrying amounts of the related long-lived assets when the obligation is incurred. The liabilities are included in “other accrued liabilities” and “asset retirement obligations and other noncurrent liabilities” on the condensed consolidated balance sheets. Accretion expense is included in “depreciation, depletion and amortization” on the condensed consolidated statements of operations. The fair value of additions to the asset retirement obligations is estimated using valuation techniques that convert future cash flows to a single discounted amount. Significant inputs to the valuation include estimates of: (i) plug and abandon costs per well based on existing regulatory requirements; (ii) remaining life per well; (iii) future inflation factors; and (iv) a credit-adjusted risk-free interest rate. These assumptions represent Level 3 inputs. These inputs require significant judgments and estimates by the Company’s management at the time of the valuation and are the most sensitive and subject to change.
In addition, there is insufficient information to reasonably determine the timing and/or method of settlement for purposes of estimating the fair value of the asset retirement obligation of the majority of Blue Mountain Midstream’s assets. In such cases, asset retirement obligation cost is considered indeterminate because there is no data or information that can be derived from past practice, industry practice, management’s experience, or the asset’s estimated economic life. Indeterminate asset retirement obligation costs associated with Blue Mountain Midstream will be recognized in the period in which sufficient information exists to reasonably estimate potential settlement dates and methods.
The following table presents a reconciliation of the Company’s asset retirement obligations (in thousands):
|
Asset retirement obligations at December 31, 2019 |
|
$ |
|
|
|
Liabilities added from drilling |
|
|
|
|
|
Liabilities associated with assets divested |
|
|
( |
) |
|
Current year accretion expense |
|
|
|
|
|
Settlements |
|
|
( |
) |
|
Revision of estimates |
|
|
|
|
|
Asset retirement obligations at September 30, 2020 |
|
$ |
|
|
Substantially all of the Company’s asset retirement obligations at September 30, 2020, relate to properties divested subsequent to September 30, 2020. See Note 1 and Note 3.
20
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 10 – Commitments and Contingencies
The close of the Blue Mountain Divestiture on October 8, 2020, in combination with the divestitures of upstream assets, constituted a Change of Control under the Riviera Resources, Inc. 2018 Omnibus Incentive Plan (the “Riviera Omnibus Incentive Plan”) and the Blue Mountain Midstream LLC 2018 Omnibus Incentive Plan, as amended (the “BMM Incentive Plan”). Effective with the Change of Control, outstanding vested and unvested share-based compensation awards, excluding those issued to certain executive officers and directors, were cancelled and converted into the right to receive an amount in cash, without interest, equal to fair value. In addition, the Company has an employment contract with one executive officer and an ongoing severance plan for employees that provide for payments as a multiple of base salary and various other benefits in the event of termination without cause following a Change of Control. The Company expects to incur expenses of approximately $
In 2016, Linn Energy, LLC, certain of its direct and indirect subsidiaries, and LinnCo, LLC (collectively, the “LINN Debtors”) filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code. The LINN Debtors emerged from bankruptcy in 2017. In 2018, LINN Energy completed the spin-off of Riviera from LINN Energy. On May 11, 2016, the LINN Debtors and Berry Petroleum Company, LLC (“Berry” and collectively with the LINN Debtors, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16‑60040. On January 27, 2017, the Bankruptcy Court entered an order approving and confirming the plan (the “Plan”) of reorganization of the Debtors (the “Confirmation Order”). Consummation of the Plan was subject to certain conditions set forth in the Plan. On February 28, 2017, all of the conditions were satisfied or waived and the Plan became effective and was implemented in accordance with its terms. On September 27, 2018, the Bankruptcy Court closed the LINN Debtors’ Chapter 11 cases, but retained jurisdiction as provided in the Confirmation Order.
The commencement of the Chapter 11 proceedings automatically stayed certain actions against the Company, including actions to collect prepetition liabilities or to exercise control over the property of the Company’s bankruptcy estates. However, the Company is, and will continue to be until the final resolution of all claims, subject to certain contested matters and adversary proceedings stemming from the Chapter 11 proceedings, which are not affected by the closure of the LINN Debtors’ Chapter 11 cases.
The Company is not currently a party to any litigation or pending claims that it believes would have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.
Note 11 – Operating Leases
Lessee
The Company leases office space and other property and equipment under lease agreements expiring on various dates through
As of September 30, 2020, undiscounted future minimum lease payments were as follows (in thousands):
|
2020 |
|
$ |
|
|
|
2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
|
|
$ |
|
|
21
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The weighted-average remaining lease term is
Lessor
The Company previously leased a building located in Oklahoma to third parties under lease agreements. The Company sold the building in the first quarter of 2020, and the leases were terminated effective with the close of the sale. Lease income for the three months and nine months ended September 30, 2019, was approximately $
Note 12 – Share-Based Compensation
Riviera Omnibus Incentive Plan
Effective with the close of the Blue Mountain Divestiture on October 8, 2020, which, in combination with the divestitures of upstream assets, constituted a Change of Control under the Riviera Omnibus Incentive Plan, outstanding vested and unvested awards, excluding those issued to certain executive officers and directors, under the Riviera Omnibus Incentive Plan were cancelled and converted into the right to receive an amount in cash, without interest, equal to fair value. The Company expects to incur expenses of approximately $
As of September 30, 2020,
The Committee (as defined in the Riviera Omnibus Incentive Plan) has broad authority under the Riviera Omnibus Incentive Plan to, among other things: (i) select participants; (ii) determine the types of awards that participants receive and the number of shares that are subject to such awards; and (iii) establish the terms and conditions of awards, including the price (if any) to be paid for the shares or the award. As of September 30, 2020, up to
Blue Mountain Midstream Omnibus Incentive Plan
Effective with the close of the Blue Mountain Divestiture, on October 8, 2020, which constituted a Change of Control under the BMM Incentive Plan, all outstanding vested and unvested awards issued under the BMM Incentive Plan were cancelled and converted into the right to receive an amount in cash, without interest, equal to the Class B Unit value. The Company expects to incur expenses of an immaterial amount in the fourth quarter of 2020 for awards outstanding under the BMM Incentive Plan. See Note 3 for information about the Blue Mountain Divestiture and Note 18 for information about the Company’s Plan of Liquidation.
The Blue Mountain Midstream Second Amended and Restated Limited Liability Operating Agreement (as amended, the “BMM LLC Agreement”), provides for two classes of membership units under the BMM Incentive Plan: Class A Units, of which
22
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
LLC Agreement, Blue Mountain Midstream has the authority to issue an unlimited number of Class A Units and up to
Accounting for Share-Based Compensation
The condensed consolidated financial statements include
As a result of the Company’s history of cash settling awards, all unvested share-based compensation awards are liability classified. The Company recorded a liability of approximately $
A summary of share-based compensation expenses included on the condensed consolidated statements of operations is presented below:
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total share-based compensation expenses |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Income tax benefit |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Riviera Restricted Stock Units
During the nine months ended September 30, 2020, upon vesting of Riviera RSUs and at the election of participants, the Company repurchased
During the nine months ended September 30, 2019, upon vesting of Riviera RSUs and at the election of participants, the Company repurchased
Performance Shares
As of September 30, 2020, there were
23
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 13 – Loss Per Share
Basic loss per share is computed by dividing net loss by the weighted average number of shares outstanding during the period. Diluted loss per share is computed by adjusting the average number of shares outstanding for the dilutive effect, if any, of potential common shares. There was no dilutive effect for three months and nine months ended September 30, 2020, or September 30, 2019, therefore, basic and diluted loss per share is the same for these periods.
The diluted loss per share calculation excludes the Riviera Performance Shares for the three months and nine months ended September 30, 2020, and September 30, 2019, because no performance targets have been met. The diluted loss per share calculation excludes approximately
Note 14 – Income Taxes
Amounts recognized as income taxes are included in “income tax expense” on the condensed consolidated statements of operations. The Company recognized
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. During the third quarter of 2019, and for the first time since Riviera’s inception, the Company’s earnings were a cumulative loss, primarily due to losses generated during 2019. Based on the cumulative loss and projections of future taxable loss for the periods in which the deferred tax assets are deductible, the Company recorded a valuation allowance of approximately $
As of December 31, 2019, the Company had approximately $
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that was enacted March 27, 2020, includes income tax provisions that allow NOLs to be carried back, allows interest expense to be deducted up to a higher percentage of adjusted taxable income, and modifies tax depreciation of qualified improvement property, among other provisions. These provisions have no material impact on the Company.
24
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Note 15 – Supplemental Disclosures to the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows
“Other current assets” reported on the condensed consolidated balance sheets include the following:
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Prepaids |
|
$ |
|
|
|
$ |
|
|
|
Inventories |
|
|
|
|
|
|
|
|
|
Receivables and other |
|
|
|
|
|
|
|
|
|
Other current assets |
|
$ |
|
|
|
$ |
|
|
“Accounts payable and accrued expenses” reported on the condensed consolidated balance sheets include the following:
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
|
|
|
$ |
|
|
|
Accrued operating expenses |
|
|
|
|
|
|
|
|
|
Accrued capital expenditures |
|
|
|
|
|
|
|
|
|
Accrued general and administrative expenses |
|
|
|
|
|
|
|
|
|
Other accrued expenses |
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
$ |
|
|
|
$ |
|
|
“Other accrued liabilities” reported on the condensed consolidated balance sheets include the following:
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation |
|
$ |
|
|
|
$ |
|
|
|
Asset retirement obligations (current portion) |
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
Other accrued liabilities |
|
$ |
|
|
|
$ |
|
|
The following table provides a reconciliation of “cash and cash equivalents” reported on the condensed consolidated balance sheets to “cash, cash equivalents and restricted cash” reported on the condensed consolidated statement of cash flows:
|
|
|
September 30, 2020 |
|
|
December 31, 2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Restricted cash |
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
25
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
Supplemental disclosures to the condensed consolidated statements of cash flows are presented below:
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Cash payments for interest, net of amounts capitalized |
|
$ |
|
|
|
$ |
|
|
|
Cash payments for income taxes |
|
$ |
|
|
|
$ |
|
|
|
Cash payments for reorganization items, net |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash investing activities: |
|
|
|
|
|
|
|
|
|
Accrued capital expenditures |
|
$ |
|
|
|
$ |
|
|
For purposes of the condensed consolidated 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. At September 30, 2020, “restricted cash” on the condensed consolidated balance sheet consisted of approximately $
Note 16 – Related Party Transactions
Roan Resources LLC
During 2019, through December 6, 2019, certain members of the Board were also members of the board of directors of Roan Resources, Inc. Additionally, certain of the Company’s principal stockholders were also significant stockholders of Roan Resources, Inc.
For the three months and nine months ended September 30, 2019, the Company recorded revenue from Roan Resources LLC of approximately $
Note 17 – Segments
As of September 30, 2020, the Company had
26
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
During the first quarter of 2020, the definition of field level cash flow analyzed by the Company’s CODM was revised to report within segment results, expenses previously reported as unallocated to segment results. Information presented for the prior period has been recast to conform to current presentation.
The following tables present the Company’s financial information by reporting segment:
|
|
Three Months Ended September 30, 2020 |
|
|||||||||
|
|
Upstream |
|
|
Blue Mountain |
|
|
Consolidated |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales |
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Marketing revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
|
|
|
— |
|
|
|
|
|
|
Transportation expenses |
|
|
|
|
|
— |
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes other than income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Total direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Field level cash flow |
|
|
|
|
|
|
|
|
|
|
|
|
Losses on commodity derivatives |
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Other indirect income (expenses), net |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Loss before income taxes |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Three Months Ended September 30, 2019 |
|
|||||||||
|
|
Upstream |
|
|
Blue Mountain |
|
|
Consolidated |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketing revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Transportation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes other than income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Total direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Field level cash flow |
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on commodity derivatives |
|
|
|
|
|
( |
) |
|
|
|
|
|
Other indirect income (expenses), net |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Loss before income taxes |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
27
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
|
|
Nine Months Ended September 30, 2020 |
|
|||||||||
|
|
Upstream |
|
|
Blue Mountain |
|
|
Consolidated |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales |
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
Marketing revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
|
|
|
— |
|
|
|
|
|
|
Transportation expenses |
|
|
|
|
|
— |
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes other than income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Total direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Field level cash flow |
|
|
|
|
|
|
|
|
|
|
|
|
Gains on commodity derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
Other indirect income (expenses), net |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Loss before income taxes |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
Nine Months Ended September 30, 2019 |
|
|||||||||
|
|
Upstream |
|
|
Blue Mountain |
|
|
Consolidated |
|
|||
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and natural gas liquids sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketing revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Other revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Transportation expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Taxes other than income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Total direct operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Field level cash flow |
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses) on commodity derivatives |
|
|
|
|
|
( |
) |
|
|
|
|
|
Other indirect income (expenses), net |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Loss before income taxes |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Note 18 – Plan of Liquidation, Winding Up and Dissolution
Plan of Liquidation
The Company’s Plan of Liquidation, approved by shareholders on October 12, 2020, contemplates the orderly sale of the Company’s remaining assets and the discharge of all outstanding liabilities to third parties and, after the establishment of appropriate reserves, the distribution of any remaining cash to shareholders.
Pursuant to the Plan of Liquidation, the Company will (i) pay or provide for all claims and obligations known to it, (ii) provide for any claim which is the subject of a pending action, suit or proceeding to which it is a party, (iii) provide for claims that have not been known to it but are likely to arise within ten years after the date of dissolution, (iv) after providing
28
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
for (i) through (iii), distribute the remaining assets, to the extent owed, to the Company’s existing creditors, and (v) after providing for (iv), distribute any remaining assets, which the Company currently expects to be between $
The Plan of Liquidation also provides that the Company will make applicable filings and take such other actions as are found to be appropriate to carry out the Plan of Liquidation. The Company intends to file a certificate of dissolution with the State of Delaware, at which time the Company’s transfer books and records will be closed and the Company’s common stock will cease trading on the OTCQX Market, no later than the close of business on December 31, 2020. After such time, the Company intends to file with the U.S. Securities and Exchange Commission a Certification on Form 15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requesting the suspension of the Company’s reporting obligations under Sections 13 and 15(d) of the Exchange Act.
Based on the approval of the Plan of Liquidation in October 2020, discussed above, the Company plans to adopt the liquidation basis of accounting in the fourth quarter of 2020. Under the liquidation basis of accounting, all the Company’s assets will be stated at estimated net realizable value, or liquidation value, which represents the estimated amount of cash that the Company will collect on the disposal of assets as it carries out the Plan of Liquidation. The asset liquidation values will be based on current contracts, estimates and other indications of sales value, predicated on current values. All liabilities of the Company, including estimated costs associated with implementing the Plan of Liquidation, will be stated at estimated settlement amounts.
Uncertainties as to the precise net value of non-cash assets and the ultimate amount of liabilities make it impracticable to predict with certainty the aggregate net value that may ultimately be distributable to shareholders. Claims, liabilities and future expenses for operations will continue to be incurred with execution of the Plan of Liquidation. These costs will reduce the amount of net assets available for ultimate distribution to shareholders. Although the Company cannot currently make a precise estimate of these expenses, the Company believes that available cash is adequate to provide for obligations, liabilities, operating costs and claims, and to make cash distributions to shareholders.
Pro Forma Financial Information
Substantially all of the revenues reported on the Company’s unaudited condensed consolidated statements of operations included herein relates to properties that were divested either prior or subsequent to September 30, 2020. The following unaudited pro forma condensed consolidated financial statements are derived from historical consolidated financial statements of the Company. The unaudited pro forma condensed consolidated financial statements are for informational and illustrative purposes only and are not necessarily indicative of the financial results that would have occurred if the transactions reflected therein had occurred on the dates indicated, nor are such financial statements indicative of the results of operations in future periods.
As noted above, the Company plans to adopt the liquidation basis of accounting in the fourth quarter of 2020. Under the liquidation basis of accounting, all the Company’s net assets will be stated at estimated net realizable value, or liquidation value. The unaudited pro forma condensed consolidated financial statements are prepared on a going concern basis, not a liquidation basis, and as such are not representative of the Company’s future financial position or results of operations anticipated during the Company’s liquidation, winding up and dissolution process.
The preparation of the unaudited pro forma condensed consolidated financial information is based on financial statements prepared in accordance with GAAP. These principles require the use of estimates that effect the reported amounts of revenues and expenses. Actual results could differ from those estimates. However, the pro forma adjustments reflected in the accompanying unaudited pro forma condensed financial information reflect estimates and assumptions that Company management believes to be reasonable. During 2019 and 2020, the Company completed divestitures for which the related activity is not required to be reflected in the adjustments to the unaudited pro forma condensed consolidated financial information. See Note 3 for information about divestitures not removed from the pro forma information.
29
RIVIERA RESOURCES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - Continued
(Unaudited)
The following unaudited pro forma financial information presents a summary of the Company’s condensed consolidated balance sheet as of September 30, 2020, giving effect to the Blue Mountain Divestiture and divestiture of Mid-Continent Assets as if they had been completed as of September 30, 2020, and condensed consolidated results of operations for the three months and nine months ended September 30, 2020, and 2019, giving effect to the Blue Mountain Divestiture and divestiture of Mid-Continent Assets as if they had been completed as of January 1, 2019:
Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
|
|
|
September 30, 2020 |
|
|
|
|
|
(in thousands) |
|
|
|
Assets: |
|
|
|
|
|
Current assets |
|
$ |
|
|
|
Oil and natural gas properties, net |
|
|
|
|
|
Other property and equipment, net |
|
|
|
|
|
Other noncurrent assets |
|
|
|
|
|
|
|
$ |
|
|
|
Liabilities: |
|
|
|
|
|
Current liabilities |
|
$ |
|
|
|
Asset retirement obligations and other noncurrent liabilities |
|
|
|
|
|
|
|
$ |
|
|
Pro Forma Condensed Consolidated Statements of Operations (Unaudited)
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2020 |
|
|
2019 |
|
|
2020 |
|
|
2019 |
|
||||
|
|
|
(in thousands) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues and other |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Loss from continuing operations before income taxes |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Income tax expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
30
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion and analysis should be read in conjunction with the financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019. The following discussion contains forward-looking statements based on expectations, estimates and assumptions. Actual results may differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, volatility of oil, natural gas and natural gas liquids (“NGL”) prices or a prolonged period of low oil, natural gas or NGL prices and the effects of actions by, or disputes among or between, members of the Organization of Petroleum Exporting Countries and other oil producing nations (“OPEC+”), such as Saudi Arabia, and other oil and natural gas producing countries, such as Russia, with respect to production levels or other matters related to the price of oil, the effects of excess supply of oil and natural gas resulting from the reduced demand caused by the novel coronavirus disease (“COVID-19”) global pandemic and the actions by certain oil and natural gas producing countries, market prices for oil, natural gas and NGLs, production volumes, estimates of proved reserves, capital expenditures, the capacity and utilization of midstream facilities, economic and competitive conditions, credit and capital market conditions, regulatory changes and other uncertainties, as well as those factors set forth in “Cautionary Statement Regarding Forward-Looking Statements” below and in Item 1A. “Risk Factors” in this Quarterly Report on Form 10‑Q and in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019, and elsewhere in the Annual Report.
The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”
Unless otherwise indicated or the context otherwise requires, references herein to the “Company” refer 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 2016, Linn Energy, LLC, certain of its direct and indirect subsidiaries, and LinnCo, LLC (collectively, the “LINN Debtors”) filed Bankruptcy Petitions for relief under Chapter 11 of the Bankruptcy Code. The LINN Debtors emerged from bankruptcy in 2017. See Note 10 for additional details. In 2018, LINN Energy completed the spin-off of Riviera from LINN Energy. The Company is incorporated under Delaware law and its headquarters are in Houston, Texas.
Executive Overview
Prior to the recent sales of interests in oil and natural gas properties and the sale of its wholly owned subsidiary Blue Mountain Midstream LLC (“Blue Mountain Midstream”), discussed below, Riviera was an independent oil and natural gas company. The Company had two reporting segments, upstream and Blue Mountain. The upstream reporting segment was engaged in the exploration, development, production, and sale of oil, natural gas, and NGLs and its properties were all located in the United States (“U.S.”). The Blue Mountain reporting segment consisted of a cryogenic natural gas processing facility, a network of gathering pipelines and compressors and produced water services and a crude oil gathering system located in the Merge/SCOOP/STACK play.
On September 1, 2020 and October 1, 2020, the Company completed the sales of interests in properties located in its two upstream operating regions, North Louisiana and the Mid-Continent, respectively. In addition, on October 8, 2020, the Company completed the sale of Blue Mountain Midstream (the “Blue Mountain Divestiture”). See Note 3 for additional information about divestitures.
On October 12, 2020, the Board of Directors of the Company (the “Board”), approved the dissolution, winding up and liquidation of the Company (the “Plan of Liquidation”) and adopted the Plan of Liquidation. Also, on October 12, 2020, the required percentage of the Company’s shareholders approved, through written consent in accordance with the bylaws of the Company, the Plan of Liquidation. The Plan of Liquidation contemplates the orderly sale of the Company’s remaining assets and the discharge of all outstanding liabilities to third parties and, after the establishment of appropriate reserves, the distribution of any remaining cash to shareholders. The Company intends to file a certificate of dissolution with the State of Delaware, at which time the Company’s transfer books and records will be closed and the Company’s common stock will cease trading on the OTCQX Market, no later than the close of business on December 31, 2020. The Company does not anticipate that it will be required to file an Annual Report on Form 10-K for the year ended December 31, 2020. See Note 18 for more information.
31
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Results of Operations
Substantially all of the revenues reported on the Company’s unaudited condensed consolidated statements of operations included herein relates to properties that were divested either prior or subsequent to September 30, 2020. See Note 3 for information about divestitures. Due to the adoption of the Plan of Liquidation, the Company’s results of operations for the three months and nine months ended September 30, 2020, are not indicative of its future results. See Note 18 for information about the Company’s Plan of Liquidation.
For the three months ended September 30, 2020, the Company’s results included the following:
|
|
• |
oil, natural gas and NGL sales of approximately $7 million compared to $51 million for the three months ended September 30, 2019; |
|
|
• |
average daily production of approximately 35 MMcfe/d compared to 242 MMcfe/d for the three months ended September 30, 2019; |
|
|
• |
net loss of approximately $236 million compared to $226 million for the three months ended September 30, 2019; |
|
|
• |
impairment charges of approximately $220 million compared to $95 million for the three months ended September 30, 2019; |
|
|
• |
capital expenditures of approximately $5 million compared to $39 million for the three months ended September 30, 2019; and |
|
|
• |
no wells drilled compared to 14 wells drilled (all successful) for the three months ended September 30, 2019. |
For the nine months ended September 30, 2020, the Company’s results included the following:
|
|
• |
oil, natural gas and NGL sales of approximately $33 million compared to $194 million for the nine months ended September 30, 2019; |
|
|
• |
average daily production of approximately 53 MMcfe/d compared to 264 MMcfe/d for the nine months ended September 30, 2019; |
|
|
• |
net loss of approximately $359 million compared to $220 million for the nine months ended September 30, 2019; |
|
|
• |
impairment charges of approximately $341 million compared to $113 million for the nine months ended September 30, 2019; |
|
|
• |
capital expenditures of approximately $19 million compared to $141 million for the nine months ended September 30, 2019; and |
|
|
• |
11 wells drilled (10 successful) compared to 49 wells drilled (all successful) for the nine months ended September 30, 2019. |
Divestitures – 2020
On January 15, 2020, the Company completed the sale of its interest in non-operated properties located in the Drunkards Wash field in the Uinta Basin (the “Drunkards Wash Asset Sale”). Cash proceeds from the sale of these properties were approximately $4 million (including a deposit of approximately $450,000 received in 2019), and the Company recorded a net gain of approximately $1 million.
On January 31, 2020, the Company completed the sale of its interest in properties located in the Overton field in East Texas (the “Overton Assets Sale”). Cash proceeds from the sale of these properties were approximately $17 million (including a deposit of approximately $2 million received in 2019).
On February 14, 2020, the Company completed the sale of its interest in properties located in the Personville field in East Texas (the “Personville Assets Sale”). Cash proceeds from the sale of these properties were approximately $28 million (including a deposit of approximately $3 million received in 2019).
On February 28, 2020, the Company completed the sale of its office building located in Oklahoma City, Oklahoma. Cash proceeds from the sale were approximately $21 million.
On April 2, 2020, the Company completed the sale of its remaining interest in properties located in East Texas. Cash proceeds from the sale of these properties were approximately $392,000.
32
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
On September 1, 2020, the Company completed the sale of its interest in substantially all of its properties located in North Louisiana (the “North Louisiana Assets”). Cash proceeds from the sale of these properties were approximately $23 million and the Company recorded a net loss of approximately $1 million. The Company recorded a noncash impairment charge of approximately $12 million to reduce the carrying value of these assets to fair value in the second quarter of 2020.
Divestitures – Subsequent Events
On October 1, 2020, the Company completed the sale of its interest in substantially all of its Mid-Continent properties located in Oklahoma (the “Mid-Continent Assets”). Cash proceeds from the sale of these properties were approximately $13 million (including a deposit of approximately $2 million received in the third quarter of 2020) and the Company expects to record a net gain of approximately $16 million in the fourth quarter of 2020. The Company recognized pre-tax income of approximately $3 million and pre-tax loss of $86 million for the three months and nine months ended September 30, 2020, respectively, and pre-tax income of approximately $2 million and $8 million for the three months and nine months ended September 30, 2019, respectively, from the Mid-Continent Assets.
On October 8, 2020, the Company completed the Blue Mountain Divestiture. Cash proceeds from the sale were approximately $114 million (including a deposit of approximately $11 million received in the third quarter of 2020). The Company repaid approximately $80 million, representing total borrowings under the Blue Mountain Midstream senior secured revolving loan facility (the “Blue Mountain Credit Facility”), with a portion of the proceeds. The Company recorded impairment charges of approximately $220 million and $237 million, primarily to reduce the carrying value of assets to fair value, in the three months and nine months ended September 30, 2020, respectively. The Company recognized pre-tax loss of approximately $218 million and $231 million for the three months and nine months ended September 30, 2020, respectively, and pre-tax loss of approximately $3 million and $6 million for the three months and nine months ended September 30, 2019, respectively, from Blue Mountain Midstream.
The Blue Mountain Divestiture and the Mid-Continent Assets are not presented as discontinued operations as of and for the period ended September 30, 2020, the associated activity represents substantially all of the Company’s results of operations and remaining net assets. Therefore, they do not meet the definition of a component of an entity because they are not clearly distinguishable from the rest of the entity.
Divestitures – 2019
On November 22, 2019, the Company completed the sale of its interest in properties located in the Hugoton Basin (the “Hugoton Basin Assets Sale”). Cash proceeds from the sale of these properties were approximately $286 million. In connection with the Hugoton Basin Assets Sale, the buyer also acquired the Company’s interest in Mayzure, LLC (“Mayzure”), a wholly owned subsidiary of the Company, which was the counterparty to the volumetric production payment agreements based on helium produced from certain oil and natural gas properties in the Hugoton Basin. The Company recorded a noncash impairment charge of approximately $95 million to reduce the carrying value of these assets to fair value. The Company recognized pre-tax loss of approximately $98 million and $89 million for the three months and nine months ended September 30, 2019, respectively, from the Hugoton Basin.
On September 5, 2019, the Company completed the sale of its interest in properties located in Illinois. Cash proceeds from the sale of these properties were approximately $4 million and the Company recorded a net gain of approximately $4 million.
On August 30, 2019, the Company completed the sale of its interest in non-core assets located in North Louisiana. Cash proceeds from the sale were approximately $2 million and the Company recorded a net gain of approximately $376,000.
On July 3, 2019, the Company completed the sale of its interest in properties located in Michigan. Cash proceeds from the sale of these properties were approximately $39 million. The Company recorded a noncash impairment charge of approximately $18 million to reduce the carrying value of these assets to fair value.
On May 31, 2019, the Company completed the sale of its interest in non-operated properties located in the Hugoton Basin in Kansas. Cash proceeds from the sale of these properties were approximately $29 million and the Company recorded a net loss of approximately $10 million.
33
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
On January 17, 2019, the Company completed the sale of its interest in properties located in the Arkoma Basin in Oklahoma. Cash proceeds from the sale of these properties were approximately $64 million (including a deposit of approximately $5 million received in 2018), and the Company recorded a net gain of approximately $28 million.
Impact of Decline in Commodity Prices
The Company and the oil and gas industry have been adversely impacted by certain events, including the initial dramatic increase in output from OPEC+ in the first quarter of 2020 and the destruction of demand resulting from the unprecedented global health and economic crisis sparked by the COVID-19 global pandemic. In order to reduce expenses, in April 2020, the Board made the decision to consolidate the management of Blue Mountain Midstream within the Company’s existing executive management team and further reduced expenses by integration of the operations of the two companies wherever practical. The Company incurred severance expenses of approximately $10 million and $15 million for the three months and nine months ended September 30, 2020, respectively, in connection with integration activities, divestitures and the Plan of Liquidation. The Company expects to incur expenses of approximately $2 million in the fourth quarter of 2020 for share-based compensation and severance termination benefits. See Note 3 for information about divestitures, Note 12 for information about share-based compensation and Note 18 for information about the Company’s Plan of Liquidation.
Impairment of Assets Held for Sale and Long-Lived Assets
During the three months and nine months ended September 30, 2020, the Company recorded impairment charges of approximately $220 million and $341 million, respectively. The impairment charges recorded in the three months ended September 30, 2020, were primarily triggered by the Company’s exit from the midstream business, with the fair value being predominantly driven by the contract price of the Blue Mountain Divestiture. The impairment charges recorded in the first quarter and second quarter of 2020 were primarily due to declines in commodity prices and declines in expected future volumes. See Note 1 for additional information about impairment.
2020 Oil and Natural Gas and Midstream Capital Budget
For 2020, the Company estimates its total capital expenditures, excluding acquisitions, will be approximately $19 million, including approximately $2 million related to its oil and natural gas capital program and approximately $17 million related to Blue Mountain Midstream. Future capital expenditures are expected to be minimal due to the Company’s Plan of Liquidation.
Impact of COVID-19 Pandemic
Certain remote work arrangements implemented by the Company in response to the COVID-19 pandemic have not adversely affected its ability to maintain operations, including financial reporting systems, internal control over financial reporting and disclosure controls and procedures. However, the COVID-19 pandemic continues to evolve and identification of all trends, events and uncertainties, including a possible widespread resurgence in COVID-19 infections in the remainder of 2020 without the availability of generally effective therapeutics or a vaccine for the disease, that may impact the Company’s financial condition and results of operations are unknown at this time. Due to the adoption of the Plan of Liquidation, the Company’s results of operations for the three months and nine months ended September 30, 2020, are not indicative of its future results.
Financing Activities
CARES Act
The Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) that was enacted March 27, 2020, includes measures to assist companies. The Company has not received any funding under the CARES Act or other federal programs to support operations and does not anticipate that it will.
Riviera Credit Facility
As of September 30, 2020, Riviera’s credit agreement provided for a senior secured reserve-based revolving loan facility (the “Riviera Credit Facility”) with a borrowing base and borrowing commitments of $7 million. During the nine months ended September 30, 2020, the Company recorded a finance fee expense of approximately $468,000 related to the write-off of a portion of unamortized deferred financing fees due to a reduction of the Riviera Credit Facility borrowing base. On October 27, 2020, the Company entered into a Sixth Amendment (the “Sixth Amendment”) to the Riviera Credit Facility. Pursuant to the Sixth Amendment, the borrowing base was reduced to $540,000, the lenders obligations to make any loans,
34
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
were eliminated and the Company’s ability to make any borrowing requests was removed. In addition, the Company is required to maintain a cash deposit of at least $540,000 with a lender bank related to letter of credit commitments. The Company anticipates the Riviera Credit Facility will be terminated in the fourth quarter of 2020. See Note 6.
Blue Mountain Midstream Credit Facility
As of September 30, 2020, the Blue Mountain Credit Facility had a borrowing base and borrowing commitments of $200 million. The Blue Mountain Credit Facility together with the Riviera Credit Facility, are referred to as the “Credit Facilities”). On October 8, 2020, the Company repaid approximately $80 million, representing total borrowings under the Blue Mountain Credit Facility, with a portion of the net proceeds from the Blue Mountain Divestiture. Subsequently, the Blue Mountain Credit Facility was terminated effective October 8, 2020. See Note 6.
Share Repurchase Program
On July 18, 2019, the Board authorized the repurchase of up to $150 million of the Company’s outstanding shares of common stock. During the nine months ended September 30, 2020, the Company repurchased an aggregate of 282,742 shares of common stock at an average price of $7.31 per share for a total cost of approximately $2 million. Future share repurchases are not provided for under the Company’s Plan of Liquidation.
Cash Distributions
On March 9, 2020, the Board declared a cash distribution of $1.00 per share. A cash distribution totaling approximately $58 million was paid on April 22, 2020, to shareholders of record as of the close of business on April 8, 2020. On April 23, 2020, the Board declared a cash distribution of $0.75 per share. The distribution totaling approximately $43 million was paid on May 11, 2020, to shareholders of record as of the close of business on May 7, 2020. In addition, approximately $1 million and $11 million for potential future distributions related to nonvested share-based compensation awards was voluntarily recorded in restricted cash at September 30, 2020, and December 31, 2019, respectively.
Cash Distributions – Subsequent Event
On October 12, 2020, the Board declared a cash distribution of $1.35 per share. A cash distribution totaling approximately $78 million was paid on October 28, 2020, to shareholders of record as of the close of business on October 23, 2020.
Commodity Derivatives
During the three months ended September 30, 2020, the Company unwound all of its natural gas fixed price swaps, oil fixed price swaps, and Panhandle Eastern Pipeline (“PEPL”) basis swaps for 2020 and 2021, for a cost of approximately $356,000.
Field Level Cash Flow
To assess the performance of the Company’s reporting segments, the Company’s Chief Operating Decision Maker (“CODM”) analyzes field level cash flow, a non-generally accepted accounting principles financial metric. The Company defines field level cash flow as revenues less direct operating expenses. Other indirect income (expenses) include “general and administrative expenses,” “exploration costs,” “depreciation, depletion and amortization,” “(gains) on sale of assets and other, net,” “impairment of long-lived assets,” “other income and (expenses)” and “reorganization items, net.” Field level cash flow is disclosed herein to provide financial information about the Company’s reporting segments in alignment with the information reviewed by its CODM. Information regarding total assets by reporting segment is not presented because it is not reviewed by the CODM.
During the first quarter of 2020, the definition of field level cash flow analyzed by the Company’s CODM was revised to report within segment results, expenses previously reported as unallocated to segment results. Information presented for the prior period has been recast to conform to current presentation.
35
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Results of Operations
Three Months Ended September 30, 2020, Compared to Three Months Ended September 30, 2019
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Revenues and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas sales |
|
$ |
3,796 |
|
|
$ |
33,082 |
|
|
$ |
(29,286 |
) |
|
Oil sales |
|
|
2,844 |
|
|
|
10,575 |
|
|
|
(7,731 |
) |
|
NGL sales |
|
|
700 |
|
|
|
7,372 |
|
|
|
(6,672 |
) |
|
Total oil, natural gas and NGL sales |
|
|
7,340 |
|
|
|
51,029 |
|
|
|
(43,689 |
) |
|
Gains (losses) on commodity derivatives |
|
|
(2,948 |
) |
|
|
5,665 |
|
|
|
(8,613 |
) |
|
Marketing and other revenues |
|
|
29,083 |
|
|
|
51,360 |
|
|
|
(22,277 |
) |
|
|
|
|
33,475 |
|
|
|
108,054 |
|
|
|
(74,579 |
) |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
2,367 |
|
|
|
18,307 |
|
|
|
(15,940 |
) |
|
Transportation expenses |
|
|
818 |
|
|
|
16,275 |
|
|
|
(15,457 |
) |
|
Marketing expenses |
|
|
20,284 |
|
|
|
37,688 |
|
|
|
(17,404 |
) |
|
General and administrative expenses (1) |
|
|
16,871 |
|
|
|
16,954 |
|
|
|
(83 |
) |
|
Exploration costs |
|
|
413 |
|
|
|
1,947 |
|
|
|
(1,534 |
) |
|
Depreciation, depletion and amortization |
|
|
3,915 |
|
|
|
20,060 |
|
|
|
(16,145 |
) |
|
Impairment of assets held for sale and long-lived assets |
|
|
219,606 |
|
|
|
95,080 |
|
|
|
124,526 |
|
|
Taxes, other than income taxes |
|
|
846 |
|
|
|
5,111 |
|
|
|
(4,265 |
) |
|
(Gains) losses on sale of assets and other, net |
|
|
3,515 |
|
|
|
(7,587 |
) |
|
|
11,102 |
|
|
|
|
|
268,635 |
|
|
|
203,835 |
|
|
|
64,800 |
|
|
Other income and (expenses) |
|
|
(1,009 |
) |
|
|
(2,924 |
) |
|
|
1,915 |
|
|
Reorganization items, net |
|
|
(210 |
) |
|
|
(284 |
) |
|
|
74 |
|
|
Loss before income taxes |
|
|
(236,379 |
) |
|
|
(98,989 |
) |
|
|
(137,390 |
) |
|
Income tax expense |
|
|
— |
|
|
|
126,646 |
|
|
|
(126,646 |
) |
|
Net loss |
|
$ |
(236,379 |
) |
|
$ |
(225,635 |
) |
|
$ |
(10,744 |
) |
|
(1) |
General and administrative expenses for the three months ended September 30, 2020, and September 30, 2019, include approximately $392,000 and $3 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the three months ended September 30, 2020, and September 30, 2019, include approximately $10 million and $2 million, respectively, of severance costs. |
36
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
Average daily production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (MMcf/d) |
|
|
26 |
|
|
|
194 |
|
|
|
(87 |
%) |
|
Oil (MBbls/d) |
|
|
0.8 |
|
|
|
2.1 |
|
|
|
(62 |
%) |
|
NGL (MBbls/d) |
|
|
0.8 |
|
|
|
6.0 |
|
|
|
(87 |
%) |
|
Total (MMcfe/d) |
|
|
35 |
|
|
|
242 |
|
|
|
(86 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average prices: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (Mcf) |
|
$ |
1.59 |
|
|
$ |
1.86 |
|
|
|
(15 |
%) |
|
Oil (Bbl) |
|
$ |
39.49 |
|
|
$ |
55.13 |
|
|
|
(28 |
%) |
|
NGL (Bbl) |
|
$ |
9.43 |
|
|
$ |
13.40 |
|
|
|
(30 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average NYMEX prices: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (MMBtu) |
|
$ |
1.98 |
|
|
$ |
2.23 |
|
|
|
(11 |
%) |
|
Oil (Bbl) |
|
$ |
40.93 |
|
|
$ |
55.45 |
|
|
|
(26 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs per Mcfe of production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
$ |
0.73 |
|
|
$ |
0.82 |
|
|
|
(11 |
%) |
|
Transportation expenses |
|
$ |
0.25 |
|
|
$ |
0.73 |
|
|
|
(66 |
%) |
|
General and administrative expenses (2) |
|
$ |
5.17 |
|
|
$ |
0.76 |
|
|
|
580 |
% |
|
Depreciation, depletion and amortization |
|
$ |
1.20 |
|
|
$ |
0.90 |
|
|
|
33 |
% |
|
Taxes, other than income taxes |
|
$ |
0.26 |
|
|
$ |
0.23 |
|
|
|
13 |
% |
|
(1) |
Does not include the effect of gains (losses) on derivatives. |
|
(2) |
General and administrative expenses for the three months ended September 30, 2020, and September 30, 2019, include approximately $392,000 and $3 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the three months ended September 30, 2020, and September 30, 2019, include approximately $10 million and $2 million, respectively, of severance costs. |
37
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Upstream Reporting Segment
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and NGL sales |
|
$ |
7,340 |
|
|
$ |
51,029 |
|
|
$ |
(43,689 |
) |
|
Marketing and other revenues |
|
|
142 |
|
|
|
16,627 |
|
|
|
(16,485 |
) |
|
|
|
|
7,482 |
|
|
|
67,656 |
|
|
|
(60,174 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
2,367 |
|
|
|
18,307 |
|
|
|
(15,940 |
) |
|
Transportation expenses |
|
|
818 |
|
|
|
16,275 |
|
|
|
(15,457 |
) |
|
Marketing expenses |
|
|
6 |
|
|
|
7,948 |
|
|
|
(7,942 |
) |
|
Taxes, other than income taxes |
|
|
421 |
|
|
|
4,468 |
|
|
|
(4,047 |
) |
|
Total direct operating expenses |
|
|
3,612 |
|
|
|
46,998 |
|
|
|
(43,386 |
) |
|
Field level cash flow (1) |
|
$ |
3,870 |
|
|
$ |
20,658 |
|
|
$ |
(16,788 |
) |
|
(1) |
Refer to Note 17 for a reconciliation of field level cash flow to loss before income taxes. |
Oil, Natural Gas and NGL Sales
Oil, natural gas and NGL sales decreased by approximately $44 million or 86% to approximately $7 million for the three months ended September 30, 2020, from approximately $51 million for the three months ended September 30, 2019, primarily due to lower natural gas and NGL volumes as a result of divestitures completed in 2019 and 2020 and lower commodity prices. Lower natural gas and oil prices resulted in a decrease in revenues of approximately $1 million and $1 million, respectively.
Average daily production volumes decreased to approximately 35 MMcfe/d for the three months ended September 30, 2020, from 242 MMcfe/d for the three months ended September 30, 2019. Lower natural gas, NGL and oil production volumes resulted in a decrease in revenues of approximately $29 million, $6 million and $7 million, respectively.
The following table sets forth average daily production by region:
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||||||
|
Average daily production (MMcfe/d): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin |
|
|
— |
|
|
|
106 |
|
|
|
(106 |
) |
|
|
(100 |
%) |
|
Mid-Continent |
|
|
24 |
|
|
|
42 |
|
|
|
(18 |
) |
|
|
(43 |
%) |
|
East Texas |
|
|
— |
|
|
|
40 |
|
|
|
(40 |
) |
|
|
(100 |
%) |
|
North Louisiana |
|
|
11 |
|
|
|
35 |
|
|
|
(24 |
) |
|
|
(69 |
%) |
|
Uinta Basin |
|
|
— |
|
|
|
17 |
|
|
|
(17 |
) |
|
|
(100 |
%) |
|
Michigan/Illinois |
|
|
— |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
(100 |
%) |
|
|
|
|
35 |
|
|
|
242 |
|
|
|
(207 |
) |
|
|
(86 |
%) |
The decrease in average daily production in the Mid-Continent operating region primarily reflects a reduction in production due to reduced development drilling and natural decline of 2019 drilling programs. The decrease in average daily production in North Louisiana primarily reflects those same characteristics, coupled with plant downtime and the Company’s divestiture of interests in properties in this region during the third quarter of 2020. The decrease in average daily production volumes in the Uinta Basin and East Texas operating regions primarily reflect lower production volumes as a result of divestitures completed during 2020. In addition, the Company completed the divestiture of all of its interests in properties located in the Hugoton Basin and Michigan/Illinois operating regions during 2019. See Note 3 for additional information about divestitures.
38
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Marketing and Other Revenues
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk plant and helium |
|
$ |
1 |
|
|
$ |
14,751 |
|
|
$ |
(14,750 |
) |
|
Other |
|
|
141 |
|
|
|
1,876 |
|
|
|
(1,735 |
) |
|
|
|
$ |
142 |
|
|
$ |
16,627 |
|
|
$ |
(16,485 |
) |
Marketing and other revenues decreased by approximately $17 million or 99% to approximately $142,000 for the three months ended September 30, 2020, from approximately $17 million for the three months ended September 30, 2019. The decrease was primarily due to the Hugoton Basin Assets Sale, which included sale of the Jayhawk plant. Other primarily includes revenues from other midstream systems in the East Texas and North Louisiana operating regions, which were divested in 2020.
Lease Operating Expenses
Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $16 million or 87% to approximately $2 million for the three months ended September 30, 2020, from approximately $18 million for the three months ended September 30, 2019. The decrease was primarily due to divestitures completed in 2019 and 2020 and lower service costs. Lease operating expenses per Mcfe decreased to $0.73 per Mcfe for the three months ended September 30, 2020, from $0.82 per Mcfe for the three months ended September 30, 2019, primarily driven by changes in the Company’s asset base as a result of divestitures.
Transportation Expenses
Transportation expenses decreased by approximately $15 million or 95% to approximately $1 million for the three months ended September 30, 2020, from approximately $16 million for the three months ended September 30, 2019. The decrease was primarily due to divestitures completed in 2019 and 2020. Transportation expenses per Mcfe decreased to $0.25 per Mcfe for the three months ended September 30, 2020, from $0.73 per Mcfe for the three months ended September 30, 2019, primarily driven by changes in the Company’s asset base as a result of divestitures.
Marketing Expenses
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk plant |
|
$ |
— |
|
|
$ |
7,255 |
|
|
$ |
(7,255 |
) |
|
Other |
|
|
6 |
|
|
|
693 |
|
|
|
(687 |
) |
|
|
|
$ |
6 |
|
|
$ |
7,948 |
|
|
$ |
(7,942 |
) |
Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses decreased by approximately $8 million or 100% to approximately $6,000 for the three months ended September 30, 2020, from approximately $8 million for the three months ended September 30, 2019. The decrease was primarily due to the Hugoton Basin Assets Sale, which included sale of the Jayhawk plant.
39
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Taxes, Other Than Income Taxes
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance taxes |
|
$ |
335 |
|
|
$ |
1,475 |
|
|
$ |
(1,140 |
) |
|
Ad valorem taxes |
|
|
40 |
|
|
|
2,938 |
|
|
|
(2,898 |
) |
|
Other taxes |
|
|
46 |
|
|
|
55 |
|
|
|
(9 |
) |
|
|
|
$ |
421 |
|
|
$ |
4,468 |
|
|
$ |
(4,047 |
) |
Severance taxes, which are a function of revenues generated from production, decreased primarily due to lower production volumes due to divestitures completed in 2019 and 2020. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, decreased primarily due to divestitures completed in 2019 and 2020.
Field Level Cash Flow
Field level cash flow decreased by approximately $17 million or 81% to approximately $4 million for the three months ended September 30, 2020, from approximately $21 million for the three months ended September 30, 2019. The decrease was primarily due to divestitures completed in 2019 and 2020 and lower commodity prices.
Blue Mountain Reporting Segment
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing revenues |
|
$ |
28,941 |
|
|
$ |
34,733 |
|
|
$ |
(5,792 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
20,278 |
|
|
|
29,740 |
|
|
|
(9,462 |
) |
|
Taxes, other than income taxes |
|
|
425 |
|
|
|
643 |
|
|
|
(218 |
) |
|
Total direct operating expenses |
|
|
20,703 |
|
|
|
30,383 |
|
|
|
(9,680 |
) |
|
Field level cash flow (1) |
|
$ |
8,238 |
|
|
$ |
4,350 |
|
|
$ |
3,888 |
|
|
(1) |
Refer to Note 17 for a reconciliation of field level cash flow to loss before income taxes. |
Marketing Revenues
Marketing revenues decreased by approximately $6 million or 17% to approximately $29 million for the three months ended September 30, 2020, from approximately $35 million for the three months ended September 30, 2019. The decrease was primarily due to lower commodity prices and lower volumes. Average daily throughput volumes decreased to approximately 105 MMcf/d for the three months ended September 30, 2020, from 114 MMcf/d for the three months ended September 30, 2019.
Marketing Expenses
Marketing expenses decreased by approximately $10 million or 32% to approximately $20 million for the three months ended September 30, 2020, from approximately $30 million for the three months ended September 30, 2019. The decrease was primarily due to lower commodity prices and lower volumes.
Field Level Cash Flow
Field level cash flow increased by approximately $4 million or 89% to approximately $8 million for the three months ended September 30, 2020, from approximately $4 million for the three months ended September 30, 2019, primarily due to lower expenses.
40
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Indirect Income and Expenses
Gains (Losses) on Commodity Derivatives
Losses on commodity derivatives were approximately $3 million for the three months ended September 30, 2020, compared to gains of approximately $6 million for the three months ended September 30, 2019. Gains and losses on commodity derivatives were primarily due to changes in fair value of the derivative contracts. The fair value on unsettled derivative contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized. During the three months ended September 30, 2020, the Company unwound all of its natural gas fixed price swaps, oil fixed price swaps, and Panhandle Eastern Pipeline basis swaps for 2020 and 2021, for a cost of approximately $356,000. As of September 30, 2020, the Company had no derivative positions.
General and Administrative Expenses
General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses were approximately $17 million for both the three months ended September 30, 2020, and September 30, 2019. Increased severance expenses were offset primarily by lower share-based compensation expenses and lower salaries and benefits related expenses resulting from lower headcount. Severance expenses were approximately $10 million for the three months ended September 30, 2020, compared to $2 million for the three months ended September 30, 2019. General and administrative expenses per Mcfe increased to $5.17 per Mcfe for the three months ended September 30, 2020, from $0.76 per Mcfe for the three months ended September 30, 2019, due to lower production volumes associated with divestitures and increased severance expenses.
Exploration Costs
Exploration costs were approximately $413,000 for the three months ended September 30, 2020, compared to $2 million for the three months ended September 30, 2019.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased by approximately $16 million or 80% to approximately $4 million for the three months ended September 30, 2020, from approximately $20 million for the three months ended September 30, 2019. Depreciation, depletion and amortization per Mcfe increased to $1.20 per Mcfe for the three months ended September 30, 2020, from $0.90 per Mcfe for the three months ended September 30, 2019.
Impairment of Assets Held for Sale and Long-Lived Assets
During the three months ended September 30, 2020, the Company recorded impairment charges of approximately $220 million, primarily to reduce the carrying value of Blue Mountain Midstream’s assets to fair value. The impairment charges were primarily triggered by the Company’s exit from the midstream business, with the fair value being predominantly driven by the contract price of the Blue Mountain Divestiture. During the three months ended September 30, 2019, the Company recorded a noncash impairment charge of approximately $95 million related to divested oil and natural gas properties located in the Hugoton Basin. The impairment charge was primarily due to a decline in commodity prices. See Note 1 for additional information about impairment and Note 3 for information about divestitures.
(Gains) Losses on Sale of Assets and Other, Net
During the three months ended September 30, 2020, the Company recorded a net loss of approximately $4 million, including bad debt expense of approximately $2 million, a net loss of approximately $1 million on the sale of North Louisiana Assets and net losses from other divestitures. During the three months ended September 30, 2019, the Company recorded a net gain of approximately $8 million, primarily related to divestitures. See Note 3 for information about divestitures.
41
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Other Income and (Expenses)
|
|
|
Three Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized |
|
$ |
(700 |
) |
|
$ |
(2,329 |
) |
|
$ |
1,629 |
|
|
Other, net |
|
|
(309 |
) |
|
|
(595 |
) |
|
|
286 |
|
|
|
|
$ |
(1,009 |
) |
|
$ |
(2,924 |
) |
|
$ |
1,915 |
|
Interest expense decreased primarily due to lower outstanding debt during the three months ended September 30, 2020, compared to the same period of the prior year. For the three months ended September 30, 2020, “other, net” is primarily related to commitment fees for the undrawn portion of the Credit Facilities. For the three months ended September 30, 2019, “other, net” is primarily related to write off of a portion of unamortized deferred financing fees of approximately $700,000 and commitment fees for the undrawn portion of the Credit Facilities, partially offset by interest and rental income. See “Debt” under “Liquidity and Capital Resources” below for additional details.
Reorganization Items, Net
Reorganization items represent costs directly associated with Chapter 11 proceedings since the petition date. During the three months ended September 30, 2020, and September 30, 2019, reorganization items were approximately $210,000 and $284,000, respectively, primarily related to legal and other professional fees.
Income Tax Expense
The Company recognized no income tax expense for the three months ended September 30, 2020, because of a full valuation allowance recorded in the third quarter of 2019, compared to income tax expense of approximately $127 million for the three months ended September 30, 2019. During the third quarter of 2019, and for the first time since Riviera’s inception, the Company’s earnings were a cumulative loss, primarily due to losses generated during 2019. Based on the cumulative loss and projections of future taxable loss for the periods in which deferred tax assets are deductible, the Company recorded a full valuation allowance against all of its deferred tax assets.
Net Loss
A net loss of approximately $236 million was incurred for the three months ended September 30, 2020, compared to approximately $226 million for the three months ended September 30, 2019. See discussion above for explanations of variances.
42
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Results of Operations
Nine Months Ended September 30, 2020, Compared to Nine Months Ended September 30, 2019
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
Revenues and other: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas sales |
|
$ |
18,695 |
|
|
$ |
136,823 |
|
|
$ |
(118,128 |
) |
|
Oil sales |
|
|
11,424 |
|
|
|
26,525 |
|
|
|
(15,101 |
) |
|
NGL sales |
|
|
2,953 |
|
|
|
30,783 |
|
|
|
(27,830 |
) |
|
Total oil, natural gas and NGL sales |
|
|
33,072 |
|
|
|
194,131 |
|
|
|
(161,059 |
) |
|
Gains on commodity derivatives |
|
|
3,773 |
|
|
|
12,673 |
|
|
|
(8,900 |
) |
|
Marketing and other revenues |
|
|
84,909 |
|
|
|
183,254 |
|
|
|
(98,345 |
) |
|
|
|
|
121,754 |
|
|
|
390,058 |
|
|
|
(268,304 |
) |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
10,212 |
|
|
|
66,204 |
|
|
|
(55,992 |
) |
|
Transportation expenses |
|
|
4,201 |
|
|
|
53,478 |
|
|
|
(49,277 |
) |
|
Marketing expenses |
|
|
58,431 |
|
|
|
132,888 |
|
|
|
(74,457 |
) |
|
General and administrative expenses (1) |
|
|
37,994 |
|
|
|
49,434 |
|
|
|
(11,440 |
) |
|
Exploration costs |
|
|
413 |
|
|
|
4,154 |
|
|
|
(3,741 |
) |
|
Depreciation, depletion and amortization |
|
|
19,027 |
|
|
|
65,013 |
|
|
|
(45,986 |
) |
|
Impairment of assets held for sale and long-lived assets |
|
|
341,264 |
|
|
|
113,470 |
|
|
|
227,794 |
|
|
Taxes, other than income taxes |
|
|
3,436 |
|
|
|
14,010 |
|
|
|
(10,574 |
) |
|
(Gains) losses on sale of assets and other, net |
|
|
1,484 |
|
|
|
(24,967 |
) |
|
|
26,451 |
|
|
|
|
|
476,462 |
|
|
|
473,684 |
|
|
|
2,778 |
|
|
Other income and (expenses) |
|
|
(3,685 |
) |
|
|
(6,111 |
) |
|
|
2,426 |
|
|
Reorganization items, net |
|
|
(704 |
) |
|
|
(756 |
) |
|
|
52 |
|
|
Loss before income taxes |
|
|
(359,097 |
) |
|
|
(90,493 |
) |
|
|
(268,604 |
) |
|
Income tax expense |
|
|
— |
|
|
|
129,092 |
|
|
|
(129,092 |
) |
|
Net loss |
|
$ |
(359,097 |
) |
|
$ |
(219,585 |
) |
|
$ |
(139,512 |
) |
|
(1) |
General and administrative expenses for the nine months ended September 30, 2020, and September 30, 2019, include approximately $(3) million and $13 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the nine months ended September 30, 2020, and September 30, 2019, include approximately $15 million and $2 million, respectively, of severance costs. |
43
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
Average daily production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (MMcf/d) |
|
|
41 |
|
|
|
215 |
|
|
|
(81 |
%) |
|
Oil (MBbls/d) |
|
|
1.1 |
|
|
|
1.7 |
|
|
|
(35 |
%) |
|
NGL (MBbls/d) |
|
|
1.0 |
|
|
|
6.4 |
|
|
|
(84 |
%) |
|
Total (MMcfe/d) |
|
|
53 |
|
|
|
264 |
|
|
|
(80 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average prices: (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (Mcf) |
|
$ |
1.66 |
|
|
$ |
2.33 |
|
|
|
(29 |
%) |
|
Oil (Bbl) |
|
$ |
39.44 |
|
|
$ |
55.80 |
|
|
|
(29 |
%) |
|
NGL (Bbl) |
|
$ |
11.25 |
|
|
$ |
17.55 |
|
|
|
(36 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average NYMEX prices: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (MMBtu) |
|
$ |
1.88 |
|
|
$ |
2.67 |
|
|
|
(30 |
%) |
|
Oil (Bbl) |
|
$ |
38.32 |
|
|
$ |
56.72 |
|
|
|
(32 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs per Mcfe of production: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
$ |
0.70 |
|
|
$ |
0.92 |
|
|
|
(24 |
%) |
|
Transportation expenses |
|
$ |
0.29 |
|
|
$ |
0.74 |
|
|
|
(61 |
%) |
|
General and administrative expenses (2) |
|
$ |
2.61 |
|
|
$ |
0.69 |
|
|
|
278 |
% |
|
Depreciation, depletion and amortization |
|
$ |
1.31 |
|
|
$ |
0.90 |
|
|
|
46 |
% |
|
Taxes, other than income taxes |
|
$ |
0.24 |
|
|
$ |
0.19 |
|
|
|
26 |
% |
|
(1) |
Does not include the effect of gains (losses) on derivatives. |
|
(2) |
General and administrative expenses for the nine months ended September 30, 2020, and September 30, 2019, include approximately $(3) million and $13 million, respectively, of share-based compensation expenses. In addition, general and administrative expenses for the nine months ended September 30, 2020, and September 30, 2019, include approximately $15 million and $2 million, respectively, of severance costs. |
44
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Upstream Reporting Segment
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil, natural gas and NGL sales |
|
$ |
33,072 |
|
|
$ |
194,131 |
|
|
$ |
(161,059 |
) |
|
Marketing and other revenues |
|
|
2,880 |
|
|
|
63,549 |
|
|
|
(60,669 |
) |
|
|
|
|
35,952 |
|
|
|
257,680 |
|
|
|
(221,728 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses |
|
|
10,212 |
|
|
|
66,204 |
|
|
|
(55,992 |
) |
|
Transportation expenses |
|
|
4,201 |
|
|
|
53,478 |
|
|
|
(49,277 |
) |
|
Marketing expenses |
|
|
70 |
|
|
|
35,568 |
|
|
|
(35,498 |
) |
|
Taxes, other than income taxes |
|
|
2,142 |
|
|
|
11,984 |
|
|
|
(9,842 |
) |
|
Total direct operating expenses |
|
|
16,625 |
|
|
|
167,234 |
|
|
|
(150,609 |
) |
|
Field level cash flow (1) |
|
$ |
19,327 |
|
|
$ |
90,446 |
|
|
$ |
(71,119 |
) |
|
(1) |
Refer to Note 17 for a reconciliation of field level cash flow to loss before income taxes. |
Oil, Natural Gas and NGL Sales
Oil, natural gas and NGL sales decreased by approximately $161 million or 83% to approximately $33 million for the nine months ended September 30, 2020, from approximately $194 million for the nine months ended September 30, 2019, primarily due to lower production volumes as a result of divestitures completed in 2019 and 2020 and lower commodity prices. Lower natural gas, NGL and oil prices resulted in a decrease in revenues of approximately $7 million, $2 million and $5 million, respectively.
Average daily production volumes decreased to approximately 53 MMcfe/d for the nine months ended September 30, 2020, from 264 MMcfe/d for the nine months ended September 30, 2019. Lower natural gas, NGL and oil production volumes resulted in a decrease in revenues of approximately $111 million, $26 million and $10 million, respectively.
The following table sets forth average daily production by region:
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||||||
|
Average daily production (MMcfe/d): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hugoton Basin |
|
|
— |
|
|
|
114 |
|
|
|
(114 |
) |
|
|
(100 |
%) |
|
Mid-Continent |
|
|
30 |
|
|
|
38 |
|
|
|
(8 |
) |
|
|
(21 |
%) |
|
East Texas |
|
|
6 |
|
|
|
43 |
|
|
|
(37 |
) |
|
|
(86 |
%) |
|
North Louisiana |
|
|
16 |
|
|
|
32 |
|
|
|
(16 |
) |
|
|
(50 |
%) |
|
Uinta Basin |
|
|
1 |
|
|
|
18 |
|
|
|
(17 |
) |
|
|
(94 |
%) |
|
Michigan/Illinois |
|
|
— |
|
|
|
19 |
|
|
|
(19 |
) |
|
|
(100 |
%) |
|
|
|
|
53 |
|
|
|
264 |
|
|
|
(211 |
) |
|
|
(80 |
%) |
Production volumes in the Mid-Continent were consistent with the comparable period of the prior year. The decrease in average daily production in North Louisiana primarily reflects a reduction in production due to reduced development drilling and natural decline of 2019 drilling programs, plant downtime, and the Company’s divestiture of interests in properties in this region during 2020 and 2019. The decreases in average daily production volumes in the Uinta Basin and East Texas operating regions primarily reflect lower production volumes as a result of divestitures completed during 2020. In addition, the Company completed the divestiture of all of its interests in properties located in the Hugoton Basin and Michigan/Illinois operating regions during 2019. See Note 3 for additional information about divestitures.
45
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Marketing and Other Revenues
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk plant and helium |
|
$ |
17 |
|
|
$ |
58,061 |
|
|
$ |
(58,044 |
) |
|
Other |
|
|
2,863 |
|
|
|
5,488 |
|
|
|
(2,625 |
) |
|
|
|
$ |
2,880 |
|
|
$ |
63,549 |
|
|
$ |
(60,669 |
) |
Marketing and other revenues decreased by approximately $61 million or 95% to approximately $3 million for the nine months ended September 30, 2020, from approximately $64 million for the nine months ended September 30, 2019. The decrease was primarily due to the Hugoton Basin Assets Sale, which included sale of the Jayhawk plant. Other primarily includes revenues from other midstream systems in the East Texas and North Louisiana operating regions, which were divested in 2020.
Lease Operating Expenses
Lease operating expenses include expenses such as labor, field office, vehicle, supervision, maintenance, tools and supplies, and workover expenses. Lease operating expenses decreased by approximately $56 million or 85% to approximately $10 million for the nine months ended September 30, 2020, from approximately $66 million for the nine months ended September 30, 2019. The decrease was primarily due to divestitures completed in 2019 and 2020 and lower service costs. Lease operating expenses per Mcfe decreased to $0.70 per Mcfe for the nine months ended September 30, 2020, from $0.92 per Mcfe for the nine months ended September 30, 2019.
Transportation Expenses
Transportation expenses decreased by approximately $49 million or 92% to approximately $4 million for the nine months ended September 30, 2020, from approximately $53 million for the nine months ended September 30, 2019. Transportation expenses per Mcfe decreased to $0.29 per Mcfe for the nine months ended September 30, 2020, from $0.74 per Mcfe for the nine months ended September 30, 2019, primarily driven by changes in the Company’s asset base as a result of divestitures.
Marketing Expenses
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jayhawk plant |
|
$ |
(120 |
) |
|
$ |
33,446 |
|
|
$ |
(33,566 |
) |
|
Other |
|
|
190 |
|
|
|
2,122 |
|
|
|
(1,932 |
) |
|
|
|
$ |
70 |
|
|
$ |
35,568 |
|
|
$ |
(35,498 |
) |
Marketing expenses represent third-party activities associated with company-owned gathering systems, plants and facilities. Marketing expenses decreased by approximately $36 million or 100% to approximately $70,000 for the nine months ended September 30, 2020, from approximately $36 million for the nine months ended September 30, 2019. The decrease was primarily due to the Hugoton Basin Assets Sale, which included sale of the Jayhawk plant and a credit to expense from receipt of an electric co-op refund during the nine months ended September 30, 2020.
Taxes, Other Than Income Taxes
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance taxes |
|
$ |
1,598 |
|
|
$ |
6,120 |
|
|
$ |
(4,522 |
) |
|
Ad valorem taxes |
|
|
151 |
|
|
|
9,962 |
|
|
|
(9,811 |
) |
|
Other taxes |
|
|
393 |
|
|
|
(4,098 |
) |
|
|
4,491 |
|
|
|
|
$ |
2,142 |
|
|
$ |
11,984 |
|
|
$ |
(9,842 |
) |
46
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Severance taxes, which are a function of revenues generated from production, decreased primarily due to lower production volumes due to divestitures completed in 2019 and 2020. Ad valorem taxes, which are based on the value of reserves and production equipment and vary by location, decreased primarily due to divestitures completed in 2019 and 2020. Other taxes include a sales tax refund of approximately $4 million during the nine months ended September 30, 2019.
Field Level Cash Flow
Field level cash flow decreased by approximately $71 million or 79% to approximately $19 million for the nine months ended September 30, 2020, from approximately $90 million for the nine months ended September 30, 2019. The decrease was primarily due to divestitures completed in 2019 and 2020 and lower commodity prices.
Blue Mountain Reporting Segment
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing revenues |
|
$ |
82,029 |
|
|
$ |
119,705 |
|
|
$ |
(37,676 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketing expenses |
|
|
58,361 |
|
|
|
97,320 |
|
|
|
(38,959 |
) |
|
Taxes, other than income taxes |
|
|
1,294 |
|
|
|
2,026 |
|
|
|
(732 |
) |
|
Total direct operating expenses |
|
|
59,655 |
|
|
|
99,346 |
|
|
|
(39,691 |
) |
|
Field level cash flow (1) |
|
$ |
22,374 |
|
|
$ |
20,359 |
|
|
$ |
2,015 |
|
|
(1) |
Refer to Note 17 for a reconciliation of field level cash flow to loss before income taxes. |
Marketing Revenues
Marketing revenues decreased by approximately $38 million or 31% to approximately $82 million for the nine months ended September 30, 2020, from approximately $120 million for the nine months ended September 30, 2019. The decrease was primarily due to lower commodity prices, lower volumes, production curtailments and contract disputes during 2020, partially offset by revenues from the water service business beginning in the second quarter of 2019. Average daily throughput volumes decreased to approximately 107 MMcf/d for the nine months ended September 30, 2020, from 117 MMcf/d for the nine months ended September 30, 2019.
Marketing Expenses
Marketing expenses decreased by approximately $39 million or 40% to approximately $58 million for the nine months ended September 30, 2020, from approximately $97 million for the nine months ended September 30, 2019. The decrease was primarily due to lower commodity prices during 2020, partially offset by expenses related to the water services business and higher marketing expenses due to discounts on gathering fees offered to producers during 2020.
Field Level Cash Flow
Field level cash flow increased by approximately $2 million or 10% to approximately $22 million for the nine months ended September 30, 2020, from approximately $20 million for the nine months ended September 30, 2019, primarily due to lower expenses.
Indirect Income and Expenses
Gains on Commodity Derivatives
Gains on commodity derivatives were approximately $4 million and $13 million for the nine months ended September 30, 2020, and the nine months ended September 30, 2019, respectively. Gains on commodity derivatives were primarily due to changes in fair value of the derivative contracts. The fair value on unsettled derivative contracts changes as future commodity price expectations change compared to the contract prices on the derivatives. If the expected future commodity prices increase compared to the contract prices on the derivatives, losses are recognized; and if the expected future commodity prices decrease compared to the contract prices on the derivatives, gains are recognized. During the nine months ended September 30, 2020, the Company unwound all of its natural gas fixed price swaps, oil fixed price swaps, and
47
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Panhandle Eastern Pipeline basis swaps for 2020 and 2021, for a cost of approximately $356,000. As of September 30, 2020, the Company had no derivative positions.
General and Administrative Expenses
General and administrative expenses are costs not directly associated with field operations and reflect the costs of employees including executive officers, related benefits, office leases and professional fees. General and administrative expenses decreased by approximately $11 million or 23% to approximately $38 million for the nine months ended September 30, 2020, from approximately $49 million for the nine months ended September 30, 2019. The decrease was primarily due to lower share-based compensation expenses, which were a negative expense of approximately $3 million based on the fair value of outstanding awards, and lower salaries and benefits related expenses due to lower headcount, partially offset by increased severance expenses. Severance expenses were approximately $15 million for the nine months ended September 30, 2020, compared to $2 million for the nine months ended September 30, 2019. General and administrative expenses per Mcfe increased to $2.61 per Mcfe for the nine months ended September 30, 2020, from $0.69 per Mcfe for the nine months ended September 30, 2019, due to lower production volumes associated with divestitures and increased severance expenses.
Exploration Costs
Exploration costs were approximately $413,000 for the nine months ended September 30, 2020, compared to $4 million for the nine months ended September 30, 2019.
Depreciation, Depletion and Amortization
Depreciation, depletion and amortization decreased by approximately $46 million or 71% to approximately $19 million for the nine months ended September 30, 2020, from approximately $65 million for the nine months ended September 30, 2019. Depreciation, depletion and amortization per Mcfe increased to $1.31 per Mcfe for the nine months ended September 30, 2020, from $0.90 per Mcfe for the nine months ended September 30, 2019.
Impairment of Assets Held for Sale and Long-Lived Assets
During the nine months ended September 30, 2020, the Company recorded impairment charges of approximately $341 million. Approximately $237 million was recorded primarily to reduce the carrying value of Blue Mountain Midstream’s assets to fair value. In addition, approximately $88 million related to proved and unproved oil and natural gas properties located in Oklahoma, approximately $12 million to divested properties located in North Louisiana, and approximately $4 million to divested properties located in East Texas. The impairment charges recorded in the three months ended September 30, 2020, were primarily triggered by the Company’s exit from the midstream business, with the fair value being predominantly driven by the contract price of the Blue Mountain Divestiture. The impairment charges recorded in the first quarter and second quarter of 2020 were primarily due to declines in commodity prices and declines in expected future volumes. During the nine months ended September 30, 2019, the Company recorded noncash impairment charges of approximately $113 million. Of this, approximately $95 million related to divested oil and natural gas properties located in the Hugoton Basin and approximately $18 million to divested properties located in Michigan. The impairment charges were primarily due to a decline in commodity prices. See Note 1 for additional information about impairment and Note 3 for information about divestitures.
Gains (Losses) on Sale of Assets and Other, Net
During the nine months ended September 30, 2020, the Company recorded a net loss of approximately $1 million, including bad debt expense of approximately $2 million, a net loss of approximately $1 million on the sale of North Louisiana Assets, net losses from other divestitures and the disposal of furniture and equipment, partially offset by a net gain of approximately $1 million on the Drunkards Wash Asset Sale. During the nine months ended September 30, 2019, the Company recorded a net gain of approximately $25 million, related to net gains from divestitures of approximately $37 million, partially offset by net losses, primarily related to divestiture activity. See Note 3 for information about divestitures.
48
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Other Income and (Expenses)
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2019 |
|
|
Variance |
|
|||
|
|
|
(in thousands) |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of amounts capitalized |
|
$ |
(2,368 |
) |
|
$ |
(5,403 |
) |
|
$ |
3,035 |
|
|
Other, net |
|
|
(1,317 |
) |
|
|
(708 |
) |
|
|
(609 |
) |
|
|
|
$ |
(3,685 |
) |
|
$ |
(6,111 |
) |
|
$ |
2,426 |
|
Interest expense decreased primarily due to lower outstanding debt during the nine months ended September 30, 2020, compared to the same period of the prior year. For the nine months ended September 30, 2020, “other, net” is primarily related to the write-off of a portion of unamortized deferred financing fees of approximately $468,000 and commitment fees for the undrawn portion of the Credit Facilities, partially offset by interest income and rental income. For the nine months ended September 30, 2019, “other, net” is primarily related to write off of a portion of unamortized deferred financing fees of approximately $700,000 and commitment fees for the undrawn portion of the Credit Facilities, partially offset by interest and rental income. See “Debt” under “Liquidity and Capital Resources” below for additional details.
Reorganization Items, Net
Reorganization items represent costs directly associated with the Chapter 11 proceedings since the petition date. During the nine months ended September 30, 2020, and September 30, 2019, reorganization items were approximately $704,000 and $756,000, respectively, primarily related to legal and other professional fees.
Income Tax Expense
The Company recognized no income tax expense for the nine months ended September 30, 2020, because of a full valuation allowance recorded in the third quarter of 2019, compared to income tax expense of approximately $129 million for the nine months ended September 30, 2019. During the third quarter of 2019, and for the first time since Riviera’s inception, the Company’s earnings were a cumulative loss, primarily due to losses generated during 2019. Based on the cumulative loss and projections of future taxable loss for the periods in which deferred tax assets are deductible, the Company recorded a full valuation allowance against all of its deferred tax assets.
Net Loss
A net loss of approximately $359 million was incurred for the nine months ended September 30, 2020, compared to approximately $220 million for the nine months ended September 30, 2019. See discussion above for explanations of variances.
Liquidity and Capital Resources
The Company’s sources of cash have primarily consisted of proceeds from divestitures of oil and natural gas properties, net cash provided by operating activities and borrowings under the Blue Mountain Credit Facility. As a result of divesting certain oil and natural gas properties, selling an office building, and inclusive of deposits from fourth quarter divestitures, during the nine months ended September 30, 2020, the Company received approximately $101 million in net cash proceeds. The Company has used its cash to fund capital expenditures, for distributions to shareholders, and for repurchases of Riviera common stock. See Note 18 for information about the Company’s Plan of Liquidation.
49
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Statements of Cash Flows
The following is a comparative cash flow summary:
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Net cash: |
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities |
|
$ |
(5,086 |
) |
|
$ |
87,843 |
|
|
Net cash provided by investing activities |
|
|
69,143 |
|
|
|
24,431 |
|
|
Net cash used in financing activities |
|
|
(93,791 |
) |
|
|
(33,133 |
) |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
$ |
(29,734 |
) |
|
$ |
79,141 |
|
Operating Activities
Cash used in operating activities was approximately $5 million for the nine months ended September 30, 2020, compared to cash provided of approximately $88 million for the nine months ended September 30, 2019.
Investing Activities
The following provides a comparative summary of cash flow from investing activities:
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
Cash flow from investing activities: |
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
(31,534 |
) |
|
$ |
(150,096 |
) |
|
Acquisition of property, plant and equipment |
|
|
— |
|
|
|
(3,380 |
) |
|
Proceeds from sale of properties and equipment and other |
|
|
100,677 |
|
|
|
177,907 |
|
|
Net cash provided by investing activities |
|
$ |
69,143 |
|
|
$ |
24,431 |
|
The primary source of cash provided by investing activities was proceeds from the sale of properties, equipment and other. The primary uses of cash from investing activities was plant and pipeline expenditures by Blue Mountain Midstream and development of oil and natural gas properties. The nine months ended September 30, 2019, includes expenditures for construction of Blue Mountain Midstream’s cryogenic natural gas processing facility, water facilities and related compression and gathering systems. Capital expenditures decreased primarily due to lower spending on plant and pipeline construction related to Blue Mountain Midstream. The Company made no material acquisitions of properties during the nine months ended September 30, 2020, or September 30, 2019.
Proceeds from sale of properties, equipment and other for the nine months ended September 30, 2020, include cash proceeds received of approximately $4 million from the Drunkards Wash Assets Sale (excluding a deposit of approximately $450,000 received in 2019), approximately $15 million from the Overton Assets Sale (excluding a deposit of approximately $2 million received in 2019), approximately $25 million from the Personville Assets Sale (excluding a deposit of approximately $3 million received in 2019), approximately $392,000 from the sale of interest in properties located in East Texas, approximately $21 million from the sale of an office building in Oklahoma and approximately $23 million from the sale of interest in properties located in North Louisiana. See Note 3 for additional details about divestitures.
See below for details regarding accrued and paid capital expenditures for the periods presented:
|
|
|
Nine Months Ended September 30, |
|
|||||
|
|
|
2020 |
|
|
2019 |
|
||
|
|
|
(in thousands) |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas |
|
$ |
2,081 |
|
|
$ |
59,503 |
|
|
Plant and pipeline |
|
|
16,725 |
|
|
|
78,480 |
|
|
Other |
|
|
370 |
|
|
|
2,647 |
|
|
Capital expenditures, excluding acquisitions |
|
$ |
19,176 |
|
|
$ |
140,630 |
|
50
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
The decrease in capital expenditures was primarily due to lower oil and natural gas development activities and lower plant and pipeline construction activities associated with Blue Mountain Midstream in response to declines in commodity prices and expected future volumes.
Financing Activities
Cash used in financing activities was approximately $94 million for the nine months ended September 30, 2020, compared to approximately $33 million for the nine months ended September 30, 2019. During the nine months ended September 30, 2020, the primary use of cash was distributions to shareholders of approximately $101 million. During the nine months ended September 30, 2019, the primary uses of cash were repurchases of shares and repayments under the Credit Facilities and Mayzure Notes, partially offset by borrowings under the Mayzure Notes and the Blue Mountain Credit Facility.
The following provides a comparative summary of proceeds from borrowings and repayments of debt:
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2020 |
|
|
2019 |
|
||
|
|
(in thousands) |
|
|||||
|
Proceeds from borrowings: |
|
|
|
|
|
|
|
|
Mayzure Notes |
$ |
— |
|
|
$ |
81,925 |
|
|
Blue Mountain Credit Facility |
|
11,200 |
|
|
|
60,900 |
|
|
|
$ |
11,200 |
|
|
$ |
142,825 |
|
|
Repayments of debt: |
|
|
|
|
|
|
|
|
Riviera Credit Facility |
$ |
— |
|
|
$ |
(20,000 |
) |
|
Blue Mountain Credit Facility |
|
(1,000 |
) |
|
|
(4,300 |
) |
|
Mayzure Notes |
|
— |
|
|
|
(5,315 |
) |
|
|
$ |
(1,000 |
) |
|
$ |
(29,615 |
) |
Debt
On October 8, 2020, the Company repaid approximately $80 million, representing total borrowings under the Blue Mountain Credit Facility, with a portion of the net proceeds from the Blue Mountain Divestiture. Subsequently, the Blue Mountain Credit Facility was terminated effective October 8, 2020. On September 2, 2020, the Company elected to reduce the aggregate maximum credit amount under the Riviera Credit Facility from $30 million to $7 million. On October 27, 2020, the Company entered into a Sixth Amendment to the Riviera Credit Facility, pursuant to which, the borrowing base was reduced to $540,000, the lenders obligations to make any loans were eliminated, and the Company’s ability to make any borrowing requests was removed. In addition, the Company is required to maintain a cash deposit of at least $540,000 with a lender bank related to letter of credit commitments. The Company anticipates the Riviera Credit Facility will be terminated in the fourth quarter of 2020. See Note 3 for information about divestitures and Note 18 for information about the Company’s Plan of Liquidation. For additional information related to the Company’s debt, see Note 6.
Share Repurchase Program
During the nine months ended September 30, 2020, the Company repurchased an aggregate of 282,742 shares of common stock at an average price of $7.31 per share for a total cost of approximately $2 million.
Cash Distributions
On March 9, 2020, the Board declared a cash distribution of $1.00 per share. A cash distribution totaling approximately $58 million was paid on April 22, 2020, to shareholders of record as of the close of business on April 8, 2020. On April 23, 2020, the Board declared a cash distribution of $0.75 per share. The distribution totaling approximately $43 million was paid on May 11, 2020, to shareholders of record as of the close of business on May 7, 2020. On October 12, 2020, the Board declared a cash distribution of $1.35 per share. A cash distribution totaling approximately $78 million was paid on October 28, 2020, to shareholders of record as of the close of business on October 23, 2020.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
Contingencies
See Part II. Item 1. “Legal Proceedings” for information regarding legal proceedings that the Company is party to and any contingencies related to these legal proceedings.
Off-Balance Sheet Arrangements
The Company enters into certain off-balance sheet arrangements and transactions, including short-term operating lease arrangements and undrawn letters of credit. In addition, the Company enters into other contractual agreements in the normal course of business for processing and transportation as well as for other oil and natural gas activities. Other than the items discussed above, there are no other arrangements, transactions or other relationships with unconsolidated entities or other persons that are reasonably likely to materially affect the Company’s liquidity or capital resource positions.
Commitments and Contractual Obligations
The Company has long-term debt, asset retirement obligations, operating leases and commodity derivative liabilities that were summarized in the table of commitments and contractual obligations in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019. With the exception of borrowings, repayments and changes to the Company’s debt obligations due to the Company’s Plan of Liquidation, there have been no other significant changes to the Company’s obligations since December 31, 2019. For additional information related to the Company’s debt, see Note 6. For information about the Company’s Plan of Liquidation, see Note 18.
Critical Accounting Policies and Estimates
The discussion and analysis of the Company’s financial condition and results of operations is based on the condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. 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 that are believed to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. Actual results may differ from these estimates and assumptions used in the preparation of the financial statements. Based on the approval of the Plan of Liquidation in October 2020, the Company plans to adopt the liquidation basis of accounting in the fourth quarter of 2020. See Note 18.
Recently Issued Accounting Standards
For a discussion of recently issued accounting standards, see Note 1.
Cautionary Statement Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond the Company’s control. These statements may include discussions about the Company’s:
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business strategy; |
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acquisition and disposition strategy; |
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financial strategy; |
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Plan of Liquidation, winding up and dissolution, including any amounts the Company distributes to shareholders as liquidating distributions, if any, pursuant to the Plan of Liquidation; |
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ability to comply with the covenants under the Credit Facilities; |
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effects of legal proceedings; |
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effects of public health crises, such as pandemics (including COVID-19) and epidemics, and any related government policies and actions; |
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the scope, duration and severity of the COVID-19 pandemic, including any recurrence, as well as the timing of the economic recovery following the pandemic; |
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations – Continued
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drilling locations; |
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oil, natural gas and NGL reserves; |
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realized oil, natural gas and NGL prices; |
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production volumes; |
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midstream asset construction; |
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key relationships with third parties relating to its midstream business; |
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commitments under its midstream operations; |
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capital expenditures; |
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economic and competitive advantages; |
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credit and capital market conditions; |
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regulatory changes; |
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lease operating expenses, general and administrative expenses and development costs; |
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future operating results; |
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plans, objectives, expectations and intentions; and |
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taxes. |
All of these types of statements, other than statements of historical fact included in this Quarterly Report on Form 10-Q, are forward-looking statements. These forward-looking statements may be found in Item 2. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “should,” “expect,” “plan,” “project,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” the negative of such terms or other comparable terminology.
The forward-looking statements contained in this Quarterly Report on Form 10-Q are largely based on Company expectations, which reflect estimates and assumptions made by Company management. These estimates and assumptions reflect management’s best judgment based on currently known market conditions and other factors. Although the Company believes such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties beyond its control. In addition, management’s assumptions may prove to be inaccurate. The Company cautions that the forward-looking statements contained in this Quarterly Report on Form 10-Q are not guarantees of future performance, and it cannot assure any reader that such statements will be realized or the events will occur. Actual results may differ materially from those anticipated or implied in forward-looking statements due to factors set forth under the caption “Risk Factors” in this Quarterly Report on Form 10‑Q and in the Annual Report on Form 10‑K for the year ended December 31, 2019, and elsewhere in the Annual Report. The forward-looking statements speak only as of the date made and, other than as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
The Company’s primary market risk is attributable to fluctuations in commodity prices. This risk can affect the Company’s business, financial condition, operating results and cash flows. See below for quantitative and qualitative information about this risk.
The following should be read in conjunction with the financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019. The reference to a “Note” herein refers to the accompanying Notes to Condensed Consolidated Financial Statements contained in Item 1. “Financial Statements.”
Commodity Price Risk
During the three months ended September 30, 2020, the Company unwound all of its natural gas fixed price swaps, oil fixed price swaps, and PEPL basis swaps for 2020 and 2021, for a cost of approximately $356,000. As of September 30, 2020, the Company had no derivative positions.
Historically, the Company has hedged 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 does not enter into derivative contracts for trading purposes. The appropriate level of production to be hedged is an ongoing consideration based on a variety of factors, including among other things, current and future expected commodity market prices, the Company’s
53
overall risk profile, including leverage and size and scale considerations, as well as any requirements for or restrictions on levels of hedging contained in any credit facility or other debt instrument applicable at the time. In addition, when commodity prices are depressed and forward commodity price curves are flat or in backwardation, the Company may determine that the benefit of hedging its anticipated production at these levels is outweighed by its resultant inability to obtain higher revenues for its production if commodity prices recover during the duration of the contracts. As a result, the appropriate percentage of production volumes to be hedged may change over time.
At December 31, 2019, the fair value of fixed price swaps was a net asset of approximately $6 million. A 10% increase in the NYMEX WTI oil and NYMEX Henry Hub natural gas prices above the December 31, 2019, prices would result in a net asset of approximately $3 million, which represents a decrease in the fair value of approximately $3 million; conversely, a 10% decrease in the NYMEX oil and Henry Hub natural gas prices below the December 31, 2019, prices would result in a net asset of approximately $10 million, which represents an increase in the fair value of approximately $4 million.
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.
Interest Rate Risk
At September 30, 2020, the Company had debt outstanding under the Credit Facilities of $80 million in the aggregate which debt incurred interest at floating rates. A 1% increase in the respective market rates would result in an estimated $800,000 increase in annual interest expense. At December 31, 2019, the Company had debt outstanding under the Credit Facilities of $69.8 million in the aggregate which debt incurred interest at floating rates. A 1% increase in the respective market rates would result in an estimated $698,000 increase in annual interest expense.
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Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the U.S. Securities and Exchange Commission, and that such information is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, and the Company’s Audit Committee of the Board of Directors, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
The Company carried out an evaluation under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of its disclosure controls and procedures as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2020.
Changes in the Company’s Internal Control Over Financial Reporting
The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal controls were designed to provide reasonable assurance as to the reliability of its financial reporting and the preparation and presentation of the condensed consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the U.S.
Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements. Projections of any evaluation of the effectiveness to future periods are subject to the risk that controls may become
54
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2020, that materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.
55
Part II – Other Information
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Item 1. |
Legal Proceedings |
On May 11, 2016, Linn Energy, LLC, certain of its direct and indirect subsidiaries, and LinnCo, LLC (collectively, the “LINN Debtors”) and Berry Petroleum Company, LLC (“Berry” and collectively with the LINN Debtors, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Debtors’ Chapter 11 cases were administered jointly under the caption In re Linn Energy, LLC, et al., Case No. 16‑60040. On January 27, 2017, the Bankruptcy Court entered an order approving and confirming the plan (the “Plan”) of reorganization of the Debtors (the “Confirmation Order”). Consummation of the Plan was subject to certain conditions set forth in the Plan. On February 28, 2017, all of the conditions were satisfied or waived and the Plan became effective and was implemented in accordance with its terms. On September 27, 2018, the Bankruptcy Court closed the LINN Debtors’ Chapter 11 cases, but retained jurisdiction as provided in the Confirmation Order.
The commencement of the Chapter 11 proceedings automatically stayed certain actions against the Company, including actions to collect prepetition liabilities or to exercise control over the property of the Company’s bankruptcy estates. However, the Company is, and will continue to be until the final resolution of all claims, subject to certain contested matters and adversary proceedings stemming from the Chapter 11 proceedings, which are not affected by the closure of the LINN Debtors’ Chapter 11 cases.
The Company is not currently a party to any litigation or pending claims that it believes would have a material adverse effect on its overall business, financial position, results of operations or liquidity; however, cash flow could be significantly impacted in the reporting periods in which such matters are resolved.
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Item 1A. |
Risk Factors |
The Company’s business has many risks and there are factors that could materially adversely affect the Company’s business, financial condition, operating results or liquidity and the trading price of the Company’s shares. Except with respect to the risk factor set forth below, there have been no material changes to the risk factors disclosed in Part I, Item 1A. in the Company’s Annual Report on Form 10‑K for the year ended December 31, 2019. This information should be considered carefully, together with other information in this report and other reports and materials the Company files with the U.S. Securities and Exchange Commission (“SEC”).
Risks Related to Liquidation, Winding Up and Dissolution
The Company cannot provide assurance that liquidating distributions will be made to shareholders or, if made, the exact amount or timing of distributions.
The Company’s dissolution, winding up and liquidation process will be subject to uncertainties. It is possible that there will be no liquidating distribution made to shareholders. The amount and timing of any liquidating distribution to shareholders will depend on the following factors, among others:
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Whether any potential claimants against the Company and currently unknown to the Company could present claims relating to pre-dissolution operations that the Company may ultimately have to satisfy; |
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The costs that may be incurred to defend new and existing claims, including possible claims relating to the Company’s dissolution and possible tax audits; |
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The amounts that will be needed to pay for general and administrative expenses prior to dissolution and the amounts that will be needed to pay for expenses during the post-dissolution survival period; |
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The costs attendant on the Company as a publicly held reporting company under SEC regulations, including legal and auditing fees, especially if the Company is unable to obtain relief from requirements to continue preparing and filing annual, quarterly and current reports; |
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The amount of funds that the Company will be required to reserve to provide for contingent liabilities, and how long it may take to finally determine whether and how much of those liabilities may have to be paid; and |
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How long it will take to liquidate the Company’s remaining non-cash assets. |
56
Item 1A.Risk Factors - Continued
The Company will continue to incur expenses that will reduce any amounts available for distribution to shareholders.
Claims, liabilities and expenses from operations, such as operating costs, salaries, directors’ and officers’ insurance, payroll and local taxes, legal, accounting and consulting fees will continue to be incurred by the Company as it winds down. The Company cannot estimate what the aggregate of these expenses will be, but they will reduce the amount of funds available for distribution to shareholders.
Shareholders could be held liable for corporate obligations, up to the amount actually distributed to them in connection with the Company’s dissolution.
The Company will continue to exist for three years after its dissolution, or for such longer period as the Delaware Court of Chancery may direct, for the purpose of continuing to close the business, dispose of non-cash assets, resolve outstanding litigation, discharge liabilities and distribute any remaining assets to shareholders. Under the Delaware General Corporate Law, if the amount reserved to satisfy obligations proves insufficient to satisfy all of the expenses and liabilities of the Company, a shareholder who receives a liquidating distribution could be held liable for payment to the Company’s creditors of the shareholder’s pro rata share of amounts owed to creditors in excess of the reserves, up to but not exceeding the amount actually distributed to the shareholder in connection with dissolution. This means that a shareholder could be required to return all liquidating distributions made to the shareholder and receive nothing from the Company in connection with its dissolution and liquidation. If a shareholder has paid taxes on amounts previously received, a repayment of all or a portion of those taxes could result in a shareholder incurring a net tax cost if the shareholder’s repayment of an amount previously distributed does not cause a commensurate reduction in taxes payable. There is no guaranty that the reserves established by the Company to satisfy its obligations will be adequate to cover all of its obligations.
The Company’s common stock will cease to be traded at the time of the dissolution.
The Company will close its stock transfer books after its dissolution becomes effective. As a result, from and after that time, the Company will not recognize any transfer of its common stock, other than transfers by operation of law as to which the Company has received adequate written notice.
The Company may cease to file annual, quarterly and current reports with the SEC.
Because of the costs associated with preparing and filing annual, quarterly and current reports under applicable securities laws, the Company has sought relief from all or some of its reporting obligations. There can be no assurances that the Company will be able to obtain this kind of relief from the SEC. However, if the Company receives relief, certain information about the Company (including audited financial information) currently reported to the public would no longer be available.
The officers of the Company may have interests in the dissolution that are different from those of its shareholders in general.
In accordance with the terms of pre-existing agreements and the Company’s severance plan, the Company’s executive officers may receive certain benefits as a result of the termination of employment due to the Company’s dissolution.
Shareholders may not be able to recognize a loss for U.S. federal income tax purposes until they receive a final distribution from the Company.
As a result of the Company’s dissolution and liquidation, for U.S. federal income tax purposes, shareholders generally will recognize gain or loss, on a per share basis, equal to the difference between (1) the sum of the amount of cash and the fair market value (at the time of the distribution) of property, if any, distributed to them with respect to each share of common stock and (2) their tax basis in each share of common stock. A liquidating distribution pursuant to the Plan of Liquidation may occur at various times and in more than one tax year. Any loss generally will be recognized by a shareholder only in the tax year in which the shareholder receives the final liquidating distribution, and then only if the aggregate value of all liquidating distributions with respect to a share of the Company’s common stock is less than the shareholder’s tax basis for that share. Shareholders are urged to consult with their own tax advisors as to the specific tax consequences of the Company’s dissolution, winding up and liquidation pursuant to the Plan of Liquidation.
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Item 1A.Risk Factors - Continued
The tax treatment of any liquidating distribution may vary from shareholder to shareholder.
The Company has not requested a ruling from the U.S. Internal Revenue Service with respect to the anticipated tax consequences of its dissolution, winding up and liquidation and will not seek an opinion of counsel with respect to the anticipated tax consequences of any liquidating distributions. If any of the anticipated tax consequences prove to be incorrect, the result could be increased taxation at the corporate or shareholder level, thus reducing the benefit to shareholders and the Company from dissolution and liquidation. Tax considerations applicable to particular shareholders may vary with and be contingent on the shareholder’s individual circumstances. Shareholders should consult their own tax advisor for tax advice.
Risks Related to COVID-19 and Related Economic Repercussions
The COVID-19 pandemic and related economic repercussions have had, and are expected to continue to have, a significant impact on the Company’s business, and depending on the duration of the pandemic and its effect on the oil and gas industry, could have a material adverse effect on the Company’s business, liquidity, consolidated results of operations and consolidated financial condition.
The COVID-19 pandemic and related economic repercussions have created significant volatility, uncertainty, and turmoil in the oil and gas industry. To date, the COVID-19 outbreak has surfaced in all regions around the world and has severely impacted the global economy, disrupted consumer spending and global supply chains, and created significant volatility and disruption of financial markets, all of which are expected to continue. These events have directly affected the Company’s business and have exacerbated the potential negative impact from many of the risks described in the Company’s Form 10-K for the year ended December 31, 2019, including those relating to the Company’s customers’ capital spending and trends in oil and natural gas prices. For example, demand for the Company’s products and services is declining as the Company’s customers continue to revise their capital budgets downwards and swiftly adjust their operations in response to lower commodity prices. In addition, the Company is facing logistical challenges including border closures, travel restrictions and an inability to commute to certain facilities and job sites, as the Company provides services and products to its customers. The Company is also experiencing inefficiencies surrounding stay-at-home orders and remote work arrangements.
In the midst of the ongoing COVID-19 pandemic, OPEC+ was initially unable to reach an agreement to continue to impose limits on the production of crude oil. The convergence of these events created the unprecedented dual impact of a global oil demand decline coupled with the risk of a substantial increase in supply. Oil demand has significantly deteriorated as a result of the virus outbreak and corresponding preventative measures taken around the world to mitigate the spread of the virus. At the same time, aggressive increases in production of oil by Saudi Arabia and Russia created a significant surplus in the supply of oil. WTI oil spot prices decreased from a high of $63 per barrel in early January 2020 to a low of $14 per barrel in late March 2020, a level which had not been experienced since March 1999, with physical markets showing signs of distress as spot prices have been negatively impacted by the lack of available storage capacity. While OPEC+ agreed in April to cut production, downward pressure on commodity prices has continued and could continue for the foreseeable future.
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
Issuer Purchases of Equity Securities
On July 18, 2019, the Board of Directors of the Company authorized the repurchase of up to $150 million of the Company’s outstanding shares of common stock. Purchases were authorized to be made from time to time in negotiated purchases or in the open market, including through Rule 10b5-1 prearranged stock trading plans designed to facilitate the repurchase of the Company’s shares during times it would not otherwise be in the market due to self-imposed trading blackout periods or possible possession of material nonpublic information. The timing and amounts of any such repurchases of shares were subject to market conditions and certain other factors, and in accordance with applicable securities laws and other legal requirements, including restrictions contained in the Company’s then current credit facility. The repurchase plan did not obligate the Company to acquire any specific number of shares and could be discontinued at any time.
There were no repurchases of shares of Riviera common stock by the Company during the third quarter of 2020.
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Item 3. |
Defaults Upon Senior Securities |
None
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Item 4. |
Mine Safety Disclosures |
Not applicable
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Item 5. |
Other Information |
None
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Item 6.Exhibits
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Exhibit Number |
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Description |
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2.1 |
— |
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10.1* |
— |
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31.1* |
— |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer |
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31.2* |
— |
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Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer |
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32.1* |
— |
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32.2* |
— |
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101.INS* |
— |
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Inline XBRL Instance Document |
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101.SCH* |
— |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL* |
— |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF* |
— |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB* |
— |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE* |
— |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
— |
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
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* |
Filed herewith. |
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SIGNATURES
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.
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RIVIERA RESOURCES, INC. |
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(Registrant) |
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Date: November 2, 2020 |
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/s/ Darren R. Schluter |
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Darren R. Schluter |
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Executive Vice President and Chief Financial Officer |
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(Duly Authorized Officer and Principal Accounting Officer) |
61